Pretoria - Governments should drive economic policy in order to develop industrial capabilities that can stimulate economic growth, says Professor Ha-Joon Chang.
Speaking at a Department of Trade and Industry (dti) lecture on Tuesday, sponsored by the African Programme on Rethinking Development Economics (APORDE), the world’s foremost heterodox economist said that the governments of the richest countries played a major role in developing their economies through purposive industrial policies.
“All of today’s rich countries, except for the Netherlands and (pre-World War I) Switzerland, used protectionism for substantial periods. Britain and the USA were the most protectionist economies in the world in their ‘catch-up’ periods.
“Germany, France, and Japan – the supposed homes of protectionism – were much less protectionist than Britain or the USA. Even in the post-WWII period, protection was quite high until the 1960s,” said Chang.
He said that justifications for industrial policy entailed the coordination of complementary investments, and creating linkages through starting chain reactions by stimulating sectors with particularly strong interdependence with others.
He noted the apparent need for developing countries to provide unfettered latitudes to Foreign Direct Investment (FDI) was a relatively new phenomenon.
“The USA in 19th century regulated FDI in finance, shipping, mining, logging and especially banking. Only American citizens could become directors in national (as opposed to state) banks and foreign shareholders could not even vote in annual general meetings. Japan (Korea and Taiwan to a lesser extent) virtually banned FDI until the 1980s.
“All rich countries have used tariff protection and regulation of FDI for substantial periods in their industrialisation phases,” said Chang.
According to him, central banks in today’s rich countries played a key role in the economic development of their countries by directing investment funds to particular sectors in pursuit of industrialisation.
Trade and Industry Minister Rob Davies said the South African economy needed to become more reliant on the “productive sectors” such as mining, agriculture and manufacturing, as there were no other realistic strategies to develop the South Africa economy, create employment and raise the economic growth rate substantially.
Davies said the greatest economic potential was in the industrialisation of both South Africa and Africa as a whole.
The purpose of the dialogue, which was held under the theme ‘Historical perspectives on trade and industrial policy to locate the theory and importance of manufacturing in economic development’, was to stimulate intellectual discourse on contemporary economic issues pertaining to the South African economy. – SAnews.gov.za
