I am writing this piece in the home of a friend in the leafy suburbs of Frankfurt-am-Main, the financial capital of Germany; the seat of the European Central Bank and the once-almighty German Bundesbank. German authorities are preparing to host Western leaders to the 41st summit of the G7 in the luxury resort of Schloss Elmau at the foot of the Wetterstein Mountains in the idyllic ambience of Bavaria during 7-8 June. The G7 comprises the United States, Germany, France, United Kingdom, Italy, Japan, Canada and the European Union. Together, the G7 make up more than 64 percent of total global GDP, representing a net global wealth of US$263 trillion. They are the princes and rulers of the world economy – guardians of our post-Bretton Woods international economic and monetary order.
I understand that President Muhammadu Buhari was invited to attend. All well and good. However, I must say that I was rather irritated when British Prime Minister David Cameron was reported to have remarked, rather gauchely, that our new president is welcome “to bring his wish list” – a rather unfortunate remark on the part of the British Premier. He seemed to be presuming that all that a Nigerian president can do is bring a begging bowl to the party – a highly tendentious presumption, if you asked me.
Be that as it may, I hope that our president did manage to attend. The new government will need all the friends it can garner from all the corners of the world. I believe in the power of economic diplomacy and in the importance of building personal networks that could result in business deals on a win-win basis for everybody involved. But I am vehemently opposed to developmentalism, especially of the beggarly, mendicant variety. Only fools can continue to wallow in the illusion that foreign powers can help us to become a world economic and political giant.
I have lived and worked in Brussels for five years and my professional work has allowed me to view the Bretton Woods Institutions and other key global development institutions at a close range. I have reached the sobering conclusion that terms like ‘technology’ and ‘industrialisation’ are totally anathema to them as far as Africa is concerned. In the emerging hierarchy of nations, the role assigned to our continent in the international political economy is that of the proverbial “hewers of wood and drawers of water”; a mere source for raw materials to feed the industrial needs of the G7 and other world economic powers. For almost a millennium this paradigm has brought us nothing but tears and ruination. To persist on that line will only lead us on the same path-dependence of tears and ruination for another millennium. Albert Einstein famously remarked that madness consists in doing the same while expecting a different outcome.
As the new administration sets out the key lineaments of its economic policy, it is vital to bring to the attention of the incoming economic team the centrality and importance of industrial policy.
In all fairness, industrial policy may not be particularly important for a small country such as The Gambia or Swaziland. But for a giant such as Nigeria, the absence of a vibrant industrial policy is equivalent to economic suicide. Now is the time to discard the idiom and grammar of what the neo-Marxist Egyptian economist Samir Amin terms ‘developmentalism’.
A nation is said to be industrialised when an agrarian economy dominated by the use of elementary tools gives way to one in which machines and power tools are widely deployed within a structured automated factory environment. The key features include: application of scientific methods to solving problems, mechanization and factory-based mass production, growth of the money economy, and enhanced labour mobility spatially as well as socio-economically.
Ever since the process that we term the ‘industrial revolution’ began in England in the eighteenth century, spreading to France, Germany, northern Europe and the New World, industrialization has come to be regarded as the key to wealth creation, poverty alleviation and employment generation in rich as well as poor nations. According Phyllis Deane, one of the leading authorities on British industrialisation, it is now “almost an axiom of the theory of economic development that the route to affluence lies by way of an industrial revolution”.
It seems fairly evident that industrialisation in England did not involve government taking a central role in economic management. As the eminent economic historian Peter Mathias explains, it was essentially a “spontaneous growth, responsive primarily to market influences and underlying social, institutional forms, not shaped consciously by government design”. Far from being a quantum leap, it was a slow transformation, which, complimented by an expanding population and developments in banking, transportation, and communications services, boosted aggregate demand while creating the institutional basis for long-term secular growth.
Whilst this may be the case for Britain, it is clear that, for late-developing low-income nations of Asia, Africa and Latin America, the path to accelerated growth would require the state to play a more active role in the development process. For agrarian societies undergoing modernisation, where mass publics are impatient for change in their material conditions, authorities cannot avoid confronting the challenge of industrial policy. Indeed, the remarkable transformation which has been achieved in the Asia Pacific, China and India in recent times amounts to a strong case in favour of industrial policy.
During the 1980s and much of the nineties, ‘industrial policy’ was a rather discredited term. The African state, with its neopatrimonial defects of bloated bureaucracies, rent-seeking and structural rigidities, was seen as the major impediment to social and economic progress. The path of economic virtue was seen in terms of ‘rolling back’ the state and allowing market forces free rein in driving the development process. With the massive de-industrialisation occasioned by World Bank and IMF-supported structural adjustment programmes even against the backdrop of persistent poverty and external indebtedness, there was increasing doubt on the viability of inherited neoclassical dogmas. With the recent global financial meltdown, much of which was blamed on a combination of speculative exuberance and market failure, it has become clear in rich and poor countries alike that blind faith in markets could prove disastrous.
At a very broad level, industrial policy may be said to refer to shared development-oriented values between policy communities on the one hand, and the spectrum of targeted policies and institutions that bolster competitive advantage. According to another definition, industrial policy refers to “a set of actions executed by interventionist or mixed-economy countries in order to affect the way in which factors of production are being distributed across national industries”. Such a process is said to occur through a combination of government loans and equity participation, tax incentives that promote investment, implementation of trade protection and export subsidies, imposition of preferential government procurement practices and institutionalisation of regulatory regimes that ensure industrial harmony and growth.
