Yonela Diko
The NGC must strongly reconsider the path to industrialisation. In the 1960s, Korea was an undeveloped nation whose major exports were human hair (for wigs) and fish, and its average annual income was around $400 per working family. Today it’s a major industrial power with an average annual per capita income of over $32 000 (R425 530), and it beats the US in its rate
of college attendance, exports and lifespan.
South Korea did all this in a single generation by closing its economy and promoting its export industries. A decade earlier Japan had done the same thing. Forty years earlier Germany did it. But of course we have been sold the guilt and worry about the protectionist rhetoric and policies and the consequential trade war it could potentially have.
But South Korea did not ride the “free trade” train to success. By throwing out “free trade” and embracing “protectionism” during the 1960s, South Korea managed to do in 50 years what it took the US 100 years and Britain 150 years to do. Had South Korea adopted the “free trade” policies espoused by op-ed columnist Thomas L Friedman and The New York Times, it would still be exporting fish.
It is King Henry VII who turned England from a backwater state with raw wool as its chief export into a major developed state which produced fine clothing and other textile products from wool. He accomplished this by severely restricting the export of wool from England with high export tariffs and restricting the import of finished wool products with high import tariffs. King Henry learnt this from the Dutch. They copied the Romans. And the Romans got it from the Greeks 3 000 years ago.
It was nothing new. It is a strategy Alexander Hamilton, first secretary of the Treasury of the US, would champion, a few millennium’s late, building the greatest industrial powerhouse the world had ever seen.
For about 200 years, the US understood well the benefits of tariffs, subsidised exports and protectionist policies in the US. Had the fathers of the US, like Abraham Lincoln, George Washington, Andrew Jackson or Ulysses Grant, applied for IMF loans, they would have been denied: All of them believed in high tariffs and a heavy control of foreign investment, and considered “free trade” to be absurd.
When Washington became president in 1789, most of the US’s personal and industrial products of any significance were manufactured in England or in its colonies. This was a routine policy for England and is why until India achieved its independence in 1947, Mahatma Gandhi (who was assassinated a year later) illegally sat with his spinning wheel for his lectures and spun daily in his own home. It was, like his Salt March, a protest against the colonial practices of England and an entreaty to his fellow Indians to make their own clothes to gain independence from British companies and institutions.
Washington asked Hamilton what could be done about that, and Hamilton came up with an 11-point plan to build US manufacturing, which he presented to Congress in 1791. It was this approach of putting the US first that our government followed for most of our history, with average tariffs of 30 percent through the 19th and 20th centuries. There is no denying that it helped turn the US into an industrial and economic juggernaut in the mid-20th century and beyond.
The three periods when the US radically dropped tariffs - for three years in 1857, for nine years in 1913, and by Ronald Reagan in 1987 were all followed by economic disasters, particularly for small US manufacturers.
And the predictable result has been the haemorrhaging of US manufacturing capacity to those countries that do protect their industries through high import tariffs but allow exports on the cheap – particularly China and South Korea.
Hamilton felt that if the US wanted to be competitive, it couldn’t just leave it to the so-called free market. Government ought to play a role in fostering
a strong industrial base, he argued: “To produce the desirable changes, as early as may be expedient, may therefore require the incitement and patronage of government. There are weighty inducements (in my plan) to prefer the employment of capital at home even at less profit, to an investment of it abroad, though with greater gain.”
Real wealth doesn’t exist until somebody makes something.
A “service economy” is an oxymoron. Only through manufacturing, when R500 worth of iron ore is converted into a R10 000 car door, or R10 worth of raw wool is converted into a R5 000 suit, is real wealth created. There is a clear government role in fostering manufacturing, not just in subsidising it until it could compete on its own, but also in crafting a trade policy that protected local enterprises.
When Reagan came into office, as the result of 190 years of Hamilton’s plan, the US was the world’s largest importer of raw materials; the world’s largest exporter of finished, manufactured goods; and the world’s largest creditor. After 34 years of Reaganomics, the US has completely flipped this upside down. It has become the world’s largest exporter of raw materials, the world’s largest importer of finished goods and the world’s largest debtor. It now exports raw materials to China and buys manufactured goods from them.
China’s 2009 “stimulus package” for example - about the same size as the US’s at around $800 billion - could explicitly only be spent on Chinese-made products from Chinese-owned companies employing only Chinese workers. Ditto for the 2009 Japanese version of “Cash for Clunkers”, which mandated the purchase of exclusively Japanese-made cars.
Of course it has become unfashionable in the 21st century to talk about tariffs. For South Africa, which has been battling with industrial policy after industrial policy, the historical policies of our ugly past left us without any significant domestic industrial base.
First, we need to go exert our force in charging real import taxes to balance the manufacturing costs – a tariff – on goods made overseas that compete with domestic manufacturers, while keeping import taxes low on raw materials that domestic industries need. In short, import duties are used to equalise manufacturing costs and protect domestic industries. Secondly, encourage South Africans to save, so there’s a strong pool of investment capital for businesses to borrow against and grow – the best way to do this is to offer people an above-the-inflation-rate interest rate on savings.
Of course, such protectionist policies would not sit well with some of the multinational conglomerates, whose loyalty is only to their investors and shareholders. A lot of them manufacture products in China and sell them here at a huge profit without giving a damn about the consequences to local workers.
But if we want to create jobs locally, all we need do is with the divine providence given to the so-called “free trade” and go back to what made other countries great – industrialise our economy, protect our industries, provide the kinds of import and export taxes that will help our small industries not be at a disadvantage with regards to manufacturing costs. The time to be bold is now.