MBunto!

Maddy, Maddy:

There are three big concerns on EPAs. First, every developed country has used tariff protection in its history to develop industry, but EPAs restrict that capability and could unleash a surge in European imports that could wipe out fledgling industries such as Kenya\’s dairy sector, as well as undercut prices of agricultural products. Second, governments themselves stand to lose a major chunk of their revenue that comes from tariffs; for instance, Zambia would lose $15.8m – the equivalent of its annual HIV/Aids budget. EU assurances that there would be aid to compensate only underline how this would increase dependency on aid. Third, the most complex and most important issue of all is how EPAs will affect regional trade. If you can get cheap widgets from the EU, why bother importing from your neighbour in Africa or the Pacific? UN studies have indicated that EPAs could lead to contraction in exactly those low and medium technology industries that are the basis for successful industrialisation.

I won\’t waste my energy trying to overturn your near insane belief that tariffs lead to economic development. But please, just try this. Joe Stiglitz (yes, the Nobel Laureate, the fellow Guardian writer, the go to guy on this sort of trade policy for the interventionists) pointed out in one of his papers on the subject that even if infant industry protection, import substitution and so on did in fact work, it would only do so if the rulers, the politicians and the bureaucrats, were wise, omniscient, incorruptibles.

This clearly isn\’t the case in Africa now, is it? So, as his paper then goes on to state, it rather makes all of these plans about developing behind such barriers rather moot, doesn\’t it?

As Dani Rodrik likes to say, we may often have to go with the second best solutions: as Africa is run by theiving hyenas, even if what you say about tariffs is correct, we still don\’t want industry being developed by such politicians, so free trade is still the way to go.

8 comments on “MBunto!

  1. If they can buy cheap widgets from the EU, that’s a good thing, isn’t it? It must be better for them to buy cheap widgets than to use aid money to buy expensive widgets, surely?

  2. Tim,

    Which paper of Stiglitz’s is that? I’d like to see it.

    This is what he says in ‘Globalisation and its discontents’, paperback edition, Page 16 –

    “…most of the advanced industrial countries – including the United States and Japan – had built up their economies by wisely and selectively protecting some of their industries until they were strong enough to compete with foreign companies. While blanket protectionism has ofetn not worked for countries that have tried it, neither has rapid trade liberalisation”.

    That is not the same position that you are claiming he has stated.

    Esto, you write,

    “I won’t waste my energy trying to overturn your near insane belief that tariffs lead to economic development.”

    You are invited to study the lives of Jean-Baptiste Colbert, Otto von Bismarck and Peter the Great. In each of them, you will find examples of how tariffs can aid development.

  3. Martin:

    You refer to “the lives of Jean-Baptiste Colbert, Otto von Bismarck and Peter the Great”

    Two fascists and a mercantilist. Had any of them taken the trouble to liberalize trade, secure efficient land and chattel title systems, courts and commercial laws then economic development would have been much greater.

    Tariffs benefit parasites, by which I mean governments and civil servants, and do not benefit anyone else, including producers.

  4. “Had any of them taken the trouble to liberalize trade, secure efficient land and chattel title systems, courts and commercial laws then economic development would have been much greater.”

    Theory, not fact. Too many ‘woulds’. Bismarck’s Germany was pretty efficient.

    Incidentally, it’s doubtful that the two you label ‘fascists’ (you don’t say which) would have recognised the epithet.

  5. If one takes the problem of convertibility into proper account, one can easily explode many widespread fallacies. Take, for instance, the infant industries argument advanced in favor of protection. Its supporters assert that temporary protection is needed in order to develop processing industries in places in which natural conditions for their operation are more favorable or, at least, no less favorable than in the areas in which the already established competitors are located. These older industries have acquired an advantage by their early start. They are now fostered by a merely historical, accidental, and manifestly “irrational” factor. This advantage prevents the establishment of competing plants in areas the conditions of which give promise of becoming able to produce more cheaply than, or at least as cheaply as, the old ones. It may be admitted that protection for infant industries is temporarily expensive. But the sacrifices made will be more than repaid by the gains to be reaped later.

