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mises
Joined: 05 Nov 2007
Location: retired
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 Posted: Thu Sep 04, 2008 3:35 pm Post subject: Uganda�s Smart Protectionism |
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http://www.project-syndicate.org/commentary/zachary6/English
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KAMPALA � On a balmy afternoon, I met Dr. Gilbert Bukenya at his home on the shores of Lake Victoria, where we talked about the future of farming in Uganda. �By farming smarter,� he said, �Ugandans not only can grow more, they can earn more money.�
Working smarter is no empty slogan; it is the key to modernizing African agriculture. An advocate of food self-sufficiency for Uganda, Bukenya wants Ugandans to eat more homegrown rice, thereby boosting local farmers and rice millers while freeing hard cash for higher uses. Bukenya has long promoted a new strain of African rice that grows in uplands (as opposed to wetland paddies) and requires less water.
Embracing the new rice is part of the working-smarter formula. Once rice output began to expand, Bukenya and other Ugandan politicians played another smart card: they lobbied successfully for a 75% duty on foreign rice, which stimulated rice production further. Rice output has risen by two and a half times since 2004, according to the Ministry of Trade, to 180,000 metric tons, while consumption of imported rice fell by half from 2004 to 2005 alone.
Uganda�s importers, seeing the shift, have invested in new mills in the country, expanding employment and creating competition for farmers� output, improving prices. New mills, meanwhile, lowered the cost of bringing domestic rice to market, so that consumers now still pay about the same for rice as they always have.
And Uganda is poised to start exporting rice within East Africa and beyond. �It�s a very important crop for raising income and commercializing agriculture,� says Nelson Gagawala Wambuzi, Minister of State for Trade.
Uganda�s success in expanding rice production is especially interesting given that the people of sub-Saharan Africa spend nearly $2 billion a year on rice grown outside of Africa. The amount of spending on rice alone by Africans equals the combined national budgets of Ghana and Senegal.
As more Africans move to cities, they acquire a taste for rice, which is easy to store and can be cooked quickly. But such spending on imported rice is a scandal, because, with the help of wise policies, African farmers could grow much more rice, perhaps enough to eliminate virtually all imports. Much of the rice grown in Pakistan, Vietnam, and especially America is stimulated by subsidies, and then dumped into African markets at low prices � sometimes below the cost of production. These rice exporters, including the US, also maintain stiff import duties, thereby protecting domestic farmers from global competition.
African governments sharply reduced or eliminated duties on imported rice in the 1990�s, urged on by the World Bank, the International Monetary Fund, and influential free-market economists. The assumption was that rich countries would reciprocate by curtailing subsidies to their farmers. But they haven�t. In response, a few African countries have raised duties on rice, violating a key tenet of neo-liberal trade philosophy.
But rice duties are working in Uganda � and in Nigeria, where rice output is also soaring and the value of imported rice is declining � and policymakers rightly believe that they must be maintained. The big exporters, such as the US and Vietnam, continue to supply massive subsidies to their rice farmers. Without protection, African farmers would once again be harmed by imports.
Indeed, African governments might wish to look selectively at other crops. They need to rely on a mix of economic tools, including farm protectionism, aimed at helping indigenous producers.
Virtually every successful Asian economy was built on selective trade barriers � and in China and India, the world�s two fastest growing economies, such barriers remain in place. Even Korea and Japan maintain massive duties on imported rice simply to protect the livelihoods of their own rice farmers.
Uganda and other African countries need to be careful that protectionism doesn�t become a cover for inefficiency or corruption. And selective protectionism is of course no panacea for Africa, even when such policies effectively aid local producers. But economic self-reliance is a worthy goal for most African countries, and Uganda�s experience suggests the potential of an approach long denigrated by the international community.
For too long, African governments have listened to the siren song of free trade � and have suffered from too much openness, not too little. With the US and the European Union unwilling to slash their farm subsidies, Uganda�s rice experiment deserves wider attention, if only because it shows that Africans aren�t merely passive victims of international economic forces. They are fighting back and, at least in the rice fields of Uganda, they are winning. |
Western states also used protectionism to build modern economies. Uganda is using tarrifs and GMO foods to build a domestic food industry, and, at least according to this article, is having solid success. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Thu Sep 04, 2008 4:07 pm Post subject: |
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Smart Protectionism. Isn't that an oxymoron?
