We need strong government, not fair trade

By Michael Buteera Mugisha

No country has developed economically without the governments actively setting the right fundamentals for growth

Andrew’s article titled; “Inside the fair trade movement”, carefully exposes the potential pitfalls of fair trade but does little to offer any reasonable or relevant solutions to our biggest development challenges. It would say it is yet another policy proposal analogous to “Washington consensus Plus”.

Perhaps the only alternative policy strategy that can be deciphered from it is the proposition of free trade, a clearly well certified illusory policy of the neoliberal market doctrine predicated upon the untrammeled belief in the efficiency of self-regulating markets.

But Mwenda labours less to explain precisely how free trade will unlock our slow-paced and inefficient markets and place them on the road to allocative efficiency, the moral universe, and consequence underlying the philosophy of free market doctrine which is his sworn and unquestionable alternative to government intervention in market operations.

I should endeavor to draw Mwenda’s attention and indeed that of our readers, to the fact that there is no country in the history of development economics that achieved development without their governments taking an active role in settings the fundamentals for growth right.

Even in western countries such as Britain; the forerunner of industrial revolution, their governments then and now took an active role in reorganising markets. The Speenhamland system for instance was implemented against the support of Speenhamland law with the underlying goal of reallocating land in way that enhanced agricultural productivity which was needed to give drive and momentum to industrial expansion.

We can point to recent examples from China where the government of China has been lauded for taking a cautionary approach in implementing economic and structural reforms that unlocked its potential. China’s approach is at odds with the prescription of Washington Consensus that many African countries implemented and have continued to implement without question. It accounts for much of China’s impressive growth in the last three decades that have lifted millions of Chinese out of poverty.

In 1997-98 when Asia’s financial crisis ominously threatened to decimate their financial system, you will recall that Hong Kong and a few other East Asian countries took an active role in restricting capital flows, a move that attenuated a lot of speculative tendencies from global markets traders whose actions were eroding the financial health of their economies.

The examples are inexhaustible, but  if the clearest instances of the failures of free trade and its accompanying policy cousins that we can adequately relate to, it is in the almost one decade of no growth (1980-90) that most Latin American countries endure in rebuilding their economies that painfully suffered from the debt crisis of 1980s.

Subsequent crises such as 1995 Russian crisis, 1997-98 Asian crisis, and more recently 2008 financial crisis didactically expand the catalogue of the outcomes of free market doctrine. One thing that has strongly characterised these crises is their emerging as a consequence of unsuspecting adoption of neoliberal market policies encapsulated in the “Washington consensus”.

So in lambasting the fair trade, Mwenda either deliberately or inadvertently provoked the resurgence of old debate concerning how much governments should intervene in markets and what kind of role they should play. This is critical in poor countries where governments have suffered a very bad publicity and have ceased to see any reasonable purposes they can serve in allocation of resources.

We can be critical, abuse, and even feel indignant about our governments, but their lack of fortitude in institutional quality and performance in generating the right, context-specific policies will undoubtedly leave us susceptible to exploitation by a private sector whose sole motive is wholly self-interest. The private sector won’t necessarily generate efficiency outcomes like equitable and sustainable income distribution, political stability, and so forth.

I therefore think neither free trade nor fair trade will solve our problems. I still believe we need to strengthen our governments so that they can dispense their national obligations beginning with the most fundamental; quality education and health, and ensuring fair system of allocation of the means of production such as land and capital. Rwanda offers a very good example of what a strong government can achieve in terms of setting the foundation of growth and development right.