NPP Must Learn the Lessons of Failed Liberalization - CPP

Ladies and Gentlemen of the media, fellow Ghanaians, our country is in its fiftieth year as a nation and has just marked the occasion on the 6th March, with much pomp and ceremony.

The Convention People’s Party (CPP) lead the fight that brought independence in 1957, since which no government has been able to deliver the anticipated economic freedom and economic independence that our founders knew was within our grasp.

Much of the 50 years has been wasted following a path of failure, and the intellectual evidence is now quite clear and accepted widely by economists, including the World Bank’s own economists. We believe that Ghana’s next 50 years are crucial for our survival and that we must move with haste if the years ahead are going to be more fruitful. We must seek to surpass the dreams and aspirations of the founders that we should chart a path that will lead to a modern and developed Ghana with wealth for all, and not wealth for the few. This calls for a radical new agenda for Ghana, an agenda which abandons the path of failure permanently. This calls for serious debate on the issues confronting our nation and which path offers the best solution. It is worth noting that the current NPP government and the previous NDC government have and are following a path which seeks to take Ghana by 2015, to the point that the CPP had reached 40 years ago on industrialization and diversification of our economy. The “Washington Consensus” continues to offer a three point strategy for economies in transition – Liberalization, privatization and stabilization - many simply group all under Liberalization. This together with globalization, market ascendancy and a diminished role for the state are recommended by the multilateral financial institutions for developing countries. They have continued to preach that we should move rapidly to integrate ourselves fully into the world economy by extensive and rapid liberalization. That this should not be confined to opening up the economy to international import and export trade, but also include foreign direct investment (FDI) and capital flows. Both the NPP and the NDC through their policies would seem to have accepted this World Bank view. CPP economists emphatically reject this view however on the basis that the industrialized countries, simply need markets for their goods and thus seek to take advantage of abundant, cheap labour in developing countries by using International financial institutions and regional trade agreements to compel our countries to “integrate” which means reducing tariffs, privatizing state enterprises, relaxing environmental and labour standards. The result is that they enlarge their profits whilst we as a country and our labour force gain very little. The CPP does not accept that this is the path to our development.

The argument for liberalization is that similar policies have proved highly successful in East Asian economies including Japan, South Korea and China.

The view of CPP economists is backed by several eminent international economists and institutions with much published findings now available to support our position. The South Centre, Geneva, Switzerland has argued that it is essential to assess the experience of the advanced industrial countries on the policies they advocate for developing countries and the Centre for Economic and Policy Research, the Global Policy Foundation and several other institutions have published the impact of Liberalization on developing countries. The South Centre points out that – “…a diminished role for the state and an unfettered role for the market do not constitute universal recipe for achieving faster economic growth, resolving social problems or challenges such as environmental problems” Their findings are that liberalization in the industrialized countries did not lead to the envisaged improved economic performance and that the liberal economy failed to deliver in many important respects. That the liberal regime has been characterized by slow and fluctuating economic growth, mass unemployment, poverty, social degradation and marginalization. They point out further that the experience of Japan and South Korea show that these countries have adopted policies during their periods of industrialization and fast economic growth which are quite the opposite of those recommended by the multilateral financial organizations. These countries had implemented widespread import controls, discouraged foreign investment and followed a vigorous state directed industrial policy. Instead of close and unfettered integration with the world economy, Japan and South Korea only integrated to the extent and in directions in which it was beneficial for them to do so, thus pursuing a policy of “Strategic Integration”. The Chinese experience is no different - the massive economic advance of China cannot be attributed to the virtues of liberalization as the World Bank and the NPP would have us believe. The Chinese economy continues to maintain a wide range of controls on imports, capital movements and FDI, with land overwhelmingly publicly owned, as well as the industrial capital stock. The South Center’s findings show that the Chinese policy is that of creating an optimum combination of the “plan” and the market where the “plan” continues to guide the market rather than allowing the market to supplant it altogether. The case that the World Bank and other such institutions do not work in our interest either by design or shear incompetence can be demonstrated thus: In the 1980’s commodity prices fell by 45% - a 150year low which created balance of payments difficulties for our countries and thus restricting our capacity to import which in turn affected our production for the domestic market as well as our ability to generate exports. This catastrophic circumstance was brought about because the Bretton Woods institutions had asked every country to improve their balance of payments by increasing the production and export of primary products. In a simple case of supply and demand or too much goods on the world market, this lead to the price fall. – Deliberate or Incompetence, you decide.

Liberalization of the markets of the rich countries to allow us increased access to their markets should not be relied upon too much either as a panacea for our development – the World Bank’s own figures shows that when the removal of all the rich countries’ barriers to the merchandise exports of developing countries including agriculture, textiles, and other manufactured goods is complete in 2015 it would add 0.6% to the GDP of low and middle income countries.

Thus an African country which under present trade arrangements would have a per capita income of $500 per year would instead have a per capita income of $503 per year. Although it is argued that the gains to Ghana and other developing countries from removing our trade barriers is much greater than gains from access to markets of rich countries, we face other risks which must not be overlooked e.g. the size of tariff revenue to our overall government revenue. Removal of barriers to agricultural imports leads to large scale displacement of the rural population. There are numerous other areas of NPP policy today that we can comment on which needs serious debate as to suitability for Ghana in the next 50 years – the increase in our foreign exchange reserves for example is understandable in an increasingly unstable world financial markets but as these reserves are held in accounts which yield little or no interest, the opportunity costs of these increased reserve holdings negate any benefits of debt forgiveness or the little gain from liberalization. The money could be invested in building infrastructure or the physical and human capital in our country. Which should Ghana chose?

There is thus an intellectual case for a different set of policies than those currently being followed by the NPP government.

• Similar liberalization policies recommended to us have been largely unsuccessful in industrialized countries as compared to the periods before liberalization in those countries. • The Experience of Japan, China, and South Korea has shown that these countries have chosen “strategic integration” or “selective integration “to unfettered integration with the world economy. • Not all FDI is beneficial thus it is not so much the quantity of foreign investment which counts but the nature of the investment and the linkages that are made with the local economy. • There is clearly no level playing field when a large multinational competes with local domestic firms, large or small.

The NPP government’s sale of Ports and Harbour operations, and its plans to privatize Ghana Telecom and Westel, as well as its intensions to liberalize the Cement market would be detrimental to our economy and medium term development. The policy must be reviewed and halted.

Ladies and Gentlemen the next 50years are too important for Ghana and indeed Africa and thus we need to make the right choices, choices that are right for our economy, our medium to long term development goals, and for our country.