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I'm reading the book The Divide at the moment. It makes the argument that it takes time and the right conditions to build up an industry - infrastructure needs

by m12k 6y ago

I'm reading the book The Divide at the moment. It makes the argument that it takes time and the right conditions to build up an industry - infrastructure needs to be built, education and a skilled labor pool with the necessary know-how as well. To begin with, a fledgling industry in a developing country cannot compete with those of already industrialized countries - these are already so effective that they can undercut newcomers before they have time to become competitive. So the book argues that when developing countries are pressured into free trade agreements (for example by making aid dependent on this), these countries are also forced into a position where they get stuck at the low end of the production value chain, selling raw materials, while buying processed goods from others (often the same role they were forcibly assigned when they were colonies). So much like we allow children time to learn in school before we expect them to compete in the job market, we should allow developing countries to employ protectionistic policies like tariffs, in order to protect and build up their fledgling industries nationally, before fully entering the world market in a couple decades when they are ready.

ClumsyPilot 6y ago
>"we should allow developing countries" Not to pick on you, but I often hear this frasing in the 'first world' and surely you dont 'allow' or 'disallow' internal policies to an sovereign nation? It sounds like a Freudianslip or something, the reality is that its easy to bully or bribe officials in developing nations.
- jariel 6y ago
  WTO has rules, as do nations with agreements in place. 'Allow' implies some degree of forgiveness or allowance of entity on the other side of the table. In this case, Ghana may probably face trade sanction/scrutiny for their protectionism. It will have to play out in terms of other agreements.
  - luxuryballs 6y ago
    collusion for thee but not for me
- bluepizza 6y ago
  > Not to pick on you, but I often hear this frasing in the 'first world' and surely you dont 'allow' or 'disallow' internal policies to an sovereign nation? Not exactly. Between forcing their hand on disadvantageous trade deals, lodging complaints and enforcing restrictions with the WTO, and outright installing dictators and funding militias - allowing or disallowing is all what the first world ever does.
- edflsafoiewq 6y ago
  Free trade is usually done on a tit-for-tat basis. I think the GP is saying they should allow protectionist policies without "tatting".
  - pydry 6y ago
    This is effectively how the US built up the industries of Japan, Taiwan and South Korea. The reason these countries were allowed to do it where others are not was because the US wanted strategically placed powerful allies in the region. There probably wouldn't be a Japanese electronics/car industry, for instance, if the Soviets hadn't spooked the the US in the 40s.
    - dominicl 6y ago
      I'm curious about this argument. Haven't heard the "tiger states" growth attributed solely to US policies. Any links/pointers to those advantages that were granted these states but not other developing countries at the time?
      - sct202 6y ago
        I don't know about solely developed, but South Korea, Taiwan, and Japan did receive substantial amounts of foreign aid in the post-war period. In addition, some of this aid financed land reforms that forced large land owners to break up large holdings and sell to the tenant farmers who previously rented the land. The notoriously small farms in Japan are not a natural free market development.
    - Mat342 6y ago
      That's absolute BS, asians are smart and hardworking, US didn't build them
    - jbay808 6y ago
      The US built those industries only in the same sense that they built Germany's. Japan's industrial base was built before the 40s, with an extensive domestic supply of machine tools and industrial equipment, rail infrastructure, and finished manufactured goods. Or else who do you think was building the planes, ships, and submarines that the allies were fighting on the Pacific front? Their industries were temporarily damaged by the war but it's no surprise that they'd be back to building cars within a couple decades. They, rather than the US, were the ones who built up much of the initial industrial base of Taiwan and Korea, as part of their own colonization efforts. Not out of so much benevolence, of course.
- throwaway210222 6y ago
  "I often hear this [phrasing] in the 'first world' and surely you don't 'allow' or 'disallow' internal policies to an sovereign nation?" Forget about the third-world, right now the USA is not-allowing Germany the right to build a pipeline with Russia! First-world - check, sovereign - check, allies - check.
  - madengr 6y ago
    The USA is not allowing the USA to build a pipeline.
  - dahfizz 6y ago
    > the USA is not-allowing Germany the right to build a pipeline with Russia! The USA is threatening trade sanctions if Germany builds the pipeline. I would not call that "not-allowing". That seems to be OP's whole point. The US is responding as a sovereign nation to actions of other sovereign nations. Phraseology like "allow" and "disallow" are not accurate. If Germany does the cost-benefit analysis and decides to cancel the pipeline because they don't want trade sanctions, that was their decision as an independent nation. It is not as if we are threatening war.
    - throwaway210222 6y ago
      Nonsense. The USA would not have gone to all the trouble to pass legislation to sanction Nordstream2 if they didn't think it would be effective. The USA didn't just do it to voice their displeasure: they could have done that with an email. They truly think its enough of a hammer to stop the pipeline. Hence "won't allow"
    - DiogenesKynikos 6y ago
      The US is exploiting its centrality in the international financial system, though. No other country uses secondary sanctions so extensively to dictate to other countries who they may and may not trade with. When the US pulled out of the Iran nuclear deal, for example, it essentially ordered European companies not to trade with Iran. Even European companies that have no business in the US are afraid to do business with Iran, because American secondary sanctions will still hit them. No European bank will lend to a European company that does business with Iran, out of fear of American sanctions. These sorts of actions will eventually provoke a reaction: either the establishment of alternate financial systems or retaliatory sanctions.
- andrepd 6y ago
  The point is that yes, economically strong countries can and do dictate internal policies of a sovereign nation.
- tsimionescu 6y ago
  I get where you're coming from, but in this case they are completely right to use this phrasing, with exactly the connotation you are talking about: the status quo is that the first world is NOT allowing these countries to run their affairs as they want internally. That is, any developing country is presented with 2 options by the developed world: either accept 'free trade' (allow foreign investors to buy up the local industry, commit to IP laws, don't apply tariffs) or no one will be allowed to trade with you or send you aid. In the meantime, powerful countries are taking numerous protectionist measures in their key industries, since that is the only way to actually be prosperous.
  - btown 6y ago
    > either accept 'free trade' (allow foreign investors to buy up the local industry, commit to IP laws, don't apply tariffs) or no one will be allowed to trade with you or send you aid. Do multi-national trade agreements (which I believe are the core mechanism for this) actually penalize signatories for trading with non-signatories? Or is it more that trade between signatories is so advantaged that no company within a signatory state would be competitive were it to trade with a counterpart in a non-signatory state?
- pietrovismara 6y ago
  That's what the west does all the time. Blackmail poor countries into selling all of their assets to foreign capital, just to gain access to foreign credit. See what's happening in Cuba. See what Vietnam had to do after the war with the US, see Greece with Europe recently, see countless more. The WTO, IMF and the World Bank are the colonizing arm of capitalism. It's a relatively new form of supernational economic warfare that turned out to be very effective, especially when combined with embargoes and economic sanctions. It's the famous "offer one can't refuse".
  - Blackstone4 6y ago
    The way you phrase it, makes it sound like theft...surely, they have to buy the assets and that goes to the owner...the owner then can chose to re-invest locally if they choose to...the capital doesnt just disappear...
    - pietrovismara 6y ago
      > the owner then can chose to re-invest locally if they choose to Only at the conditions imposed by the IMF. Usually that means the state has to steer away from anything that could be profitable and focus only on what is not palatable to foreign capital. It also means states can't apply import taxes, thus making their industries instantly obsolete. It's pretty much a huge transfer of wealth from inside to outside.
      - viro 6y ago
        > Only at the conditions imposed by the IMF. Usually that means the state has to steer away from anything that could be profitable and focus only on what is not palatable to foreign capital. Im going to need a direct example please
        pietrovismara 6y ago
        Just check the IMF page on "Conditionality"[0]. Check the "Prior actions" sections and see "Elimination of price controls" there. Also see this video[1] about Vietnam, around halfway through it explains pretty well how it works. Edit: I realize now you asked about the "forced privatization of industries" sentence. That's thoroughly stressed accross all IMF literature, and you can see it happen in pretty much every country that takes IMF "aid". -[0]: https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/21/28/IMF-Conditionality https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/21... -[1]: https://www.youtube.com/watch?v=mMubOw5H-yo https://www.youtube.com/watch?v=mMubOw5H-yo
- grecy 6y ago
  > Not to pick on you, but I often hear this frasing in the 'first world' and surely you dont 'allow' or 'disallow' internal policies to an sovereign nation? Oh, it's much simpler than that. If an undeveloped (or developing) country doesn't place nice with the "Developed" rules, the IMF will just bankrupt their currency and send them back to the dark ages. Why do you think Switzerland is the world's 3rd biggest exporter of Coffee [1], while not growing a single bean ? .. and Germany is number 5. The IMF doesn't let coffee growing countries like Ethiopia or the Ivory Coast export processed beans, because they want the immense profits going to developed countries. Also the WTO plays a role and just doesn't tax unprocessed raw coffee beans coming out of those poor countries, but taxes processed coffee (and chocolate) goods at astronomical rates. [1] http://www.worldstopexports.com/coffee-exports-country/ http://www.worldstopexports.com/coffee-exports-country/
