‘Home-Grown Economics: The Asian Example By Sam Amadi

President Buhari while inaugurating the Economic Advisory Council (ECA) a couple of weeks ago, charged them to focus on developing what he called ‘home-grown economic policies’ for Nigeria. He repeated this charge while speaking at the Nigerian Economic Summit a few days after. This is a wise and urgent charge. The problem is: do we understand what ‘home-grown economics’ looks like? Or better still, do we have the pedigree to go this contrarian policy track? Helpfully, we can look towards China and other Asian countries for example of how focused and smart leaders have transformed economies under more difficult contexts than Nigeria finds herself. Asian is not a uniform success story. There are massive successes and major failures. We need to know what worked and what did not work in Asia.

The Trinity of Export-oriented Agriculture, Manufacturing and development Financing:


First, the success of China and the rest is not about geographic determinism. Some scholars have pointed out that Africa’s parlous economic story is because it is a malaria infested tropic. Of course, a lot can be said about the impact of environment in economic development. But the impact of environment can be superseded. The fact that no Africa countries has superseded that impact is not a proof of environmental determinism, but rather a proof that African economic policymakers have made notoriously bad choices, especially at the beginning of independence. There are not many significant geographical variations between China, South Korea and Taiwan on one hand and Malaysia, Thailand, Vietnam and Hong Kong on the other hand. They share similar past of poor, rural and agrarian economies with massive social injustice in terms of land barons who excruciatingly pauperized tenants and peasants who worked on their land. Each of them tried some form of agrarian reform. But the successful North East Asian countries were the ones that included redistribution of land and fiscal and policy support to ensure higher productivity and increased rural prosperity for former tenants.


Second, redistribution is critical to economic development in rural and poor economies. Nigeria cannot become a real economic powerhouse unless it unleashes the potentials of its rural communities. Here, the divergent results from Asia tell a good story. The unsuccessful South Asian countries like Thailand pretended to execute a land reform that reinforced rural inequality and reduced farm yield. Their agrarian policy did not boost rural economy and therefore cut off the oxygen for industrialization, which is enhanced domestic consumption. Whereas, North East Asian countries provided credits to poor farm owners in order to stave off repossession by the land grabbers, the unsuccessful South Asian countries allowed, and in some cases reinforced cultural, social and economic institutions of rural inequality.


It is therefore no magic that in North East Asia we saw high economic growth resulting in lower inequality. In South East Asia, lower economic growth produced more inequality. In Latin America, even lower economic growth produced even higher inequality. Contrast with the United States which made its transition to industrial economy in the late 19th century with sets of progressive policies by Alexander Hamilton, the Secretary of Treasure, including land purchase and distribution to poor families. These policies resulted in equitable economic development. This is another proof that economic equality is good for economic growth.


Nigeria’s agro-industrial policy should focus on rural industrialization, or at least pay enough attention to agro reform in the rural communities. This is supported by the Asian experience. It is policy choice that made the difference in Asia, not geography, and not political context. All these countries passed through hash and predatory colonialism. But each of those that succeeded as industrial economies were hardnosed in selecting the right economic policies that reformed rural agriculture, ruthlessly promoted industrialization and focused financial transaction towards promoting export-oriented agriculture and manufacturing. Notably, they refused to create a financial market that bubbled wealth into the pockets of entrepreneurs but left manufacturing plants without access to finance. The unsuccessful one promoted few privately-owned plantations in the name of agrarian reform, promoted merchandise and assembling plants instead of manufacturing plants and turned their banks into financiers of skyscrapers and shopping malls that created billionaires but impoverished the country.


Beware of Ideology Masked as Economics


If Nigeria is to succeed in home-grown economic policymaking it must wisely manage economic ideologies. China and the successful Asians took note of ideology and avoided the pitfalls. Latin American and African countries closed their eyes to ideology and drowned in the pool of ideological waters. Economic policymaking has moved in ideological circles. At each epoch, especially with major social and political upheavals, economics gets trapped in an ideology which is pushed around the world like a new religion. In the world of ideological rigidity, it seems like those who succeed are contrarians, those who act contrary to precepts of the new religion.


Recognizing the role of ideology in economic policymaking, in 2003, when President Obasanjo appointed the then World Bank Vice President, Ngozi Okonjo-Iweala, the Minister of Finance, I wrote an opinion piece titled ‘Who Should Manage the Nigerian Economy”. My contention in that piece was that Nigeria needed to have a former leftist economist manage its economy. Such a person who has recognized the limits of Marxism and now understands the merits of the market as a mechanism for allocation would be a better manager of the economy than a doctrinaire free marketer who is trapped in market fundamentalism. This had nothing to do with the bona fides of Dr. Okonjo-Iweala but rather a recognition of the ideological landscape of economic policymaking. I had argued in two books on privatization and the NEEDS policy how the outbreak of market fundamentalism in the form of economic neoliberalism, later to be nicknamed ‘Washington Consensus”, constrained wise economic policymaking in the third world. We were forced to mimic what New York opinionated columnist, Thomas Friedman, called ‘the golden straitjacket’.


