We must industrialise or perish

The other week, I wrote in support of the Made-in-Nigeria movement. Today’s piece is a follow-up to that humble submission. Yesterday I found myself seated next to a visiting Indian businessman on an Abuja bound evening flight from Lagos. He was a rather articulate fellow with a doctorate in management sciences from the Indian Institute of Technology. As I had visited India myself, we had much to talk about. I explained to him how impressed I was by the New India: the newly-built Delhi underground; the sheer energy of Mumbai as a business and financial hub — the medieval marble palaces of Rajasthan and Udaipur.

My new acquaintance told me about the mighty breakthroughs being made in ICT in places such as Hyderabad and Chennai. Indians have built their own nuclear submarines and are making remarkable breakthroughs in aerospace technology. My new acquaintance revealed that the American aerospace giant Boeing, has recently built a plant in India.  India has more engineers and scientists than the whole of the EU put together. Today, of the 3 million foreign scientists working in the United States, nearly 1 million are from India alone.

India’s story is a remarkable one. Nobel laureate Amartya Sen once revealed that his choice of economics as a major was informed by the terrible famine in his native Bengal in the 1940s, in which more than 3 million perished. Up to the seventies, India as a country was mostly associated with poverty, hunger and underdevelopment. In the late 1950s, one of the principal architects of Nigerian economic planning, the distinguished American economist Wolfgang Stolper, described the Nigerian public service as the best in the New Commonwealth; ahead of India, Sri Lanka and the others. India came from behind to overtake us, as it were. Compared to India’s our public service is fourth-world in standard. Much of our own manufacturing today is in ruins.

I believe that what India has achieved is also well within our reach, if only we can put our hearts and minds to work for the renaissance and reconstruction of our New Africa.

I have only one message for the people of this great country of ours: We must industrialise or perish. We cannot continue to be a nation of shopkeepers – of people who import everything they consume and export mostly what they do not consume. A nation of nearly 200 million cannot continue to play the inane games of developmentalism. Industrialisation, technology and innovation are the only means by which we can earn our place in the sun. Without industrialisation, we cannot possibly absorb the millions of unemployed youths being churned out by our education system every year.

Last week, British Premier David Cameroon described our country together with Afghanistan, as “fantastically corrupt”. With our oil-based rentier economy, corruption is likely to continue, and with it, an erosion of the moral standing and honour of our country. Building strong institutions and achieving accelerated industrial transformation is key to building the foundations of a great and prosperous democracy that middling European powers would not condescend to insult us with such gratuitous levity.

Ever since the process that we term the ‘industrial revolution’ began in England in the eighteenth century, spreading to France, Germany, northern Europe and the New World, industrialization has come to be regarded as the key to wealth creation, poverty alleviation and employment generation in rich as well as poor nations. According to the Cambridge economic historian Phyllis Deane, it is now “almost an axiom of the theory of economic development that the route to affluence lies by way of an industrial revolution”.

In our day and age, industrialisation cannot succeed without a clear-headed industrial policy. This may not have been the case in the distant past. It seems fairly evident that industrialisation in England did not involve government taking a central role in economic management. As the eminent economic historian Peter Mathias explains, it was essentially a “spontaneous growth, responsive primarily to market influences and underlying social, institutional forms, not shaped consciously by government design”.

Far from being a quantum leap, it was a slow transformation, which, complimented by an expanding population and developments in banking, transportation, and communications services, boosted aggregate demand while creating the institutional basis for long-term secular growth. Whilst this may be true of Britain as pioneer industrialiser, it is clear that, for late-developing low-income nations of Asia, Africa and Latin America, the path to accelerated growth would require the state to play a more active role in the development process. For agrarian societies undergoing modernisation, where mass publics are impatient for change in their material conditions, authorities cannot avoid confronting the challenge of industrial policy. Indeed, the remarkable transformation which has been achieved in the Asia Pacific, China and India in recent times amounts to a strong case in favour of industrial policy.

During the 1980s and much of the nineties, ‘industrial policy’ was a rather discredited term. The African state, with its neopatrimonial defects of bloated bureaucracies, rent-seeking and structural rigidities, was seen as the major impediment to social and economic progress. The path of economic virtue was seen in terms of ‘rolling back’ the state and allowing market forces free rein in driving the development process. With the massive de-industrialisation occasioned by World Bank and IMF-supported structural adjustment programmes even against the backdrop of persistent poverty and external indebtedness, there was increasing doubt on the viability of inherited neoclassical dogmas. With the recent global financial meltdown, much of which was blamed on a combination of speculative exuberance and market failure, it has become clear in rich and poor countries alike that blind faith in markets could prove disastrous.

At a very broad level, industrial policy may be said to refer to shared development-oriented values between policy communities on the one hand, and the spectrum of “specific policies and institutions to create competitive advantage”. It entails a combination of government loans and equity participation, tax incentives that promote investment, implementation of trade protection and export subsidies, imposition of preferential government procurement practices and institutionalisation of regulatory regimes that ensure industrial harmony and growth. Successful industrial policy comprises four key elements: (a) strategic capability, (b) regulatory effectiveness, (c) efficient delivery of services and (d) political autonomy of decision-makers.

