Import substitution in Covid-infested Neoliberal World

Covid-19, which has taught many a lesson to the rich and the mighty, is causing unparalleled turmoil in the neoliberal economies of the world. It has made governments and economists think of alternatives to the market driven dependent economies that most poor countries practice or are forced to practice. Sri Lanka too is trying its hand with options like export control, import substitution, taxation, protective tariffs, etc. Most countries are forced into it due to the disruption of several aspects of the system, such as foreign exchange earning capacity, international transport, and local export oriented industry. Sri Lanka is faced with considerable decline in its main sources of foreign exchange, such as foreign employment, tourism and garments. The foreign exchange thus earned are, in the main, spent to import food items, textile, medicines, fertilizer, etc., that could be locally produced. Is there any logic in advocating the continuation of this policy – Covid or no Covid?

Yet there are people including parliamentary bigwigs, who criticize the present government policy of controlling imports and attempting import substitution. They say such policy would antagonize Western countries who buy our products, like tea and rubber. Yes, it would make them angry but then that is how they pursue and perpetuate the practice of neoliberalism and exploitation of our resources. They say Western countries would stop extending preferential treatment and favourable terms to us in trade. Yes, they may do that but we must know that these are only tools they use to trap us into their system of neocolonialist exploitation. These people who talk like this in parliament must be tools of the neocolonialists.

It may be worthwhile to look at other countries which had adopted import substitution, in the past as well as recently and see how they have fared in their effort. This concept and policy could be traced back to the 18th Century German economist Friedrich List who proposed a “National System” of political economy where tariffs were to be imposed on imported goods while free trade would operate for local products. Later in the 1950s and 60s the Global South, particularly Latin America, adopted this policy and came to be known as Import Substitution Industrialization (ISI). ISI is based on the premise that a country should attempt to reduce its foreign dependency through local production. It envisaged industrialization of production for greater efficiency and mass production. Most of the Latin American countries, like Brazil, Mexico, Argentina, Ecuador, Honduras employed this system, the larger countries with big populations were benefited to a greater degree than smaller countries.

African Socialism, which started about the same time with leaders like Kwome Nkrumah of Ghana and Julius Nyerere of Tanzania giving it leadership, took up ISI as its economic policy. These movements were socialist and nationalist and naturally anti-west and the Western powers did not view these developments kindly. In the 1980s with the fall of the Soviet Union, and the IMF and the World Bank gaining immense ground, the Global South abandoned ISI policy and turned to the West and again became the servant of neoliberalism.

However, there is a country which recently adopted these ISI measures with great success. Russia has managed to save several billions of Dollars by vigorously following ISI policies in the industrial sector, mostly in the areas of agriculture, automotive, chemical, pharmaceutical, aviation, etc. In 1914, their cost of food imports was 60 billion dollars, it was brought down to 20 Bn by 2018, in 2012 the pharmaceutical industry was negligible and by 2017 it has developed into a 50 Bn industry. These achievements were mainly due to subsidization of vital industries, import restriction by heavy taxation and other protective trade policies.

There may be lessons for Sri Lanka from what has taken place in the above mentioned countries. First and foremost the essential food items that could be produced here should not be imported and everything required for this endevour such as land, water, seeds, fertilizer, machinery should be made available. Every effort should be made to manufacture locally these things necessary to achieve self-sufficiency in food. If we are self sufficient in food, medicine, clothes and housing we need not be afraid of economic warfare that imperialists resort to when they want us to do their bidding. We must get assistance from friendly countries like China and Russia to achieve self-sufficiency in essential items and not for mammoth projects that politicians think would enhance their image.

As mentioned above, ISI policies employed for heavy industrial development had succeeded in large countries like Brazil, Mexico and Argentina but in smaller countries like Ecuador and Honduras such attempts at industrialization had failed. This was the experience in Africa too. Development of one industry at the expense of others or one crop like tea for instance could also lead to failure.

Therefore Sri Lanka must not go for heavy industries. First it must achieve self sufficiency in food and other essentials. Later it could start small machinery like power looms, electrical and electronic items. Industrialization should be at the manageable level of agriculture, clothes and such items and perhaps not heavy industries like automobiles, etc. The threat posed by Covid-19 must be converted into an opportunity and made full use of to make the country’s economy and politics independent of external factors.

N. A. de S. Amaratunga