Presentatie German Calfat 4x4

1. Help, ik word protectionist!
4X4 – Ontwikkelingssamenwerking anders bekeken.
25-2-2009
Germán Calfat

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Table of Contents
• The History
• The Theory
• The Evidence

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1.How free have « free traders » been?
Lessons from history(*).
• It was not the free market but government protection and
subsidies that transformed Britain into a leading manufacturing
nation.
• From a raw-wool based economy to a formidable wool
manufacturing nation
Import Substitution strategies with Henry VII Elizabeth I (1558-1603 )
(1485-1509)
This section is based on the evidence provided in the following books of author Ha-Joon Chang
(2002,2005,2007)

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A century of protectionist policies
Robert Walpole (1721-1742): Radical
Change in Industrial and Trade Policy.
a) Tariffs on imported foreign
manufactured were significantly raised,
while those on raw materials were kept
at low levels.
b) Key exports from the colonies were
banned (to keep emerging competitors
away from British manufacturers).

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“kicking away the ladder »
In 1860 Britain adopted
free trade only when it had
acquired a technological
lead over its competitors,
« Behind high and long–
standing tariffs » (Friedrich
List, 1885)

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Meanwhile in the US…
• Under British rule America was given British
« special » treatment:
»The New England Colonies should
..
not be permitted to manufacture so
much as a horseshoe nail »
William Pitt the Elder (1708-1778)
Secretary of State

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The Report ( on the Subject of Manufactures) 1 vs. The
Wealth 0 (of Nations).
“The core of Hamilton’s idea
was that a backward country
like the US should protect its
‘industries in their infancy’
from foreign competition
and look after them to the
point where they could stand
on their own feet”.
Alexander Hamilton Adam Smith
US Treasury Secretary 1776
1791

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The US followed Britain's protectionist route
Protection continue in
the early 20th century
and was strengthened in
1930 with the Smoot-
Hawley tariff which
raised the average tariff
on manufactures to 50 per
cent.
« No other country implemented a more protectionist policy to promote its
industry than the United States. They started to liberalise its trade only
after the Second World War, at the time they had already established
industrial supremacy »..(Bairoch, 1993)

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And …for the record:
• Five of the six fastest growing countries during the
‘golden age’ of growth 1950-1973 were the highest
tariff countries (Japan, Italy, Austria, Finland and
France).
• According to empirical evidence [O’Rourke(2000),
Clemens and Williamson (2001), Vamvadkis(2002)
and Yanikkaya(2002)] there seems to be a positive
relation between tariff rates and growth.

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Mid-1980s: Devoloping countries, a mixed
strategy.
• Viet Nam : Gradual approach to economic reform, following a two-
track programme. It engages in state trading, maintains import
monopolies, retains quantitative restrictions and high tariffs on
agricultural and industrial imports. Result: successful in achieving
sustained growth, sharply reduced poverty, expand trade and
attract foreign investment. Despite High trade barriers, it is rapidly
integrated with the global economy.
• Haiti: Undertook comprehensive trade liberalisation in 1994-95,
slashed import tariffs to a maximum of 15 per cent and removed all
quantitative restrictions. Yet its economy has gone nowhere, and its
social indicators are deteriorating.
• Integration with the world economy is an outcome, not a
prerequisite, of a successful growth strategy.

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Lesson 1
• It can be said , with some confidence, that tariffs never
harmed economic progress in the countries now
developed.
• All we know is that as countries get richer they
dismantle trade restrictions, not that they get richer
because they liberalise trade.
• And , for developing countries today, the issue is not
whether to protect, but how to protect in order to
ensure the dynamic efficiency of its nascent industrial
activities.

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2. The classical foundations of Trade
Liberalisation
• Comparative advantage : in support of trade
liberalisation
Let us mention two implicit assumptions:
• A) Static Nature an its indifference to the types of
goods that countries specialise.
• B) the idea of continuous full employment.

