23 September, 2018

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Tariff War & IS Strategy  

By Ameer Ali

Dr. Ameer Ali

A targeted tariff war declared unilaterally by the Trump administration while disrupting the free flow of global trade and destabilizing currency markets, may, quite inadvertently, provide a new lease of life to import substitution (IS) as strategy for economic development for smaller nations. Sri Lankan policy makers may well be advised to consider this possibility, not as perfect substitute to export promotion but as partner in the free market model.     

When IS was promoted as an alternative model by ECLA (Economic Commission for Latin America) in the early 1960s, to counter the inequities of free market capitalism, it unfortunately earned a socialist tag and came under intense criticism from free market economists and export promotion strategists. No doubt, the Soviet-Mao-Castro triumvirate at that time coloured IS with a revolutionary brush. In fact, there was nothing revolutionary about IS but simple common sense especially for smaller economies that were struggling to earn sufficient foreign exchange to meet the rising cost of importing manufactured products. Economic diversification and reduction of domestic unemployment were other targets which they wished to achieve through IS. In fact, the so called South East Asian economic miracle touted by the World Bank actually emerged out of a sensibly utilised IS strategy by those economies. Yet, that strategy in general got enmeshed with Cold War geo-economics and geo-politics and began to lose its lustre from the last quarter of the 20th century. 

With the end of Cold War and collapse of the socialist regimes, economic liberalism became the global universal mantra for growth and development and developing nations like Sri Lanka had no choice but to join the bandwagon. Yet, after more than three decades of its unchallenged reign economic liberalism has not delivered the promised Valhalla to a number of developing economies. In the name of level playing field globalization actually created many humps and dips and widened the gap between a few Goliaths and many Davids. For Sri Lanka, the situation was worsened by a costly civil war financed by borrowed funds. Increasing foreign debt and falling export revenue has forced the government to mortgage and even sell part of the country’s assets to foreigners. At the same time uncontrolled corruption has aggravated the financial woes. Is there a way out under the current economic model?    

The Prime Minister recently called for an export drive through increased foreign investment to improve the nation’s foreign balances. At the same time his Finance Minister, in the wake of a price hike on kerosene fuel, promised launching a gamperaliya to ease the economic difficulties of the rural poor. Foreign balances can be improved through a mixture of increased exports and decreased imports. While the Prime Minister talked of exporting he seems to have has forgotten the import side of the balance. A recent complaint by the Governor of Central Bank that import of motor vehicles are taking undue toll on foreign exchange is only part of the story. Reducing imports and improving the condition of the rural sector can be achieved through selective use of the IS strategy.                   

What went wrong with IS in the nineteen seventies was that it was driven more by a fanatical commitment to ideology rather to use it rationally and selectively towards achievable targets. If such targets could be identified and promoted the finance minister can realise his gamperaliya and Prime Minister his positive foreign balance.   

Liberal economics has come to a dead end after nearly four decades of unchallenged reign. Dissatisfaction over its unfulfilled promises is heard from all corners. This ideology and its economic model were promoted by the big powers not to benefit the poor but the rich. Just as Britain in the 19th century advocated Laissez-faire when that country was the economic hegemon, so also did US and her agencies after 1980 preach open economies and free trade when they were in a dominant potion. As a result the world is now ruled by big capital and mega companies. Small nations like Sri Lanka are mere pawns in the chess board of big players.       

IS is no substitute to the market but can be a partner in achieving growth with equity. In fact, the so called East Asian Tigers achieved their ‘economic miracle’ by starting with IS-based industries.

The current tariff war and attack on currencies through sanctions by the US is a wake-up call to smaller nations to go back to the drawing room and reassess their economic strategy of an open economy. Export promotion and import substitution can go hand in hand without sacrificing one for the other. Sri Lanka, having foolishly got entangled in the Indo-China geopolitical mesh, in which US also has a stake, may well be warned of possible negative consequences were the super power to target economic sanctions on either of the regional powers.       

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Latest comments

  • 2
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    IS was a total failure in South America.
    I wonder if IS by itself explains the” success” of certain Asian countries in a particular global context.
    *
    IS was never an effective economic strategy (or even a tactic) to free a Third World country from imperialist domination.
    There was a need determine afresh economic priorities that were not conditioned by colonialism and later neocolonialism. The emergent bourgeoisie of the Third World were not equipped for that.
    *
    “Soviet-Mao-Castro triumvirate”? When did it exist?

  • 0
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    I think this is Global trade, Economics explained only wit the western media voices and in western terms. YOu do not talk about thee invention and the effect of the petro dollar, How quantitative easing or money printing devalue the value of the dead, Why the western world has mega metropolitan cities catering to the international trade which will tabulate international trades and the Dollar trasnactions (that is in addition and it earns a trasaction fee). when the dollar is internationalized, in order to promote that free market and global trade is needed. Now, the trade is only with hevay items such as weapons and all high technologym, heavy items such as computers. In that world, when the country is in debt. LEtting dmsll itmes come int o the country is futile and need tariff to earn some more. IT is like GSP. They send everythig to us that is free market. when we send things we need human rights and GSP.

  • 0
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    IF you read carefully and if you tally different news reports these western companies whi have benn used to print foreign currency for different countries, lately may have printed FAKE money too. that is REal money which was used by Spy agencies to destabilize “non-alien” countries. Every thing is we first looks after our interests. Even before the west, JApan had used war as a techniques to develop their country.

