Monday, March 31, 2014

(STICKY) Chikwanda on growth, poverty
By Editor
Sat 29 Mar. 2014, 14:00 CAT

COMMENT - If anyone is still impressed by neoliberal economics, I would suggest checking out two books:

Reclaiming Development, by prof. Ha-Joon Chang

23 Things They Don't Tell You About Capitalism, by prof. Ha-Joon Chang
- MrK

Finance minister Alexander Chikwanda says Zambia's current economic growth is not sufficient to reduce poverty. It is indisputable.

And despite what may be said to be "impressive economic growth" over the last decade, poverty levels are still high. Why? There is need to look at where this growth is coming from and where that growth is being consumed. Who is that growth really benefitting?

It is true that Zambia is lagging behind countries such as South Korea in reducing poverty despite the two nations' gross domestic product being at the same level at the time of our independence in 1964. As Chikwanda correctly observes, in 1964, Zambia's GDP stood at US$3 billion, while that of South Korea was US$3.8 billion. And currently, South Korea's GDP is 55 times higher than that of Zambia.

In 1961, eight years after the war with North Korea, South Korea's per capita income stood at US$82, less than half of Ghana's at the time (US$179). An internal USAID report in the 1950s described South Korea as a "bottomless pit". At the time, its main exports were tungsten, fish and other primary commodities. Today, South Korea is an industrial powerhouse, with per capita income in five digits.

It took the United Kingdom over two centuries - between the late 18th century and today - and the United States around one and half centuries (the 1860s to the present day) to achieve the same result. South Korea's progress is as if Malawi has turned into Switzerland.

General Park Chung-Hee, the father of South Korea's miracle, came to power in a military coup in 1961 and then went on to win three successive elections. Not democratic in the true sense of the word, Park propelled the country's success via Five Year Plans for Economic Development, which had a lot of indigenous economic empowerment schemes built into them. South Korea was developed by South Koreans.

Yes, they did everything possible to attract foreign investment but they were not totally dependent on it. They were more dependent on their own initiatives, on the contributions of their own people. The South Korean people were in the driving seat of their country's economic life. We are not. And very few in Africa are.

We are so dependent on the extractive industries in which we play no role. Even our government's role in it is very weak and in most cases, very easy to manipulate in terms of policy choices.

Variable foreign currencies were really the blood and sweat of South Korea's "industrial soldiers" fighting the export war in the country's factories. Those squandering foreign exchange on frivolous things, like illegal foreign cigarettes, were seen as traitors. Foreign travel was banned unless you had explicit government permission to do business or study abroad. The government took absolute control of the scarce foreign exchange, and violation of foreign exchange controls could be punished by death. Here in Zambia today, we are squandering the meagre foreign exchange we are earning in all sorts of ways. We do not have even ways of ensuring that whatever foreign exchange the country earns is accounted for. We have just removed very good statutory instruments - SI 33 and SI 55 - that were designed to maximise the country's use and benefits from its foreign exchange earnings. Pressure was mounted by foreign businesses and their local political agents and other representatives. Today in Zambia, one can export anything and keep the money abroad, bringing in only that which one needs to pay for local inputs. The SIs we have removed tried to mitigate that. But the government was being blackmailed - blackmail that resulted in the kwacha depreciating at a very fast rate.

How does a country like ours expect to develop when its important earnings are kept in other countries and for use by other countries? This is all being done in the name of economic liberalisation. This is not economic liberalisation, it is economic foolishness. Even the South Africans, with more money, a bigger economy than us, are not doing these senseless things we are doing. The rand was depreciating at some point but the South African government did not panic and allow itself to be blackmailed.

We should learn from South Korea. What South Korea actually did during these decades was to nurture certain new industries, selected by the government in consultation with the private sector, through all forms of government support until they "grew up" enough to withstand international competition.

The government owned all the banks, so it could direct the lifeblood of business - credit. Some big projects were undertaken directly by the state-owned enterprises. The government also took foreign investment under its wing, and heavily controlled it with a mixture of measures. In general, it welcomed foreign investment with open arms in certain sectors and shut it out completely in others, in line with the national plan at any one time.

And here comes the rub: the popular impression of South Korea as a free trade economy was created by its export success. But export success does not require free trade, as Japan and China have also shown.

Clearly, the South Korean economic miracle was a result of clever and pragmatic mixture of market incentives and state direction. We are where we are today because of our failure to come up with clever and pragmatic initiatives. We have allowed other people to see things for us, decide things for us, do things for us. If we think we can make progress this way, we are deceiving ourselves.

We are one of the easiest countries to manipulate. We get so excited with any little praise from foreign investors, the World Bank, the International Monetary Fund and other donors. We are more interested in what these people say about us than anything else. But look at what South Korea did! Does it fit in the paradigms that are being bandied around by the agents of neoliberalism whom we seem to respect and listen to so much?

The example of South Korea Chikwanda is giving is a very good one. But it is important not to just throw around figures or statistics but to truly understand the substance, and not just form, of what really went on there to give them the development they are enjoying today and they so much deserve.

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