level until the 1960s. Te strategy worked! By the 1980s, France had transformed itself into a technological leader in many areas.
Japan In Japan, the Ministry of International Trade and Industry (MITI) orchestrated an industrial development programme that has now become legendary. Te country’s industrial tariffs were not particularly high after the Second World War, but imports were tightly controlled through government measures restricting the use of foreign exchange. “Exports were promoted in order to maximise the supply of
foreign currency needed to buy better technology (either by buy- ing machinery or by paying for technology licences),” says Chang. “Tis involved direct and indirect export subsidies as well as information and marketing help from the Japan External Trade Organisation (JETRO), the state trading agency.” Te government also put subsidised credits into key sectors
through its “directed credit programme” while heavily regulat- ing foreign investment by transnational corporations. Foreign investment was simply banned in most key industries. Even when it was allowed, there were strict ceilings on foreign ownership, usually a maximum 49%. Tis is mirrored by today’s Zimbabwe where the government’s new indigenisation law seeks to limit for- eign ownership to a maximum 49%, with the remaining 51% going to indigenous people. As Chang shows, foreign companies were required to transfer technology and buy specified proportions of their inputs locally. Te government took it upon itself to regulate the inflow of technologies, to make sure that overly obsolete or over-priced technologies were not imported.
Finland, Norway, Italy, Austria Finland, Norway, Italy, and Austria were all relatively economi- cally backward at the end of the Second World War and saw the need for rapid industrial development, says Chang. Basically they all used strategies similar to those used by France and Japan to promote their industries. All of them had relatively high tariffs until the 1960s. Tey
all also actively used state-owned enterprises (SOEs) to upgrade their industries. Tis was particularly successful in Finland and Norway. Also, the governments of Austria, Finland and Norway were very much involved in directing the flow of credit to strategic industries. Finland, especially, heavily controlled foreign invest- ment, while in many parts of Italy, local governments provided support for marketing and Research and Development (R&D) to small and medium-sized firms in their localities. “In Finland,” Chang says, “it took Nokia 17 years to earn any
profit from its electronics subsidiary, which is now the biggest mobile phone company in the world. If Finland had liberalised foreign investment from early on, Nokia would not be what it is today.”
America America’s trade policy recommendations to the developing world today stand in sharp contrast to what it did itself when a British colony and as a young, independent country. According to Chang, the USA had a terrible record in its dealings with foreign investors. From its earliest days of economic development right up to the First World War, the USA was the world’s largest importer of
foreign capital, but there was considerable concern in the country over absentee management by foreign investors. “Reflecting such sentiment, the US federal government strongly
regulated foreign investment,” Chang reports. “Non-resident shareholders could not vote and only American citizens could become directors in a national (as opposed to state-level) bank.” Tis meant that foreigners and foreign financial institutions
could only buy shares in US national banks if they were pre- pared to have American citizens as their representatives on the board of directors, thus discouraging foreign investment in the banking sector. Tere were also strict regulations on foreign investment in
natural resource industries. Many state governments barred or restricted investment by non-resident foreigners in land. Ten the 1887 federal Alien Property Act was enacted to pro-
hibit the ownership of land by aliens – or by companies more than 20% owned by aliens – in the “territories” (as opposed to the fully fledged states), where land speculation was particularly rampant. Federal mining laws also restricted mining rights to non-US
citizens and companies incorporated in the US. In 1878, a timber law was also brought in, permitting only US residents to log on public land. “Yet,” says Chang, “despite all these extensive, and often strict,
controls on foreign investment, the USA was yet the largest re- cipient of foreign investment throughout the 19th century and the early 20th century – in the same way that strict regulation of transnational corporations in China has not prevented a large amount of FDI from pouring into that country in recent decades. Tis flies in the face of the belief that foreign investment regula- tion is bound to reduce investment flows.”
Singapore Te economic prowess of the island city-state of Singapore is trumpeted as a victory for liberal, free market ideas. But even in Singapore, state intervention is not too far away. For example, Singapore Airlines, one of the world’s best, is a state-owned en- terprise, 57% controlled by Temasek, the holding company whose sole shareholder is Singapore’s Ministry of Finance. “Virtually all land in Singapore is publicly owned and around
85% of housing is provided by the government’s Housing De- velopment Board,” says Chang. “Te Economic Development Board also develops industrial estates, incubates new firms, and provides business consulting services.” In fact, Singapore’s state- owned enterprises sector is twice as big as that of South Korea, when measured in terms of its contribution to national output.
Taiwan One of the economic successes of the past 50 years, Taiwan’s experience with state-owned enterprises has been even more remarkable. Taiwan’s official economic ideology is based on the “Tree People’s Principles” of Dr Sun Yat-Sen, the founder of the Nationalist Party (Koumintang) that engineered the Taiwanese economic miracle. Tese principles dictate that the key indus- tries should be owned by the state. Accordingly, Taiwan has had a very large SOE sector. For Africa, whose governments are being told to keep their
hands off the economy (“private sector development” is the in- thing), the above should provide ample food for thought.
New African April 2011 | 21
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