Resurrect past economic models, African countries told
This is the second part of an article by Lucas I Nantanga who argues the way forward for African countries to develop and industrialise their economies.
The last installment spoke of the need to look at the five Now Developed Countries (NDCs) in order to trace how each country has travelled from technology backwardness to full industrialization level. The countries are England, the United States of America, France, Germany and Japan. Last week’s article looked at England and the US. This week, the article looks at the remaining three.
The first point one would remind Africa to remember is the fact that France recognised herself that it was a “relative technological backwardness vis-a vis England in early 17th century”. Like, England and the United States, France tried to poach skilled workers from England on a large scale. In 1719 England backfired and introduced a ban on the emigration of skilled workers. France, too, did as England did poaching highly skilled workers. France engaged in what Professor Chang terms “industrial espionage” by offering good money for well-trained British workers to France. In this way, France closed her technology gap with England, by the end of 17th century. The country successfully industrialised before the revolution in 1789.
On infant industry protection and free trade and more on laissez-faire doctrine, France knew how to balance the two. During its catch-up period, France kept her industrial tariffs at low ebb in contrast to its advanced economies of England and the US from 1821 to 1913. For instance, between 1821 and 1825, France’s percentage of net import values was at 20.3 % in contrast to Britain’s percentage of net import values set at 53.1 % (Nye, 1991, p.26).
This was Britain’s high protection period during her four decades. Between 1836 and 1840, France’s percentage of net import values was at 18% in contrast to Britain’s percentage of net import values at 30.9%. Between 1911 and 1913, France’s percentage of net import values was dropped at 8.8% while Britain ‘s percentage of net import values further dropped to 5.4% (Nye 1991:26). This shows that France during her catch-up period was less protectionist than Britain. But Britain from 1911 and onwards became less protectionist too, but this was only in some selected manufactured products. But Fredrich List observed that the “side-effects” of free trade policies introduced by France in her catch-up period (ca.1800s) resulted in the Vanek-Reinert effects. The Vanek-Reinert effect is derived from the works of Jaroslav Vanek and Erik Reinert. This is also known as the “winner-killing effect of free trade”. In simple terms, the Vanek-Erik effect refers to a situation when two unequal two countries integrated economically, one less developed and the other more advanced. By 1800s France was less developed than Britain and as a result of this unequal relationship France suffered the Vanek-Reinert effect. This is an economic disease endemic to many African countries as a result of unequal trading agreements with the more advanced countries. Friedrich List is clear on this when says “a nation first industrialises and is then gradually integrated economically with nations at the same level of development.” Reinert 2007: p.268). France did emulated, imitated and borrowed technologies, ideas, skills and poached skilled workers as England and US did. France endogenised and hybridised her manufacturing sectors and became an industrialised country well before 1945. What lessons can the African countries learn from France during her catch-up period? France used “industrial espionage” and suborning strategies. The “industrial espionage” strategies worked well for France in 1800s. “Industrial espionage” strategies are possibilities open to any country on earth.
Germany, too, was essentially a raw materials exporter country during the reign of Fredrick the Great (1712-1786) when he came to power in 1740. Germany exported woolen and linen clothes as the only finished goods (Chang, 2007). Germany exported metals, silk porcelain in raw forms to advance Dutch Republic (Chang, 2007). Fredrick the Great continued a policy of poaching skilled workers from abroad notably from the Dutch Republic and England. He further promoted to introduce advanced technologies from the more advanced countries particularly from England, borrowed iron- puddling technology the coke furnace and steam engine (Chang, 2007: p.34). He combined this with state “industrial espionage” and poaching of skilled workers from abroad. Germany subsidised foreign trips to gather information on new technologies, collected foreign machinery and supported start-up new industries in areas of machinery, steam engine and locomotive industries (ibid.). History tell us the story about 20 locomotives in Germany were imported from the Dutch Republic. After 1854, no locomotive was imported into Germany. Germans were quick to endogenise and hybridise their technologies. After 1854, Germany exported about 140 locomotives to Poland and Denmark (Chang 2007: p.168). During the catch-up period, Germany more than any other country at that time promoted higher education at university level. At that time Germany introduced studies in science, technology and theology when even science and technology were not taught at Oxford or Cambridge universities in England. Foreign students came to study in Germany. Germany, too, did introduce both protectionist and free trade policy tools during her catch-up period. The German ‘cameralists’ (mercantilists) were generally employed as supporters of infant industry protection in Germany. Germany at this period was influenced by a book written in 1684 by Philipp von Hornigk which forms large part of model 2 below. In 1820s her tariff rates on manufacturing were 12% in contrast to England 45-55% and US’s 35-45% in the same period respectively (Chang, 2005:p.36). What lessons do African learn from Germany? African countries are able to learn that Germany too did engage in “industrial espionage” as a way to go at that time.
