Protectionism won't save countries from poverty

By Alex Singleton | 11 August 2005

Franklin Cudjoe, Director of Imani, a think-tank in Accra, Ghana says...

...we can glean much from the mistakes of the past. In the 1950s and 1960s, governments of many countries in Africa and Latin America erected walls around themselves in the form of trade barriers. The plan was to enable the industries of these countries to grow, "protected," as it were, from outside competition. What actually happened was that these industries floundered.

Although the industries in these "protected" countries grew for a brief period, the lack of competition meant that their industries became lazy and fell behind the rest of the world in both technological improvement and growth. Also, because imports were expensive or even unavailable, their costs of production rose and they continued to use old and inefficient technologies. Soon these protected industries were producing goods that few people wanted; exports fell dramatically and in many cases the industries - usually run by the cronies of corrupt leaders - had to be subsidized by the state in order to stay afloat.

Governments paid for these subsidies by taxing farmers (either directly of by forcing farmers to sell to marketing boards) and by borrowing (which is one of the reasons why so many African and Latin American countries have such large debts.) Some governments, like Brazil's, printed money to pay off the debts - which lead to hyperinflation, reduced confidence in the economy, and resulted in massive disinvestment. Other governments, especially those in Africa, simply defaulted on their loans.

(via Tom G. Palmer)