Fri | Oct 20, 2017

Why Damien King is wrong

Published:Sunday | August 17, 2014 | 12:00 AM
Ian Boyne

Ian Boyne

It is unfortunate that we can't debate ideas without denigrating the people who put them forward. Often we attack people and not their ideas because we are intellectually intimidated and in our philistinism we resort to the ad hominem rather than engage people intellectually.

The responses to Dr Damien King's In Focus critique of the manufacturing sector and of the Jamaica Manufacturers' Association (JMA) have been largely disappointing. Attacking the man personally, asking how many jobs he has created, 'what he has to show', and engaging in anti-intellectual polemics might only serve to reinforce his view that the manufacturers and their defenders are as vacuous as their protectionist policies. Rather than blasting the highly articulate and formidable University of the West Indies academic for "reading too many textbooks", we could charge that he might not be reading enough of them!

Damien King is a free-market fundamentalist who champions the magic of the market. The State should leave development to the market and it certainly shouldn't be toying with industrial policy. The Gleaner is also on that neo-liberal bandwagon and wasted no time in devoting an editorial to backing King's In Focus piece. Damien King and the editorial writer need to catch up on their reading of both economic and industrial development history, as well as on contemporary economic development.

In chastising presidents past and present of the JMA, Damien begins with Claude Clarke, who in 2002 "called for the Government to build industrial parks that enjoyed duty exemptions for manufacturers". You would have sworn that that was a bad thing, coming from the economics department head. You wouldn't have known that China, whose economic output has grown 35 times over the last 35 years, moving from US$200 billion to US$7 trillion today, has used industrial parks heavily in its industrial strategy. China, the world's largest exporter and manufacturer and the second largest economy in the world, has 900 industrial parks, employing 40 million people.

Most manufacturing in another Asian giant, India, is conducted in industrial parks. Same with fast-growing Vietnam. Yet Claude Clarke's calling for that is cited as an example of myopic thinking.

In the UN Economic Report on Africa 2014, we read that "industrial parks and clusters present a real opportunity for African economies to make the most make of their industrial policy interventions and benefit from multiplier and spillover effects". More than 22 African countries have at least one industrial park. Africa is one of the most dynamic regions in the world, boasting seven of the 10 fastest growing economies in the world today. Yet the continent is utilising what Damien cites as bad policy.

Damien ridicules former JMA President Doreen Frankson's call for special low interest rates for manufacturers. The problem with neo-liberals like Damien King is that they are so ahistorical in their analysis of economic development. What explains an obviously bright man like Damien King's flying so flagrantly in the face of economic history? He must be called out on this, not attacked personally and cowardly.

In Japan, there was state-directed financing and in South Korea and Taiwan there was special financing and concessionary interest for manufacturing. I refer Damien to Joseph Stiglitz and Bruce Greenwald's 660-page tome which has just been published (2014), Creating a Learning Society: A New Approach to Growth Development and Social Progress. This book, as others before it, explodes the neo-liberal, Washington Consensus myths about economic development and the scepticism over trade and industrial polices.

Say the authors: "There is ample evidence that many countries have successfully used trade and industrial policies. Indeed, there are few successful economies in which the Government has not successfully employed industrial and trade policies, broadly understood, including trade restrictions." Korea had outright bans on certain products.

Korea was protectionist and used polices despised by Damien King and other free-market purists. What is the result today? In 1960, South Korea was poorer than Jamaica with a GDP per capita of US$1,000. Then, the average Korean earned less than the average Ghanaian. Half of Korea's manufacturing base was lost because of war. Today, Korea has a per-capita GDP of US$32,800 and is the sixth largest exporter in the world. Say Stiglitz and Greenwald in their commanding new work: "Korea paid little attention to its static comparative advantage. Its static comparative advantage would have led the country to focus on rice farming. Had it followed the dictates of the Washington Consensus (Damien King's philosophy), it would have eschewed industrial policies ... ."

In his tirade, Damien lashes Frankson for wanting competing products to Jamaican manufactures banned. (That must be an exaggeration, but be that as it may). The fact is that not only the Far East, but early industrialisers such as Britain and America also used import control and illiberal trade regimes to fuel their industrialisaion. The policies being foisted on developing countries by the International Monetary Fund and the World Bank were never used to develop high-performing economies.

"Britain, the supposed home of free trade, was one of the most protectionist countries until it converted to free trade in the mid-19th century," says noted economist Ha-Joon Chang in his book Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. "The history of the first globalisation in the late 19th and early 20th centuries have been rewritten today in order to fit the current neo-liberal orthodoxy." Finland, Norway, Italy and Austria did not use neo-liberal strategies to grow their economy. Nor did the United States.

Creating a Learning Society asserts: "... The three primary models of successful development in the 20th century all relied on managed trade regimes: import substitution as practised by a number of countries in the 1960s, outward orientation industrialisation as practised in East Asia in the 1980s, and the state-directed capitalism of China of the 1990s."

The Economic Report on Africa 2014 focuses on industrial policy. It draws on the history of the successful use of industrial policy in East Asia. Says the report: "Singapore has been one of the best examples of state-driven effort to industrialise and to rapidly raise standard of living." Between 1970 and 1990, real manufacturing value added rose seven times and exports in nominal terms increased nearly fiftyfold. At the heart of that transformation was the Economic Development Board (EDB), which coordinated industrial policy.

The EDB would work with companies to find land to build factories, assist in recruiting and training labour, and put in place infrastructure and tax breaks as well as other incentives. This laissez-faire idea of just providing macroeconomic stability and leaving everything to the market is ahistorical and ideological. In Taiwan, another Far East giant, there was the Industrial Development Bureau, which guided industrial development, not wait for any market magic, as is being recommend by Damien and his neo-liberal cohort. Under Taiwan's industrial policy direction, manufacturing expanded by an astounding 650% in real terms and reached almost 40% of GDP between 1970 and 1986.

The Government developed industrial parks that Claude Clarke called for. The IDB worked closely with the private sector, giving business people the facilitation they needed to grow the economy. This is how economic development has worked. Mauritius, one of the most dynamic African economies that have maintained average GDP growth of 5% since independence, has successfully used industrial policy to grow its economy.

Listen, industrial policy and the development state are no panacea. Countries have used those approaches with disastrous results. Many in Africa and Latin America provide glaring examples. Damien has reasons to caution us. In Jamaica, manufacturers have used incentives to advance rent-seeking interests. We have not developed our incentive regimes with accountability and timelines. Companies have stayed too long under protection. We did need a shake-up, and reforms forced by the IMF have been good.

These reforms are necessary but not sufficient. We will see in time that passing IMF tests is not enough and that a more proactive approach is needed to foster economic development.

Ian Boyne is a veteran journalist who works with the Jamaica Information Service. Email feedback to columns@gleanerjm.com and ianboyne1@yahoo.com.