In their quest to register a high rate of growth, to develop their economies quickly and to catch up with the developed world, the emerging nations are studying the wrong examples. They looked to history for guidance as to the best way to achieve their goals and saw that the Asian Tigers of yesterday, mainly Taiwan, Hong Kong and South Korea were exporting heavily while at the same time registering a high rate of growth, and so they concluded that export must have caused the growth. But this was the false conclusion to draw because the emerging nations shied away from entertaining the possibility that both the growth and the export may have been caused by one and the same factor, that of the capitalist West nurturing the Asian Tigers for ulterior motives. Indeed, the Western nations of America and Britain had embarked on this policy as a public relation ploy because they were locked in a cold war with the communist East. The aim of the nurture was to demonstrate to the people living behind the iron curtain that the capitalists were delivering a better life to their public and their friends than the communists could ever hope to do. Needless to say that the ultimate goal was to capture the imagination of the people there, win their hearts and minds and get them to switch side which is what happened in the end.
But the dream to develop quickly did not start yesterday. In fact, a number of emerging nations in Latin America and Asia tried a decade or two ago to duplicate the success of the Tigers by taking what they thought was the path followed by them a decade or two before that. Not only did those nations fail to achieve the success of the Tigers, they experienced serious economic crises as a result of their attempts. And when they became convinced they made the wrong choice, they were ready to abandon the idea of scoring a high rate of growth by the method of export but then something happened that threw the whole subject into confusion. What happened was that Mainland China began to register the sought after high rate of growth by adopting what seemed to be a policy of heavy export. And everybody started asking: What is going on?
What is going on is that Mainland China could not have achieved that level of growth were it not for the businesses from Taiwan and Hong Kong that transported to the Mainland the achievements they made and the lessons they learned while under the nurture and the tutelage of America and Britain. In effect, what the two Western countries have managed to do inadvertently was to turn China into a capitalist country not by winning the public relation campaign as they had planned - although they did achieve this - but by propping up Taiwan and Hong Kong then letting the Mainland swallow them both economically. Still, the US and Britain can take solace in the fact that they did turn China into a capitalist country although this is something that gives them the occasional heartburn given that China has become a formidable competitor. Oh well, the theory of the unexpected says that you get shafted when you expect to be pampered and get pampered when you expect to be shafted. But do not be distressed, dear friend, because it all evens out in the end.
In any case, the main point here is that export alone did not cause China's high rate of growth; what did it were the same ingredients that caused the growth in Taiwan and Hong Kong at an earlier time. They were the efforts that emphasized the building of the hard and soft infrastructures in the country as well as the upgrading of the system of education. And it was this effort coupled with the genuine desire to build the country without the wholesale exploitation of its people that kept fueling China's ongoing success. Simply put, the businessmen and women from Taiwan and Hong Kong who considered themselves to be the children of China after all, took their knowledge and their goodwill to the Mainland where they launched the cosmic process of shifting wealth and power to China and more generally to Asia. And this was a development that the US and Britain could not have predicted by solving a mathematical equation of any kind. What this story tells us is that the random nature of human behavior will continue to surprise and to astonish all of us.
So then how can the rest of the developing countries progress if they do not have a sibling like a Taiwan or a Hong Kong to walk with them through the labyrinth of development and a high rate of growth? The answer to this question is a bit complicated because it falls more in the realm of what not to do than the realm of what to do. Indeed, what these countries must not do is follow the advice that was given to the developing countries in the Nineteen Seventies and Nineteen Eighties which was to the effect that they can get rich quick by selling their natural resources without a prior plan, and by producing goods for export using their people as cheap labor. And most of all, these nations should avoid borrowing money to set up the industries that will produce the goods they intend to sell cheaply to those from whom they borrow heavily. If there should be one example to describe economic self-mutilation this is it. Yes, the Chinese are now selling cheaply but this is due to the exchange rate of their currency, a situation they know they will have to rectify soon and have pledged to do so.
As to what the developing countries should do; they should move no faster than it is possible for them to move. And they should do so while relying only on themselves and those who genuinely want to help. They should develop the infrastructures and the educational system that the country needs for the long run at the same time as they produce the goods and services that their people require now. If a country needs machinery, raw materials or expertise from abroad but has no money to pay for them, it may borrow just enough to buy only what it must to fill the most urgent of its needs. Only when these conditions are adhered to can the country begin to think in terms of taking the next step which is to export the surpluses it now has and those it plans to produce in excess of what the local market will absorb. And always remember that it is better to wait till you can pay for what you need than work for peanut delivering champagne and caviar to those who only think of ways to exploit you. In short, when you move at your pace and do so with a sure footed step, your policies will translate into an organic growth that will be as sturdy and as durable as nature itself.
