‘Good’ trade policies bad for Africa
This is the last part of a series of articles by Lucas I Nantanga in which he argues about the protection of Africa’s primary industries. The ‘kicking away the ladder’ metaphor continues under the theme of ‘good’ and ‘bad ‘trade economic policies in African countries.
The now developed countries recommend that Africa should liberalise her trade activities. Now the question is: which trade policies are considered ‘good’ and which ones are ‘bad’? The historical picture is clear. The NDCs used protectionist industrial, trade and technological policies in order to protect their infant industries. Africa is being recommended to follow a package of the Washington’s institutions ‘good’ policies on the basis of free trade and free market dogmas. These recommendations are ahistorical.
The NDCs are recommending that Africa adopts free trade which they did not do during their first 300 years of economic development. The Bad Samaritans are recommending ‘good policies’ to the African countries sinking into poverty, unemployment and inequality. The paradox of ‘good’ policies are actually not good policies for Africa, but they are all ‘fallacies of logic’.
The bad policies are good for Africa because they emulate what the Bad Samaritans did. Economic history tells Africa that bad policies today are good policies because the ‘bad’ policies were used by the Bad Samaritan countries. Good polices are policies that make Africa poorer and they were not used by the Bad Samaritans either.
They are a ‘spoke in the wheel’ of the African economic development. Africa needs to be exposed to these fallacies of logic (secrets of capitalism) for it and the African people in general to take and make well informed decisions on what is good and what is bad for the present and future African generations.
The ‘good’ policies have not been able to generate the promised economic growth as the Bad Samaritans preach in Africa or in the developing countries. The ‘bad’ trade policies are not actually bad because they maximise increasing returns (manufacturing) and demand infant industry protection. While ‘good’ policies are actually not good policies because they recommend free trade and free market, recommend trade liberalisation, and deregulation of foreign investment (FDI).
The NDCs know it pretty well that Africa and developing countries cannot grow from poorer to rich through these recommended ‘good’ policies. Africa should take heed of this historical fact. Africa is reminded to remember that China and India had refused to take the route of ‘good’ policies. Instead they followed the ‘bad’ policies which made the now rich countries rich. Next section discusses fallacies in the UN Sustainable Development Goals. 1. Fallacies of logic: the Sustainable Development Goals Even the Sustainable Development Goals (SDGs) (2015-2030) will not effectively address the multiple social and economic problems Africa and developing countries face.
The SDGs are financed through the Third Financing for Development (FFD3) Facility of the United Nations. The earlier Millennium Development Goals (MDGs) (2000-2015) were not recorded to have attained what they were intended to achieve, with exception of the Small Islands Developing States of Mauritius, Cape Verde, Seychelles and Rwanda which made some progress (New Africa, August/ September 2015:13). Why? The answer to the ‘why’ question is simple. The MDGs to a considerable extent were ‘palliative economics’.
This is to ‘easing the pains of economic miseries’ of the poorer countries. In other words, the MDGs addressed only the symptoms of poverty by way of ‘giving financial aid’ to poor countries. SDGs are likely to follow in the same footsteps. What are the implications of SDGs? SDGs consist of 17 goals. All goals are all equally important. This article concentrates on only the first goal: End poverty in all forms everywhere: End hunger, achieve food security and improve nutrition and promote sustainable agriculture. There are mixed voices from Africa regarding the ‘pushy objectives’ of the SDGs. There are two schools of thought. The first school of thought is about the expectations of Africa to receive funds to meet the 17 targets. Africa listen to the African economists. Moses Tule, the director of monetary policy at the Central Bank of Nigeria, states “that never happened and the little that the donors gave are always little…unless there are strong actions by the developed nations honouring their pledges.
This school of thought argues that the SDGs will only contribute to the African economic development dilemma if developed nations were honouring their pledges on time. Once the donor aid was (hypothetically) received, he further suggests that ‘developing nations should improve on their services delivery, adopting homegrown solutions, maintaining open policies and adhering to financial probity’ (New Africa, August/ September 2015.p14). This school of thought has two contradictions. The ‘homegrown solutions’ versus ‘maintenance of open policies’. Once again Reinert reminds Africa to remember two important things (1) European developed nations followed Serra’s (1613) principle of good policies of ‘increasing returns’ that is equal to manufacturing. (2) Poor nations are reminded to remember not to fall into a vicious cycle of declining income and high poverty level. Now the homegrown solutions is of the best path that Africa should follow. The homegrown solutions programme would enable Africa to embark on the process of industralisation.