msg3 6y ago
The Korean economist Ha-Joon Chang makes similar arguments in his book Bad samaritans. He argues that this model was successfully followed by Korea (Samsung, Hyundai, etc), Japan, and even Henry VII in 15th century England - well worth a read.
- thundergolfer 6y ago
  Similar ideas in his 21 Things They Don’t Tell You About Capitalism. That book was really influencing on how I think about economic rhetoric.
zhdc1 6y ago
The Commanding Heights by Yergin and Stanislaw is another good book that makes a similar argument.
jariel 6y ago
So Saudi Arabia, UAE, Canada and Saudi Arabia are 'stuck' selling natural resources? I think it's probably a much better plant to extract a good deal of wealth from the natural resource and invest it in other areas of higher value creation, even in the same vertical. There's a good chance that Ghana's policies are needlessly constrained. More obviously there are 100 things Ghana could do to improve living conditions in more obvious areas i.e. corruption etc.. Consider the immediate situation: Ghana's exporters have just been banned from exporting. They are going to go out of business very soon. Ghana doesn't have all of the layers of industry necessary to support development and export of products i.e. there are no market buyers at any reasonable price. Result: collapse of the industry - unless somehow the Government of Ghana can artificially inflate prices and keep them alive for a very long time while domestic partners somehow magically are able to get off their feet. This plan feels not very well conceived. I'll bet something is lurking under the surface.
- msg3 6y ago
  By itself, it's probably not a good idea. If the government supports the development of a chocolate production industry, including support for cocoa exporters, then it has every chance of success.
  - jfim 6y ago
    It might, and it might not. Even though Japan also makes some fine watch movements, Swiss ones command a premium over the Japanese ones. I'd assume that this would be similar for chocolate.
    - rout39574 6y ago
      If Ghana were to position itself as the 'Casio' or 'Seiko' of chocolate, I expect they'd tolerate the fact that there was a still an Omega out there. And with the Casio profits, they could make a reasonable run at unseating Swiss chocolate in another century or so.
- zorked 6y ago
  Do you have any specific knowledge about Ghanaian industry or is this just your opinion? Can you provide some sources for your claims?
oblio 6y ago
> So the book argues that when developing countries are pressured into free trade agreements This should have been obvious since the Opium Wars and the Opening of Japan (see Commodore Matthew Perry). All developed countries are pro free trade for markets where they are strong and fiercely protectionist where they are not (or they consider those markets strategic priorities). I'm from Romania. Romania joined the EU in 2007, so we had to liberalize everything. It has generally been good for us (higher wages, economic growth, overall development), but I know all the German, French, Belgian supermarket chains. Do you know why I know them? Because there are 0 (zero!) local supermarket chains left. They've all been bought by foreign companies. Similar story for banks, car companies, whatever. During the 2008 economic crisis Erste, Austrian banking group, repatriated all the local profits (from BCR, former major Romanian bank) to Austria so that the local banks would not be impacted. Similar story for OMV, Austrian oil and gas group (from Petrom, former major Romanian oil and gas company). It's a mixed bag, really. You need some foreign investment to kickstart things, but if you don't start blocking stuff off, you'll never go over the middle income barrier, at best. At worst you practically become someone else's colony, or in the olden days, you actually were their colony (and what happened in Bengal in 1941 and Ireland in the 1800s comes to mind).
- DSingularity 6y ago
  WW3 was fought with soft power and economics. Now some countries own other countries and nobody is complaining.
  - smolder 6y ago
    I hear quite a lot of complaints from all sorts of people about their economic victimhood. I've got complaints myself about what global economics are doing for our prospects as a species.
  - baryphonic 6y ago
    Considering that at the end of WWII, large swathes of global population were subject to colonial rule, particularly in Africa and Asia, I wonder how the current situation you describe compares.
lr4444lr 6y ago
Okay, but if local goods can't be produced at a price that is commensurately low, then the fledgingly country's wage earners have their purchasing power reduced, with less discretionary income to further their own educational and business pursuits. I think this thesis you are referring to takes for granted that the tariffs are going to be responsibly used by the governing class setting them to invest in the long term prospects of their people and not siphoned off into corrupt ends. That's a pretty tall assumption.
- m12k 6y ago
  Correct, the lower priced international goods help give the population of developing countries more purchasing power with their low wages, but at the cost of those wages never going up significantly. They get stuck in a local optimum - and unfortunately, yes, in order to escape from one of those, the first steps will always be toward something less optimal.
- pydry 6y ago
  >if local goods can't be produced at a price that is commensurately low, then the fledgingly country's wage earners have their purchasing power reduced If the industry they work in can't compete their entire income is reduced to zero. That can knock out related industries as well and ultimately leave the country exposed to currency collapse and hyperinflation as the exporting countries decide that this country has nothing it really wants any more while they still desperately need imports. This happened to Venezuela (after local industrialists declared war on Chavez in 2002 he effectively set out to destroy them) and Zimbabwe (when Muagabe dispossessed farmers from their land, rendering it unproductive). The US is also exposed to this risk. It's steadily but very slowly losing hi tech manufacturing capabilities - something that takes decades to get back once lost (due to the network effect and loss of skills).
  - tshaddox 6y ago
    > If the industry they work in can't compete their entire income is reduced to zero. But I thought we're talking about a time period before that industry even exists.
osacial 6y ago
That's a complete nonsense on how things work in reality. The biggest problem for Africa is that MARKET of anything that they are selling is in Europe and US. They can demand anything they want(which is simple racket and anyone despises these things in business), and it all will simply end with some startup in Cali who will start to grow cocoa beans in vertical farms or some other African country will become cocoa exporter Nr1 in the world. ANY developing European country in history started with offering raw materials and very quickly invested into manufacturing and producing good quality products. There are no obstacles for Ghana to do the same. At the moment you can see some poor European countries with industry and skilled workforce and they all have poor results because of corruption. Something tells me, that it will be the same for Ghana.
- nerdponx 6y ago
  Demanding a greater % of the final value of a good is a racket? And you really think that Ghana's cocoa superiority will be upended by some American startup? That's laughable, and certainly not enough of a credible threat to keep Ghana under the boot of economic imperialism.
  - SyzygistSix 6y ago
    Ghana has superiority regarding quantity, however historically the quality has been low. This is changing due to US startups cooperating with growers in Ghana and elsewhere to improve the quality, as well as use less exploitative labor, as there is a lack of quality fair trade cacao.
- SyzygistSix 6y ago
  This doesn't really reflect the reality of the cacao market or the chocolate making industry, which is rapidly changing. Countries like Ghana used to be held over a barrel regarding price. They produce low quality cacao usng extremely exploited labor to provide mass quantities to multinationals making low quality chocolate,like Nestle, Dove, Ghiardelli, etc. Lately there is a lack of high quality, "fair trade" cacao for the growing high quality chocolate industry, which has taken to helping growers develop to be able to provide what they need. Not good news for the low quality producers, which, broadly speaking, are in Europe, which has been resting on its laurels and reputation while the state of the art has rapidly been improved by small, but growing companies. I don't know for certain but this may be part of the reason Ghana is refusing to sell to Switzerland. I do know that the company I worked for recently began buying cacao from Ghana. And that is certainly partly due to the quality increasing significantly.
emodendroket 6y ago
This was Alexander Hamilton's idea and was in fact largely the US strategy in large part.
enriquto 6y ago
> So much like we allow children time to learn in school before we expect them to compete in the job market, we should allow developing countries to employ protectionistic policies This sounds a bit paternalistic and condescending. I guess that first and foremost the "first world" should stop financing horrible dictatorships and wars in the ex-colonies. That would be a good, honest start.
- flavius29663 6y ago
  > should stop financing horrible dictatorships When you do that and even take down the dictator (Gadafi), you end up with a worse government, or no government at all. We can all agree Saddam Hussein was a horrible dictator supported by the US, look at Iraq now, is it better off without Saddam? There is no clear cut, and it seems like whatever the west is doing or abstaining from doing it's going to attract hate. We all hate that the Saudis are free to be horrible, but what is the alternative? A new Iraq? What if you just let them be, you might say? Then you end up with 8 year long wars like Iran-Iraq. Or with genocide like in Yugoslavia in the 90s. I think we can all agree China is a horrible dictatorship, how exactly can we stop financing it, since we rely so much on their factories?
  - enriquto 6y ago
    I suppose you are being sarcastic. In that case I agree with you.
  - dane-pgp 6y ago
    > We all hate that the Saudis are free to be horrible, but what is the alternative? A new Iraq? That's a false dichotomy. I think that many people who oppose the war in Yemen would settle for an end to military support and arms sales to Saudi Arabia, and possibly other economic sanctions. Whether that would lead to a positive outcome for Yemen, though, is another question, and highlights your point about the problems of abstaining.