Japan, too, was relatively a backward country around 1800s like the other four countries discussed above. In her early stages of economic development, Japan was exposed to Portuguese and Dutch traders (Chang, 2007). When Japanese were on contact with traders from the West (effectively as from 1860s and onwards), the Japanese realised that their country was relatively backward and therefore needed to do something about it. This discussion confines itself on what happened during the Japanese catch-up period. Japan first imitated advanced countries such as England, the US, France and Germany.
The author agrees with D. Eleanor Westney in her book 1987 Imitation and innovation: Transfer of Western Organizational Patterns to Meiji Japan (1860s). This is how technically Japan combined what she calls “Japanese spirit” with “Western technology” and visa-versa. This is about endogenous knowledge (Hountondji, 1997). Endogenous knowledge refers to knowledge and ideas generated from “within” one’s socio-economic and cultural contexts. The process of endogenisation looks as if it were the global (borrowed) knowledge, skills and ideas integrated into the local technologies, skills and ideas. Endogenisation process is further explained by way of hybridisation. The global and local technologies and skills are technically and aesthetically ‘mixed’ together. There is need for digression for clarity purposes.
When a certain country borrows, for example, ideas, skills, technologies and machinery from foreign countries, this process can be better explained by way of the add-substitute-graft discourses. This process consists of three discourses. The first is the add discourse. The add discourse implies that, for instance, Japan borrowed foreign (1) school system from the US, Germany and France, (2) police system and criminal law from France, (3) commercial law from Germany (4) central bank system from Belgium and US and (5) the military institution from Germany. Japan went very far to borrow “institutions of public life” not only borrowing industrial machines. The Japanese borrowing practice included even the political party stem. After Meiji restoration in 1860s, Japan borrowed the British political system. For example, the Japanese Empire was modelled to the British Kingdom. The Emperor Akihito era was modelled to the British Monarch, Queen Elizabeth. All these institutions were added to the existing and persisting local Japanese skills, systems of banking or the school system for the advancement and growth of the Japanese industrial development (Chang, 2007:p.48-49). In other words, the add-discourse implies that the existing and persisting Japanese technologies, practices and skills require exogenous/global technologies, ideas and skills that are not found in Japan, but readily available in foreign countries added to them. It can be argued that all NDCs had used the add-discourse during their catch-up periods.
The second is the substitute discourse. The substitute discourse implies that, for example, Japan borrowed the “standarised and centralized” from the French police force system to substitute its existing Japanese fragmented and weak police force system. Substitute discourse implies that any substituted items such as ideas, practice, skills, system, and technologies are considered relatively weak and therefore requires a strong substitution. For example, in livestock diseases treatment, a farmer may consider to substitute his/her herbal medicine with the veterinary (scientific) drug. In other words, when there is no scientific drug, a farmer may consider substituting the scientific drug with the herbal medicine. “Substitution” is a more situational based-discourse. This happens at the world level of substituting local ideas, skills, best practices and technologies with better conceived global ideas, skills, and technologies across cultures. For instance, Daniel Defoe (1728) informs us that England substituted her untrained and unskilled workers with skilled workers from Florence and Venice city states in 1490s.
The third is the graft-discourse. The graft discourse is richer than the other two discourses. As a norm, across cultures and traditions, there are many ideas, skills, technologies that are perceived as ‘outdated’. They need to be ‘replaced’ with new ones. The idea of grafting ideas, technologies and skills is borrowed from botany. When one grafts a tree, a scion is grafted onto another tree-stem. The scion is understood to have been taken from a good-looking and healthy-fruiting tree. The idea is to have a good fruiting tree as a result of the scion grafted onto a stem of another ‘inferior’ fruiting tree. Daniel Defoe reminds the African countries to remember when Henry Xll realised that his technology know-how was ‘outdated’. He grafted his outdated technology-know with a better technology know-how from the Venice-city state when says that “foreigners were old in the business, long experienced and turned their hands this way and that way, which the English could not presently know and when known, had no skill presently to imitate” (Defoe 1728:.p.96). The graft discourse was used by the NDCs.
With all these ‘borrowings’ from foreign countries, where does Japan stand now technologically? Listen to the case of Lexus factory in Japan when Thomas Friedman visited it in 1992. I quote him at length. “I was in Tokyo on a reporting assignment and had arranged to visit the Lexus luxury car factory outside Toyota City, south of Tokyo. It was one of the most memorable tours I’ve ever taken. At that time, the factory was producing 300 Lexus sedans each day, made by 66 human beings and 310 robots. The robots were doing all the work. There were even robotic trucks that hauled materials around the floor and could sense when a human was in their path and would “beep, beep, beep” at them to move. I was fascinated watching the robot that applied the rubber seal that held in place the front windshield of each Lexus. The robot arm would neatly paint the hot molten rubber in a perfect rectangle around the window. I kept staring at this process, thinking to myself how much planning, design and technology it must have taken to get that robot arm to do its job and then swing around each time, at the precise angle, so that this little thumbnail-size wire could snip off the last drop of hot rubber for the robot to start clean on the next window. I was impressed.” (The Lexus and the Olive Tree, 2000: p.49).