Among contemporary economists, Dani Rodrik, a professor at Harvard’s Kennedy School of Government, has led the paradigmatic resurgence in favour of ‘guided’ state intervention in macroeconomic management. Rodrik defines industrial policy as a mix of interventions “in favour of more dynamic activities generally, regardless of whether they are located within industry or manufacturing per se”. For him, industrial policy encapsulates policies targeted at non-traditional agriculture and services in addition to trade and fiscal policies, incentives on manufactures and public subsidies as well as policies that promote such new sectors as tourism and call centres.

By the 1980s, when the ‘neoliberal resurgence’ gained the upper hand, the logic of structural adjustment required the ‘rolling back of the state’ and the reduction of the role of government in the economy, in addition to the promotion of an ‘outward-oriented’ economic policy framework  as taught by such neoliberal economists as Robert Bates and Anne Krueger. Structural adjustment, as everybody knows, not only impoverished our continent; it took back African industrialisation by more than a generation.

In more recent times, however, the hegemony of neoliberal economics appears to have reached an impasse. Blind faith in the market is giving way to a more interventionist approach to economic management. More voices are being raised in favour of a shift away from extreme trade liberalization to targeted government policies that promote balanced economic growth. There is increasing appreciation of the fact that the more advanced industrial nations were not quite as liberal as they have claimed to be in the early years of their industrialisation. Far from supporting the extreme trade liberalization view, the actual record of these countries demonstrates that successful export-led growth has generally been based on activist trade and industrial policies. The Norwegian Economist, Erik Reinert, has noted that, “From Renaissance Italy to the modern Far East, development has been driven by a combination of government intervention, initial protectionism and strategically timed introduction of free trade and investments… but advanced countries do not want less developed countries to follow that approach”.

The Geneva-based UN Commission for Trade and Development (UNCTAD) advises developing countries to rigorously pursue industrial policies as vehicles to create “a dynamic domestic comparative advantage in an increasingly complex and sophisticated range of products and services”. Such policies should focus on: upgrading productive capacities through innovation to increase value —  “making better products, making them more efficiently”; building capability that decreases social marginalization and poverty through effective incomes  and labour policies, public expenditures and entrepreneurship and technology development; creating conditions that enhance for full employment while promoting inclusive growth through pro-growth macroeconomic policies and strengthening of intersectoral linkages; fostering structural transformation from agrarian to post-agrarian societies; improving the supply of all public inputs with a view to raising labourproductivity; and building capacities at the firm level, fostering collective learning and facilitating economic diversification.

There remains a wide division between those who favour interventionist industrial policies on the one hand, and those, on the neoliberal right, who reject them. Those in favour, such as Michael Porter of Harvard Business School, believe industrial policies help in “shaping comparative advantage” while enhancing the competitive advantage of nations. While conceding that everyone gains through international trade, they would insist that the most gains accrue to those who specialize in high value-added, high-growth sectors and products. There is a firm belief that comparative advantage can be created. Neoliberal critics of industrial policy, on the other hand, take the view that governments could not claim to do a better job of providing the right mix of incentives than ‘market forces’ and that any attempt by government to pick ostensible ‘industry winners’ may prove to be counter-productive.

In terms of national policy, what does it entail? There is no need to reinvent the wheel. There are several blueprints covered in dust and cobwebs in government ministries and planning offices. We should dust them off and pick the essentials into actionable programme for rapid industrialisation. We need to revisit the school curriculum. We hear some idiotic tinkering is going on with the elementary school curriculum as pertains religious education. This is foolhardy. The real focus needs to be on Science, Technology, Engineering and Mathematics (STEM). Strong incentives should be provided for cutting edge education in the STEM sector and in research and innovation. We heard recently that the small East African nation of Rwanda is developing the use of drones for delivery of medicines and drugs to rural clinics that may be inaccessible by road transport. The Rwanda leadership is made of people who are self-confident about their own genius as an African people. They believe they can master their environment and harness their own resources to give their people the life more abundant.

 

There is iron law in the universe that says we Africans were born to be “hewers of wood and drawers of water”. International comparative advantages are not cast in stone. Indeed, the lessons of the last half-century of world development makes it abundantly clear that nations can create their own comparative advantage. What we need, above all, is enlightened leadership; building a national consensus anchored on the conviction that we one people with a common destiny among nations. And then we must design and carefully sequence the right mix of policies to accelerate industrialisation.

In all our current debates on the economy, I hear nothing about the role of the bureaucracy. Former Federal Permanent Secretary Tunji Olaopa, has been a lone voice like John the Baptist in the wilderness. The proprietor of the newly-created Ibadan School of Government, has been a strong advocate of public sector reforms. I agree with him that without the reform of the civil service, our quest for national transformation will remain elusive. The right institutions and support services must be linked to a robust network of innovation to manufacturing of value-added products for domestic and global markets. The new continental market that is soon to emerge will open the entirety of our continent as a market for our products and services. But none of this will be possible without peace, harmony and social justice; without power and electricity and support infrastructures, including iron and steel and machine tools industries. We must industrialise or perish!

 

Obadiah Mailafia