  - imtringued 6y ago
    >I think we can all agree China is a horrible dictatorship, how exactly can we stop financing it, since we rely so much on their factories? Build a second set of factories in a different country.
conjectures 6y ago
If you've not read it, 'Kicking Away the Ladder' by Ha-Joon Chang is a great book on this topic. It has a good deal of historical detail on what developed countries did themselves to become developed with respect to IP and protection.
sandworm101 6y ago
>> a fledgling industry in a developing country cannot compete with those of already industrialized countries Except that often they do. With lower safety/environmental standards, lower wages, and lower expectations many "developing" countries can undercut the labor markets of developed countries, operating advanced manufacturing at far reduced costs. Many would ague that is exactly how China has risen to power. A reliance on export of raw resources is also no telltale of a country still "developing" its economy. Canada is heavily dependent on resource extraction and export. Canada is also a former colony. But would anyone here dare say Canada is a "developing" economy?
- pietrovismara 6y ago
  > With lower safety/environmental standards, lower wages Well, no, thanks. I'd rather not be forced to enslave my people in order to compete with western capitalism.
  - ISL 6y ago
    The people of some countries are already enslaved by poverty and corruption. The pragmatic question is: will attracting outside capital improve the situation of the populace or not?
  - Mauricebranagh 6y ago
    Its not like those countries would have had higher labour standards in the first place.
  - imtringued 6y ago
    Rich people get to choose, poor people must obey. Why would you voluntarily decide to stay poor if you had the choice to become rich?
    - mbg721 6y ago
      The freedom of no longer spending resources keeping up with the Joneses?
- 6y ago
throwaway9870 6y ago
Perhaps, but Asia does pretty well. Korea, China, Taiwan, Vietnam, etc. all did amazing development in the last 30-60 years. The reality is that some cultures are better at it than others. Compare China to India for example.
- jeffreyrogers 6y ago
  They followed the policies the OP is talking about though. That's their point: you need to protect your exporting industries early on so they can develop and become efficient. Then you can protect them less as they become higher quality/more productive. All of the countries you listed did this. India has a bunch of economic problems, many of which are self inflicted.
- triceratops 6y ago
  > The reality is that some cultures are better at it than others That's extremely lazy reductionism. You're talking about countries of wildly different sizes (Taiwan is tiny, Japan is medium-sized, China is gargantuan), starting from wildly different levels of development (Japan was developed pre-WW2, India and China were in abject poverty), with wildly different levels of homogeneity and diversity (Japan is highly homogenous, China less so, India not at all), diplomatic alignments (Japan with the US, China with the Soviets, India in the third world), resources (Japan with zero, India with quite a fair bit), availability of capital (Japan, Taiwan and South Korea with quite a fair bit, India with very little, don't know about China), political systems (government-managed free market in Japan, autocracy transitioning to a democracy in Taiwan and S Korea, socialism in India, full communism until 1980s-1990s in China).
- throwaway776543 6y ago
  What’s also interesting is South Korea and Taiwan developed during their authoritarian phase. You can probably throw Singapore into that group too.
tashoecraft 6y ago
The book “How Asian Works” touched on this as well. A combination of promoting/subsidizing local industries whilst pushing them to be competitive on the global stage can do great things
vlan0 6y ago
Life and Debt is another good example. http://lifeanddebt.org/ http://lifeanddebt.org/
tim333 6y ago
When I was younger tariffs were popular in developing countries but they seldom seemed to produce much prosperity - quite the contrary really. Maybe if you apply the tariffs very intelligently but most developing countries are not blessed with great non corrupt governments. The >pressured into free trade agreements (for example by making aid dependent on this) is kind of telling. A lot of the long time free trading countries like HK and Singapore don't need aid. It's often the tarrifs that make places poor enough to need that.
- Mauricebranagh 6y ago
  And even today you can see NH users in south America facing eyewatering taxes on computer hardware.
  - tim333 6y ago
    Which is the kind of thing that hobbles the economy - it's not like those counties are building their own Intels and Apples as a result of the tariffs.
    - martinald 6y ago
      Yeah exactly. I think the idea of protectionism to kick start the economy probably worked a lot better in the 20th century. In a reasonable space of time you could clone a lot of the products you need and then start exporting. Take cloning a 1970s car vs an electric one from 2021. While not trivial, I feel if you can make, stamp and weld steel you are half way there for the 1970s. For an electric car you need an enormous supply chain of batteries, microelectronics and all kinds of safety features, etc etc. It's so complicated that big car makers now basically just have one platform of car they base dozens of models off. However, it's not all bad. China's one child policy is really going to start biting them over the next 10-20 years (and even though they've reduced it now it's hard to see the mindset ever changing) and there will be an enormous demand for cheap labour, which I expect Africa to provide.
      - 6y ago
ReadFList 6y ago
>To begin with, a fledgling industry in a developing country cannot compete with those of already industrialized countries >these countries are also forced into a position where they get stuck at the low end of the production value chain, selling raw materials, while buying processed goods from others (often the same role they were forcibly assigned when they were colonies Basically what Friedrich List [1] wrote in 1841 [2], and being proven correct time and time again while we completely disregard it. Now you can even go further and ask yourselves if what is happening in the West by moving all the factories and manufacturing to China and neighbouring countries isn't exactly like the Colonization of the Americas by the British. It wasn't luck that made the USA Great. It was the best stock from Europe who come up with the American School [3], and we can now see the tragic consequences of abandoning it for "free" trade. If a country imports manufactured goods and exports raw materials, it is a colony. [1] https://en.wikipedia.org/wiki/Friedrich_List https://en.wikipedia.org/wiki/Friedrich_List [2] https://archive.org/details/nationalsystemp00nichgoog https://archive.org/details/nationalsystemp00nichgoog [3] https://en.wikipedia.org/wiki/American_School_(economics) https://en.wikipedia.org/wiki/American_School_(economics)
- Mat342 6y ago
  Honestly I don't think americans can outcompete Japan, Korea Taiwan or China. Maybe they keep accepting fake printed USD for real stuff in the future
  - ReadFList 6y ago
    Lot's of people said the same about the USA becoming economically independent of the all powerful British Empire. And yet the USA did it. Alexander Hamilton's influence goes way beyond inspiring a ridiculous musical for an attempt to capture that historical personality and distort his positions so nobody would read his writings. There is a vast difference between not being possible, and the interlopers we call "the elites" not wanting to do it because they have other interests that don't overlap with the Nation's interests.
- devdas 6y ago
  It was a lot of luck. Today, you would need access to oil for energy (which needs USD), and far more complex technology, which needs money to acquire. The US could also support massively extractive industries internally. Most countries can't do that.
zfs 6y ago
Is the difference between developing and developed countries really the lack of tariffs or is it due to poor governance? I feel like the reason why countries are always so pro-tariff is because the benefits of tariffs go towards a small group of people, whereas the cost of tariffs are diffused. But small costs add-up and if you start applying the tariffs to other industries then you start seeing the impacts in the cost of goods. What are the examples where protecting a country from exports for a few decades then opening it up to competition actually produced a world-class industry? Singapore is an example of a country that has been pro free-trade and has benefited as a result.
- devdas 6y ago
  South Korea. China. The US. The UK. Singapore has pretty much no manufacturing.
  - refurb 6y ago
    Singapore has one of the largest petrochemical refineries in Asia by throughput. It also has a very large pharmaceutical manufacturing base. No doubt there are other industries I don’t know about.
- devdas 6y ago
  In fact, if you want actual free trade, then trade in labour must also be freely allowed. Freedom of movement to everyone, as inside the EU, would make even more sense. Every country is rather protective of that though.
mrkramer 6y ago
Developing countries lack proper legal system where laws are based on property rights and market economy. That's why mentality of African people for example can not change and can not embrace capitalism. I would suggest you to read Hernando De Soto - The Mystery Of Capital: Why Capitalism Triumphs In The West And Fails Everywhere Else The book argues "it actually has everything to do with the legal structure of property and property rights. Every developed nation in the world at one time went through the transformation from predominantly informal, extralegal ownership to a formal, unified legal property system. In the West we've forgotten that creating this system is also what allowed people everywhere to leverage property into wealth." [1] Book is in the public domain: [1] https://archive.org/details/Hernando_De_Soto_The_Mystery_Of_Capital_Why_Capitalism_TriumphsIn_The_West_And_Fails_Everywhere_Else https://archive.org/details/Hernando_De_Soto_The_Mystery_Of_... Once the China for instance embraced capitalism and changed their legal system to allow private property ownership and allow market economy they thrived. Plus allowing American companies to come and exploit cheap work force they acquired "know-how" by now widely known and familiar stealing of intellectual property and copying literally everything they put their hands on.
totalZero 6y ago