This article asks a critical question: how can Africa embark on the ‘homegrown solutions’ programmes when African economies are under ‘siege ‘ from the Bretton Woods institutions? The Morgenthau Plan of 1947 and the IMF’s Structural Adjustment Programmes (SAPs) of 1980 are deliberately designed to de-industrialise Africa. This implication is not only very serious but complicated as well. How will the 17 objectives of the SDGs address this problem? Africa is prevented to manufacture or produce homegrown finished goods by the Washington institutions as it was ubiquitously stated above.
The second implication lies with the ‘maintaining ‘open policies’ suggested by Tule above. This is the free trade and free market economic doctrines which made Africa poorer. How would Africa handle open trade policies when African infant industries are not protected from the global trade competition? Africa should be reminded to remember as Prof. Chang (2007) convincingly puts it: ‘the Bad Samaritans countries have done their utmost part to push developing counties into free trade policies’. Regional integration is key to economic development.
Africa has eight regional communities (e.g. AMU, COMESA, ECOWAS, EAC or SADC). These regional communities can work. But how will the African regional communities tackle the basic causes of de-industralisation of the African continent when the ‘old theories and policies’ that made developed nations rich are deliberately outlawed? And the road is closed? Or to put it in Friendrich List’s words in 1841: ‘the ladder is kicked away’?
This article is enticed to question: is racism or eugenics part of de-industralisation of the continent of Africa? To a great extent one would convincingly say, yes. Economic history tells us the following: Irving Fisher (1867-1947) an American economist was a member of the American Eugenics society. In England, John Maynard Keynes 1883-1946, was the vice president of the English Eugenics Society. The Eugenics movement argued that Africans were not poor because they had not been allowed to industrialise. They were poor, the movement further argues, because they were blacks. Today in both neoclassical economic orthodoxy and eugenics, Africans are no longer poor because they are blacks, but because blacks are corrupt.
Thus racism has been influencing the behaviours of the Bad Samaritans. One would continue to ask: why did developed countries refuse and are still refusing to apply or implement the Marshall Plan to Africa? Africa or the African countries remember very well how the US implemented a full package of the Marshall Plan to the European countries after the Second World War. Most of us are familiar with IMF, World Bank or WTO, but not with the Marshall Plan. To remind those that are not familiar with the Marshall Plan, a brief note is required. The Marshall Plan was named after George Catlett Marshall, the then US Secretary of State, 1947-1949. It was implemented in 1948, to re-industraliase devastated European countries after the Second World War.
The plan channeled about $13 billion into war-torn Europe. Germany took the largest chunk of this money, because the Morgenthau Plan was implemented to de-industralise Germany as an act of punishment. Many European countries benefited a lot from the Marshall Plan and were heavily re-industrialised. Now the question is: why is the US not willing to implement the Marshall Plan on Africa instead of the IMF and World Bank? The second school of thought is based on Chris Kirubi’s contribution to the debate. Kirubi is a Kenyan industrialist. His voice is very clear regarding the implementation of the SDGs: ‘Now is the time to fight for our economic independence, which means we stop exporting hides and skins, coffee, tea, cocoa and even crude oil and other minerals in their raw form’ (New Africa, August/September 2015:14). His voice is not new.
But it is a serious voice to Africa to be reminded to remember. Africa is called to embark on manufacturing agenda. Agenda 2063: The Africa We Want lacks this serious call. Agenda 2063 put more emphasis on the weak stated ‘regional industralisation hubs’. Industralisation is key to development. But why do Africa or individual African countries fail to prioritise manufacturing above all other priorities? In addition to the implications just discussed above, there are further two important challenges posed by the SDGs. The first challenge is about the ‘flow of finances’ into developing countries for poverty reduction.
