Neo-Liberal Economics is further Ruining the Developing World
‘…. Open up your markets, liberalize the capital market, remove industrial tarriffs, cut down on your subsidies, make your government lean and laid back, wait and then see the magic…’ the rhetoric goes. After all developed countries are ‘generous’ enough to reveal to us their ‘secretive’ path to success.
This rhetoric is so deeply engrained and mainstream in our current economics consciousness that we take it as utter truth. This free market economic principle is a gospel of neo-liberal economists who argue that rich countries attained their economic success by liberalizing their trade and absconding protectionism, and therefore poor countries should follow the same path.
I disagree. This is because the prescription is wrong. 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.
Free trade that is promoted by the rich countries as the catalyst for success is working in the opposite direction in the pre-developed countries. Here is why I believe poor countries should be left to have their own trade autonomy.
Proponents of free trade argue that free trade makes the playing field level. But what is the point of having a level playing field if the players are unequal. Professionals should compete against professionals and amateurs against amateurs. Competition between unequal players is not only unfair but hypocritical. When a rich country with a long history of imperialism and oppression that has managed it to make key economic steps- by moving from primitive agrarian economy to an industrial one and now to a post-industrial technologically savvy service economy- wants to compete on ‘fair ground’ with a nascent economy whose main means of economic productivity is agriculture with barely no manufacturing industry, it does not only show lack of empathy but also reveal mischevious motives behind it.
When you force a third world country to open their market for your cheap high quality exports, how do you expect it to nature its infant industries that it would be able to also build a manufacturing economy that made you rich in the first place? Here the playing level is not level because the rich countries will automatically sell high quality manufactured goods while poor countries only manage to sell agricultural produce and raw materials. Thus rich countries will continue getting richer while the poor ones remain poorer.
Poor countries should be given freedom to choose the trade policies that are favourable and convenient to them. When poor countries use protectionism and subsidies to build and nature their infant vulnerable industries and at the same time opening their borders for raw materials, they will be able to build a sustainable manufacturing sector. This can be a painful long term project. After building a stable manufacturing industry, these countries can then strategically open their borders so that they benefit from the advantages of free trade- by exporting their quality manufactured products and rigorous global competition which can make their companies more competitive.
The problem with the already rich countries is their propagation of the wrong message. They say, that in the spirit of free markets, every country should produce what it is best at producing to maximize their comparative advantage. In short, they are telling poor countries to continue doing low level productivity like agriculture and cottage industry because that is what they are good at. But this is counterintuitive and a propaganda destined to reinforce the status quo.
Nothing contributes to promote the public well-being as the exportation of manufactured goods and the importation of foreign raw materials. As a result, import substitution industrialization is the only way poor countries can get better.
I know someone might ask whether the poor countries have the capacity to be a net manufacturing economy. It is true in the short term, poor countries do not have the capability to produce high tech and other quality manufactured products because of a range of problems — lack of a highly trained workforce and technological know-how, lack of good organizational skills, scarcity of capital and poor infrastructure. But these structural challenges are not permanent. Through deliberate intervention by governments like investments in strategic areas like Education (with special attention to Research and Development), infrastructural developments and protectionist and subsidies as tools to support its vulnerable infant industries, it can overcome them.
We need to understand that to take the right path, we need to make the right choice not the easy choice. This right choice is a long and painful because it demands sacrifices. We have to sacrifice consuming quality western products so that we can invest the money in building our own firms that can spark economic activity, bring jobs and improve our standards of living. When our firms get stable and can withstand competition, the country can open its trade borders so that the firm exports its products abroad and further expands to other countries further bring more prosperity to the country.
It is very futile and dangerous to take the easy path of neo-liberals that reduces us to mere exporters of agricultural products and raw materials to already rich countries that uses our exports to manufacture high quality.