> when developing countries are pressured into free trade agreements (for example by making aid dependent on this) "forced" is probably not the right word. "baited" is better. The developed world uses aid/loans to manipulate policy in the developed world, by targeting desperation. Make loans that the recipient cannot repay, then offer to restructure if they will comply with certain conditions. This is why the IMF exists.
- bingbong70 6y ago
  "The developed world uses aid/loans"/coups/assassinations/currency-debasement-attacks
nickik 6y ago
I don't think this is actually true. IF you go threw all the history of development economics, sure its easy to point out 'X government did X and look at that, now they are successful at X'. However that is selection bias, government and international development agencies tried literally everything, many things 10 times, often over years and years. Often wasting resources that then didn't go into their successful part of the economy. Quite often governments also do lead following, they do something, something else is successful, then more money flows into that and then a few years later all the bureaucrats congratulate themselves on their success. We actually have pretty good and very clear numbers on what actually works. Basically it boils down to 'don't be a shit government' and if you manage that you will have some amount pretty good amount of growth. Avoid a few idioitic policies, implement the basic of law and business (property rights), don't punish successful people, don't be ultra protectionist. Any country that manages that usually manages to get a fair amount of growth. It might not be growth in Steel industry but better more efficient framing, mining, tourism, labor intensive industry and stuff like that are still very helpful base to build up the basic infrastructure and business environment. The old Post-WW2 version of 'lets not import steel, invest many billions in building our own steel industry' kind of plans actually have a terrible history of success. But this debate has been raging for 3000 years now, in modern history mercantilism vs free market debate, then the socialism vs capitalism debate (calculation debate), then Post-WW2 development of 'Development economics' that had all these debates again. Look at India, and its strange 'Indian Socialism' based on many British ideas. > So much like we allow children time to learn in school before we expect them to compete in the job market Mostly what we are actually doing for most jobs is kids basically showing that they can be good little workers and have basic social skills. For a country this would basically be, show that you respect basic property rights, don't have polices that make creating a business impossible, be reasonable accessible to global market. If you can do that, welcome to being adult, you will likely be reasonably successful. > we should allow developing countries to employ protectionistic policies like tariffs Allow them sure, who are we to deny them. But that doesn't mean its a good idea most of the time.
valuearb 6y ago
This is of course silly. Slowing your rate of growth now does nothing to make you grow faster later.
sam1r 6y ago
This is well written. Nice metaphors and thank you.
rsj_hn 6y ago
This is called the "infant industry" argument, and it has been made since at least the 16th Century, most famously by Antonio Serra, a proto-mercantilist. This idea of raising tarrifs on imports and then using the money to protect domestic industries has been tried in Latin America in the 60s and 70s, in Africa, and in many places. The results are mixed. The problem with infant industry is that you get a group of local monopolies protected by the government who sell expensive low quality goods to the public, people get sick of it, they want the lower priced better foreign goods as it will increase their quality of life, and at some point there is sufficient political pressure to force a regime change. Another way of saying this is that the infant industries often fail to grow up, they remain protected infants forever. On the other hand, if you don't protect your infant industries, then you have no chance against mature foreign competitors, as you point out. Then there is a third aspect to this, which is that foreign governments, especially East Asian governments (not only China, but China is the biggest offender) massively subsidize domestic industries and so you have to subsidize and protect your industries in return, or they will be destroyed by competitors who never need to turn a profit, or repay a loan, or meet any environmental regulations, or deal with unions, etc. So it's a tough call. All these theories have valid points, but they all have fatal flaws. For the last few years, I've come around to the following mantra, which is my own development philosophy: * every country should have a long run balance of payments. That means all trade should be balanced. * countries should make investments in local productive capacity, but not subsidize industries per se * countries should not allow foreign companies to set up factories or purchase capital or land. Each nation's assets should be owned by their own citizens only. * With the above caveats, there should be free trade and no industry protection. What this means, in practice, is banning foreign capital inflows. Have your own currency, borrow only in your own currency from your own people, and don't allow foreigners to purchase your bonds, stocks, land, private debt, or productive capital. But trade all you want with them. As long as you do that, your currency will depreciate sufficiently to prevent any flood of cheap imports, and your domestic industries will have a chance.
- IG_Semmelweiss 6y ago
  I tend to agree. The issue with capital or land is that you are taking another country's tender that may be debased in exchange for capital/land that your own citizens are priced out of (due to other countries running the printing press). This is why it is prudent to lock up certain assets (land / long lived assets) to citizens of the country. This is where china succeeded. You go in, you give up IP and share %, and they get a piece of the action. Free trade benefits everyone for pennies. However, the makers / artisans (shoemakers, etc) always lose out big. So free trade is a net winner but creates very unbalanced losers. Ultimately there is an argument for compassion against free trade, which fits squarely with your arguments.
Siira 6y ago
Theory is not trustworthy. Here in Iran, we have had extreme protectionist policies for decades in, e.g., cars, and all it has done is made the car factory owners rich while car quality stagnates and regresses, and prices keep rising.
- jopsen 6y ago
  I think GP argues that poor countries should be allow to have protectionism while being able export goods without tariffs. I doubt that's the situation Iran is in.. it more like isolation. Because Iranian car manufacturers have no ability to import machines, or try to and export cars. I would imagine they aren't pushed to compete with foreign competitors.. and once sanctions disappear they will disappear with them. If Iran wasn't sanctioned, could import machinery, and was allowed to export cars without cribbling tariffs, while it could forbid import of cars. Then maybe car manufacturers would get good enough to compete internally. Or at least that's the theory GP is arguing, as I understand it. Maybe, it holds up, being able to do protectionism without retaliation might be beneficial. Or maybe it would just lead to a inefficiet car industry that never manages to export anything, and is only continues to exist due to protectionism.. I don't know -- but protectionism might not be the way to create efficient industries. Or maybe it can be?
pgsimp 6y ago
It sounds like reinventing the wheel. Why not import the knowledge, rather than develop it again from scratch? Maybe you can imagine it could work with chocolate, but take something more complicated like cars, computers or phones. It seems absurd to demand non-industrialized countries should develop all those things by themselves, while developed nations stand by. At the very least it would take decades, while people in the developing country remain poor. Also, I take issue with the formulation "when developing countries are pressured into free trade agreements" - it is still simply a trade, "withholding aid" is not different from a sum of money offered in a trade. "pressured into it" is leftist propaganda.
- imtringued 6y ago
  >It sounds like reinventing the wheel. Why not import the knowledge, rather than develop it again from scratch? This is why you should let foreign investors into your country. If Switzerland would build chocolate factories in Ghana everyone would be happy and in 30 years non Swiss chocolate industry would grow organically until the Swiss companies can no longer compete.
taurath 6y ago
We’ve overthrown countries to protect that in the past. Developed countries honesty care little past having access to cheap goods, and any rhetoric that says otherwise needs to be proven in spades before it should be believed
agumonkey 6y ago
this one https://www.jasonhickel.org/the-divide https://www.jasonhickel.org/the-divide ?
testrun 6y ago
South Korea must be an exception to '...a fledgling industry in a developing country cannot compete with those of already industrialized countries..'. The electronics industry in Japan and the USA was already well established before South Korea started out. China too, for that matter.
- monocasa 6y ago
  SK and China employ protectionist policies of the type that the IMF and World Bank forbid in order to get loans.
29athrowaway 6y ago
> So much like we allow children time to learn in school before we expect them to compete in the job market, we should allow developing countries to employ protectionistic policies like tariffs, in order to protect and build up their fledgling industries nationally, before fully entering the world market in a couple decades when they are ready. Let X be an industrialized country, and Y be the one exporting raw materials. There are many tea plantations in Y. Companies from X own those plantations. They take the tea that is produced for some few cents, process it, put it in teabags, put the teabags in a well designed box, and then sell it across the world for a much higher value than whatever the cost of producing the plants was in Y. Most of the money goes to people in X. Now what is we do what you say? then, companies from Y would be selling the boxed tea bags themselves. None of the money would go to X anymore. X exchanges its money for Y's tea. In fact, X exchanges all of its money for other products from other countries as well. X now falls into a trade deficit.
refurb 6y ago
Singapore developed very rapidly despite opening themselves up to international trade quite early. The only competitive advantage Singapore had was rule of law and stability.
- imtringued 6y ago
  It's pretty sad that Tunisia and Morocco are the only north African countries with a low corruption index (and by low I mean relative to other African countries). Considering how close they are to Europe it's a waste of a continent.