This money is not meant for ‘increasing returns’ (manufacturing) sector. This financial assistance to developing countries is of temporary nature in the form of foreign aid with strings attached by money lenders under this facility. Reinert argues that this ‘approach makes a number of nations permanently’ ‘on the dole’, similar to ‘welfare colonialism’ (Reinert 2007). Reinert continues to call this financial assistance to developing as countries ‘palliative economics’ or, easing of economic pain or misery. The second challenge is that the SDGs would fail to address symptoms of poverty and not causes of poverty. Africa is reminded to remember that there occurred a serious paradigm shift i.e. the ‘responsibility for world development has been shifted from the UN organisations to the Washington institutions (Reinert 2007). Developing countries ‘dance’ on a tone of the Washington institutions’ music.
What is required for Africa is to imitate the developed countries and embark on the process of endogenisation and hybridisation. In other words, Africa requires to maintain the balance between exogenous and local knowledge for manufacturing and industralisation. 2. De-industralisation of the African continent When hearing about the first attempt by the American colonists to engage in manufacturing, the then British Prime Minister Pitt the Elder declared that the colonists should “not be permitted to manufacture so much as a horseshoe nail” (cited in List, 1885 , p. 95). To prevent others from manufacturing is as old as humanity. Thus, England held a tradition to prevent other countries from manufacturing. William Pitt the Elder (1708-1778) was a prime minister of England twice, in 1756-1761 and 1766-1768. This was the time when the American colony of Britain tried to free itself politically and economically from the British political and economic control.
The quote above tells the story in itself. For nearly 500 years, from the late 1400s to the 1960s, it was common knowledge that a nation with an inefficient manufacturing sector would have a higher standard of living than a nation with no manufacturing sector at all. De-facto Morgenthau Plan came with the label of ‘structural adjustment’, which very often had the effect of de-industrialising Third World nations (Reinert 2000). Reinert (2004) reminds Africa to remember the case of Mongolia. Mongolia is not an African country. But it is good point of reference in terms of IMF, World Bank and United States and the Agency for International Development (USAID) conditionalities.
In brief, for over 90 years, Mongolia was a socialist republic until 1990. As from 1990, Mongolia needed economic development. It turned to the West for development assistance. The Washington institutions stepped in for economic development programmes. The IMF and WB recommended that Mongolia should embark on liberalisation programme. The liberalisation programmes started 1989/1990 to 1998. Mongolia embraced ‘democracy and a minimalist laissez-faire free market economy’, embarked on full ‘financial liberalisation and capital account convertibility, implemented a zero tariff regime, except on alcohol, and was prevented from manufacturing. The country was given a condition that it should not attempt to follow the principles of the Economic Recovery Programme, a programme for its prime purpose was to boost manufacturing activities in Europe after the Second World War (Marshall Plan financed-re-building the European countries after the Second World War). The country was subjected to the Morgenthau Plan of 1947- a plan that destroyed German economic structure immediately after the Second World War as ‘punishment’.
This plan was then applied to Mongolia to de-industrialised the country. When the IMF and WB’s conditionalities were implemented in Mongolia, what happened? Africa look at the following: the collapse of the trading system: canned meat (tonnes) in 1989, 1682.3 tonnes, in 1995, were reduced to 431.7 tonnes and in 1998, were reduced to 322 tonnes. Salt (tonnes) in 1989, 4818.8 tonnes, in 1995 were reduced to 497.3 tonnes and in 1998, to 201.6 tonnes. Sheepskins in 1989, 1151.1 thousands in 1995, were reduced to 193.5 thousands and in 1998, were reduced to zero.
There was loss of foreign markets, real wages plummeted, real jobs were a rarity, jobless industrial workers were forced to take up the pastoral way of living elsewhere. Reinert further reminds Africa to remember that ‘Mongolia’s 50 years of industry building was annihilated over a period of only four years from 1991 to 1995’. In this case the de facto Morgenthau Plan proved successful in de-industrialising Mongolia in four years’ timeframe. Mongolia became an expert in specialisation of raw material.
This situation became terrible: Marie’s Antoinette’s dictum fits well here: ‘if they (Mongolians) have no bread, let them eat cake’. Oh. The Washington institutions recommend to Africa that openness may be necessary to stimulate industrial development in developing countries through foreign direct investment (FDI) (Slaughter, 2004: iv).The Washington institutions recommend Africa and developing countries do the following, inter alia: ‘trade liberalisation, liberalisation of inflow of foreign direct investments (FDI), deregulation and privatisation’ (Reiner 2007.p.203). These are indeed fallacies. Africans are not critical to some of these trade liberalisation demands. Look at this. In 2017, 46 African countries had benefitted from the foreign direct investment (FDI) facilities. These countries include South Africa who received the biggest FDI chunk, Morocco, Nigeria and Kenya (Namibian Sun, Friday May 5, 2017: p.5). Inviting international investors is to invite death of ‘infant industry protection’ at home.
