Thursday December 7 2017

50 years later, Seoul exports Samsung and Soroti grows sorghum: Time to stop digging

When Ha-Joon Chang was born in October 1963, South Korea was an Asian backwater and almost as poor – if not poorer – than Uganda. Today, while we grope around in the dark looking for the guiding lights to the elusive middle-income status, South Korea is a developed economy, the fourth biggest in Asia and 11th biggest in the world.
Dr Chang, an economics scholar at the University of Cambridge, was the keynote speaker at last week’s Joseph Mubiru annual memorial lecture organised by the Bank of Uganda in Kampala.
Dr Chang is one of the leading proponents of a theory of industrial policy that seeks to carve out middle ground between centralised planning and unbridled free market economics.
His argument is that developing countries need to practice economic pragmatism and chart a new path to development by liberating themselves “from the shackles of ideological prejudices, conventional wisdom and historical myths”.
The debate over the role of the State in the economy is not new and has been the handmaiden of development economics for hundreds of years. What is interesting was that we are back to having this debate in the first place, in Uganda, under the aegis of the Central Bank.
Context is important. Uganda’s political economy, pre-and post-independence, has had to deal with tensions over native participation in the economy, either as individual or collective interests, or as the State itself.
From the boycott of Asian traders in the run-up to independence, Milton Obote’s move-to-the-left policy shift to Idi Amin’s expulsion of Asians, political careers have risen and fallen on the tidal waves of economic policy.
The current government, which was born and raised socialist-Marxist, was the first to recognise and respond to this dynamic, shifting to free-market economics in exchange for foreign investment and political support.
We put everything up for sale and opened all corners of the economy to attract foreign direct investment without ever stopping to ask how and where those foreign investors had accumulated the capital they now sought to invest.
Neither did we stop to ask why, if government couldn’t do business, we were selling our State enterprises or awarding public contracts to companies owned or controlled by foreign governments.
The evidence now shows that it was a trap, or as Chang argues in one of his books, a case of the rich countries protecting their economies long enough to obtain an unassailable advantage, then kicking away the ladder by imposing free market policies on poorer, less competitive economies.
For the system to work, it requires many countries to become wealthy enough to consume the products rolling off the production chains in richer countries – from iPhones to software – without them being able to produce those same items or better versions cheaper and thus breaking the producer-consumer relationship.
Countries that have muscled their way into the high-value production chain, from China to Japan to Korea, did so with State support and targeted intervention in strategic sectors of the economy; many success stories from the ‘free-market’ economies, including Google and Apple, for example, received grants or subsidies that made all the difference.
Any smart participant at the memorial lecture would not have missed the significance of the Central Bank – a key plank in the liberal economic thought and policy framework of the last three decades – facilitating this kind of debate.
The obvious inference is that Uganda is crawling where it should be running, and doing so in the wrong direction: Marginal growth; growth without jobs; modernity without development; as well as the systemic risk that could arise from unequal distribution of wealth.
Furthermore, those in the know speak of two intellectual schools of thought in the Central Bank: One that is eternally wedded to the idea of free markets, and another that sees space for State intervention.
In reality, we are already seeing evidence of the latter, from the on-going bailout of Uganda Telecom to ad-hoc investments in favoured pet projects from bananas to solar cars to hides-and-skins cat-and-mouse carpetbaggers.
Done this way, state intervention is doomed to fail. A more open discussion would help clarify the strategic sectors in which we must compete and, having identified those, how to allow market mechanisms to pick winners in the selected areas.
South Korea was able to go from third-world to first-world in a generation while the number of Ugandans living below the poverty line is growing. If we are to go from growing sorghum to exporting electronics we cannot do business as usual: we need to stop digging and listen to some sound advice.

Mr Kalinaki is a journalist and a poor man’s
freedom fighter. dkalinaki@ke.nationmedia.com
Twitter: @Kalinaki.