by m12k 6y ago

ClumsyPilot 6y ago

>"we should allow developing countries" Not to pick on you, but I often hear this frasing in the 'first world' and surely you dont 'allow' or 'disallow' internal policies to an sovereign nation? It sounds like a Freudianslip or something, the reality is that its easy to bully or bribe officials in developing nations.

jariel 6y ago
WTO has rules, as do nations with agreements in place. 'Allow' implies some degree of forgiveness or allowance of entity on the other side of the table. In this case, Ghana may probably face trade sanction/scrutiny for their protectionism. It will have to play out in terms of other agreements.
- luxuryballs 6y ago
  collusion for thee but not for me
bluepizza 6y ago
> Not to pick on you, but I often hear this frasing in the 'first world' and surely you dont 'allow' or 'disallow' internal policies to an sovereign nation? Not exactly. Between forcing their hand on disadvantageous trade deals, lodging complaints and enforcing restrictions with the WTO, and outright installing dictators and funding militias - allowing or disallowing is all what the first world ever does.
edflsafoiewq 6y ago
Free trade is usually done on a tit-for-tat basis. I think the GP is saying they should allow protectionist policies without "tatting".
- pydry 6y ago
  This is effectively how the US built up the industries of Japan, Taiwan and South Korea. The reason these countries were allowed to do it where others are not was because the US wanted strategically placed powerful allies in the region. There probably wouldn't be a Japanese electronics/car industry, for instance, if the Soviets hadn't spooked the the US in the 40s.
  - dominicl 6y ago
    I'm curious about this argument. Haven't heard the "tiger states" growth attributed solely to US policies. Any links/pointers to those advantages that were granted these states but not other developing countries at the time?
    - sct202 6y ago
      I don't know about solely developed, but South Korea, Taiwan, and Japan did receive substantial amounts of foreign aid in the post-war period. In addition, some of this aid financed land reforms that forced large land owners to break up large holdings and sell to the tenant farmers who previously rented the land. The notoriously small farms in Japan are not a natural free market development.
  - Mat342 6y ago
    That's absolute BS, asians are smart and hardworking, US didn't build them
  - jbay808 6y ago
    The US built those industries only in the same sense that they built Germany's. Japan's industrial base was built before the 40s, with an extensive domestic supply of machine tools and industrial equipment, rail infrastructure, and finished manufactured goods. Or else who do you think was building the planes, ships, and submarines that the allies were fighting on the Pacific front? Their industries were temporarily damaged by the war but it's no surprise that they'd be back to building cars within a couple decades. They, rather than the US, were the ones who built up much of the initial industrial base of Taiwan and Korea, as part of their own colonization efforts. Not out of so much benevolence, of course.
throwaway210222 6y ago
"I often hear this [phrasing] in the 'first world' and surely you don't 'allow' or 'disallow' internal policies to an sovereign nation?" Forget about the third-world, right now the USA is not-allowing Germany the right to build a pipeline with Russia! First-world - check, sovereign - check, allies - check.
- madengr 6y ago
  The USA is not allowing the USA to build a pipeline.
- dahfizz 6y ago
  > the USA is not-allowing Germany the right to build a pipeline with Russia! The USA is threatening trade sanctions if Germany builds the pipeline. I would not call that "not-allowing". That seems to be OP's whole point. The US is responding as a sovereign nation to actions of other sovereign nations. Phraseology like "allow" and "disallow" are not accurate. If Germany does the cost-benefit analysis and decides to cancel the pipeline because they don't want trade sanctions, that was their decision as an independent nation. It is not as if we are threatening war.
  - throwaway210222 6y ago
    Nonsense. The USA would not have gone to all the trouble to pass legislation to sanction Nordstream2 if they didn't think it would be effective. The USA didn't just do it to voice their displeasure: they could have done that with an email. They truly think its enough of a hammer to stop the pipeline. Hence "won't allow"
  - DiogenesKynikos 6y ago
    The US is exploiting its centrality in the international financial system, though. No other country uses secondary sanctions so extensively to dictate to other countries who they may and may not trade with. When the US pulled out of the Iran nuclear deal, for example, it essentially ordered European companies not to trade with Iran. Even European companies that have no business in the US are afraid to do business with Iran, because American secondary sanctions will still hit them. No European bank will lend to a European company that does business with Iran, out of fear of American sanctions. These sorts of actions will eventually provoke a reaction: either the establishment of alternate financial systems or retaliatory sanctions.
andrepd 6y ago
The point is that yes, economically strong countries can and do dictate internal policies of a sovereign nation.
tsimionescu 6y ago
I get where you're coming from, but in this case they are completely right to use this phrasing, with exactly the connotation you are talking about: the status quo is that the first world is NOT allowing these countries to run their affairs as they want internally. That is, any developing country is presented with 2 options by the developed world: either accept 'free trade' (allow foreign investors to buy up the local industry, commit to IP laws, don't apply tariffs) or no one will be allowed to trade with you or send you aid. In the meantime, powerful countries are taking numerous protectionist measures in their key industries, since that is the only way to actually be prosperous.
- btown 6y ago
  > either accept 'free trade' (allow foreign investors to buy up the local industry, commit to IP laws, don't apply tariffs) or no one will be allowed to trade with you or send you aid. Do multi-national trade agreements (which I believe are the core mechanism for this) actually penalize signatories for trading with non-signatories? Or is it more that trade between signatories is so advantaged that no company within a signatory state would be competitive were it to trade with a counterpart in a non-signatory state?
pietrovismara 6y ago
That's what the west does all the time. Blackmail poor countries into selling all of their assets to foreign capital, just to gain access to foreign credit. See what's happening in Cuba. See what Vietnam had to do after the war with the US, see Greece with Europe recently, see countless more. The WTO, IMF and the World Bank are the colonizing arm of capitalism. It's a relatively new form of supernational economic warfare that turned out to be very effective, especially when combined with embargoes and economic sanctions. It's the famous "offer one can't refuse".
- Blackstone4 6y ago
  The way you phrase it, makes it sound like theft...surely, they have to buy the assets and that goes to the owner...the owner then can chose to re-invest locally if they choose to...the capital doesnt just disappear...
  - pietrovismara 6y ago
    > the owner then can chose to re-invest locally if they choose to Only at the conditions imposed by the IMF. Usually that means the state has to steer away from anything that could be profitable and focus only on what is not palatable to foreign capital. It also means states can't apply import taxes, thus making their industries instantly obsolete. It's pretty much a huge transfer of wealth from inside to outside.
    - viro 6y ago
      > Only at the conditions imposed by the IMF. Usually that means the state has to steer away from anything that could be profitable and focus only on what is not palatable to foreign capital. Im going to need a direct example please
      - pietrovismara 6y ago
        Just check the IMF page on "Conditionality"[0]. Check the "Prior actions" sections and see "Elimination of price controls" there. Also see this video[1] about Vietnam, around halfway through it explains pretty well how it works. Edit: I realize now you asked about the "forced privatization of industries" sentence. That's thoroughly stressed accross all IMF literature, and you can see it happen in pretty much every country that takes IMF "aid". -[0]: https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/21/28/IMF-Conditionality https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/21... -[1]: https://www.youtube.com/watch?v=mMubOw5H-yo https://www.youtube.com/watch?v=mMubOw5H-yo
grecy 6y ago
> Not to pick on you, but I often hear this frasing in the 'first world' and surely you dont 'allow' or 'disallow' internal policies to an sovereign nation? Oh, it's much simpler than that. If an undeveloped (or developing) country doesn't place nice with the "Developed" rules, the IMF will just bankrupt their currency and send them back to the dark ages. Why do you think Switzerland is the world's 3rd biggest exporter of Coffee [1], while not growing a single bean ? .. and Germany is number 5. The IMF doesn't let coffee growing countries like Ethiopia or the Ivory Coast export processed beans, because they want the immense profits going to developed countries. Also the WTO plays a role and just doesn't tax unprocessed raw coffee beans coming out of those poor countries, but taxes processed coffee (and chocolate) goods at astronomical rates. [1] http://www.worldstopexports.com/coffee-exports-country/ http://www.worldstopexports.com/coffee-exports-country/

msg3 6y ago

The Korean economist Ha-Joon Chang makes similar arguments in his book Bad samaritans. He argues that this model was successfully followed by Korea (Samsung, Hyundai, etc), Japan, and even Henry VII in 15th century England - well worth a read.

