When Heather Stewart of the Observer describes the UK government’s enthusiasm for “the free-trade, high-growth model which has seen the Asian Tigers, China and India burst onto the global market place in the past 20 years”, she neglects to mention that while all of those countries have enjoyed high growth, none of them (unless you count Hong Kong) have used free trade. This is well-known to those familiar with the historical record, but apparently that doesn’t include the UK government or the Observer.
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I believe that Singapore is usually regarded as being almost as free in its trade policies as Hong Kong.
While not all the Asian Tigers were purists in regards to free trade, they did adopt outward-oriented trade regimes that emphasized export-led growth. Those that were not complete free traders offset the anti-export bias of protectionism through export subsidies.
Assuming that you favor an outward orientation in trade policy but not free trade, what protectionist policies do you find desirable?
Posted on 23-Jan-06 at 2:45 am | PermalinkI think Singapore may have “free trade”, but the government has been heavily involved in the economy in many ways. While not through using protectionism, certainly they have promoted foreign investment through incentives and holding down wages…etc. So as a developmental state, the government of Singapore has had a large hand to play in the success of its economy and hardly gave free rein to market forces.
Posted on 23-Jan-06 at 6:53 pm | Permalink“I believe that Singapore is usually regarded as being almost as free in its trade policies as Hong Kong.”
So I’ve heard, but I’ve not seen much evidence either way. Also, I’m inclined to disregard entrepot city-states as far as policy lessons for actual countries go.
“Assuming that you favor an outward orientation in trade policy but not free trade, what protectionist policies do you find desirable?”
I don’t pretend to have a detailed prescription for every country. My main aim is to point out that vigorous trade liberalisation has had a very disappointing record in promoting growth, and indeed seems to be neither necessary nor sufficient for succesful development. There can also be significant costs to vulnerable producers and to government revenues. But of course there can be benefits too, and a blanket protectionist approach would be just as wrong-headed. Free trade is a desirable end-product of succesful development, but not, I think, a means to achieve that development.
Since you want to put me on the spot though, overall I would say that the benefits of liberalisation to consumers (prioritising poor consumers over rich ones, where possible) and importers should be weighed against the costs to producers (particularly poor producers and those in promising but ‘infant’ industries) and the potential impact on tariff revenues, ideally in combination with something like the Korean-style approach of export subsidies to encourage competition. It would also be helpful if the international community were more accomodating of this approach, rather than constantly haranguing poor countries to liberalise.
So, not a one-size-fits-all answer, but then it isn’t a one-size-fits-all question.
Posted on 23-Jan-06 at 9:06 pm | PermalinkJim said: “Vigorous trade liberalisation has had a very disappointing record in promoting growth.”
Do you have a particular paper or countries in mind?
In regards to the necessary/sufficient/neither debate: What country has achieved “successful development” without significant steps toward an outward orientation, which usually involves significant trade liberalization?
Posted on 24-Jan-06 at 12:53 am | PermalinkJonathan,
“Do you have a particular paper or countries in mind?”
Yes, I’m thinking of this kind of thing: http://www.pitt.edu/~dejong/restatfi.pdf
and this: http://hdr.undp.org/docs/publications/background_papers/2005/HDR2005_Samman_Emma_22.pdf
and Ch. 5 here: http://www.maketradefair.com/assets/english/report_english.pdf
“In regards to the necessary/sufficient/neither debate: What country has achieved “successful development” without significant steps toward an outward orientation, which usually involves significant trade liberalization?”
Well, Korea and Taiwan only significantly liberalised in the 1980s, AFAIK. China’s trade opening only really got going in the 1990s, after more than a decade of very high growth and poverty reduction. And many of today’s rich countries reached a quite high level of development before liberalising to anything like the levels of today’s rich poor countries, especially when you consider that ‘natural protection’ due to transport costs was far higher in the past: http://www.fpif.org/pdf/papers/SRtrade2003.pdf.
Posted on 24-Jan-06 at 9:15 am | PermalinkSuppose one begins with the hypothetical proposition that a trade regime for a set of nations affected by it is designed to maximize labor employment in all states while minimizing for inputs of nonrenewables (including repositories for, e.g., groundwater pollution). I think it should be clear that, under this proposition, tariffs would reduce welfare, since they interfere with the most efficient utilization of resources. However, transfers from somewhere (rich states, comparatively rich persons in poor states) might enable poor communities to overcome market entry barriers, such as inadequate infrastructure or excessive risk for new buyers.*
Now, I realize that this hypothetical does not actually describe reality; however, I want to point out to both anti-industrialists and new classical economists that the abstract models of markets tends to ignore the welfare consequences of uneven distribution of industrialization. For example, the extreme disparity in development between USA and neighboring Mexico leads to problems for both communities. One problem is, of course, Mexicans do not have the income to consume goods equal in value to what they produce, leading to a boom-and-bust cycle (once every twelve years, basically). The disparity in income has not seriously diminished, although formal economic participation in Mexico creates the illusion that it has (a bit).
The problem with crude comparisons of trade is that the winner is always tiny little entrepots. HK had an effective monopoly on certain types of trade with the PRC, which was massively more beneficial than oil reserves. Its “free market” economy is a conglomeration of cartels, which conscientiously took the place of, say, Japan’s [now-dissolved] MITI. Oddly, the experiments of Latin American countries–most notably Chile under Pres. Alessandri (1927-1935) and Colombia in the Rionegro Era (late 19th cent)–were disasters and accompanied by financial ruin or civil war. One of the more determined non-entrepot experiments with free trade regimes was in Lebanon, 1942-1974, with a very mildly Keynesian interval between ‘58 and ‘64.
I want to close by referencing Adam Smith’s Wealth of Nations:
In fact I am advised the unnatural and retrograde order persists, with a ludicrous preference of foreign trade for Brazil because it works for Singapore (the comparative size of the 2 nations notwithstanding).
Posted on 27-Jan-06 at 8:55 am | Permalink____________________________________
*For example, suppose Malaysia wants to industrialize; the minister of economics learns that the leading long-term growth industry is gas chromatography equipment. But of course, a lab will prefer to pay a premium on Hewlett-Packard GCs rather than the Malaysian startup, since there are costs associated with equipment failure. If some of these risks are compensated, as, for example, furnishing spare GCs to safeguard against failure (buy 3, 4th is free) then market entry is possibly easier.