Look, isn't there context for this:
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| Part of a surge in global food costs, rice prices on world markets have jumped 50 percent in the past two months and at least doubled since 2004. Experts blame rising fuel and fertilizer expenses as well as crops curtailed by disease, pests and climate change. |
I'm not for protectionism, but I'm not going to tongue-lash little Uganda for a 75% tariff on rice when richer states do much worse. The problem is that hopes for tariff reductions died with DOHA, and the proliferation of bi-lateral FTAs frustrates future attempts at global reductions under the WTO. [/url] |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Sep 04, 2008 6:45 pm Post subject: |
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Kuros, protectionism is why Korea and Japan are what they are. It essential for developing states. And anyways, the issue is not rich-world tariffs but subsidies. We cynically dump our excess food on Africa, wiping out their domestic industry.
I suggest this book to you:
http://www.amazon.com/Economics-World-History-Myths-Paradoxes/dp/0226034631
Your university library will certainly have it.
Development is very difficult. Obviously. And anything Uganda can do to move towards self sufficiency should be done. Korea would not today be the 11th largest economy if not for protectionism and favorable terms of trade with the West. There is a lesson there. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Thu Sep 04, 2008 7:04 pm Post subject: |
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| mises wrote: |
| Kuros, protectionism is why Korea and Japan are what they are. |
You mean middling economies, one with a fragile rice industry that is stuck in pre-1930s America, and the other with a halted economy completely dependent upon exports?
Is protectionism why America is what it is?
Or here's another question: why didn't import-substitution theory work in Latin America in the 80s, and why is what they are doing now working today? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Sep 04, 2008 7:28 pm Post subject: |
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| Kuros wrote: |
| mises wrote: |
| Kuros, protectionism is why Korea and Japan are what they are. |
You mean middling economies, one with a fragile rice industry that is stuck in pre-1930s America, and the other with a halted economy completely dependent upon exports?
Is protectionism why America is what it is?
Or here's another question: why didn't import-substitution theory work in Latin America in the 80s, and why is what they are doing now working today? |
Yes, they are the stagnant mess today because they no longer benefit from closed industry/ag. But to become wealthy, they protected key parts of their economies.
In regards to Latin America, the primary problems there are a lack of institutional credibility (which the Tigers had/have in heaps), political instability, horrible monetary policy and a legacy of Spanish colonialism that left predatory states. ISI in the South American context differed from ISI in the East Asian context (but both used ISI) in that in East Asia it was 1) not used as a pretext to constantly devalue currency (as in Brazil) and was focused on creating exporting industrial giants that would carry the economy forward by bringing in massive amounts of FDI and income capital. This capital was used to build the infrastructure (as you see when taking a taxi along the Han in Seoul) or any of the massive shipyards. The South American ISI was far more isolationist, inflationary and populist/redistributionist. The classic line is that East Asia was outward looking and South America inward looking in their application of ISI.
East Asia would now benefit from the dismantling of this system in full order. Africa would be wise to take the Chinese/Korea/Japanese/Taiwanese example of outward looking ISI. |
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doc_ido
Joined: 03 Sep 2007
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| Posted: Thu Sep 04, 2008 8:10 pm Post subject: |
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Good for them. I was quite pleased when the Doha WTO talks collapsed as poorer countries were tired of getting shafted all the time.
It's interesting that Uganda is pushing rice as a cereal crop, when most of the population eats millet and maize (which are already adapted to the climate). |
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bucheon bum
Joined: 16 Jan 2003
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| Posted: Thu Sep 04, 2008 8:18 pm Post subject: |
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| mises wrote: |
| Kuros wrote: |
| mises wrote: |
| Kuros, protectionism is why Korea and Japan are what they are. |
You mean middling economies, one with a fragile rice industry that is stuck in pre-1930s America, and the other with a halted economy completely dependent upon exports?
Is protectionism why America is what it is?
Or here's another question: why didn't import-substitution theory work in Latin America in the 80s, and why is what they are doing now working today? |
Yes, they are the stagnant mess today because they no longer benefit from closed industry/ag. But to become wealthy, they protected key parts of their economies.
In regards to Latin America, the primary problems there are a lack of institutional credibility (which the Tigers had/have in heaps), political instability, horrible monetary policy and a legacy of Spanish colonialism that left predatory states. ISI in the South American context differed from ISI in the East Asian context (but both used ISI) in that in East Asia it was 1) not used as a pretext to constantly devalue currency (as in Brazil) and was focused on creating exporting industrial giants that would carry the economy forward by bringing in massive amounts of FDI and income capital. This capital was used to build the infrastructure (as you see when taking a taxi along the Han in Seoul) or any of the massive shipyards. The South American ISI was far more isolationist, inflationary and populist/redistributionist. The classic line is that East Asia was outward looking and South America inward looking in their application of ISI.
