Catching up way behind – distrust in free trade

This is the fourth of a series of articles by Lucas I Nantanga in which he argues about the protection of Africa’s primary industries.

This section shows how the now rich countries feared and mistrusted free trade. England in 1400s set the first example of ‘catching up way behind’ when it emulated the ‘advanced city-states’ of Venice, Florence in Italy and the Dutch Republic. The second country to take the same route as Britain was the United States of America through the work of Alexander Hamilton in 1790s.  Hamilton argued that ‘don’t do as the English tell you to do, do what the English did’. Hamilton encouraged development of division of labour where specialisations in manufacturing was terribly sought. Poaching skilled workers from abroad was the obvious option for the United States of America in her first 10-50 years of independence in 1776. Hamilton suggested that the US should promote emigrants from foreign countries in order to make contribution to the manufacturing agenda of the newly independent nation. Hamilton said:

‘If it be true then, that it is the interest of the United States to open every possible avenue to emigration from abroad, it affords a weighty argument for the encouragement of manufactures which for the reasons just assigned will have the strongest tendency to multiply the inducements to it.’ (Alexander Hamilton’s Report on Manufactures, 1790/91: par. No.4)

I have seen many foreign companies in our African countries. They are not assigned to any national development agendas. Foreign companies in Africa come with their different agendas.  Africa needs to imitate what Hamilton did for the US. Hamilton (1791) convinced his countrymen that emigrated to the US that they should be assigned to specific tasks so that they give the strongest tendency to multiply the inducements of manufacturing and industralisation capacity in the country (Alexander Hamilton Report 1790).

In the same vein, Africa is reminded to remember and chorally need to chant: ‘don’t do as the Americans tell you to do, do as the American did’. Africa is reminded to remember that ‘the USA as a young republic had its comparative advantage in the cotton-and-slave business (slave trade has bad memories in Africa), and the country escaped diminishing returns (specialisation in raw material production) through huge efforts in manufacturing and high tariffs’.

This article attempts to remind Africa to remember and imitate. Other countries such as Germany and France imitated England and the US. Japan, after the adoption of Meiji Restoration in the 1860s, echoed the same sentiments expressed by England and the US to distrust in free trade doctrines. What mattered most to England and the US in particular was the period of protecting their infant industries.

This is the reason why England and the US took a quite long period of time in the catching-up periods. They concentrated on what Reinert (1994) calls ‘an activity-specific’ and that is to concentrate on increasing returns (manufacturing) rather than specialising in ‘diminishing returns activities as most of the African countries currently do. All rich countries waited until each nation was firmly protected and established its industries, then free trade.

Specialisation in raw materials

‘Raw material production alone cannot, in absence of manufacturing, lead to a national wealth, specialisation in the production of raw materials is a bad trade.’ (Reiner, 1998)

Most countries in Sub-Saharan Africa were forced to liberalize their trade, following the SAPs in the early- to mid-1980s. The results have been very disappointing, to say the least (Chang, 2005).

Africa is known as the richest continent in mineral resources and other resources. But yet it is equally known as the poorest continent on earth. What is wrong with Africa?  Why does Africa not heed and learn lessons from the history of economic thought?  What is more pathetic to Africa is the fact that Africa is further continuing being a supplier of raw materials to rich countries and to the People’s Republic of China. Africa is driven by very strong raw material trade specialisation. For how long is this process continuing? Is this not a serious case? Africa requires to listen very carefully to what economic history tells her what to do and what not to do. History reminds Africa to remember that as from 1485 to roughly 1945, exporting manufactured goods and importing raw materials were considered good business. Then importing finished goods and exporting raw materials were considered bad business. From 1945 onwards the policy of supplying raw materials increased in Africa due to many factors such as the influences of the Morgenthau Plan of 1947 and Structural Adjustment Programmes of the 1980s/1990s. Both programmes were designed to de-industrialise Africa and make Africa a specialist in exporting raw materials. This is the case today in Africa.

