African elites are victims of their own delusions about
distorted history of developed countries
On Dec.01, I attended the Joseph Mubiru Memorial Lecture
hosted by Bank of Uganda and featuring Prof. Ha Joon Chang of the University of
Cambridge. A brilliant economist lecturer, Ha is one of the smartest unorthodox
thinkers. I owe him an intellectual debt because his work has influenced my
thinking. Three of his books – `Kicking Away The Ladder, Bad Samaritans and 23
Things They Don’t Teach You About Capitalism’ – are must reads. Ha empasised
the importance of industrialisation for any country seeking to become rich.
His lecture came four days after President Museveni invited
me to State House to discuss manufacturing. He asked me to go see how, with
available electricity, factories are springing up in the Namanve Industrial
Park of Kampala.
Despite the surge, in reality Museveni superintends over an
economic bureaucracy; especially in the Ministry of Finance and the Central
Bank, whose ideological leanings are hostile to the idea of industrial policy.
Even many Ugandan elites who are sympathetic to industrial policy are hostile
to its implications. This explains why Uganda has not pursued an industrial
policy. Uganda’s industrial policy is to have no industrial policy. This had
led Museveni to constantly make ad hoc interventions to support this or that
investor whenever reality confronts him.
Yet there is no country in the world where agriculture employs
80% of labour that has a per capita income of more than $1,000. So dependence
on agriculture is synonymous with poverty. And save for finding huge rich
mineral deposits and managing them well, no country has jumped from an
agricultural to a service economy and become rich. Uganda must industrialise if
it wants to become rich. So I told the President that while investments in
infrastructure; dams, transmission and distribution lines for electricity, and
roads, expressways, railways, water systems and airports are absolutely
necessary, they are insufficient to drive the manufacturing growth Uganda
needs.
Instead, there is a toolbox for industrialisation from
historic experience that Uganda can pick from.
First, the leading manufacturing firms in the sectors Uganda
considers necessary for her transformation must be owned by Ugandans. This is
because, as a rule, multinational corporations do not transfer the most
valuable aspects of their business to their subsidiaries. Ha repeated this
point. Otherwise we can assemble but will not be able to manufacture goods.
Why?
Countries that have developed did so by selling abroad more
value than they bought from there. In economics it is called terms of trade.
And international trade is a form of hierarchy: some countries produce cotton;
others weave cloth while others market high fashion. Some nations mine iron
ore; others make steel while others sell automobiles. How much you earn from
international trade depends on the niche you occupy in this value chain.
Those who produce and sell raw cotton earn 1.9% of the
international market price; those who weave cloth take about 12%, while those
who sell high fashion like Louis Vuitton, Gucci or Hugo Boss take 65%. The same
applies to the niche one occupies in the value chain of iron ore, steel, and
automobiles. Being relegated to a producer and exporter or raw cotton or iron
ore means remaining poor. This has powerful implications on politics and the
welfare of your citizens.
Take the iPhone. On its back it says: designed in California,
assembled in China. Design and marketing, which are done in the USA, take 65%
of the value of the iPhone. Assembling takes 15%. This is why China is
developing her own smart phones in order to capture the 65%. DR Congo that
sells Coltan from which these phones are made gets about 2%. So America eats
the iPhone dinner, China the leftovers while DRC gets crumbs.
Second, if we are to industrialise, then we have to adopt
industrial policy to protect our infant industries from international competition.
Such policies would include tax holidays, subsidies, access to cheap long-term
credit, free prime land, high tariffs on imported substitutes etc. This places
the state in a position to choose which sectors, firms, and individuals to get
these benefits.
No comments:
Post a Comment