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The neoclassical development of the doctrine
of comparative advantage.
Heckscher and Ohlin : differences in relative factor
Endowments. Ex: poor countries, with an abundance of
labour and scarce capital should find it relatively
cheaper to produce and export labour intensive goods.
Stolper and Samuelson : is central in the
Globalisation debate. Formalised the linkages
between trade and wages trough changes in
product prices. In poor countries the prices of
labour-intensive products will rise, shifting
resources to those sectors and raising the demand,
and therefore, wages, for unskilled.
The theory is appealing and sounds plausible: the practice is a bit
more complex.

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Trade Liberalisation and Poverty
• The impact of trade liberalisation on poverty has always been
a matter of controversy and heated debate.
• Economic Theory does not predict that trade liberalisation is
poverty alleviating.
• All that the theory predicts is static efficiency gains.
• It says nothing definite about long-run growth, or about the
distribution of the gains from trade in and between countries.
• Trade Liberalisation necessarily implies distributional
changes; it may well reduce the well-being of some people (at
least in the short term) and some of these people may be poor.

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The analytical scheme
Trade Policy
Alan Winters
Enterprise Distribution Government
Individuals and Households
Source: McCulloch,Winters and Cirera: Trade Liberalization and Poverty,( p. 66)

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Lesson 2
• Trade Liberalisation has made no obvious dent on
world poverty.
• Contrary to the prescription of orthodox trade theory,
the wages of unskilled labour in poor countries seems
to have fallen compared to skilled wages. ( But one
should not blame the theory for this).
• Trade policies do not automatically translate in benefits
for the poor. There is a wide range of (complementary)
policies which are necessary if price signals are to be
transmitted effectively from international to sub-
national markets.

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3. Trade Liberalisation and Poverty : A vision from Chiapas, an
indigenous gender perspective .
Impact of NAFTA on small scale agricultural producers (maize).
• The promises:
• Increase in the standard of living
• More employment
• Greater Democracy

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Chiapas

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Profile of Chiapas
• Largest section of the population is Indigenous
• Regarded as an internal colony for the rest of Mexico produces
21 % of crude oil, 47% of national gas production, 54% of
hydroelectric power).
• But.. 32% of indigenous home has no running water, 35 % no
electricity, and 85% continue to cook with charcoal.
• Highest illiteracy ratio
• Highest rate of malnutrition
• More than one million with no access to health care facilities.

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Basic items identified from women
perspective
(To understand the loss in their autonomy, self determination and ability to
survive)
• Loss of self sustenance as a result of threats to their
subsistence from maize
• Extreme hardships to meet the growing need for
supplementary cash
• Painful consequences of increasing migration on
their lives (and its disruption in their communities)
• Loss of faith in their governments

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Central element in the analysis
• Because Chiapas’ indigenous people are deeply connected
with maize for their survival, the focus is on the effects on
small farmers’ livelihoods due to the liberalisation of the
market for their most important crop: maize.

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Welcome Mr NAFTA (1994):
• Before NAFTA creation the Mexican government introduces
measures to increase privatisation of resources and services.
• Elimination of price supports in agricultural sector and credit
facilities to rural farmers, deterioration of official support to
extension services.
• Government Salinas (1992) : End of ejidos. They were established
during the Mexican Revolution (1910-1917) as central in the land
reform (communal landholders).
• Fundamental switch from small maize producers (who depended
on artificially maintained prices, communal land and government
support), to a capital-intensive corporate farming framework.
• All barriers to trade and investment were eliminated

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Moreover
• The agreed gradual reduction of barriers on imports
of maize from the USA (15 year) was truncated to
roughly 30 months when Mexico declined to enforce
the planned tariff reduction allowing drastic increase
of more 300% in maize exports (compared to pre-
periods) with domestic price falls in Mexico of 50%.