He was impressed. The add-substitute-graft discourses do wonders when are properly coordinated in technical ways as Japan, Britain or Germany did. Can African countries emulate?
Africa should wake up to celebrate the resurrection of the past policies’ which Bad Samaritan countries have removed. Starting with model 1 below, this economic model is a Tool Kit. It was first used by England first as from 1485 until her industries were well established. All NDCs used the Tool Kit for many years. The model is over 500 years old. The Tool Kit was “outlawed” by the Washington Institutions: IMF and World Bank in 1980s, when both institutions introduced the Structural Adjustment Programmes (SAPs) for developing countries. This road was “closed” by IMF effectively after the fall of Berlin Wall in 1989/1990 (Reinert, 2004). Earlier in this article, I asked two questions: What was kicked away? What was outlawed? These two questions are similar. In simple terms what was kicked away or “outlawed” was the ladder or economic development policies that were used by rich countries to become rich. This article is not anti-IMF or World Bank. The article is critical to IMF and World Bank policies that make developing countries suffer. The article amplifies the voice Erik Reinert (2003, 2004) who lamented that “the large-scale de-industralisation is therefore a crime to posterity”. This paper extends his pronouncement that large-scale de-industralisation of the African continent and developing countries is therefore a crime against humanity. Humanity is a word that is more common to many people. Listen to the following voices: “Poverty levels in most critical dimensions increased during this decade and the ‘IMF and WB are killing us especially women and children, SAPs cause poverty” (Emily Sikazwe, Women for Change in Zambia: Condemned to debt, p.38). Most countries fear the IMF and World Bank. Why? Probably their fear is genuine. We learnt that the “real” IMF plays the role of gatekeeper. IMF “controls developing countries access to international finance” (Chang, 2007: p.135). IMF “controls almost everything raging from loans to the international money lenders, and imposes conditionalities on everything: fertility decisions, ethnic integration, and gender equality to cultural values” (Chang, 2007: p.16). Listen to the following voices from Zambia: “The IMF policies that we have been pursuing have put us in a worse position than we were before”. (Editorial in the Post newspaper, 1990).
IMF and WB are similar to Moody and Fitch rating agencies. South Africa and Namibia were downgraded to junk statuses by Fitch Rating and Moody Standard & Poor’s rating agencies respectively. All two governments strongly reacted against the downgrading. These two rating agencies are not new. They have been there for more than 60 years or over. First of all, one should understand that rating agencies only deal with money markets or financial matters and not with issues of manufacturing. Now in this case when a country is either down-turn-graded or up-turn- graded, who is benefitting? In either way, both investors, money-lenders and loan recipient country in a hypothetical sense would benefit. To cut this story short, one needs to link the Moody and Fitch rating agencies to foreign direct investment (FDI). It was argued in this paper that foreign financial investment brings more danger than benefit. FDI may help economic development, but only when introduced as part of a long-term oriented development strategy. Policies should be designed so that FDI does not kill off domestic producers (Chang 2007: pp.86, 87). In terms of manufacturing and industralisation, the country downgraded loses less or even lose nothing.
This article argues that Moody’s or Duff & Phelps Credit Rating Co. or Standard & Poor’s control financial markets, while IMF controls loans agreements with recipient countries. Thomas Friedman gives them a befitting description when he says ‘Moody’s or Duff & Phelps Credit Rating Co. or Standard & Poor’s assist money lenders and international investors to rate countries to assess as to whether investors are able to invest in their money or not. Moody’s Investors Service, Duff & Phelps Credit Rating Co. and Standard & Poor’s are the ‘bloodhounds’ for the Electronic Herd’. ‘These credit-rating agencies prowl the world, constantly sniffing over countries. They are supposed to bark loudly when they see a country slipping out of the Golden Straitjacket’. Probably South Africa and Namibia misbehaved and were seen by these two rating agencies ‘slip (escape) out’ of the ‘iron cage’ or straitjacket of neo- classical capitalism and globalisation.
Below are models 1 and 2. This writer reminds the African countries to remember that the wayforward does not suggest that African countries should exactly ‘copy’ these two models, but African countries should seriously consider them for adoption. They are historical and reflect the economic reality that Africa requires to move forward in the right direction.