Multilateral financial institutions played key role in the dictatorship of no-alternatives. The World Bank’s role in economic reform in developing countries like Nigeria has been underwritten largely by the ideology of less government that took fundamentalist meanings in the Reagan-Thatcher era. During this era the cold war between capitalist west and communist west was ending in the west’s favor. Neo-liberal theorists interpreted the eventual collapse of communism as a triumph of the sets of market practices,-core values and ideology of the American Business Model (ABM) and institutions of liberal democracy -and the convergence of the world to a set of best institutions that correlates with the templates of the free market economy. This hasty and tendentious interpretation foisted on development planners in the periphery South a fait accompli on the available options for development. As Hernando Desoto wistfully puts it in his classic: Dead Capital, “there is one game in town”, and that game is mimicking the market institutions in the prosperous west. But the tragedy is that the recommended menu for these developing countries often bears little resemblance to the set of policies that guided countries of the west to its prosperity or the policies they are implementing to sustain their prosperity. Cambridge economist, Ha-Joon Chang, has assembled evidence to prove that the Now Developed Countries of the west embarked upon the opposite of the ‘free market’ policies which they prescribe for developing countries. Their periods of growth were marked by infant industry protection, expansionary public expenditure, and massive government intervention to correct market failures. But they asked those aspiring to development to do the opposite.


At the heart of neoliberal economics is an ideological view about the role of state. The philosopher-king of neoliberalism, Frederick Hayek, an Austrian who fled communist dictatorship with a beef against socialism, wrote a magisterial book, “Road to Serfdom” which branded government intervention in economic activities as ‘evil’ and glorified individualism. Professor Milton Friedman became cheerleader of the movement that grew out of ‘The Road to Serfdom”. Friedman’s book, ‘Capitalism and Freedom’, became the holy grail of the Chicago School that promoted the concept of the minimalist state. In Latin America, Chicago boys ran riot with a brand of ideological economics that built on the Hayekian distrust of the government and Friedman’s theory of opportunistic intervention. Friedman has counseled his disciples to wait for the auspicious moment of social upheaval to remake the society. The Chicago boys saw that opportunity in the economic distress of the 80s when trade deficits and commodity price crash indebted developing countries to both London and Paris clubs. To address the debt crisis, neoliberals urged countries toward deflationary economics with reduced wages, removal of subsidies and liberalization of domestic and international factor and product markets and the diminution of the public sector.


Neoliberalism succeeded largely because it cleverly masked its ideological mission. It passed off its ideological prescriptions as natural truths. Neoliberalism deplored socialism and pretended not to be an ideology. Economists like Adelman has wondered why their colleagues did not see through the error of neoliberalism. There are obvious theoretical shortcomings in neoliberal economics, yet it was religiously prescribed. The reason is that an ideology was promoted as a science by its missionaries. The unwitting swallowed everything. Latin American and African policymakers swallowed the ideology of ‘government is evil and should get out of the way’. China and the rest rejected that doctrine and accept the pragmatic idea of prudent state planning forcefully championed by Fredrick List and the German Historical School. Today, China and the rest are smiling, and we are mourning.


Recognize Ideology but Manage Pragmatically:


East Asian economies succeeded not because they embraced the whole doctrine of free market. They succeeded because they avoided ideology and embraced pragmatism. China has a long history of false steps, even up to the period of Mao Zedong and the cultural revolution. The Great Leap Forward set China back, especially with the collectivization of agriculture, resulting in mass death and failed industrialization. Deng Xiaoping changed the game. He initiated a gradual, programmatic and sensible reform that started with returning the land to dispossessed peasants with guaranteed tenure to encourage irrigation, higher seedlings and extension services. Xiaoping tracked the benefit of increased productivity in agriculture into gradual industrialization. At a point he started to open China to western technology and capital, but in a controlled and strategic manner using special economic zones.


China abhorred the rigid ideologies of communism and the laisse faire theory of neoliberalism and embraced pragmatism. This approach is exemplified by the famous saying of Deng Xiaoping that it does not matter whether my cat is red or white if it catches rat. China followed the example of Japan and South Korea where pragmatic leaders like General Park wisely implemented transformative reform of agriculture and deliberate but systematic protection and nurturing of infant industry to transition their countries to industrial economies. In these countries, pragmatic leaders enhanced efficiency not by surrendering to the free trade, but rather using export discipline to improve productivity. The secret of the success of the East Asian countries is the pragmatic insight that what will ensure industrialization is to protect and nurture infant industry through export discipline. Export promotion worked where import substitution failed in Africa.


China and the rest recognized the pitfall of crony capitalism. When they raise tariff to protect infant industries, they forced those industries to perform according to export benchmarks. Those who failed lost the fiscal and policy support. By so doing they chose winners and losses, not through political patronage, but through the discipline of international trade. This is the model of a development state; a government, as Stephen Cohen and J Bradford DeLong in their book, Concrete Economics: The Hamilton Approach to Economic Growth and Policy, “that signaled the direction, cleared the way, set up the path, and – when needed- provided the means”