Trade and Industry Minister Rob Davies. Picture: SOWETAN
Trade and Industry Minister Rob Davies. Picture: SOWETAN

THE US was the most protectionist country in the world after the Second World War, and arguing that the US economy developed out of free trade was like saying Nazi commander Heinrich Himmler was a promoter of racial harmony, says Ha-Joon Chang, professor in the faculty of economics at the University of Cambridge.

Prof Chang addressed the Department of Trade and Industry’s African programme on rethinking development economics in Pretoria on Wednesday, debunking some of the myths regarding free trade, capitalism and protectionism.

He said rich countries such as the US, the UK, Japan, Finland and Switzerland had their own industrial policies in place for many years, using import tariffs, regulating foreign direct investment and influencing agricultural policies.

Countries such as the UK and the US used protectionism, tariffs and subsidies to develop infant companies in their economies, and now that they were on top of the development ladder, they kicked it away to prevent developing countries from using the same measures.

He said they now promote free-trade agreements, bilateral investment treaties and engagement through the World Trade Organisation. Some of these countries’ industries became successful because their governments played the role of venture capitalists, he added.

Trade and Industry Minister Rob Davies said the future — not only of South Africa but also of Africa — was one of industrialisation.

He said the current challenges facing the South African economy came about mainly due to the new phase of the unresolved global economic crisis that the economy entered into during the second half of 2012, and not because of the actions — or inaction — of either labour or the government.

"We cannot expect to prosper on the basis that we are exporters of primary products and importers of finished products," he said.

Where the government has applied itself to the introduction of an industrial plan, some manufacturing sectors have turned around their fortunes.

"What we have not yet done is to place our economy on a new growth path that is driven by our productive sectors," Mr Davies said. "We are not there yet."

The government has targeted beneficiation of mineral resources, creating a competitive advantage based on access to mineral products, and faster regional integration, particularly cross-border infrastructure development.

Prof Chang said the success of a good industrial policy depended on the quality of its design and had nothing to do with economic theories. It had to be pragmatic, with a clear overall strategy that was consistently reviewed.

He said industrial policies were often equated to subsidies, tariffs, regulating entry into industries, and governments acting as the funders of foreign direct investment. Countries needed to look carefully at the capabilities of their industries, not only at the incentives they wanted to offer them.

"If you open your economy up for competition and your industries are too far behind, you will only wipe them out," he said.