The right mix

The FT's Weekend issue last, well ... weekend, featured this thought provoking piece by Martin Wolf and bolsters my view that free trade alone (but definitely not protectionism, even if the same is disguised as "fair trade") will not be enough to make this country successful but rather a combination of factors that we haven't even begun to determine, so caught up we are still in the narrow free trade/protectionist debate. Excerpts:

"The big successes of recent decades - from Hong Kong to China, South Korea to Ireland, Singapore to Taiwan, Japan to Finland - were not all free traders (though some were). Some also relied heavily on foreign direct investment (China, Ireland and Singapore), while others resisted it (Japan and South Korea). Yet all used the world economy - and therefore trade - as a central part of their development success. x x x

The argument that success will follow the overthrow of the neo-liberal consensus and the return of protection is nonsense. But the authors are right that those who argued that free trade alone is the answer were wrong. There are no magic potions for development. Developmental states can work. Many fail. But some may succeed.

Above all, developing countries should be allowed to try, and so learn from their own mistakes. Countries should be warned of the difficulties of following South Korea’s example, but allowed to do so if they wish.

Big and relatively successful developing countries, such as China and India, must participate in and be bound by global rules. They cannot be free riders. But the bulk of developing countries should be allowed to choose their own policies. Almost all will need to attract inward foreign direct investment. A few might still manage without it.

Chang is right that some of the constraints imposed upon developing countries, notably on intellectual property, are unconscionable. Most should enjoy the benefit of open markets from the rich, but be allowed to pursue their own paths, from laissez-faire to its opposite. They will make many mistakes. So be it. That is what sovereignty means.

In this regard, it's also worthwhile to point out that the mantra of some sectors here, which is to have "fair trade, not free trade", and to have a trading system for the Philippines that is "calibrated, measured, progressive, and in synch with the country's development priorities and capacities" do not really make sense for the simple reason that they don't mean or say anything substantial or concrete.

What is "fair trade"? "Fair" for whom? For the government favored companies, with preferential treatment, at the expense of other industries and the consumers? Fair for so-called Philippine companies that are actually owned by foreigners? Or fair for companies that could never make money no matter how much favoritism is given to it? Or fair for farmers that have been victimized not by trade liberalization but by smuggling? Also, how different is "fair" from an objective, rules based trading system such as the WTO where a small country like Antigua can win in a trade dispute against the US?

Then you have "calibrated". How different is that from protectionism, of raising or maintaining tariffs, or selecting industries that have strong lobbies for purposes of giving protection? Measured? What is measured protection for companies that have been receiving subsidies, tariff protection, and other forms of government favoritism for decades and still can't make a decent business that would provide income to its workers? Or for infant industries that have been infants for decades? In any event, who does the "calibrating" and the "measuring"? Who decides who are to be the winners, those that are to be protected? Progressive? How can something be progressive when you let consumer prices rise to the detriment of the greater number of the populace, most of which are under poverty levels, just so a few companies and a few favored businessmen can hold on to their wealth and lifestyles?

The fact is, despite all attempts by these sectors to appear reasonable and thoughtful by the use of the words "fair trade" and "calibrated", the thing still boils down to protectionism which has been proven to not work and results in even greater hardship for the poor. What we need is to open the economy within a context and environment that would allow for greater maximization of the benefits of trade and a more equitable distribution of the fruits that it will bring. Finally, the word "nationalism" should not be and never be attributed solely to protectionists or so-called "fair traders". The people who espouse trade liberalization are every bit as nationalistic or patriotic, if not more so for the simple reason that they believe the Filipino can.

In any event, it's time to move the debate past the free trade/protectionist paradigm. Protectionism doesn't work, period. What we need to find out is how to have a better form of trade liberalization that fits the country's peculiar circumstances and needs and which benefits the most and not only a few.