Question

Please analyse the case study and answer 2 following questions. Thanks!

a) Explain why Myanmar should/should not use protectionist policies

b) Present a country that also has applied IIP in the past to evaluate its costs and benefits

Myanmar is working hard to make the difficult economic transition from its current status as a Least Developed Country to its once-held spot as one of the most developed Asian economies. Urged on by many international and domestic experts, sweeping liberalisation reforms are being pursued by the government, with the aims of developing a robust market economy while opening the country to foreign investment and expertise after decades of relative isolation. Yet some experts are calling for Myanmar to develop an industrial policy including strong “infant industry” protection for export-oriented industries. Infant industry protection means using barriers and restrictions to protect businesses in industries where they cannot yet compete on the international market, in the hopes these businesses will grow into becoming a major, internationally competitive industry. While many countries including Myanmar had pursued failed protectionist policies in the past, proponents of infant industries say it is important the policies are targeted at making companies internationally competitive rather than focusing on the domestic market. Cambridge University political economist Ha-Joon Chang has written extensively on the importance of export-oriented industry in economic development. He visited Myanmar on August 11 and 12, giving seminars in Nay Pyi Taw and Yangon, hosted by ActionAid Myanmar, on how other countries have developed. He said economies as diverse as 1500s Great Britain and post-independence United States and the more recent Asian Tiger success stories of South Korea, Taiwan, Hong Kong and Singapore all used protectionist policies to build up an industrial base before gradually opening markets to foreign competition. Japan’s protection of its automobile industry gave rise to firms like Toyota, while POSCO steel and Samsung electronics grew out of South Korea’s protectionist policies, he said. Yet some of these same countries often urge today’s developing countries to adopt a free market approach, claiming a level playing field is necessary, said Mr Chang. “But it is a wrong principle to apply [to a place like] Myanmar, when the players are unequal,” he said. “Myanmar companies have to compete against companies in the US or Japan.” Mr Chang also likened a developed country’s companies competing with a developing economy’s firms on an equal playing field as similar to a team of adult men playing football against a team of young girls. While other economists have also called for an industrial policy, Mr Chang stands out in calling for states to prioritise industrial development far from their existing relative strengths, or “comparative advantages” in economic parlance. In Myanmar, ADB deputy country director Peter Brimble said it is nothing new to say that there is a role for industrial policy in economic development, nor is it new to talk about the “infant industry” argument for protection. “But one needs to be very careful about ignoring the context within which policy is being formulated - and clearly England some centuries ago and the United States and Germany in the 1800s, and even Taiwan, Korea and Singapore this century, faced very different global contexts than Myanmar today,” Mr Brimble said. “And also to be careful not to confuse the implementation of industrial policy with blunt and shallow appeals to nationalism and protectionism,” he added. Mr Brimble said there is a role to be played by a carefully developed industrial policy, while policy development needs to take account of the context and be implemented accountably. U Aung Naing Oo, the director general of the Directorate of Companies Administration, told The Myanmar Times that Myanmar needs to be in line with the ASEAN framework on trade and investment, even though the policy may not always be 100 percent appropriate for all countries. “We need to balance between protectionism and free flow [of trade], no single policy fits all countries,” he said. Others are calling for Myanmar to take a generally more protectionist stance overall. Rick Rowden, a PhD student at India’s Jawaharlal Nehru University who shared the stage with Mr Chang, said he would like to see Myanmar withdraw from the ASEAN Economic Community – or at least extend the time until it has to lower trade barriers. He also called for a development bank and restrictions on capital flows, among other measures, as crucial to develop domestic industry and the economy. Tough economic choices lie ahead for Myanmar, not the least of which is how it approaches industrial development. There are strong, intelligent voices advocating for various positions on infant industry protection, but whatever mix of policies it pursues, decision-makers must realise that now is no time for withdrawing inward.

Answer 1

(A) Explain why Myanmar should/should not use protectionist policies

Protectionist policies are those, which are primarily implemented to help budding industries which require higher capital overlays and are currently not up to the mark to compete properly with the developed counterparts.

As a result of rapid globalization, across the world, the resultant is that some countries are more developed than others. This is a clear result of the fact, that some countries have had higher resources or capital to be able to produce high quality products easier.

On the other hand, Myanmar is still one of those countries that requires protection in certain sectors while opening its doors in others.

In my opinion, it is necessary for Myanmar to enable itself on the global path, as it has already seen how protectionist policies have dented its interests.

While, the policies aim at protecting the interests, they often turn out to be counterproductive. The overall conditions of government owned companies in Myanmar gives a similar overview, in which inefficiency is extremely high.

If the country, on the other hand were to implement liberalization, and not pursue any protectionism it would be exposed to technological changes which takes place internationally as well, which would allow for easier transition of the sectors.

It is a known fact that most countries which have implemented the policy of protectionism have not been able to grow. This happens because most backward sectors remain backward as they are not able to develop themselves on similar trends across the globe.

The effects of globalization bring in not only consumer goods, but also capital ones and expertise which can help these countries in growing respectively.

b) Present a country that also has applied IIP in the past to evaluate its costs and benefits

As a country, the Infant Industry Policy was one of the key policies followed in the Asian giant of India. Its benefit was that most industries were closed from foreign intervention but the products were then primarily sold only in the country itself.

The major cost on the other hand was that the country could not grow or export anything with high value which prevented it from having foreign reserves.

As a result, the country went into great fiscal imbalances, while most companies were inefficient. When this was subsequently lifted in the 1990's as a result of the Liberalization, Privatization and Globalization policies implemented, the country greatly benefited from the foreign flow of capital and skills which helped most of its industries in growing.

Conclusion:-

The conclusion that one can draw from the above discussion, is that protectionism in the long run only leads to decline in capital inflows and does not help in growth for the economy. Once lifted, the country avails benefits from the exposure it gets and as a result the industries can grow in tandem with the developed counterparts. This might not be true in all cases immediately, but over time most countries that have embraced globalization have seen development accordingly.

Please feel free to ask your doubts in the comments section