5 February 2013

Uganda: Museveni Must Undo Economic 'Stupidity'


At a recent meeting with the World Bank's director of Human Development in Africa, Ritva Reinikka, I asked her what advice she would give President Museveni about the Western-backed economic liberalism which revolves around free-trade to achieve development.

Reinikka said: "There is nothing wrong with liberalism. The progress is good and the country will develop."

Of course, her response did not surprise me given the fact that the 'unholy trinity' of International Monetary Fund [IMF], World Bank [WB] and World Trade Organisation [WTO] are puppets of hegemonies who implement what South Korean economist Ha-Joon Chang, calls "Bad Samaritan" policies.

In his book, Bad Samaritans: the Myth of Free Trade and the Secret History of Capitalism, Chang argues that unlike the Biblical 'Good Samaritan', developed countries are 'Bad Samaritans' because instead of preaching policies they used to develop themselves, they have decided to advise developing countries to employ a totally different manual neo-liberal economic orthodoxy.

American journalist Thomas Friedman in his book The Lexus and the Olive Tree says that neo-liberal economic orthodoxy means that "a country needs to privatize state-owned enterprises, maintain low inflation, reduce the size of government bureaucracy, balance the budget [if not running a surplus], liberalise trade, deregulate foreign investment, deregulate capital markets, make the currency convertible...and privatize pensions."

To the likes of Friedman, the World Bank, Reinikka, and many Western developed countries, this is the only way to development in the new global economy. But the bigger picture here is that these Bad Samaritan policies can be changed. We don't need to go by these obnoxious policies to develop.

What is true is that these developed economies used a protectionist model called "infant industry", but upon reaching higher echelons of development, they are doing what German economist Friedrich List called "Kicking away the ladder" they used to climb with. To Uganda, and many other developing countries, they are saying "do as we say, not what we did."

And the story of the Asian tigers shows that developing countries can make it if they treat free-market policies with caution. A case study of this is Japan. In 1939, the Japanese government kicked out two American companies General Motors and Ford. In 1949, it [Japanese government] bailed out Toyota with money from the central bank.

And by embracing the infant industry protectionism, today the Japanese Toyota brand has become the talk of the world. If the Japanese government had followed the free-market policy, there would have been no Toyota to talk about. Similarly, there would be no Samsung had the South Korean government done the same.

Indeed the likes of Reinikka - a native of Finland - don't want us to know what transpired in the past as far as their development is concerned.

What she doesn't say is that mercantilism, both policy and institutional, was the key driver of this progress. By mercantilism I mean the use of state power and domestic institutions to promote durable growth through protectionism of infant industries. In Alexander Hamilton's report to the US Congress, a document that became a manual for literally every developed country (Finland inclusive), he proposed protective tariffs, import bans, subsidies, export bans on key raw materials, import liberalization, tariff rebates on industrial imports, patents for inventions and development of financial and transportation infrastructure.

I suspect famous free-market economist and father of economics, Adam Smith's book, The Wealth of Nations, has partly influenced President Museveni's free-market ideology, but what he must appreciate is the fact that in 1932, the British government under controversial premier Robert Walpole, also dismissed or denounced the free-market thinking of Adam Smith and employed mercantilism.

In recent times, Gustavo Franco, the former Governor of the Bank of Brazil (1997-99), also dismissed liberalism when he said that his objective was "to undo forty years of stupidity" and that to eliminate this "stupidity" his only choice was "to be neo-idiotic." Brazil was going almost past the Asian tigers in the 1960s before neo-liberal programmes were implemented in the 1970s. Today, it has realised that it wasted "forty years" or it was "stupid" to swim in the pool of neo-liberalism.

In fact, after returning to the protectionist or infant industry manual, it is now on the path of the next South American miracle or tiger. My view is that Uganda, just like Brazil, should undo 50 years of "stupidity" using a politician of Robert Walpole's calibre, a government official of Alexander Hamilton's stature and an economist like Friedrich List, not Adam Smith.

The author is a journalist on The Observer

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