Global Growth Solutions: From Mercantilism to recognizing Partnership Economics

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The Agenda 3030 adopted at U.N. shows the right path

A sweeping overview of the world's economic journey must retrace the following paths:

The mercantilist economic doctrine from the 16th century to the 18th century was based on the notion that a country’s wealth and power were based on the accumulation of gold and silver by exporting more and importing less. The exports were largely manufactured products protected against competition by tariffs and subsidies. Each country tried to dominate the market in a mutually exclusive fashion.

(For our purpose we must recall that at the earlier stages some countries had been colonized; decolonization didn't begin in earnest until the 1960s in Africa).

France represents an example of mercantilism undertaken when Jean-Baptiste Colbert was minister of finance from 1665 to 1683. He supported the manufacturing sector through tariffs and subsidies and discouraged imports except the needed raw materials. To minimize imports, Colbert encouraged domestic self-reliance including food production.

Other countries like Britain did the same. Exports were promoted while imports were controlled. The Corn Laws and Navigation Acts were designed and implemented for this purpose. The state played a critical role.

Mercantilism came under heavy criticism in the 18th century initially from French phiolosophes or agents of change who proposed laissez-faire or non-governmental interference in the economy, culminating in the theory of economic capitalism by Adam Smith and his preference for free trade and free enterprise as well as the concept of demand and supply (John W. Barrett 1999).

Britain repealed the Corn Laws and Navigation Acts and replaced them with free trade and laissez-faire capitalism beginning in the 1860s and dominated the global market to the start of the 20th century. “The last remnants of the mercantilistic age fell with the abolition of the Corn Laws (1846) and repeal of the old navigation acts (1849)”(John W. Barrett 1999).

The inter-war period marked by the economic depression of the 1930s undermined free trade, the invisible hand of market forces and laissez-faire capitalism. It ushered in the Keynesian economics of demand management directed by the state to stimulate aggregate demand through public works.

Keynes reasoned that "if free markets did not produce working people and humming factories, then it would be necessary for the government to intervene to restore higher level of economic activity” (E Ray Canterberry 2011).

Keynesianism dominated economic activity from the end of the Second World War to the beginning of the 1970s when the global economy suffered slow growth, high inflation and high unemployment, popularly known as stagflation which was blamed on Keynesian economics of too much money and state intervention in the economy.

This debate starting in the 1940s was led by Frederick Hayek and Milton Friedman who advocated controlling money supply in the economy, reducing the role of the state, promoting private entrepreneurship and controlling inflation.

They tutored Margaret Thatcher and Ronald Reagan who launched a new economic paradigm upon becoming Prime Minister of the United Kingdom, and President of the United States, respectively, at the start of the 1980s. For example, in his doctrine of Reaganomics, to change the course of US economic policy, President Reagan reasoned that only by reducing the growth of government would the U.S. economy grow. Consequently, he launched an economic policy program based on four objectives:

1. To reduce the growth of government spending.
2. To reduce the marginal tax rates on income from both labor and capital.
3. To reduce regulation.
4. To reduce inflation by controlling the growth of money supply. "These major policy changes, in turn, were expected to increase savings and investment, increase economic growth, balance the budget, restore healthy financial markets, and reduce inflation and interest rates”(David R. Henderson 1993).

Reagan’s foreign economic policy was complete reorientation of the World Bank and IMF from Keynesian economic model toward monetarism and market ideology hinged on “the slogans of conditionality – meaning a domestic and international change towards market solutions as a precondition for assistance – and adjustment – meaning an end of government quotas, subsidies and very often social spending in the recipient countries under the guidance of IMF experts."

From the outset the Reagan administration was much more intent than any previous U.S. government had been in using economic warfare against its enemies through hitting at their trade, currency and credit”(Odd Arne Westad 2005). Margaret Thatcher shared these ideas.

In the developing countries, Reaganomics spelled out an economic policy.

1. It meant free people building free markets to ignite dynamic development for everyone.
2. It meant understanding the real meaning of development based on the experience of the United States and other successful countries.
3. It meant engaging in practical measures of cooperation as improving the climate for private investment. This celebration of private enterprise did not require the United States actually to do anything positive to assist development, but merely to release the productive machine of capitalism.
4. Meanwhile the United States could benefit from stopping wasteful aid to the lesser-economically-developed countries (George W. Keeton and Georg Schwarzenberger1983).

With the end of the Cold War in 1990, geopolitics lost its luster. Under President Clinton, geopolitics was replaced by econopolitics (John Rennie Short 2001). “From the outset of his presidency it was obvious that U.S. economic interests would be central to Clinton’s foreign policy. … Clinton viewed economic renewal as linked to foreign policy, especially from foreign trade issues”(Stephen E. Ambrose ad Douglas G. Brinkley 1997).

Thus during the Clinton administration, “The emphasis was on using US power and prestige primarily to serve US national economic interests: reducing tariffs, freeing up markets, getting agreed-on rules for foreign investment on property rights”(John Rennie Short 2001).

By and large, this paradigm shift from Keynesianism to neo-liberalism or globalization did not work as expected. The 1980s were declared a “lost decade” for Africa and Latin America.

In 2004, Milton Friedman, the champion of neo-liberalism took a depressing view of what he had promoted: “We have succeeded in stalling the progress of socialism, but we have not succeeded in reversing its course”(John Micklethwait and Adrian Wooldridge 2014).

Earlier in 2001, Milton Freedman is reported to have said that a decade earlier he would have had just three words of advice for countries making the transition from socialism: “privatize, privatize, privatize”. He added “But I was wrong. It turns out that the rule of law is probably more basic than privatization”(Journal of Democracy April 2004).

Thankfully, goal 16 of 2030 Agenda for Sustainable Development adopted by world leaders at the United Nations has recognized the critical need to “Promote the rule of law at the national and international levels and ensure equal justice for all”.

In September 2015, World leaders also expressed their determination to work together in a spirit of partnership and participation of all countries, all stakeholders and all people with a focus on the needs of the poorest and most vulnerable.

nternational economist Eric Kashambuzi comments on global political and economic developments with a focus on Africa.

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