thundergolfer 6y ago
Similar ideas in his 21 Things They Don’t Tell You About Capitalism. That book was really influencing on how I think about economic rhetoric.

zhdc1 6y ago

The Commanding Heights by Yergin and Stanislaw is another good book that makes a similar argument.

jariel 6y ago

So Saudi Arabia, UAE, Canada and Saudi Arabia are 'stuck' selling natural resources? I think it's probably a much better plant to extract a good deal of wealth from the natural resource and invest it in other areas of higher value creation, even in the same vertical. There's a good chance that Ghana's policies are needlessly constrained. More obviously there are 100 things Ghana could do to improve living conditions in more obvious areas i.e. corruption etc.. Consider the immediate situation: Ghana's exporters have just been banned from exporting. They are going to go out of business very soon. Ghana doesn't have all of the layers of industry necessary to support development and export of products i.e. there are no market buyers at any reasonable price. Result: collapse of the industry - unless somehow the Government of Ghana can artificially inflate prices and keep them alive for a very long time while domestic partners somehow magically are able to get off their feet. This plan feels not very well conceived. I'll bet something is lurking under the surface.

msg3 6y ago
By itself, it's probably not a good idea. If the government supports the development of a chocolate production industry, including support for cocoa exporters, then it has every chance of success.
- jfim 6y ago
  It might, and it might not. Even though Japan also makes some fine watch movements, Swiss ones command a premium over the Japanese ones. I'd assume that this would be similar for chocolate.
  - rout39574 6y ago
    If Ghana were to position itself as the 'Casio' or 'Seiko' of chocolate, I expect they'd tolerate the fact that there was a still an Omega out there. And with the Casio profits, they could make a reasonable run at unseating Swiss chocolate in another century or so.
zorked 6y ago
Do you have any specific knowledge about Ghanaian industry or is this just your opinion? Can you provide some sources for your claims?

oblio 6y ago

> So the book argues that when developing countries are pressured into free trade agreements This should have been obvious since the Opium Wars and the Opening of Japan (see Commodore Matthew Perry). All developed countries are pro free trade for markets where they are strong and fiercely protectionist where they are not (or they consider those markets strategic priorities). I'm from Romania. Romania joined the EU in 2007, so we had to liberalize everything. It has generally been good for us (higher wages, economic growth, overall development), but I know all the German, French, Belgian supermarket chains. Do you know why I know them? Because there are 0 (zero!) local supermarket chains left. They've all been bought by foreign companies. Similar story for banks, car companies, whatever. During the 2008 economic crisis Erste, Austrian banking group, repatriated all the local profits (from BCR, former major Romanian bank) to Austria so that the local banks would not be impacted. Similar story for OMV, Austrian oil and gas group (from Petrom, former major Romanian oil and gas company). It's a mixed bag, really. You need some foreign investment to kickstart things, but if you don't start blocking stuff off, you'll never go over the middle income barrier, at best. At worst you practically become someone else's colony, or in the olden days, you actually were their colony (and what happened in Bengal in 1941 and Ireland in the 1800s comes to mind).

DSingularity 6y ago
WW3 was fought with soft power and economics. Now some countries own other countries and nobody is complaining.
- smolder 6y ago
  I hear quite a lot of complaints from all sorts of people about their economic victimhood. I've got complaints myself about what global economics are doing for our prospects as a species.
- baryphonic 6y ago
  Considering that at the end of WWII, large swathes of global population were subject to colonial rule, particularly in Africa and Asia, I wonder how the current situation you describe compares.

lr4444lr 6y ago

Okay, but if local goods can't be produced at a price that is commensurately low, then the fledgingly country's wage earners have their purchasing power reduced, with less discretionary income to further their own educational and business pursuits. I think this thesis you are referring to takes for granted that the tariffs are going to be responsibly used by the governing class setting them to invest in the long term prospects of their people and not siphoned off into corrupt ends. That's a pretty tall assumption.

m12k 6y ago
Correct, the lower priced international goods help give the population of developing countries more purchasing power with their low wages, but at the cost of those wages never going up significantly. They get stuck in a local optimum - and unfortunately, yes, in order to escape from one of those, the first steps will always be toward something less optimal.
pydry 6y ago
>if local goods can't be produced at a price that is commensurately low, then the fledgingly country's wage earners have their purchasing power reduced If the industry they work in can't compete their entire income is reduced to zero. That can knock out related industries as well and ultimately leave the country exposed to currency collapse and hyperinflation as the exporting countries decide that this country has nothing it really wants any more while they still desperately need imports. This happened to Venezuela (after local industrialists declared war on Chavez in 2002 he effectively set out to destroy them) and Zimbabwe (when Muagabe dispossessed farmers from their land, rendering it unproductive). The US is also exposed to this risk. It's steadily but very slowly losing hi tech manufacturing capabilities - something that takes decades to get back once lost (due to the network effect and loss of skills).
- tshaddox 6y ago
  > If the industry they work in can't compete their entire income is reduced to zero. But I thought we're talking about a time period before that industry even exists.

osacial 6y ago

That's a complete nonsense on how things work in reality. The biggest problem for Africa is that MARKET of anything that they are selling is in Europe and US. They can demand anything they want(which is simple racket and anyone despises these things in business), and it all will simply end with some startup in Cali who will start to grow cocoa beans in vertical farms or some other African country will become cocoa exporter Nr1 in the world. ANY developing European country in history started with offering raw materials and very quickly invested into manufacturing and producing good quality products. There are no obstacles for Ghana to do the same. At the moment you can see some poor European countries with industry and skilled workforce and they all have poor results because of corruption. Something tells me, that it will be the same for Ghana.

nerdponx 6y ago
Demanding a greater % of the final value of a good is a racket? And you really think that Ghana's cocoa superiority will be upended by some American startup? That's laughable, and certainly not enough of a credible threat to keep Ghana under the boot of economic imperialism.
- SyzygistSix 6y ago
  Ghana has superiority regarding quantity, however historically the quality has been low. This is changing due to US startups cooperating with growers in Ghana and elsewhere to improve the quality, as well as use less exploitative labor, as there is a lack of quality fair trade cacao.
SyzygistSix 6y ago
This doesn't really reflect the reality of the cacao market or the chocolate making industry, which is rapidly changing. Countries like Ghana used to be held over a barrel regarding price. They produce low quality cacao usng extremely exploited labor to provide mass quantities to multinationals making low quality chocolate,like Nestle, Dove, Ghiardelli, etc. Lately there is a lack of high quality, "fair trade" cacao for the growing high quality chocolate industry, which has taken to helping growers develop to be able to provide what they need. Not good news for the low quality producers, which, broadly speaking, are in Europe, which has been resting on its laurels and reputation while the state of the art has rapidly been improved by small, but growing companies. I don't know for certain but this may be part of the reason Ghana is refusing to sell to Switzerland. I do know that the company I worked for recently began buying cacao from Ghana. And that is certainly partly due to the quality increasing significantly.

emodendroket 6y ago

This was Alexander Hamilton's idea and was in fact largely the US strategy in large part.

enriquto 6y ago

> So much like we allow children time to learn in school before we expect them to compete in the job market, we should allow developing countries to employ protectionistic policies This sounds a bit paternalistic and condescending. I guess that first and foremost the "first world" should stop financing horrible dictatorships and wars in the ex-colonies. That would be a good, honest start.

flavius29663 6y ago
> should stop financing horrible dictatorships When you do that and even take down the dictator (Gadafi), you end up with a worse government, or no government at all. We can all agree Saddam Hussein was a horrible dictator supported by the US, look at Iraq now, is it better off without Saddam? There is no clear cut, and it seems like whatever the west is doing or abstaining from doing it's going to attract hate. We all hate that the Saudis are free to be horrible, but what is the alternative? A new Iraq? What if you just let them be, you might say? Then you end up with 8 year long wars like Iran-Iraq. Or with genocide like in Yugoslavia in the 90s. I think we can all agree China is a horrible dictatorship, how exactly can we stop financing it, since we rely so much on their factories?
- enriquto 6y ago
  I suppose you are being sarcastic. In that case I agree with you.
- dane-pgp 6y ago
  > We all hate that the Saudis are free to be horrible, but what is the alternative? A new Iraq? That's a false dichotomy. I think that many people who oppose the war in Yemen would settle for an end to military support and arms sales to Saudi Arabia, and possibly other economic sanctions. Whether that would lead to a positive outcome for Yemen, though, is another question, and highlights your point about the problems of abstaining.
- imtringued 6y ago
  >I think we can all agree China is a horrible dictatorship, how exactly can we stop financing it, since we rely so much on their factories? Build a second set of factories in a different country.