East Asia would now benefit from the dismantling of this system in full order. Africa would be wise to take the Chinese/Korea/Japanese/Taiwanese example of outward looking ISI. |
Other examples you need to explain are Indonesia and India. And the success of Chile contradicts your theory as well.
Korea, Taiwan, and Japan are unique, just like Singapore and Hong Kong.
Basically there is no "one-way" to go about developing an economy. Totally depends on circumstances. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Sep 04, 2008 8:32 pm Post subject: |
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Other examples you need to explain are Indonesia and India. And the success of Chile contradicts your theory as well.
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Why to explain Indo/India? I already mentioned institutional credibility, political stability and predatory states. "Indian Socialism" and the problem of land ownership/caste explain much of why India is as it is.
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| Korea, Taiwan, and Japan are unique, just like Singapore and Hong Kong. |
No, not really. The first three are very similar to each other and can be replicated. Singapore has non-tariff barriers and always has. The suggestion that it is a free trading state is a fiction of the PAP's amazing PR abilities. Hong Kong is a different story, but benefited hugely from the flow of capital from China during the nonsense of Mao and also from being an important port.
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| Basically there is no "one-way" to go about developing an economy. Totally depends on circumstances. |
Not really. You should read Fukuyama's latest book on development. Institutional credibility goes a long way in explaining how these things end up. The World Bank uses the "Credibility of Rules" measure as a primary indicator of future growth. The focus is totally off of "free trade" as a means to growth in developing states. Free trade is now essentially a platitude that means managed trade for the benefit of corporate interests. I'm no anti-capitalist, but it is what it is. If we believe in free trade in any way we would drop subsidies in ag, and we will never ever ever do that. It is a fiction.
This isn't my theory. Like with portfolio theory or quantitative risk modeling, which are still held in high regard among journalists and policy wonks despite their total naked wrongness (see Taleb on portfolio theory and the credit crises on quant risk modeling), the cutting edge academic work has moved on. Once the NYT or WSJ editorial page catches up the public discussion will too. This will take a very long time. |
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bucheon bum
Joined: 16 Jan 2003
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| Posted: Thu Sep 04, 2008 8:39 pm Post subject: |
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Here is a benefit of free-trade: it removes opportunities for corruption and bad governance.
In regards to those 3 countries, do you honestly think a country like Uganda can duplicate them? For one, Uganda is land-locked. Two, it does not have a highly educated society like they do. Three, its competitive advantage could be completely different from those 3 asian countries (I know little to nothing about the country), so perhaps it shouldn't go near the same industries as those did. Four, it is not a cold war ally of the United States, unlike those 3 countries.
But yes, obviously clearly defined institutes with enforced laws is a big component of development that Latin America and other parts of the world lacked and needed in order to succeed.
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| If we believe in free trade in any way we would drop subsidies in ag, and we will never ever ever do that. It is a fiction. |
Oh please. Talk about oversimplifying things. Countries don't even implement policies that are for the common good of their own countries, let alone the entire world.
We don't drop subsidies due to domestic politics and the strength of farmers' lobbies in the developed world. Don't believe me? Just look at Korea and Japan, and their price of rice. Or the US and the amount a consumer pays for sugar.
It isn't because we don't believe in free trade, it is because of interest groups. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Sep 04, 2008 8:47 pm Post subject: |
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That is true. But corruption isn't the end of the world in a developing state. Korea teaches us that. And Singapore uses very targeted and specific means to stamp out corruption, like never having long lines (remove the incentive to pay for quick service) in government offices. Corruption can be battled in many different ways, when it has to be.
Anyways, the Credibility of Rules measure takes corruption into account. The predictability of corruption.