Africa, listen to Robert Walpole, the first prime minster of England in 1721 through the King George l (1714-1727) ’s address to parliament. He said: ‘it is evident that nothing so much contributes to promote the public well-being as the exportation of manufacturing goods and the importation of raw material (Reinert, 2003). This is very important, take heed of what he did: (i) lowered all import duties on raw materials used for manufacturing purposes (ii) dropped duties on raw materials (iii) export duties on manufacturing goods (iii) abolished any duties on imported foreign manufactured goods were raised (Reinert, 1994). Charles King in his famous book (1721) The British Merchant or Commerce Persevered supported Walpole and argued that ’exporting raw materials was ‘bad’ whereas exporting manufactured products was ‘good trade’.

History gives Africa powerful examples. Antonio Serra (1613) reminds Africa to remember the case of Venice and Naples, both city-states during 1400s in Italy. Naples city-state had been specialised in ‘diminishing returns’ (supplying raw materials). Venice had been specialised in ‘increasing returns’ (manufacturing). In contrast Naples was thrown into a ‘vicious circle of falling income and poverty while Venice specialised in manufacturing and thus was specialised in a ‘virtuous circle of increasing sales’, increasing productivities and increasing welfare. Africa listen to Spain in 1550s when it was in the same economic predicament where Africa finds itself in today.

Spain which, as we have seen, had been de-industrialised by the flow of gold and silver it extracted from new world, had ….and again became a victim of de-industrialised and increasing poverty among the general population…) from Reiner 2007: 167).

Literature of the economic history reminds us to remember that Antonio Serra (1613) who was the first economist who presented a ‘scientific explanation of how the mechanisms of wealth and poverty evolved around vortices moving economies up or down.’ Are these not powerful lessons for Africa to learn? This paper strongly argues that it would like to see African countries transform themselves from materials experts to African centre of the high- tech industries. The ladder is kicked away is the next discussion.

1. Washington Institutions’ conditionalities: Trade liberalisation ‘Kicking Away the Ladder’

“It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him” (Friedrich List, 1841).

What is kicked away? What is outlawed? These are obvious questions under this theme. These two questions are similar. In simply terms what is kicked away or outlawed is the ladder or economic development policies that were used by rich countries to become rich. In Prof Erick S. Reinert’s words, what is kicked away is the ‘old-century road of increasing-returns activities (manufacturing), the mandatory passage point for all economies that have raised out of poverty through manufacturing.

The mandatory passage point for economic development was based on the following principles; national wealth cannot be created or based on raw material production and; efficient and strong manufacturing/increasing returns sector provides higher standard of living. This road is closed to African and other developing countries by the bad Samaritan countries.

What are the instruments used to close the road? There are numerous instruments used. The following were used: the IMF  which calls inter alia (a) developing countries to liberalise their economies or adopt policies on liberalization; (b) eliminate state direct lending to government institutions such as industries and enterprises (c) coercive advice to accept and adopt free trade policies in accordance with Samuelson’s (1949) policies of ‘factor price-equalisation or Friedman’s (2000) ‘one-size-fits all’ Golden Straitjacket or Margaret Thatcher’s (1980s) ‘There Is No Alternative’ (TINA), but free trade.

The ‘factor price-equalisation, ‘one size fits all’ and the ‘there is no alternative’ are well crafted ideas. These ideas were inherited from David Ricardo’s trade theory of 1770s and early 1820s that argued that ‘the world will be richer if each nation sticks to its comparative ad¬vantage’.

This is a well-designed fallacy for Africa to emulate and imitate. Africa is reminded to remember that all these instruments are designed as ladder ‘kickers’. They are considered as ‘good’ for Africa by the bad Samaritans. Africa you are reminded to remember that developed countries are coercively advising developing countries to adopt a full package of liberalisation in terms of Samuelsons’ or Friedman’s or Thatcher’s global free trade policies.

Further Africa or African countries listen to Friedman’s neoclassical voice: ‘Democracies vote about a government’s policies once every two or four years. But the Electronic Herd votes every minute of every hour of every day. Anytime you want to know, the herd will tell you exactly how you look in a Golden Straitjacket and whether it fits well or not’. It is very easy to get lost in the middle of such powerful and strategically designed utterances summarised by How to do things with words’. Out of confusion created and designed by the bad Samaritans, Africa should listen to the good advice offered by Ha-Joon Chang and Erick S Reinert, for Africa to understand the context of the neoclassical economic orthodoxy better that:-

1. The Washington institutions use an economic theory devoid of categories of economic activities (manufacturing). This is a theory which summarised by the three models: Samuelson’s, Friedman’s and Thatcher’s referred above.