conjectures 6y ago

If you've not read it, 'Kicking Away the Ladder' by Ha-Joon Chang is a great book on this topic. It has a good deal of historical detail on what developed countries did themselves to become developed with respect to IP and protection.

sandworm101 6y ago

>> a fledgling industry in a developing country cannot compete with those of already industrialized countries Except that often they do. With lower safety/environmental standards, lower wages, and lower expectations many "developing" countries can undercut the labor markets of developed countries, operating advanced manufacturing at far reduced costs. Many would ague that is exactly how China has risen to power. A reliance on export of raw resources is also no telltale of a country still "developing" its economy. Canada is heavily dependent on resource extraction and export. Canada is also a former colony. But would anyone here dare say Canada is a "developing" economy?

pietrovismara 6y ago
> With lower safety/environmental standards, lower wages Well, no, thanks. I'd rather not be forced to enslave my people in order to compete with western capitalism.
- ISL 6y ago
  The people of some countries are already enslaved by poverty and corruption. The pragmatic question is: will attracting outside capital improve the situation of the populace or not?
- Mauricebranagh 6y ago
  Its not like those countries would have had higher labour standards in the first place.
- imtringued 6y ago
  Rich people get to choose, poor people must obey. Why would you voluntarily decide to stay poor if you had the choice to become rich?
  - mbg721 6y ago
    The freedom of no longer spending resources keeping up with the Joneses?
6y ago

throwaway9870 6y ago

Perhaps, but Asia does pretty well. Korea, China, Taiwan, Vietnam, etc. all did amazing development in the last 30-60 years. The reality is that some cultures are better at it than others. Compare China to India for example.

jeffreyrogers 6y ago
They followed the policies the OP is talking about though. That's their point: you need to protect your exporting industries early on so they can develop and become efficient. Then you can protect them less as they become higher quality/more productive. All of the countries you listed did this. India has a bunch of economic problems, many of which are self inflicted.
triceratops 6y ago
> The reality is that some cultures are better at it than others That's extremely lazy reductionism. You're talking about countries of wildly different sizes (Taiwan is tiny, Japan is medium-sized, China is gargantuan), starting from wildly different levels of development (Japan was developed pre-WW2, India and China were in abject poverty), with wildly different levels of homogeneity and diversity (Japan is highly homogenous, China less so, India not at all), diplomatic alignments (Japan with the US, China with the Soviets, India in the third world), resources (Japan with zero, India with quite a fair bit), availability of capital (Japan, Taiwan and South Korea with quite a fair bit, India with very little, don't know about China), political systems (government-managed free market in Japan, autocracy transitioning to a democracy in Taiwan and S Korea, socialism in India, full communism until 1980s-1990s in China).
throwaway776543 6y ago
What’s also interesting is South Korea and Taiwan developed during their authoritarian phase. You can probably throw Singapore into that group too.

tashoecraft 6y ago

The book “How Asian Works” touched on this as well. A combination of promoting/subsidizing local industries whilst pushing them to be competitive on the global stage can do great things

vlan0 6y ago

Life and Debt is another good example. http://lifeanddebt.org/ http://lifeanddebt.org/

tim333 6y ago

When I was younger tariffs were popular in developing countries but they seldom seemed to produce much prosperity - quite the contrary really. Maybe if you apply the tariffs very intelligently but most developing countries are not blessed with great non corrupt governments. The >pressured into free trade agreements (for example by making aid dependent on this) is kind of telling. A lot of the long time free trading countries like HK and Singapore don't need aid. It's often the tarrifs that make places poor enough to need that.

Mauricebranagh 6y ago
And even today you can see NH users in south America facing eyewatering taxes on computer hardware.
- tim333 6y ago
  Which is the kind of thing that hobbles the economy - it's not like those counties are building their own Intels and Apples as a result of the tariffs.
  - martinald 6y ago
    Yeah exactly. I think the idea of protectionism to kick start the economy probably worked a lot better in the 20th century. In a reasonable space of time you could clone a lot of the products you need and then start exporting. Take cloning a 1970s car vs an electric one from 2021. While not trivial, I feel if you can make, stamp and weld steel you are half way there for the 1970s. For an electric car you need an enormous supply chain of batteries, microelectronics and all kinds of safety features, etc etc. It's so complicated that big car makers now basically just have one platform of car they base dozens of models off. However, it's not all bad. China's one child policy is really going to start biting them over the next 10-20 years (and even though they've reduced it now it's hard to see the mindset ever changing) and there will be an enormous demand for cheap labour, which I expect Africa to provide.
    - 6y ago

ReadFList 6y ago

>To begin with, a fledgling industry in a developing country cannot compete with those of already industrialized countries >these countries are also forced into a position where they get stuck at the low end of the production value chain, selling raw materials, while buying processed goods from others (often the same role they were forcibly assigned when they were colonies Basically what Friedrich List [1] wrote in 1841 [2], and being proven correct time and time again while we completely disregard it. Now you can even go further and ask yourselves if what is happening in the West by moving all the factories and manufacturing to China and neighbouring countries isn't exactly like the Colonization of the Americas by the British. It wasn't luck that made the USA Great. It was the best stock from Europe who come up with the American School [3], and we can now see the tragic consequences of abandoning it for "free" trade. If a country imports manufactured goods and exports raw materials, it is a colony. [1] https://en.wikipedia.org/wiki/Friedrich_List https://en.wikipedia.org/wiki/Friedrich_List [2] https://archive.org/details/nationalsystemp00nichgoog https://archive.org/details/nationalsystemp00nichgoog [3] https://en.wikipedia.org/wiki/American_School_(economics) https://en.wikipedia.org/wiki/American_School_(economics)

Mat342 6y ago
Honestly I don't think americans can outcompete Japan, Korea Taiwan or China. Maybe they keep accepting fake printed USD for real stuff in the future
- ReadFList 6y ago
  Lot's of people said the same about the USA becoming economically independent of the all powerful British Empire. And yet the USA did it. Alexander Hamilton's influence goes way beyond inspiring a ridiculous musical for an attempt to capture that historical personality and distort his positions so nobody would read his writings. There is a vast difference between not being possible, and the interlopers we call "the elites" not wanting to do it because they have other interests that don't overlap with the Nation's interests.
devdas 6y ago
It was a lot of luck. Today, you would need access to oil for energy (which needs USD), and far more complex technology, which needs money to acquire. The US could also support massively extractive industries internally. Most countries can't do that.

zfs 6y ago

Is the difference between developing and developed countries really the lack of tariffs or is it due to poor governance? I feel like the reason why countries are always so pro-tariff is because the benefits of tariffs go towards a small group of people, whereas the cost of tariffs are diffused. But small costs add-up and if you start applying the tariffs to other industries then you start seeing the impacts in the cost of goods. What are the examples where protecting a country from exports for a few decades then opening it up to competition actually produced a world-class industry? Singapore is an example of a country that has been pro free-trade and has benefited as a result.

devdas 6y ago
South Korea. China. The US. The UK. Singapore has pretty much no manufacturing.
- refurb 6y ago
  Singapore has one of the largest petrochemical refineries in Asia by throughput. It also has a very large pharmaceutical manufacturing base. No doubt there are other industries I don’t know about.
devdas 6y ago
In fact, if you want actual free trade, then trade in labour must also be freely allowed. Freedom of movement to everyone, as inside the EU, would make even more sense. Every country is rather protective of that though.

mrkramer 6y ago

Developing countries lack proper legal system where laws are based on property rights and market economy. That's why mentality of African people for example can not change and can not embrace capitalism. I would suggest you to read Hernando De Soto - The Mystery Of Capital: Why Capitalism Triumphs In The West And Fails Everywhere Else The book argues "it actually has everything to do with the legal structure of property and property rights. Every developed nation in the world at one time went through the transformation from predominantly informal, extralegal ownership to a formal, unified legal property system. In the West we've forgotten that creating this system is also what allowed people everywhere to leverage property into wealth." [1] Book is in the public domain: [1] https://archive.org/details/Hernando_De_Soto_The_Mystery_Of_Capital_Why_Capitalism_TriumphsIn_The_West_And_Fails_Everywhere_Else https://archive.org/details/Hernando_De_Soto_The_Mystery_Of_... Once the China for instance embraced capitalism and changed their legal system to allow private property ownership and allow market economy they thrived. Plus allowing American companies to come and exploit cheap work force they acquired "know-how" by now widely known and familiar stealing of intellectual property and copying literally everything they put their hands on.

