The World Bank, The IMF, And The Myth Of The Southeast Asian Economic Miracles

Many third world countries, including Sub-Saharan African countries, have been made to believe that their economic redemption is enshrined in international free trade. Economic Nationalism is therefore seen as fundamentally at odds with the current approach of multilateral trading.

The current multilateral system is based on a "positive-sum game" theory. This means that the economic liberation of nation-states like Ghana depends on their trade concessions with other nations. This, according to the Washington Consensus, will result in reciprocal and mutual benefits, and an increase in the volume of trade for all nations involved.

It appears almost all major analytical positions of the free trade proponents in the debate now maintain the proposition that many African countries are in severe economic doldrums because they have not exposed their markets deep and wide enough to foreign market competition.

Therefore, believers in the market system as an efficient allocator of resources lay the blame for Sub-Saharan African countries' economic malaise at the states' feet for their intervention in the market system. The orthodox trade theory suggests that a small country stands to gain from trade through specialization and exchange, subsequently maximizing national output and income if it unilaterally cuts its tariffs.

Proponents of the market system contend that nations like South Korea, Singapore, and Japan have chalked economic successes by simply allowing self-regulated markets to work. Many Western intellectuals and African economic policy intellectuals take this tenet as gospel truth. Yet East Asian economic policy intellectuals and some Western intellectuals who have done thoughtful economic analyses reject the free-market orthodoxy as the only reason for these nations' economic growth.

The Asians do not share our faith in the free markets as the sole model for economic prosperity and progress, but rather believe in a system that acknowledges strong, sometimes authoritarian governments, and are willing to sacrifice individual interests for the collective good.

The assertions that East Asian economies saw rapid economic growths because they implemented western liberal economic policies are based on no evidence. It appears that the logical validity of this proposition remains mostly unchallenged, even though the empirical evidence supporting this claim is highly contentious.

What the proponents of the free market system have cleverly done is to hide the real causes of the so-called "East Asian Miracles." Scholars studying the post-1945 process of industrialization in Japan, South Korea, and Taiwan have observed that these three Asian countries had certain things in common:

First, they enjoyed special access to the United States' domestic market, which was never offered to any Sub-Saharan African country. Second, these countries' leaders could adopt heavy protectionist economic policies that were accepted by transnational corporations.

Third, there were special flows of grants and aid from the United States to these Asian countries. Fourth, there were special flows of aid in food from the United States when land reform was in progress. Furthermore, these countries had special military treaties, which boosted domestic economies in their countries.

The United States, after the Korean War, offered massive military and economic assistance to the Koreans and thereby influenced South Korea's economic policy decision making. They engendered trade liberalization and standardization, and pushed South Korea to adopt an export-led growth strategy with a massive investment in South Korea.

Furthermore, the rapid industrial growth took place simultaneously with a highly state-managed agricultural development policy that raised both agricultural productivity and rural incomes, while still having enough active labor force on the land to ensure quasi-full employment conditions. The preceding caused wages to rise despite the suppression of independent trade unions. The Japanese colonial system also developed a well-functioning bureaucratic system and entrepreneurial spirit among the Koreans.

Manfred Bienefeld, a renowned economic policy analyst and my former economics professor, writes, "There is not a single mention that those economies were successful in protecting themselves from the predatory activities of transnational corporations because of political considerations coming from the White House's foreign policy to contain the expansion of the socialist camp during the cold war."

Some scholars do not realize that many of the so-called Asian Economic miracle countries were preceded by dictatorial governments that pursued land reforms and nationalistic policies that ensured savings, investments, and capital accumulation. The US government supported some of these dictators. For example, the US started helping South Korea and Taiwan after the Korean War began in 1950. South Korea and Taiwan both received economic assistance from the US.

The United States of America assisted Chiang Kai Sheik's one-party dictatorship in Taiwan, and the military governments that ruled South Korea after 1962. The US gave $5.6 billion in economic and military assistance to Taiwan and $13 billion to South Korea between 1945 and 1978.

Besides, it opened its markets to these countries: giving them preferential trading statuses. Moreover, most of this development occurred under autocratic governments. Even the IMF and the World Bank acknowledge in many of their reports that only dictators can effectively carry out most of their economic prescriptions in the third-world countries.

Joseph Stiglitz, a Nobel Laureate in economics, a former senior vice president and chief economist of the World Bank, vigorously opposed these orthodox economic tenets that the World Bank and the IMF espouse. He writes, "Today, there is no respectable intellectual support for the proposition that markets, by themselves, lead to efficient, let alone equitable outcomes."

According to Prof. Stiglitz, economists to some extent have moved to a more balanced position that recognizes both the power and the limitations of markets, and the need for the government to play a large role in the economy. Although, the extent of the government's involvement in the national economy remains a debatable issue.

In his great magnum opus, "The Great Transformation," Polanyi maintained that a self-regulating market never works, arguing that their externalities, deficiencies, and the deleterious effects they have on the poor calls for government intervention. For Polanyi, the concept of trickle-down economics is one of the most astounding illusions devised by the powerful and the capitalists to assuage the devastating effects that unregulated market systems have on the poor.

Prof. Jeffrey D. Sach, also writes, "The IMF tries to manage more than 50 countries' financial operations. In many cases, the IMF imposes its programs for years or even decades, far after an economic emergency ends. It maintains its influence because the US insists that poorer countries should have IMF programs if they are to receive relief on their debt or receive other kinds of financial help from outside the IMF."

The acceptance of the IMF and the World Bank economic prescriptions by many third world countries results in the transfer of their national economic policy deliberations into the hands of these international financial institutions. Instead of becoming independent economically and politically, nations that depend on the IMF and the World Bank for their economic survival relinquish their independence to such foreign institutions.

The economic transformation of South Korea in the 1960s, 1970s, and even 1980s directly resulted from the cooperation between the government and the private sector. There was institutionalized public-private cooperation in the process of policy formulation and implementation.

These institutional and political arrangements facilitated highly effective forms of integration into the international economy. We should therefore embrace economic nationalism instead of shunning it. We should encourage governments in Sub-Saharan African countries to play a significant role in their countries' economic transformation, instead of leaving them to the invisible hands