Trade is good, of course. And between developed states free trade is great. But to become developed... I know of only one country where an argument could be made the 'free trade' facilitated the push from rich to poor (HK). The book I suggested to Kuros above goes into great detail in regards to American, Brit, French protectionism prior to them being developed. |
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bucheon bum
Joined: 16 Jan 2003
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| Posted: Thu Sep 04, 2008 8:48 pm Post subject: |
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| Sorry, i added a bunch while you were responding to the "original" version. |
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bucheon bum
Joined: 16 Jan 2003
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| Posted: Thu Sep 04, 2008 8:51 pm Post subject: |
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| And my last line there sounded simplistic as well. My point was, due to political reasons, countries don't always follow the best interests of the largest segment of the population. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Sep 04, 2008 8:58 pm Post subject: |
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| In regards to those 3 countries, do you honestly think a country like Uganda can duplicate them? For one, Uganda is land-locked. Two, it does not have a highly educated society like they do. Three, its competitive advantage could be completely different from those 3 asian countries (I know little to nothing about the country), so perhaps it shouldn't go near the same industries as those did. Four, it is not a cold war ally of the United States, unlike those 3 countries. |
Korea was not educated after the war. It was a land of peasants who hardly knew their own language. It had zero industry or any kind of competitive advantage to speak of. They did exactly what I said they did. The protected exporting industries and used the cash to build the country. The preferential trade status with the US was also a primary factor. Dude, this isn't even slightly controversial.
In regards to Uganda, they need to find their own way. Who would have known that little Korea would become one of the worlds most competitive car manufactures? What can Uganda find advantage in? Whatever they want. But they need to export something other than resources. I don't think that there is something inherent in Africa that makes them unable to grow other than bad policy that we (the West) advised and sustain.
America (and Canada) talk a great deal of smack about "Free Trade". And then we allow corporations to write the agreements. BucheonBum, download the NAFTA agreement and 4 weeks later when you're done reading it, tell me if you think any of it even slightly comes close to "Free Trade". Only if you're GM.
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| We don't drop subsidies due to domestic politics and the strength of farmers' lobbies in the developed world. Don't believe me? Just look at Korea and Japan, and their price of rice. Or the US and the amount a consumer pays for sugar. |
And? You think I don't know this? Why would we try to force Uganda to open their rice market, as we did, when we are unable to liberalize our own? All this will do is destroy theirs. That's not very kind of us.
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| It isn't because we don't believe in free trade, it is because of interest groups. |
It doesn't matter "why". All that matters is outcome. We 'advise' them to open their markets, and then dump goods on them for below their domestic production cost. In this situation, they are better off protecting their market.
In regards to Chile, their success compared to the rest of South America is largely due to the credibility of their rules, getting inflation under control (comparatively) and political stability. Yes, Pinochet was stability. |
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bucheon bum
Joined: 16 Jan 2003
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| Posted: Thu Sep 04, 2008 9:16 pm Post subject: |
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| Korea was not educated after the war. It was a land of peasants who hardly knew their own language. It had zero industry or any kind of competitive advantage to speak of. They did exactly what I said they did. The protected exporting industries and used the cash to build the country. The preferential trade status with the US was also a primary factor. Dude, this isn't even slightly controversial. |
Whoops, I meant comparative advantage, sorry. Korea's was people (ie labor). The government smartly poured resources into education (and industry as you said), and that paid off after a generation or two. And I'm not disagreeing on how the country developed.
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| In regards to Uganda, they need to find their own way. |
That's exactly my point!
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| BucheonBum, download the NAFTA agreement and 4 weeks later when you're done reading it, tell me if you think any of it even slightly comes close to "Free Trade". Only if you're GM. |
Mises, look, I know FTA are not really free-trade. I won't argue with you there. That doesn't mean the concept of free-trade is wrong however.
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| And? You think I don't know this? Why would we try to force Uganda to open their rice market, as we did, when we are unable to liberalize our own? All this will do is destroy theirs. That's not very kind of us. |
Well judging by what you wrote above, you were implying you didn't.  . And I'm not going to argue that Uganda should open their rice market and receive nothing in return. That would be just plain stupid.
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| In this situation, they are better off protecting their market. |
Yes. I'm not saying Uganda (or any other country) should just blindly remove trade barriers. They obviously should receive something in return.
What you're saying now doesn't discount free-trade theory whatsoever. And that's what I'm talking about: the theory. And if that theory was a load of hogwash, why would so many countries be members of the WTO or interested in joining it? (Yes, i know, the WTO isn't free-trade). |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Sep 04, 2008 9:21 pm Post subject: |
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Anyways, we've sunk several trillion dollars in aid into Africa in the last 30 years. Nothing has come of it. We have a development model that works in modern times (outward ISI), though will need local adaption. Political problems will prohibit most change in Africa unfortunately.
Free trade and the theory of comparative advantage is great ideas. I just don't know if they apply to trade relations between dead poor states and wealthy ones in a real-world context where developed states are not able to actually trade free. |
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