Model 1. Economic Policies of the Generic Development: Continuity of Policy Measures and Tool Kit from England in 1485 (Henry Vll to Korea in 1960s: A mandatory passage for Economic Development)
1. Africa should remember and should recognise that it ‘Is In The Wrong Business’. Specialisations in raw materials production tell the story: ‘Africa… ‘Is In The Wrong Business’. Africa is reminded to remember to be conscious of ‘targeting, supporting and protecting its infant industries’. Jealously ‘protects its ‘increasing-return activities’ (manufacturing) as advocated by Antonio Serra in 1613.
2. ‘Recognising that development is a synergic phenomenon’. The need for a ‘diversified manufacturing sector which was observed and emulated by Henry Vll in 1485 from the Dutch Republic and Venice city-state’. England emulated this model during the Tudor Era 1485-1603 and US as from 1776 to 1945.
3. ‘Manufacturing sector solves three policy problems’ endemic to Africa ‘in one go (1) increasing national value added (GDP), (2) increasing employment and (3) solve balance of payment problems’.
4. ‘Attracting foreigners (poach foreign skilled workers) to work in targeted manufacturing activities’ at home. All NDCs did used this principle.
5. ‘Gradually introduce ‘export bounties (industrial tariffs) for targeted activities’ in the manufacturing sector.
6. ‘Emphasis on learning/education for equally to the UK apprentice system under Elizabeth 1’.
7. Introduce ‘frequent export tax’. ‘Ban export raw materials in order to make raw materials more expensive to competing nations’. This principle was heavily used by Henry Vll in the late 1400s when he emulated Venice and Florence city-states. (Source: Reinert, 2004).
Model 2: Philipp von Hornigk’ Nine Points (1684): “How to emulate the rich countries”
1. To inspect the country’s soil with the greatest care, and not to leave the agricultural possibilities of a single corner of clod of earth unconsidered. Every form of plant under the sun should be experimented with, to see whether it is adapted to the country. Create wealth from the soil: wealth from agriculture and mines.
2. Turn all commodities found in a country into finished goods. Manufacturing generally exceeds the value of the raw materials by two, three, 10, 20 and even a hundred fold. Manufacturing solves unemployment and underemployment problems during the time of catch-up economies. The ‘multiplier’ effect of manufacturing is commonly found regards to value addition and full employment.
3. There will be need of people both for producing and cultivating the raw materials and for working on them (producing finished products’). People should be turned by all possible means from idleness to remunerative professionals. Instructed and encouraged in all kinds of inventions, arts and trades. Instructors (skilled people) should be brought in from foreign countries for the purpose of boosting of local manufacturing sectors.
4. No country that possesses gold, silver, [or uranium] must be allowed to sink into poverty’ or miseries. All domestic and foreign raw materials should be processed for the betterment of all citizens. Ban export on raw materials and import raw materials from foreign countries.
5. Inhabitants of the country should make every effort to use sustainable domestic products and resources. Inform and educate them to confine their luxuries to domestic products alone and do without foreign products as far as possible (except where great need leaves no alternative.
6. In case the said purchases were indispensable because of necessity, gold, silver and copper shouldn’t be exchanged with other luxury foreign products, but in exchange for other domestic wares.
7. Foreign commodities should in this case be imported in unfinished form and be worked-up within the country and contributes to earning wages of manufacturing at home. This contributes to value addition effects and employment effects and (in addition) solves the balance of payments problems.
8. Opportunities should be sought day and night for marketing (selling) the country’s finished goods to foreigners in manufacturing form. Consumption of these finished products should be sought in the furthest ends of the earth. Create the cult of export of finished goods. This “cult of export” (rare in Africa) contributes to improving balance of payments deficits endemic to most of African countries.
9. Ban all foreign commodities when you have sufficient supply of similar quality at home. No sympathy or compassion should be shown to foreigners be they friends, kinsfolk, allies or enemies. (Source: Reinert, 2007).
In concluding these two economic models, African countries must remember: (1) the ‘cult of manufacturing’ has been clearly conspicuous in all two models. It was perceived by the NDCs as option number one in economic development. (2) Skills of foreigners, poaching (borrowing) foreign ideas and technologies including ‘industrial espionage’ were the way to go for the NDCs during their catching-up periods. (3) Imitation-reinforced by innovation through the add-substitute-graft discourses played significant roles in the NDCs’ catching-up periods (4) African countries are further reminded that until recent years, the two economic models were keys to Finland’s and Ireland’s economic development in 1980s. The African countries are reminded that they are not late to own and resurrect these economic models and (5) finally, implementing these two models would contribute to the eradication of unemployment, underdevelopment, eliminating poverty levels as it had been the case with Spain in 1550s and Austria in 1680s respectively.
*Lucas I Nantanga is a farmer and part-time lecturer at the University of Namibia’s School of Public Health, Oshakati Campus. Ideas in this paper represent his own views. He can be contacted on firstname.lastname@example.org.