2. The increasingly poverty in Africa and developing nations during 1990s is directly related to the Washington institutions’ conditionalities.

3. With categories in increasing returns (manufacturing) activities (road closed), the depth and quality of understanding economic models which would make poor countries rich, is lost or deliberately outlawed by the Washington institutions.

4. The foundations of the present world economic order’s theories are fundamentally ahistorical devoid of any categories that would help in understanding economic phenomena today.

In terms of the above points, the World Trade Organisation is at the centre of the controlling mechanisms of trade issues globally. Listen how Zambia laments about liberalisation: ‘Zambia has a very weak voice in international meetings because of its poor economic status. The IMF, World Bank and the WTO have continued to take advantage of our weak economic base to dictate terms that are not in our favour. Unilateral liberalisation in Zambia was imposed on us and our bargaining power in the WTO is at best insignificant and inconsequential.’ (Jonathon Simwaba, senior marketing officer of the Export Board of Zambia, speaking in his private capacity: taken from Zambia: Condemned to Debt Report 2004:51).

The WTO has two strong instruments. The first is the Bilateral and Regional Free Trade Agreements (FTAS). The second is Bilateral Investment Treaties (BITS). These instruments are put between developing and rich countries to restrict or kick away the ladder. The harsh law is Chapter 11 of the North American Free Trade Agreement. This chapter deals with investment in host developing countries. This law gives the right to an investor to take the host government to the international court, possibly the WTO court (an ‘impartial tribunal’) in case when the host country refuses to comply with free trade laws, or to refuse supplying raw materials.

Listen to the following case.  In 2017, in Tanzania the country could be sued over a ban on copper exports. Listen to the following:

‘Tanzanian president John Magufuli banned exports of copper concentrates by mining companies, and told the miners to construct smelters in the country to boost mining revenue to the government.’ (The Namibian, Wednesday 29 March 2017).

Due to this copper exports ban, members of parliament expressed their serious concern that the country would be sued and would be brought to the international courts by the multinational corporations operating in mines in Tanzania. One of the members of parliament was quoted as saying: ‘We have the feelings that some of the international mining companies will take the host government to the international courts.’

One would wonder, who owns what? Thomas Friedman (2000) asked a question: who owns the Olive Tree? Africa would ask a similar question: who owns Africa’s minerals and metals?

Today all rich countries use nationalistic policies which regulate for instance, tariffs, subsidies and restrictions on foreign trade. This is done to promote their infant industries. Protectionist policies are good because they determine the timing-factor when to protect and when not to protect the infant industry. The duration factor is equally important. How long should a country protect its industries has been a sustainable practice in most of the developed nations such as Finland, Norway, Italy and Austria. This is a historical evidence that Africa should imitate. Both protectionist and free trade policies were practised in most of the rich countries and thus protectionist and free trade policies are equal good for economic development.

Now Africa listen to Ulysses Grant, the US president during 1868-1876, and he said:

‘For centuries England relied on protection, has carried it to extremes and has obtained satisfactory results from it. There is no doubt that it is to this system that it owes its present strength. After two centuries, England has found it convenient to adopt free trade because it thinks that protection can no longer offer anything. Very well then, gentlemen, my knowledge of our country leads me to believe that within 200 years, when America has gotten country leads me to believe that within 200 years, when America has gotten it, too,  will adopt free trade.’ (cited in Frank 1967p.164).

The most important point is that after prolonged and protracted infant industry protection in Britain the ‘kicking away of the ladder’ was used as a trade barrier against poor countries. Therefore, Africa is further reminded to remember that now-developed countries (NDCs) advocate free trade and free market industrial policies in sharp contradiction of what they did for them to get rich. Now Africa is stuck between free trade and infant industry protection policies and the situation becomes very pathetic.

African countries require to implement mixed policies: protectionist and free trade policies at the same time depends on which sectors of the economy are strategically considered. History tells us that kings in England were the first to implement policies that made England rich. One expects that African heads-of state are expected to adopt policies that would make their countries rich. The ’bad’ and ‘good’ trade policies are discussed in the next section.

• Lucas I Nantanga is a farmer and part-time lecturer at the University of Namibia’s School of Public Health, Oshakati Campus.  These are his personal views.  The last part of the article will be published next week.

September 2017
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