State vs free market

It's hard to resist devoting a column to the alleged Peter Phillips WikiLeaks bombshell about Comrade Leader Portia Simpson Miller's being a "disaster" and the distastefulness of serving under her, as well as the 'JLP bounces back' Gleaner headline of last Thursday, revealing the latest poll finding about that party significantly cutting into the People's National Party (PNP) margin.

Jamaica is never short of juicy political news and political gossip. There is always intrigue and some muck which could be usefully raked. And in this deeply partisan and tribalistic environment where the Gleaner-labelled gangs of Gordon House hold sway over the minds of many, there is always drama. And I, like many, enjoy drama. But the times are too urgent and too demanding of hard information and analysis of overarching issues that one must step back sometimes to deal with the less sexy issues.

Like what strategies should we employ to escape another major international magazine like Forbes revealing that we are one of the five worst-performing economies of the world; or the British Broadcasting Corporation's (BBC) stating that even before a Greece debt default, there was a Jamaica default.

We might rightly debate whether the Jamaica Debt Exchange did constitute a default, but it should not be unimaginable that we can so run our affairs that we don't have to ask for any further 'voluntary' debt arrangements. We are in debt peonage and our masters, the International Monetary Fund (IMF), have us under the whip. Mark you, much of what the IMF is demanding needs to be done and should have been on our own. But the IMF and the World Bank are also pursuing their own dogmas and theological constructs which are ahistorical and counterproductive.

Tariff 'madness'

Recently, Ronald Mason, on his 'On the Agenda' programme on Nationwide, almost blew a blood vessel decrying the "madness" of the proposal to significantly reduce tariffs on some agricultural imports, as set out in the Green Paper on tax reform. Perhaps as a result of his howls and screams, other sections of the media followed up with interviews from people in the poultry and other agricultural subsectors speaking stridently about the harm that would be done to their industries if this proposal were accepted.

The Tru-Juice boss said he would have to close his operations if the tariff-reduction proposal were accepted. So whether Peter dislikes Portia or not, or whether the PNP is returned to power with Portia or Peter as prime minister, we would still have to face our IMF/World Bank overlords. Some of the most critical issues which influence our welfare and economic prospects are largely outside our control.

This issue of the State versus free market is not as academic and theoretical as it might seem. It is the ideology surrounding that issue which has caused Mason such consternation over the tariff-reduction proposal for agriculture. This is so because our international economic masters have determined that free trade is best for all of us and that we can't grow without untrammelled free trade and the removal of protectionist barriers. In the last couple of months, another fine publication has rolled off the scholarly press, which provides further ammunition to explode the myth of free trade and free market fundamentalism, which are now official economic dogma. In his nearly 300-page book, 23 Things They Don't tell you About Capitalism, Ha-Joon Chang, one of the finest scholars blowing the whistle on the globalisation-Washington Consensus ideologues, provides a gold mine of information.

Ha-Joon Chang, author of Kicking Away the Ladder and Bad Samaritans, continues his crusade against ignorance and the denial of history in neoliberal scholarship. In what would delight Mason, Ha-Joon writes, "Virtually all of today's rich countries used protectionism and subsidies to promote infant industries, many of them (especially Japan, Finland and Korea) also severely restricted foreign investment. Between the 1930s and the 1980s, Finland used to classify all enterprises with more than 20 per cent of foreign ownership officially as 'dangerous enterprises'. Several of them (especially France, Austria, Finland Singapore and Taiwan) used state-owned enterprises to promote key industries. Singapore, which is famous for its free-trade policies and welcoming attitudes to foreign investors, produces more than 20 per cent of its output through state-owned enterprises, when the international average is around 10 per cent."

Hao-Joon goes on to say: "Most readers may find my historical account counterintuitive. Having been repeatedly told that free-market policies are the best for economic development, they would find it mysterious how most of today's countries could use all those supposedly bad policies - such as protectionism, subsidies, regulation and state ownership of industry - and still become rich." But the empirical evidence is unassailable.

