test - Initiative for Policy Dialogue

Infant Capitalists, Infant
Industries and Infant
Trade and Industrial Policies
for Early Stages of
Development in Africa and
Akbar Noman
I. Introduction
 The resumption of growth in Africa after the
“lost quarter century”, has seen limited
progress in bringing about economic
transformation of the sort that lays the
foundations for sustained growth
 Share of manufacturing and formal sector
employment has been generally declining
since 1980. Ave.Manuf/GDP share fell from
17.5 percent in 1965 to 12.9 percent in
 Relatedly, little success in exporting
manufactures and in attracting foreign
direct investment in non-extractive activities.
Much of the growth of the past decade or so
is accounted for by extractive activities in
non-renewable resources – minerals, metals
and above all, oil
 Africa Task Force concerned with these
issues: subject of the volume “Good Growth
and Governance in Africa: ………
 Focus here on a related but rather
different aspect of learning, industrial and
technology policies
 Begin with the beginning: Adam Smith
explicitly assumed the institution of a class
of capitalists -- “previous accumulation” of
 Marx followed Smith, translating
“previous” as "ursprunglich” in German
which his translator rendered back into
English as the famous “Primitive”
 What about economies at an early stage of
development without “previous” or
”primitive” accumulation?
 The recent large literature on
institutions, including those required
for the existence and functioning of
markets largely neglects this
question– implicitly assumes
existence of capitalists/entrepreneurs
in adequate measure
II. Infant Capitalist Argument
The explicit assumptions of Smith and
Marx and the implicit one of much
recent institutional literature (and
some reform programs) acquire
particular salience at stage where
embarking on development aimed at
moving beyond simple agriculture and
crafts to producing output for which
capital and learning are important
 By definition “modern” private sector and
capitalists absent at this stage
 Inevitable, the early stages characterized by
a form of industrial organization where there
is no divorce between ownership and
management. The capitalist and the
entrepreneur are one and the same
 Industrial entrepreneurship requires capital,
albeit much of it typically borrowed
 Alexander Hamilton’s venerable 200+ years old
infant industry argument matured 6 years ago
with the infant economy argument of Greenwald
& Stiglitz
 The essence of these is well-known and revolves
around learning and spillovers
 As does the infant capitalist argument:
protection by reducing risks and boosting profits
can help create and nurture a class of
capitalists and enable learning. Can also help to
direct rents into industry and entrepreneurship.
 Given that capital accumulation and
entrepreneurship are intertwined at
“infancy”, both physical and human capital
are accumulated jointly
 Accumulating physical capital is necessary
for learning which in turns facilitates further
 This is of special relevance to much of Africa
III. Infant Capitalists in Africa
 At independence, Africa lacked a class with
the wherewithal to become entrepreneurs in
“modern” activities. More precisely, to the
extent such a group existed, it was
dominated by foreigners or ethnic minorities
of relatively recent origin
 Certainly more recent that say Malaysia with
its “bumiputra” promotion program
 At independence probably greater divorce
than anywhere else between economic and
political elites
 Not surprising then the ambivalence, at
best, in the 60s and 70s, towards the
private sector and resort to public ownership
and management
 Many countries still characterized by infant
or at best toddler capitalists, especially
indigenous ones
 Political economy imperative to
protect/create/nurture them
 Whilst individuals/groups have acquired
significant wealth in some countries from
rent-seeking; they are discouraged from
investing in modern transformational
 Unproductive rents not associated with
investment in industry and learning
 Investment climate and related
“governance” reforms have been very
imperfect substitutes for infant capitalist
protection and associated industrial policies
 These reforms have not so much reduced rents
as diverted them into unproductive activities
 Rents acquired via incentives to invest by an
infant class of industrial entrepreneurs can be
vital and facilitate learning
 Of the type that succeeded so spectacularly in
East Asia and to varying degrees elsewhere in
parts of Asia and Latin America
IV. Lessons of Success
 East Asia is well-known, oft cited case. Often
said to be “unique” developmental state not
easy replicated
 The non-replicability in Africa much
 Also example of Pakistan as successful
case of what was in effect infant capitalist
protection (and surely its governance is not
an impossibly high bar)
 Excellent detailed study by Papanek of how
Pakistan created a class of “industrialistcapitalist-entrepreneurs” from scratch
almost overnight (5 years)
 Papanek; Lewis: how the high and assured
profits contributed to the accumulation of
capital and learning . Rents acquired by
investing in industry
 Package of protection and low-interest longterm credit
 Even the seminal work of Little, Scitovsky and
Scott (LSS), otherwise highly critical of “import
substitution” acknowledges this achievement
 No doubt static efficiency losses but much
exaggerated by LSS and others (Noman, 1991)
and not so high as to clearly drown out dynamic
 GDP and industrial growth accelerated to Korean
levels before Korea. As did the emergence and
growth of manufactured exports.
Korea explicitly set out to learn from
Pakistan, especially how to combine
protection with export promotion
 As in E. Asia, availability of long-term
credit on reasonable interest rates
was also crucial
If Pakistan could do it, surely several
countries in Africa can
V. Concluding Remarks
 Danger of excessively high and irrational
protection should and can be avoided. The
worst sins now much better understood. We
have lessons of failure that were not
available in the 60s and early 70s
 Also now lesson of importance of an
experimental approach, of abandoning
 Still not all governments can do it
 Avoid extremes of level and variability of
protection but some variability needed:
moderately high for simple consumer goods
in which comparative advantage, lower on
intermediates (none for exports); and very
low or none on capital goods
 There will be rents and corruption
everywhere. The question is how to minimize
their negative effects and channel them into
productive activities and learning
Embed protection in a strategy, a vision,
in industrialization policy
Ensuring infants grow and learn: exports
and competition
Another challenge: avoiding exchange
rate overvaluation in resource-rich and
aid-dependent economies

similar documents