South Korean institutional economist and best-selling author Ha-Joon Chang called on the Central Bank of Sri Lanka and the government to have targeted credit schemes to boost economic development in the country.
Chang noted that both former and current superpowers namely the United Kingdom and the United States owe their higher standards of living to long periods of protectionist policies. Chang noted that protectionism should be pragmatic if it is to work.
At the time of independence Sri Lanka was over 50% wealthier than South Korea (Korea) with Sri Lankan GDP being US$ 145 to Korean GDP of US$ 94. In 2020 Sri Lankan GDP was US$ 3,682 to Korean GDP of US$ 31,489. Chang noted that there was a notable divergence in the growth trajectories of each country. Chang was speaking at the 71st Anniversary Oration of the CBSL held virtually. Chang noted that countries like Sri Lanka were capable of implementing protectionist policies under WTO regulation but lacked the know-how and political willpower to do so. Chang noted how Korean car manufacturer Hyundai was able to overtake the likes of General Motors and Ford in terms of vehicle output by initially catering to the Korean market under highly protectionist policies and state support.
Chang noted that both the US and the UK used highly protectionist policies during their industrial growth phases. He highlighted the leadership of first British Prime Minister Robert Walpole and Treasury Secretary Alexander Hamilton as implementing protectionist policies which historically account for turning points in the growth of industrial production in their respective countries.
Chang’s research shows that the US for over the last 120-year period averaged between 30-50%. He further opined that large logistical costs act as further protection for domestic producers. Chang noted that even today developing countries have protectionist duties that average at 10%.
He further noted that many countries do not even impose the highest possible taxation allowed under WTO regulation.
Chang likened Free Trade Policies and their advocacy as being akin to kicking away the ‘developmental ladder’ for low-income countries. Chang noted that to this day the United States heavily subsidizes their domestic high-technology industry through Military Defense spending. The Pentagon and the other US Defense establishments play a large role in funding research, acting as a buyer, and directly providing the know-how to firms in the Silicon Valley area.
Chang called on 3rd world countries to flout intellectual property law as had been done historically in current manufacturing hubs like Germany, China, Japan, and Korea. Chang criticized policies that provided subsidized credit to highly speculative and consumption-based sectors of the economy such as real estate and vehicle purchases.
Chang supported recent announcements by the Central Bank to provide targeted credit in the economy.
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