Enlightening discourse

Dani Rodrik, in his book The Globalization Paradox: Democracy and the Future of the World Economy, published this year as well, also provides a wealth of counterintuitive information on the historical development of capitalist economies. His chapters 'Of Markets and States', 'Why Doesn't Everyone Get the Case for Free Trade' and 'The Rise and Fall of the First Globalization' are especially enlightening.

Another excellent work for those interested in current economic debates but who want a solid historical grounding is Erik Reinert's How Rich Countries Got Rich ... And Why Poor Countries Stay Poor. It is one of the best in economic history, especially of the history of industrialisation. (Reinert reportedly has a 50,000 book collection, largely dealing with the history of economic thought and policy over the last 500 years!)

Says Reinert: "We live in an age of great ignorance today when established qualitative arguments exploring the process of economic development have been abandoned. After the Second World War, the world understood that economic development was the result of synergies and increasing returns ... . This understanding made it possible to overrule the free trade ideologies in Washington and reindustrialise Europe and parts of Asia. In order to restart growth, it is necessary to reinvent this type of theory."

And some first-rate scholarly work is being done by people like Ha-Joon and Rodrik to clear away the ignorance.

I have to caution our prime minister against any ideological commitment to the free market. Successful economic policy requires flexibility, adaptability, tinkering, pragmatism, proper sequencing and heterodoxy. I was concerned about where he seemed to be going with his recent Budget speech when he said, "For too long we have been unwilling to recognise that Government was the problem." No, Prime Minister, Governments have been the problem when they have been doctrinaire, inflexible, reckless or populist. But Government - the State - is not necessarily the problem. The prime minister has to maintain an openness to state action and cannot rely totally on the magic of the market or its 'invisible hand'.

As Rodrik says in The Globalisation Paradox: "Every well-functioning market economy blends state and market, laissez-faire and intervention. The price mix depends on each nation's preferences, its international position, and its historical trajectory. But no country has figured out how to develop without placing substantial responsibilities on its public sector."

Ha-Joon says in his 23 Things They Don't Tell You About Capitalism: "Contrary to what is commonly believed, the performance of developing countries in the period of state-led development was superior to what they have achieved during the subsequent period of market-oriented reform. There were some spectacular failures of state intervention, but most of these countries grew faster, with more equitable income distribution and far fewer financial crises during the 'bad old days' than they have during the period of market-oriented reforms.

Misconception

Moreover, it is also not true that almost all rich counties have become rich through free-market policies.

How many people stop to think that with all the propaganda against government spending and the glorification of the market, that the computer, semiconductor, aircraft, Internet and biotechnology industries have all been developed because of heavy Government research and development funding? Yes, the Internet came through. R&D spent by the Government in the defence industry. East Asia developed through protectionist, state interventionist polices. Sure, market mechanisms were used, but they were not used in the kind of doctrinaire way that the IMF and the World Bank now propose.

A fascinating section of Ha-Joon's book is under the subheading 'Countries With Bigger Governments Can Grow Faster', where he draws on actual examples. Finland and Norway, which have grown respectably, have strong welfare states. Indeed, Nordic Europe, with its strong social spending, have been producing better economic and social outcomes than countries following the purist free market model.

Regulations complaints

And what about the constant private sector complaint about regulations? Ha-Joon mentions that South Korea, up to the 1990s, required 299 permits from 199 agencies to open a factory, yet Korea had grown at more than six per cent per capita for the previous three decades. Japan and Taiwan also had many regulations during their take-off period. Says Ha-Joon Chang: "The first explanation for this puzzle is that, strange as it may seem to most people without business experience, business people will get 299 permits if there is enough money to be made at the end of the process. So in a country that is growing fast and where good business opportunities are cropping up all the time, even the hassle of acquiring 299 permits would not deter business people. In contrast, if there is little or no money to be made at the end of the process, even 29 permits may look too 'onerous'.

Something to think about! And what we certainly must be thinking about - in between our never-ending political drama and fanfare here in Jamaica - is what economic polices will get us out of the hole that these two political parties have put us into.

Ian Boyne is a veteran journalist. Email feedback to columns@gleanerjm.com and ianboyne1@yahoo.com.