A paper to be presented at the 4International Conference on the

1. Introduction

African countries have not achieved any substantial level of industrializing to date. The continent remains the least industrialized in the world and the experience of much of the modern industry that has been set up in the continent has not been a happy one: industrial production has stagnated or declined in many countries over the recent past (Lall, 1994:103). Furthermore, the continent has failed to diversify its exports away from primary products and the structure of its exports remain largely as it was in colonial timesheavily concentrated on few primary products whose proportion in the total exports actually rose from 92 to 94 per cent between 1965 and 1987 (Stewart et al, 1994: 29). A recent study reaches at the same conclusion regarding the period 19941999 (ECA, 2004a). Another study states that Africa’s heavy dependence on primary exports meant that the continent remains vulnerable to market vagaries and weather conditions and concludes that price volatility, arising mainly from supply shocks and the secular decline in commodity prices and the attendant terms of trade losses have exacted heavy costs in terms of incomes, indebtedness, investment, poverty and development (ECA, 2004b: 7).

In response to this dismal performance of the African economies, the Orthodoxy enshrined in the socalled Washington Consensus dictates that secure property rights, fiscal discipline, sectorally neutral tax and expenditure policies, financial

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The paper heavily relies on Chapters 3 & 4 of the MSc thesis of the author at AAU, Department of Economics. The author is grateful for very helpful comments by Dr. Alemayehu Geda (on the said chapters) and for additional comments on an earlier draft by Eyob Tekalign and Eyob Tekle Tsadek in particular. Nevertheless, he takes the sole responsibility for any errors; and the view and opinions here in may not necessarily reflect the views of any other person or organization the author is associated with. The author may be reached at zinabu_samaro@yahoo.com for comments and criticism.

liberalization, unified and competitive exchange rates, openness to trade and investment, privatization and deregulation will do the trick (Noland and Pack, 2003: 1). This is because the proponents of globalization believe that economic theory has irrefutably established the superiority of free trade, even though there are some formal

Orthodox models which show free trade not to be the best; though the builders of those models argue that free trade is still the best policy because interventionist trade policies are almost certain to be politically abused (Chang, 2003: 1). Such is the dominance of the belief in the superiority of free trade among the socalled Washington Consensus that one prominent figure in the area puts, as a central question of a history of economic thought, the explanation of why economists should have revisited the charms of free trade for so long given its virtues in practice and its centrality within the standard theory of comparative advantage (Krueger, 1997, as cited in Deranyagala and Fine, 2001).

However, even under the presumption that free trade theory is fundamentally right in its analysis, the most important policy question in a nation’s or a region’s context is not the fairness and unfairness of the market mechanism but how a backward country or region could improve its productivity and change the structure of its economy so that its level on the ladder of comparative advantage could be raised in the long term. This is because what determines how much its factors of production earn in the global market even in the Orthodox framework of analysis is the absolute advantage

(see Feenstra, 2004:15). In other words, the traditional theory itself admits that wage levels (factor earnings) are determined by the absolute advantage and increasing real factor earnings. The fact that productivity and real factor earnings determine the living standard of the residents of a country makes them the key targets of national economic policies.

Under such a context, this paper restates the socalled infant industry theory as a relevant and useful policy guide for long term industrial development in the context of the backward African countries; and in the context where trade policy would be seen not as a separate policy but part of a broader strategy of industrial development. The infant industry theory will be strengthened by the policy experiences of the ‘old’ industrialized countries. Assessment of their experience is useful because the proponents of the free trade and the laissezfaire approach argue that history is unequivocally on their side (Chang, 2002). Further more, the paper agues that the theory is still relevant for African countries by presenting the recent experience of North East Asian countries where the original ideas were not only vigorously applied but also contextualized to the modern times with amazing results.

The paper is organized as follows. The first part restates the original ideas now popularly known as the infant industry argument by highlighting on the ideas of Hamilton; then continues with the elaboration of the ideas of List in detail and concludes with minor extensions and few remarks about the related ideas of GebreHiwot Baykedagn. The second part deals with the views and criticism of the mainstream regarding the theory of infant industry. That will be followed by historical evidence related to the trade and industrial policies employed by the ‘old’ as well as the ‘new’ industrial countries. The last part discusses the idea of “kicking away the ladder” and concludes.

2. Restatement of the Original Theory