Opinion: 'Infant' economies need government protection

Dear Editor,

SO much talk about Free Trade Agreement (FTA). We have been hearing a lot about TPP, AEC, and now RCEP. What confuses me about the whole idea of FTA is this:

Our country is embarking (for sometime now) on diversifying its economy. Many people had been saying that our reliance on oil and gas is not sustainable and country is doomed once the oil and gas runs out. To overcome this, the country has set up BEDB, Knowldege Hub and so forth. But then at the same time the country is opening its door to foreign competition through so-called FTAs. There you are taking a baby step in diversifying the country's economy and all of a sudden a big multinational corporation comes in. Do you think our country can sustain it especially for our so-called SMEs from the onslaught?

Some people may say this competition is good for the economy but to me, is it fair? In such a "free" trade competition, who will win when the match is Canada versus the Solomon Islands? Germany versus Bulgaria? Zimbabwe versus Italy? And for that matter Brunei against the rest of the world?

From my perspective there are two glaringly flaws in this so-called "free trade".

First, "infant" economies countries that are only beginning to get on their feet cannot "compete" with "mature" economies. They really only have two choices lose to their more mature competitors and stand hungry and cold outside of the world of trade (as we see with much of Africa), or be colonised and exploited by the dominant corporate forces within the mature economies (as we see with Shell Oil and Nigeria, or historically with the "banana republics" of Central and South America and Asia and, literally, the banana corporations).

Second, the way "infant" economies become "mature" economies is not via free trade. It never has been and never will be. Whether it be the mature economies of Britain (which began to seriously grow in the early 1600s), America (late 1700s), Japan (1800s), or Brazil (1900s), in every single case, worldwide, without exception, the economic strength and maturity of a nation came about as a result not of governments "standing aside" or "getting out of the way" but instead of direct government participation in and protection of the "infant" industries and economy.

To me the obvious step for economies to go from being underdeveloped, anaemic, and uncompetitive to becoming developed, strong, and aggressively competitive is simple and straightforward: government steps in.

Government first determines which industries are worth growing and which are not. Once "strategic" and "important" industries are identified, government both encourages and protects its domestic growth through a variety of measures. These include subsidies, legal protections (like patent laws), import tariffs to protect against foreign competition, strong industry regulation to ensure quality, and development of infrastructure to ease manufacture, distribution, sales, and use of the product.

To illustrate my case let's review the following:

In 1933 a clothing manufacturing company decided to branch out into manufacturing automobiles. It had everything going against it its nation had no really serious domestic auto industry, the company had no experience with the product, and other nations (particularly the US and Great Britain) were already making world-class vehicles that had captured most of the world's markets.

But the company caught the imagination of its country's leadership, and a ministry of trade decided to help it along. Government subsidies helped the company develop its first car. Decades of high import tariffs protected it from foreign competition as it grew into a serious contender. Domestic content laws both made sure the company used parts made within the country, and also guaranteed that domestic competitors would have to, thus building a strong base of domestic companies supportive of an auto industry, from tyres to plastic components to precision machine tools and electronics.

In 1939 the country even kicked out both GM and Ford from sales within the country, and the nation's single wholly-owned bank bailed out the struggling textile manufacturer as it moved relentlessly forward in the development of an automobile.

That company, originally known as The Toyoda Automatic Loom Company, is today known as Toyota, and manufactures the Lexus that many people mistakenly thought was successful because the world is "flat" and trade is "free". In fact, the success of the Lexus (and the Prius and every other Toyota) is entirely traceable to massive government intervention in the markets by Japan over a fifty-year period that continues to this very day.

My whole point is this. Brunei needs to identify its strategic and important industries. Protect and nurture them to become world class institutions. And that's how we the Bruneians can diversify the economy and compete at the world stage.

Anak Watan

Dipetik dari - The Brunei Times