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Adding to the List of the world's problems

September 1, 2006

Abandoning the (admittedly flawed) Washington Consensus, in its 2006 Trade & Development report UNCTAD is calling for a return to the politics of Friedrich List and his National System with a little supportive inflationism added in (naturally).

Henry Clay would be proud!

This is very scary fro, of course, this will do nothing to encourage genuine entrepreneurship (stable money, low taxes and solid property rights are needed for that), but it will promote immediate trade friction and — as in an historical record written in blood (the US War against the States, Prussia from Bismarck-to-WWI, Rhodes to Empire preference', Smoot-Hawley, the New Deal, National-Socialist autarky and 'lebensraum', etc) — aggravate political tensions, too.

Not something a fractious world really needs at this stage!

The relevant summary is produced here:

National policies for productive dynamism The central argument of UNCTAD's Trade and Development Report 2006 is that in order for developing countries to meet their responsibilities under the Global Partnership for Development, developing countries need to have proactive macroeconomic, trade and industrial policies so that they can accelerate private investment, upgrade their technology and stimulate the creative forces of markets.

The far-reaching reforms undertaken by most developing countries in the 1980s and 1990s under the influence of international financial organizations and lenders did not deliver what they promised. These reforms emphasized: 

  • Greater macroeconomic stability
  • Greater reliance on market forces emphasizing the efficient allocation of resources
  • Rapid opening up of developing country economies to international competition and capital flows

But private investment did not rise and many economies stagnated or retracted and inequality increased.

Deviating from this conventional reform agenda, the Trade and Development Report 2006 argues that the accumulation of capital and structural change that are needed in developing economies cannot be left alone to market forces that give exclusive attention to an efficient allocation of resources.

Government policy must support the creative forces of markets through an open-economy industrial policy. Policy support to the private sector in the form of temporary tariff protection and temporary subsidies provided on the basis of clearly established operational goals should stimulate risk-taking, innovative entrepreneurial decisions.

Implementing some temporary protection does not imply adopting an "anti-trade" strategy, but is a key element of policies aimed at "strategic trade integration".

Monetary and exchange-rate policy should further support investment and growth through low real interest rates and competitive exchange rates. Additional non-monetary instruments should be used for price stabilization.

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