Protectionist economic policies have fostered business development in late industrializing countries rather than stifled it, award-winning economist Alice Amsden told a group of 60 Tufts students and faculty Tuesday.
Amsden, a professor of political economy at the Massachusetts Institute of Technology, presented her alternative view of globalization during a lecture to promote her new book, The Rise of "the Rest": Challenges to the West from Late-Industrialization Economies.
Displaying a dry wit, the eccentric Amsden presented her case against the widely-held opinion that all economies should be open to international trade. She said that domestic markets in latecomer industrialized countries should be protected in order to help the infant industries turn into global competitors.
Economic nationalism - which usually invokes a negative connotation - is actually a positive phenomenon, according to Amsden, because it was responsible for the favoritism and financial support that helped develop major manufacturers in countries like China, India, and South Korea. Homegrown, privately-owned companies are vital to a country's well-being, the economist said, because they spend money on local research and development and form a skilled work force.
"The creation of these nationally-owned leaders is a great feat," Amsden said.
Amsden compared the industries in these Asian and South Asian countries with those in large Latin American nations, which together comprise a group of latecomer industrialized countries outside the North Atlantic region that she calls "the rest."
In Brazil and Mexico, national development banks failed to finance the growth of private, nationally-owned enterprises so that they could compete globally while providing benefits locally. Instead of granting significant financing to individual enterprises, the banks funded several smaller players in each sector to avoid creating economic powerhouses.
Amsden said that wide income gaps commonplace in Latin American countries increased the opportunity cost of developing large, nationally-owned enterprises because the few people that own land could charge high rents for its use. Combined with a push towards liberalization and privatization, the lack of development and protection allowed multinational corporations to take over many large enterprises in Argentina, Brazil, and Mexico.
While experienced multinationals are usually better managers and run more productive companies than nationally-owned firms, Amsden said that foreign ownership is detrimental to beneficial research and development initiatives. She cited a report by the Organization for Economic Cooperation and Development which indicates that multinationals conduct only 12 percent of their product and business innovation overseas, most of which comes from acquiring foreign companies with large research budgets and is limited to basic production problems.
"Locating the crown jewels (research and development) away from the headquarters can be dicey because many management decisions are required," she said. "[And so] multinationals almost do no R&D in Latin America and skills are not developed."
According to Amsden, hostile takeovers should be banned in certain instances.
"[Takeovers] are fine in western countries, but not for poor, nascent, nationally-owned firms in latecomer countries," she said. Her outlook is bleak: "In Mexico and Argentina, national ownership is nearly impossible; the chances in Brazil are a bit better," she said.
One of the biggest problems with development is not economic, but cultural, as the prevailing mindset in many countries favors foreign ownership.
Amsden's anti-competitive perspective is vastly different from the pro-open-market message taught at Tufts, according to Kevin Gallagher, a PhD student and research associate at the University's Global Development and Environment Institute. The organization studies socially and environmentally responsible economic growth and sponsored Amsden's visit.
The economics department extols the benefits of a liberalized economy in nearly every international economics course at the University.
Students who attended the lecture said that they enjoyed hearing an alternative opinion on protectionism. "I thought it was interesting to hear a contrary point of view to the one we're hearing from the World Bank and the [International Monetary Fund]," said Dan Lagenkamp, a first-year student at the Fletcher School.
Others, while in agreement with Amsden, criticized her for only discussing the research behind her conclusion and not suggesting solutions to the problems she identified.
"If she says research and development is important, she should suggest how to increase it," said Hiroyuki Yoshiya, a second-year Fletcher student. "What she said is nothing new."
Amsden is MIT's Ellen Swallow Richards Professor of Political Economy. Her other books include Asia's Next Giant: South Korea and Late Industrialization, which won her the 1992 prize for best book in political economy from the American Political Science Association.