But there is a catch you must be made aware of. The policies described above will result in some developing countries being deprived of a sufficient inflow of foreign currencies. This will not be fatal in itself but may result in making them look poor because the currency translation will not be there to inflate their GDP numbers. But this will only be the appearance because it is, in reality, part of an elaborate economic optical illusion. The fact is that people who live in a country with a strong agricultural legacy consume the required amount of wholesome foods by spending a dollar a day when other countries such as Israel which is the quintessential economic optical illusion, are said to have more than five dollars a day to spend on food, yet can only buy a fraction of what is required to be adequately nourished. This illusion and others like it often pop up because a system of measurement was set up by well meaning people but was highjacked by charlatans and ignorant publications to deceive themselves and con each other. And there is nothing we can do to end the moronic practice of quoting figures out of context for the purpose of shedding darkness on a complicated subject and smothering it with the noise of confusion. The people who do this seem to relish playing a primitive game on an empty stomach while those who are supposed to be poor fill their bellies with hearty meals produced by the labor of their forearms and the sweat of their foreheads. Let it be, said the Beatles, and so we say let it be.
To create a favorable climate for the organic development of nations to flourish, and to encourage the other nations to adopt their sound methods, the world must devise a system of trade and commerce that will give every country a cushion on which to fall back should the circumstances require it. That is, while not negating the benefits that result from competition brought about by free trade, both the developing and the developed countries must be given the right to protect chosen sectors of their economy up to a negotiated percentage (perhaps in the order of 30%) of their consumption in that sector. For example, because rice is important to the Japanese culture, Japan will be allowed to protect its rice farmers using any means it deems necessary till the local production of rice reaches 30% of what the country consumes. Any subsidized production beyond this level will be considered a contravention of the system and subject to fines or countervailing measures by the other countries. By the same token, the United States may wish to protect its auto industry, Egypt its production of wheat, Mali its production of cotton and so on.
When you have a system like this in place, the nations of the world will be less inclined to embark on a destructive sort of competition with each other to protect themselves from being wiped out in one sector of the economy or another. And when you think that the only way to survive offered to the poor countries at this time is to pay their people smaller and smaller wages, you will see the merit in putting an end to the unfettered free trade that hurts more than it helps. Indeed, what is happening now between China and the rest of the developing countries is that they are engaged in a race to the bottom just to survive or to maintain social stability while their workers are made to absorb the brunt of this unnecessary price war. What made everyone ignore this reality for a long time was that until recently the citizens of the advanced nations benefited from a system that supplied them with goods and services at a low price. But then the global economic meltdown of 2008 happened and was determined to have been caused in part by that system thus demonstrating that nobody can benefit from it on a sustained basis.
We must also be honest with ourselves and admit that when nations feel threatened they are inclined to take sneaky measures to protect their industries from competition. They do so by subsidizing those industries and by raising barriers to imports. Some of the measures they take will be obvious and labeled “beggar thy neighbor” and some measures will be hidden. But if a system like the one described above is put in place, no nation will feel the need to cheat because the system will allow everyone the flexibility to take measures above board that will also be available to everyone else. The advantage here is that the measures will be well defined and limited to a maximum level. Thus, you can eliminate both the race to the bottom and the idea of beggar thy neighbor with a system that may curtail competition a little but do so honestly and openly rather than see competition curtailed by a lot with a system that employs dishonest and sneaky means.
In conclusion, by holding back the horses of export just a little, the developed countries and the emerging ones will maintain a better balance between the production side and the consumption side of their economies. This will make it possible for the developed countries to create more manufacturing and more labor intensive jobs while the emerging nations will have the wherewithal to pay their people a little more than they do now. And both will have created a well integrated local economy rather than see the rise of a two tiered economy inside the same country where the people who are associated with export get fabulously rich and the rest become lamentably poorer. Holding back the horses of export will allow the nations of the world to invest in their own people thus nurture pools of new talent and see them flourish the way things happened in the Tiger nations as they were rising to prominence. And this system will be a lot more preferable than what we have now which is that everyone tries to lure to their side the limited supply of talented people who rise every year on the world stage. A system that holds the horses of export just a little will also reduce the chances of the horses unexpectedly turning into dogs of war that may go on the loose and cause horrors no one wants to see. A well designed new system can be a win win win proposition nearly seven billion times over. Let's give us this gift.
It is time for me to take a vacation. I shall see you here again in a few weeks time.