The question of the role of industry and of industrial policy in economic development has been a topic of a long debate among development economists. As early as the 1960s, at the fourth Cambridge conference on economic development, a lively debate occurred on whether the newly independent countries should prioritise industry or agriculture. The ‘agriculture first’ school, which included Arnold Rivkin and Nicholas Kaldor, took the view that spectacular expansion in agriculture was essential to creating the capital and the home market for subsequent development of the industrial sector. The more radical ‘industry first’ school, on the other hand, maintained that without an industrial revolution there was not much hope that developing countries would secure the rapid capital formation and the expanding purchasing power that would provide stimulus to the rural farm sector.
In the early years of independence, countries such as Ghana and Guinea made concerted efforts to pursue the path of state-led industrialization, with disastrous consequences. For the newly-independent nations, particularly those of Africa, import-substitution industrialization (ISI) was seen as the main key to breaking the shackles of poverty and ensuring rapid economic development. The agreed consensus was that the path to economic transformation follows a linear path from agrarian backwardness, through the build-up of economic momentum, to take-off towards industrialization, right up to the stage of a mature industrial economy. Writers such as Walt Rostow in economics and Samuel Huntington in political science premised their works on the inevitable process of modernization (read Westernisation) that would propel backward nations into the ranks of advanced industrial economies. For economists such as Albert Hirschman and Swedish Nobel laureate Gunnar Myrdal, technology choice and institutional reforms were the most critical ingredients in the modernization of traditional societies.
By the 1970s, modernization theory came under the onslaught of the emerging underdevelopment and dependency paradigm. Within Africa, scholars such as Samir Amin (1980), Justinian Rweyemamu and Claude Ake argued that the traditional pattern of industrialization advocated by modernization theorists would simply deepen the ‘underdevelopment’ of less developed countries. They advocated radical economic strategies based on autonomous development, control of transnational corporations, technology transfer and the restructuring of the inequitable international economic order.
By the 1980s, when the ‘neoliberal resurgence’ gained the upper hand, the tide had turned against the dependency school. The logic of structural adjustment required the ‘rolling back of the state’ and the reduction of the role of government in the economy, in addition to the promotion of an ‘outward-oriented’ economic policy framework.
In recent times, however, the hegemony of neoliberal economics appears to reaching an impasse. Blind faith in the market is giving way to a more interventionist approach to economic management. More voices are being raised in favour of a shift away from extreme trade liberalization to targeted government policies that promote balanced economic growth. In the 1980s and 1990s, developing countries were encouraged by the major development agencies simply to open up their markets to imports and to export whatever products they could produce relatively cheaply in the short-term. World Bank structural adjustment loans, IMF stand-by facilities and assistance for debt relief were conditional on trade liberalization. The fundamental assumption was that successful export-led development could be achieved eliminating government intervention in markets and allowing the price mechanism to determine domestic economic incentives. Far from supporting the extreme trade liberalization view, the actual record of these countries demonstrates that successful export-led growth has generally been based on activist trade and industrial policies. The Norwegian economist Erik Reinert has noted: “From Renaissance Italy to the modern Far East, development has been driven by a combination of government intervention, initial protectionism and strategically timed introduction of free trade and investments… but advanced countries do not want less developed countries to follow that approach.”
According to the Geneva-based UNCTAD, not only should poor countries rigorously pursue industrial policies, they should use such policies as vehicles to create “a dynamic domestic comparative advantage in an increasingly complex and sophisticated range of products and services”. They recommend the following policies:
· Upgrading productive capacities through innovation to increase value – “making better products, making them more efficiently”;
· Building capability that decreases social marginalization and poverty through effective incomes and labour policies, public expenditures and entrepreneurship and technology development;
· Creating conditions that enhance for full employment while promoting inclusive growth through pro-growth macroeconomic policies and strengthening of intersectoral linkages;
· Fostering structural transformation from agrarian to post-agrarian societies;
· Improving the supply of all public inputs with a view to raising labour productivity;
· Building capacities at the firm level, fostering collective learning and facilitating economic diversification.
Industrial policy evidently entails a mix of interventionist practices covering issues such as trade and fiscal policies and other schemes that promote internal as well as external competitiveness. Although we are witnessing a resurgence of interest on the subject, it is evident that there is yet to emerge a consensus about its role and importance in economic development. Indeed, there remains a wide division between those who favour interventionist industrial policies and those, on the neoliberal right, who reject them. Those in favour claim that industrial policies could help in “shaping comparative advantage” while enhancing the competitive advantage of nations. While conceding that everyone gains through international trade, they would insist that the most gains accrue to those who specialize in high value-added, high-growth sectors and products. Critics of industrial policy, on the other hand, take the view that governments could not claim to do a better job of providing the right mix of incentives than ‘market forces’ and that any attempt by government to pick ostensible ‘industry winners’ may prove to be counter-productive.
Beyond the arcane debates among economists, those who have a country to build and 170 million people to feed understand that we need a powerful vision as well as a bold framework for action. Brazil, China, Singapore and other successful dynamic economies provide ample lessons on how to pursue the goals of industrialisation, with its risks as well as opportunities. With our abundant natural resources, population and sheer vitality, Nigeria has no excuse not become and industrial power. We need to resolve the electricity and energy deficit, boost infrastructures and create the right institutional framework. Industrialisation cannot take place without a robust national research and development and innovation system; an iron and steel industry and its concomitant machine tools sector; existence of a skilled workforce; railways; a vibrant merchant navy and shipbuilding sector; and world-class policy leaders and financiers who understand these things. It’s time to get to work!
Obadiah Mailafia