  • 0
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    The IS here is acronym for Import Substitution not the usual one we got used to! Is it time to have the equivalent of Système International d’unités for acronyms?
    .
    The Ameer IS will struggle to live another day in the toxic atmosphere of corruption/nepotism/impunity. The silent majority will shoulder the burden while the ‘Elites’ will not.
    .
    Ameer Ali says ~ “……….What went wrong with IS in the nineteen seventies was that it was driven more by a fanatical commitment……………..”.
    The culture of corruption/nepotism/impunity was there but not recognised as an essential ingredient of governance. Remember the famous Sirimavo B, “I have stopped giving my children chocolate slabs”. Sirimavo sent her three children to the ‘decadent west’ for education. Would CBK been different?
    The seventies trial did encourage youths to take up cash-crop farming but somehow interested sections buggered it. It took the sheen off the language/religion-divide.
    .

    With the rupee in a devaluation mode, is it time to think of IS? Devaluation is favourable to IS.
    This could be an election issue. But our politicians shout loudly, “Elect me and I will reduce tax and banish inflation”. Who are the suckers here?

    • 2
      1

      I too did wonder what Islam has to do with tariffs.
      Still, given the fact that SL has signed up to various agreements like GATT and the FTA’s, it will be difficult to implement IS even if it wants to. It cannot put quotas or duties on many imported items. Luckily, vehicles are not covered, but setting up import subsitution for these is difficult due to the small market. If we do produce enough to export, who will buy if everyone takes up IS?
      Personally, I wouldn’t mind driving a Renault 4 or Upali Fiat dressed in kerosene- scented Thulhiriya clothing and use a locally-made but long-lasting TV.
      But will everyone else agree to pay a lakh for a basic cellphone, dress in local sarees, and deny themselves all the cheap Chinese gadgetry they can see on the internet. Maybe we would have to ban the internet itself.
      IS and similar schemes bring a lot of economic distortions with them.

      • 0
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        Codger dear I would, in fact my parents still have a Sisil from the 70s with the freezer like the arctic, paint chipping off and rusted tothecore yet running like a charm. The new technology is cheap, just copy and make it locally, buy the processes from China assemble locally, forget the so called smart phones, internet routers too are cheap to assemble with Chinese chips, get the SLTB up and running with buses on schedule and forget the expensive SUVs, and the cheapo Marutis, the traffic jams would be a thing in the past, get the handloom industry up and running again, those fabrics seems to be in fashion anyways and do not smell like Kerosine, ration sugar and wheat flour they are bad for you as they say, transfer abandoned paddy land to willing farmers, reward coconut production with real intensives and proper monitoring, limit residential constructions to 300 sqft per family member (family of 4 can comfortably live in a 1200 sq feet house), have I missed anything?

        • 0
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          Wanni,
          “have I missed anything?”
          Yes, you have missed the apartment menace. These are built not out of any love for the gullible buyers but from sheer avarice, to multiply land value a hundred-fold. They also increase energy consumption by that much, with AC, lifts, and whatnot. This is probably the only aspect of Singapore that we are successfully copying. But SL is not a cramped concrete jungle like Singapore.
          I don’t see why we need AC when even the Arabs managed without it till recently.
          About your Sisil fridge, you must remember that at the time it cost about a year’s wages. A local radio cost about a month’s wages. So there is a price to pay for IS.

  • 2
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    Sri Lanka should introduce a Tariff on Muslim goods and services.

    • 3
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      Lt. Reginald,
      “Sri Lanka should introduce a Ta riff on Muslim goods and services.” This would affect you badly dear.
      You have to hire a Muslim for your daily colon irrigation. You know Muslims have the biggest p***ks. As well as oil.

  • 0
    1

    Yusuf,

    Bring it on. I am a veteran of the Armed forces of Sri Lanka. You say that to my face, I will grab your god forsaken hat and shove it up your rear-end.

    No monkey talks to me like the way you just did. I may be your Fathers age and this is how you ghetto dwelling fellas talk to your elders. Respect my age at the very least if you cannot respect the fact that I saved your sorry self from Prabakaran’s gang when he evicted you fellas at gun point in Jaffna.

    • 0
      2

      Retarded Shamal,
      “I am a veteran of the Armed forces of Sri Lanka.” If you couldn’t get beyond LT even in wartime, maybe you should have got yourself killed and become Capt. Shamal. I live in Weligama and my relatives were in Intelligence.

      • 0
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        Yusuf,

        Ohh you live in Weligama and you have relatives in Intelligence? I didn’t know. Now everything should be OK.

        Listen up. A Muslim is a Muslim. If your relatives are in intelligence, rest assured our boys will you them up and discard them like used condoms. Like all the Muslim LRRP fellas who were sent to take a bullet from the LTTE. Your relatives will be sent for drug busts where they will be like sitting ducks. When our spy handlers (mainly Sinhalese) sent Muslims for sacrifice into LTTE territory, they killed two birds in two stone. They saved Sinhalese lives and when Muslims died they used it for propaganda purposes.

        Don’t worry, their Sinhalese handlers will know what to do with them. Soon you will be attending their funerals.

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