totalZero 6y ago

> when developing countries are pressured into free trade agreements (for example by making aid dependent on this) "forced" is probably not the right word. "baited" is better. The developed world uses aid/loans to manipulate policy in the developed world, by targeting desperation. Make loans that the recipient cannot repay, then offer to restructure if they will comply with certain conditions. This is why the IMF exists.

bingbong70 6y ago
"The developed world uses aid/loans"/coups/assassinations/currency-debasement-attacks

nickik 6y ago

I don't think this is actually true. IF you go threw all the history of development economics, sure its easy to point out 'X government did X and look at that, now they are successful at X'. However that is selection bias, government and international development agencies tried literally everything, many things 10 times, often over years and years. Often wasting resources that then didn't go into their successful part of the economy. Quite often governments also do lead following, they do something, something else is successful, then more money flows into that and then a few years later all the bureaucrats congratulate themselves on their success. We actually have pretty good and very clear numbers on what actually works. Basically it boils down to 'don't be a shit government' and if you manage that you will have some amount pretty good amount of growth. Avoid a few idioitic policies, implement the basic of law and business (property rights), don't punish successful people, don't be ultra protectionist. Any country that manages that usually manages to get a fair amount of growth. It might not be growth in Steel industry but better more efficient framing, mining, tourism, labor intensive industry and stuff like that are still very helpful base to build up the basic infrastructure and business environment. The old Post-WW2 version of 'lets not import steel, invest many billions in building our own steel industry' kind of plans actually have a terrible history of success. But this debate has been raging for 3000 years now, in modern history mercantilism vs free market debate, then the socialism vs capitalism debate (calculation debate), then Post-WW2 development of 'Development economics' that had all these debates again. Look at India, and its strange 'Indian Socialism' based on many British ideas. > So much like we allow children time to learn in school before we expect them to compete in the job market Mostly what we are actually doing for most jobs is kids basically showing that they can be good little workers and have basic social skills. For a country this would basically be, show that you respect basic property rights, don't have polices that make creating a business impossible, be reasonable accessible to global market. If you can do that, welcome to being adult, you will likely be reasonably successful. > we should allow developing countries to employ protectionistic policies like tariffs Allow them sure, who are we to deny them. But that doesn't mean its a good idea most of the time.

valuearb 6y ago

This is of course silly. Slowing your rate of growth now does nothing to make you grow faster later.

sam1r 6y ago

This is well written. Nice metaphors and thank you.

rsj_hn 6y ago

This is called the "infant industry" argument, and it has been made since at least the 16th Century, most famously by Antonio Serra, a proto-mercantilist. This idea of raising tarrifs on imports and then using the money to protect domestic industries has been tried in Latin America in the 60s and 70s, in Africa, and in many places. The results are mixed. The problem with infant industry is that you get a group of local monopolies protected by the government who sell expensive low quality goods to the public, people get sick of it, they want the lower priced better foreign goods as it will increase their quality of life, and at some point there is sufficient political pressure to force a regime change. Another way of saying this is that the infant industries often fail to grow up, they remain protected infants forever. On the other hand, if you don't protect your infant industries, then you have no chance against mature foreign competitors, as you point out. Then there is a third aspect to this, which is that foreign governments, especially East Asian governments (not only China, but China is the biggest offender) massively subsidize domestic industries and so you have to subsidize and protect your industries in return, or they will be destroyed by competitors who never need to turn a profit, or repay a loan, or meet any environmental regulations, or deal with unions, etc. So it's a tough call. All these theories have valid points, but they all have fatal flaws. For the last few years, I've come around to the following mantra, which is my own development philosophy: * every country should have a long run balance of payments. That means all trade should be balanced. * countries should make investments in local productive capacity, but not subsidize industries per se * countries should not allow foreign companies to set up factories or purchase capital or land. Each nation's assets should be owned by their own citizens only. * With the above caveats, there should be free trade and no industry protection. What this means, in practice, is banning foreign capital inflows. Have your own currency, borrow only in your own currency from your own people, and don't allow foreigners to purchase your bonds, stocks, land, private debt, or productive capital. But trade all you want with them. As long as you do that, your currency will depreciate sufficiently to prevent any flood of cheap imports, and your domestic industries will have a chance.

IG_Semmelweiss 6y ago
I tend to agree. The issue with capital or land is that you are taking another country's tender that may be debased in exchange for capital/land that your own citizens are priced out of (due to other countries running the printing press). This is why it is prudent to lock up certain assets (land / long lived assets) to citizens of the country. This is where china succeeded. You go in, you give up IP and share %, and they get a piece of the action. Free trade benefits everyone for pennies. However, the makers / artisans (shoemakers, etc) always lose out big. So free trade is a net winner but creates very unbalanced losers. Ultimately there is an argument for compassion against free trade, which fits squarely with your arguments.

Siira 6y ago

Theory is not trustworthy. Here in Iran, we have had extreme protectionist policies for decades in, e.g., cars, and all it has done is made the car factory owners rich while car quality stagnates and regresses, and prices keep rising.

jopsen 6y ago
I think GP argues that poor countries should be allow to have protectionism while being able export goods without tariffs. I doubt that's the situation Iran is in.. it more like isolation. Because Iranian car manufacturers have no ability to import machines, or try to and export cars. I would imagine they aren't pushed to compete with foreign competitors.. and once sanctions disappear they will disappear with them. If Iran wasn't sanctioned, could import machinery, and was allowed to export cars without cribbling tariffs, while it could forbid import of cars. Then maybe car manufacturers would get good enough to compete internally. Or at least that's the theory GP is arguing, as I understand it. Maybe, it holds up, being able to do protectionism without retaliation might be beneficial. Or maybe it would just lead to a inefficiet car industry that never manages to export anything, and is only continues to exist due to protectionism.. I don't know -- but protectionism might not be the way to create efficient industries. Or maybe it can be?

pgsimp 6y ago

It sounds like reinventing the wheel. Why not import the knowledge, rather than develop it again from scratch? Maybe you can imagine it could work with chocolate, but take something more complicated like cars, computers or phones. It seems absurd to demand non-industrialized countries should develop all those things by themselves, while developed nations stand by. At the very least it would take decades, while people in the developing country remain poor. Also, I take issue with the formulation "when developing countries are pressured into free trade agreements" - it is still simply a trade, "withholding aid" is not different from a sum of money offered in a trade. "pressured into it" is leftist propaganda.

imtringued 6y ago
>It sounds like reinventing the wheel. Why not import the knowledge, rather than develop it again from scratch? This is why you should let foreign investors into your country. If Switzerland would build chocolate factories in Ghana everyone would be happy and in 30 years non Swiss chocolate industry would grow organically until the Swiss companies can no longer compete.

taurath 6y ago

We’ve overthrown countries to protect that in the past. Developed countries honesty care little past having access to cheap goods, and any rhetoric that says otherwise needs to be proven in spades before it should be believed

agumonkey 6y ago

this one https://www.jasonhickel.org/the-divide https://www.jasonhickel.org/the-divide ?

testrun 6y ago

South Korea must be an exception to '...a fledgling industry in a developing country cannot compete with those of already industrialized countries..'. The electronics industry in Japan and the USA was already well established before South Korea started out. China too, for that matter.

monocasa 6y ago
SK and China employ protectionist policies of the type that the IMF and World Bank forbid in order to get loans.

29athrowaway 6y ago

> So much like we allow children time to learn in school before we expect them to compete in the job market, we should allow developing countries to employ protectionistic policies like tariffs, in order to protect and build up their fledgling industries nationally, before fully entering the world market in a couple decades when they are ready. Let X be an industrialized country, and Y be the one exporting raw materials. There are many tea plantations in Y. Companies from X own those plantations. They take the tea that is produced for some few cents, process it, put it in teabags, put the teabags in a well designed box, and then sell it across the world for a much higher value than whatever the cost of producing the plants was in Y. Most of the money goes to people in X. Now what is we do what you say? then, companies from Y would be selling the boxed tea bags themselves. None of the money would go to X anymore. X exchanges its money for Y's tea. In fact, X exchanges all of its money for other products from other countries as well. X now falls into a trade deficit.

refurb 6y ago

Singapore developed very rapidly despite opening themselves up to international trade quite early. The only competitive advantage Singapore had was rule of law and stability.

imtringued 6y ago
It's pretty sad that Tunisia and Morocco are the only north African countries with a low corruption index (and by low I mean relative to other African countries). Considering how close they are to Europe it's a waste of a continent.