“Over the last several years, the developed countries have been stepping up their efforts to formulate a viable multilateral investment agreement (MIA) that would restrict countries’ ability to control foreign direct investment (FDI), and possibly portfolio investments (Chang, H. J. and) Foreign financial investment brings more danger than benefits… foreign direct investment may help economic development, but only when introduced as part of a longterm oriented development strategy… policies should be designed so that foreign direct investment does not kill off domestic producers(Chang 2007: 86, 87). The US was the first country that was critical to foreign direct investment. Foreign money lenders were badly treated in the US in 1880s.
Prof Chang reminds Africa to remember when he says that ‘the United States shall cease to be an exploiting ground for European bankers and money lenders’ (Chang, 2007:70). For instance, the London City and Midland Bank were prohibited to open a branch in New York despite the fact that it had over 860 branches worldwide (Chang, 2007). Other resources such as land, mining were prohibited to be owned by foreigners (Chang 2007: 79). The US government in 1880s perceived the view that FDI is ‘more dangerous than military power’. On finance, US was very strict in FDI.
History tells us that in the financial sector, ‘legislative provisions were made in the charter for the country’s first quasi-central bank, the First Bank of the USA (FBUSA) in 1791 to avoid foreign domination’. History further tells us that ‘in order to ensure that foreign investment did not lead to loss of national control in the key sectors of the economy, a large number ‘of federal and state laws were enacted in the USA between its independence (1776) and the mid-20th century, when it became the world’s most powerful economy’, (Chang, 2003). Federal mining laws in 1866, 1870, ‘Good’ trade policies bad for Africa and 1872 restricted mining rights to US citizens and companies incorporated in the USA (Chang, 2003:26). Japan has been limiting foreign direct investments for a number of years.
Japan before 1963 foreign ownership was limited to 49% and in many vital industries FDI was banned completely (Chang, 2007:80). Japan was careful with foreign direct investment. It was reported that Japan receive low percentage of FDI flow. Finland, too, heavily regulated foreign investments. Finland considered FDI as ‘dangerous’ and therefore had fewer foreign investments.
In the 1930s, a series of laws were passed in order to ensure that no foreigner could own land and mining rights. In anthropological terms, Finland knew how to balance the ‘local’ and ‘global’ financial resources. Korea and Taiwan were also reported to have adopted the foreign direct investment policy. But both countries imposed many restrictive policies to regulate foreign investors in their respective countries in order to protect their infant industries. Forget history. The Bad Samaritans are trying their best to outlaw all regulations on FDI in developing countries. Africa and developing countries are instructed: ‘forget history’. They are instructed to ‘forget history’ despite the fact that the US and her allies regulated foreign investment. The WTO is at the centre of this debacle. An arm of WTO, the Trade-Related Investment Measures (TRIMS) bans the following in Africa and developing countries: local content requirements, and export requirements (Chang, 2007).
To add to TRIMS, bilateral and regional free trade agreement (FTAS) and bilateral investment treaties (BITS) between rich and poor countries restrict the ability of developing countries to regulate the FDI. One important point to remind Africa to remember is that the Washington institutions’ conditionalities are parts of the de-industralisation process of Africa through the Morgenthau Plan (Reinert 2003). Any African country that is participating fully in FDI funded projects, whether it knows it or not, participates in the de-industrialising process of Africa.
International money lenders always wish to see that foreign direct investments fund only sectors such as job creation, consumer products, retail sector, real estate, hospitality, construction, transport and logistics (Namibian Sun, Friday 5 May 2017, p.10), but not necessarily funding manufacturer activities. In essence, FDI is part of de-industralisation process of the African continent. Therefore, equally important point, FDI is part of the Morgenthau Plan of 1947. • Lukas I. Nantanga is a farmer and part-time lecturer at the University of Namibia, School of Public Health, Oshakati Campus. Ideas in this paper represent his own views.