    The truth is that the establishment of an infant industry is advantageous from the economic point of view only if the superiority of the new location is so momentous that it outweighs the disadvantages resulting from the abandonment of nonconvertible and nontransferable capital goods invested in the already established plants. If this is the case, the new plants will be able to compete successfully with the old ones without any aid given by the government. If it is not the case, the protection granted to them is wasteful, even if it is only temporary and enables the new industry to hold its own at a later period. The tariff amounts virtually to a subsidy which the consumers are forced to pay as a compensation for the employment of scarce factors of production for the replacement of still utilizable capital goods to be scrapped and the withholding of these scarce factors from other employments in which they could render services valued higher by the consumers. The consumers are deprived of the opportunity to satisfy certain wants because the capital goods required are directed toward the production of goods which were already available to them in the absence of tariffs.

    There prevails a universal tendency for all industries to move to those locations in which the potentialities for production are most propitious. In the unhampered market economy this tendency is slowed down as much as due consideration to the inconvertibility of scarce capital goods requires. This historical element does not give a permanent superiority to the old industries. It only prevents [p. 510] the waste originating from investments which bring about unused capacity of still utilizable production facilities on the one hand and a restriction of capital goods available for the satisfaction of unsatisfied wants on the other hand. In the absence of tariffs the migration of industries is postponed until the capital goods invested in the old plants are worn out or become obsolete by technological improvements which are so momentous as to necessitate their replacement by new equipment. The industrial history of the United States provides numerous examples of the shifting, within the boundaries of the country, of centers of industrial production which was not fostered by any protective measures on the part of the authorities. The infant industries argument is no less spurious than all the other arguments advanced in favor of protection.

  6. I am surprised. Y’all aren’t listening to Herr Steinmeier–or aren’t understanding what he’s saying. He is not overly concerned with export business and neglectful of the fact that the purpose is to achieve imports; he is, in fact, making just that very point and emphasizing its criticality.

    The plain fact is that Germany (with Austria) is a classic “have-not” nation–one that depends on imports to provide food, fuel, and “raw material” resources to its long-ago urbanized and industrialized population. Where many countries import to provide out-of-season produce and other commodities not absolutely esential for survival, Germany (Japan is another outstanding example) must export or starve. Anyone who thinks they’re going to face starvation gracefully has rocks in his head– that’s precisely what “lebensraum” was all about, in case anyone’s forgotten. Both World Wars were caused directly (though in no way deliberately or even awaredly) by policies of such restrictionism, especially on the part of the UK and the US. The situation of such countries is precisely that of urban areas in relation to the surrounds from which their material resources are obtained.

    The previous comment may not lay everything out in perfect progression; it’s a hastily thrown-together pastiche of selections from Mises’ HUMAN ACTION.

  7. “In the absence of tariffs the migration of industries is postponed until the capital goods invested in the old plants are worn out or become obsolete by technological improvements which are so momentous as to necessitate their replacement by new equipment.”

    Sorry, this is just rubbish.

    “The industrial history of the United States provides numerous examples of the shifting, within the boundaries of the country, of centers of industrial production which was not fostered by any protective measures on the part of the authorities.”

    Such as?

    “Both World Wars were caused directly (though in no way deliberately or even awaredly) by policies of such restrictionism, especially on the part of the UK and the US. The situation of such countries is precisely that of urban areas in relation to the surrounds from which their material resources are obtained. ”

    This is absolute rubbish. Look, ten out of ten for dogma – zero out of ten for fact. At the time both world wars broke out, Germany was protectionist and the UK laissez-faire; my favourite examples of just how laissez-faire we were are that in 1914 we had to import American, Swedish and Swiss technicians to manufacture fuses and timers, being unable to do so ourselves because we had imported so many German light engineering products; also in 1914 we were importing the blue dyes used in naval uniforms from Germany; and in 1939 the Spitfires were only able to get off the ground because they were chockful of American instruments. You will find all of these, and many more, in Correlli Barnett’s ‘The Collapse of British Power’.

    Yes, yes, yes we know that Bastiat said that ‘if goods don’t cross borders, troops will’- but in this case Bastiat was if not wholly wrong, the he sure wasn’t wholly right either. Troops will cross borders regardless of trade terms, and to say that the events that we call the World Wars were caused by trade policies is just ahistorical rubbish.

    Here’s a thought for you – ever thought that the World Wars are numbered out of sequence? And that the real ‘First World War’ was really the Seven Years War?

Leave a Reply

Name and email are required. Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.