[intro]What will it take for African states to develop their economies? Is it simply a case of following in the path of developed nations? Last month, Ha-Joon Chang, a specialist in development economics, addressed members of the United Nations Economic Commission for Africa. Chang’s talk focused on the need for developing nations to use industrialisation, government support and an increase in exports in order to strengthen their economies.[/intro]
“Africa needs industrialisation for economic development, that requires an effective industrial policy,” said Ha-Joon Chang, renowned development economist and author. Chang gave the second Annual Adebayo Adedeji Lecture last month during Africa Development Week at the Economic Commission for Africa headquarters in Addis Ababa.
Chang argued that industrialisation has been key to the economic success of developed states throughout history, and African countries should continue to follow this model, using government based programmes that will protect local industries, improve research and development, as well as encourage exports.
During his lecture, Chang stepped back in time and looked at the United States of America (USA) in 1791 and South Korea in 1965 as prime examples of developed nations that used industrialisation to grow their economies successfully in the past,
Chang said that back in 1791, the USA, very much like South Africa today, was dependent on its natural resources and relied on exporting agricultural products, “The country also [had] high wages, compared to those manufacturing nations in the East… The wage issue was so important that one of the founding fathers actually called for protectionism in order to protect local wages against eastern competition.
Protectionism refers to government policies and actions that restrain or restrict international trade, with the intention of protecting local employment and small businesses from overseas competition. Since the USA was so dependent on exporting agricultural projects like cotton and tobacco way back in the 1700s, their main concern was protecting local wages ‘against low wage competition from the countries in the East’.
Chang also used South Korea in the 1960s as another example of a nation that was struggling to find its feet, with the developed world at the time calling the East Asian country a ‘bottomless pit’. “Some people think civil war is an African speciality but [South Korea] had one back in the 1950s. In three years, 4 million people were killed. We lost 75% of railways, this created huge gaps but also political divisions.”
So if these two countries, the USA in the 1700s and South Korea in the 1960s, looked very much like developing African countries today, how did they become two of the most successful economies in human history?
“The short answer, is that these two countries industrialised.”
Chang said that while there are a number of paths to industrialisation success, many countries have been able to grow their economies through infant industry programmes such as trade protectionism, government subsidies, regulation of private sector investment and public investment in infrastructure, education and research and development, for instance.
“The infant industry argument is that governments in backward economies need to protect and nurture their young industries through policies until they grow up and compete with producers from more advanced countries,” said Chang.
“Africa needs industrialisation for economic development and that requires an effective industrial policy,” said Chang during his lecture.
The economist added that developing nations should be wary of advice from developed nations, who have used infant industry programmes successfully to develop their economies and following their realisation of economic success, often dissuade poorer countries from using those policies. He furthers this argument in his books Kicking Away the Ladder. “contrary to the prevailing myth, almost all of today’s rich countries have developed their economies through infant industry programmes… once countries become rich by using those policies, they start telling poorer countries not to use those policies. So you climb up to the top, using a ladder, and when you reach the top you kick the ladder away so that other people cannot follow.”
Chang continuously emphasised the need for government policies to ensure and sustain growth until such time as local markets mature; and warned that even though infant industry protection creates the ‘space’ for improvement in productive capabilities, it does not automatically lead to productivity increase, thus government support is constantly necessary to ensure growth.
“There should be government policies to ensure that the necessary investments are made in raising productive capabilities, investment in machines, workers skills, research and development,” said Chang.
“[W]hat you need is a strategic combination of expert promotion and infant industry programmes. Unfortunately this was not done in many African countries, and infant industry usually resulted in unsustainable balance of payment problems and the consequent macro- economic constraints which then put the brake on the industrialisation process,” he said.
Watch Chang’s full lecture here.