Do as they do, not as they say
To survive the devastating impact of the global financial crisis, William Gumede tells Pambazuka News, African countries must learn one simple lesson they appeared not to have heeded since the end of colonialisation and apartheid: Do not listen to the advice of global financial institutions and leading Western nations. For that matter, do exactly what these Western nations do.
Western countries are now bailing out commercial banks and strategic industries with public money. They are once again lifting tariff barriers for products from African and developing countries. Yet, they discourage African countries from doing the same.
Western countries more often than not do exactly the opposite of what they tell African and developing countries to do. Global financial institutions such as the World Bank and International Monetary Fund, while instructing African and developing nations to pursue mostly irrelevant, if not destructive policies are silent when industrial nations implement the opposite.
Importantly, African countries must stay away from the World Bank and IMF. If it is absolutely necessary to borrow, do so judiciously, and from sources other than these international organisations.
The success of the East Asian developmental states since the Second World War has much to do with ignoring the advice of the World Bank, International Monetary Fund, and leading Western nations; and actually doing exactly what Western nations did to grow their economies.
Meanwhile, African countries slavishly followed what they were told by Western and former Soviet bloc or Chinese communists, rather than actually studying carefully what these countries actually did, and then using the best and most relevant from both.
Most African countries since independence while pursuing foreign investment, as suggested by Western nations and global financial institutions, sold off state-owned assets cheaply. They made it easy for global companies based in their countries to repatriate their funds abroad. Supposedly to make it easy for foreign investors to do business in their countries, African governments waived minimum labour and environment standards and did not insist on minimum levels of skills transfer.
Meanwhile, in South Korea, until the late 1980s, foreign investors were not allowed to have majority ownership in local companies, except in very restricted circumstances. Foreign investors were restricted to sectors in which South Korea did not have the capacity, but which the country had identified as crucial to develop. In such instances, foreign investors were compelled to transfer new technology not easily accessible by locals and to extend their international marketing contacts to local companies, in return for being allowed to invest in the country.
In the 1970s and 1980s, almost every African country slavishly followed the World Bank/IMF and Western nations’ injunctions to privatise their state-owned companies. Meanwhile, very few of these Western nations actually pursued whole-scale privatisation. These African privatisations spawned corruption, as companies were sold off to political cronies, ethnic buddies and foreign companies that bribed local officials. In East Asia developmental states set up developmental banks, run by the best brains in their countries, which financed the industrialisation of their countries, by providing easy credit, loans and expertise to their growing industries.
East Asian developmental states pro-actively identified sectors to be developed, and then built them up – rather than waiting for it to spontaneously develop. These governments used a combination of taxation, fiscal policy, research support, tariffs and judicious foreign borrowing to develop new industries.
At the same time, the import of products that could be manufactured at home and of luxury consumer was heavily discouraged. Companies using locally produced material were rewarded with tax rebates.
The global financial crisis has turned economic convention upside down.
African countries must not be caught napping again: Use the policy space opened by the global financial crisis to do exactly what Western nations are doing and what the East Asian developmental states are doing again.
They must pursue relevant industrial policies; and make sure that those who manage the implementation of the policies are the best talent available. Furthermore, African governments must cut out corruption, and act in the broadest public interest, rather than narrow factional, ethnic and selfish interests.
BROUGHT TO YOU BY PAMBAZUKA NEWS
* William Gumede is author of Thabo Mbeki and the Battle for the Soul of the ANC.
* This article first appeared in The Sowetan.
* Please send comments to [email protected] or comment online at Pambazuka News.