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The economic logic of the impact fails to
account for:
• The deep cultural and ecological significance that
maize has in the Mexican society.
• For small subsistence farmers, growing milpa –small
family plots where maize, beans and squash are
planted- is a way to ensure food security.
• Massive imports of maize posses a threat to the
biodiversity of maize in Mexico.

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In addition the reduction in government welfare
programmes and privatization of the health and
education programmes has put the bonus on small
farmers to find cash for such services:
How do small farmers cope with this development?:
Off-farm employment
Shift to export oriented crops (coffee)
Migration

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A gender perspective :
• The shift towards an increasingly market oriented agriculture has meant a
greater work burden and resulted in a negative impact in reproductive
activities.
• The reallocation of time and resources from maize to coffee has increased their
existential insecurity.
• Much exposed to price volatility of international markets
• Increased dependency on outside food sources (Maseca maize)
• Migration is a central concern. Lack of income options for women staying
behind. Impossibility of planting milpa themselves.
• Increasingly dependence on outside food sources (a) most the time dedicated
to outside work and b) women are unable to maintain a milpa on their own.
Corollary: junk food substitutes traditional products---- malnutrition.
• Feeling of being betrayed by the Government.

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Lesson 3
• A preferential liberalisation (NAFTA) without proper
complementary measures results in more harms than benefits:
• indigenous people have been increasingly put at the whims of
the market.
• Forced to give up the life they have known for thousands of
years to produce what the market wants
• Increased dependence on outside food sources with volatile
prices
• Increased dependence on insecure cash sources ( wage labour
and cash crops).
• Families had to migrate to distant lands in search for money

29. References 29
• Bairoch, P. (1993), Economics and World History – Myths and Paradoxes (Brighton: Harvester
Wheatsheaf).
• Buffie, E. (2001), Trade Policy in Developing Countries (Cambridge: Cambridge University Press).
• Chang, Ha-Joon (2002), Kicking Away the Ladder: Development Strategy in Historical Perspective
(London: Anthem Press).
• Chang, Ha-Joon (2005), Why Developing Countries Need Tariffs? (Geneva: South Centre).
• Chang, Ha-Joon (2007), Bad Samaritans: Rich Nations, Poor Policies and the Threat to the Developing
World (Random House Business Books).
• Clemens, M. and Williamson, J. (2001), A Tariff Growth Paradox? – Protection’s impact the World
Around 1875-1997, NBER Working Paper No. 8459, (Cambridge MA: National Bureau of
Economic Research).
• Krugman, P. (1984), ‘Import Protection as Export Promotion: International Competition in the
Presence of Oligopoly and Economies of Scale’, in H. Kierkowski (ed), Monopolistic Competition
in International Trade (Oxford: Clarendon Press).
• Lederman, D, Maloney W. and Servén L. (2005), Lessons from NAFTA. For Latin Ameica and
the Caribbean. The World Bank, Standford University Press.
• List, F. (1841), The National System of Political Economy (translated by S.S.Lloyd) (Fairfield , NJ:
Augustus M. Kelley 1991).
• O’Rourke, K. (2000), Tariffs and Growth in the Late 19th Century, Economic Journal, April.
• Rivera J.M.,Whiteford, S. and Chávez M. eds. (2009). NAFTA and the Campesinos: The Impact of
NAFTA on Small-Scale Agricultural Producers in Mexico and the Prospects of Change.University of
Scranton Press, Chicago.
• Rodrik, D. (2001), The Global Governance of Trade: As if Development Really Mattered (New York:
UNDP)
• Stiglitz, J. (2006), Making Globalisation Work (New York: W.W. Norton and Co).
• Vamvakidis, A; (2002), How Robust is the Growth-Openness Connection: Historical Evidence,
Journal of Economic Growth, March.
• Winters, A., McCullock, N. and McKay, A. (2004), Trade Liberalisation and Poverty: The
Evidence so Far, Journal of Economic Literature, March
• Yanikkaya, H. (2003), Trade Openness and Economic Growth: A Cross-Country Empirical
Investigation, Journal of Development Economics, October.

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