Papua New Guinea’s industries need to be protected if the nation is to proceed on the path to full industrialisation, says Michael Kingston, Chief Executive of Lae-based manufacturer K K Kingston. He believes PNG can learn from Asia’s record.

KK Kingston’s Michael Kingston Source: KK Kingston

Protectionism has become a dirty word in this post-Washington consensus world. But it should not be so.

The commonly used theory of trade, which was devised by the nineteenth century economist David Riccardo, posits that countries have a ‘comparative advantage’: areas where they are distinctively competitive and on which they should concentrate.

The theory assumes that comparative advantage is a constant, inherent in the fundamentals of an economy.

Recent history, most notably in East Asia, has proven that this is incorrect. Comparative advantage can be created through coherent, consistent policy interventions. It can also be lost, through misguided policy.

‘I cannot think of one single example of an East Asian economy that has industrialised over this period without some form of selective, targeted protectionism or state intervention.’

It is widely accepted that the development of East Asian economies in the post-war period is an economic miracle that has lifted millions of people out of poverty. This miracle has occurred because of strategic, targeted interventions by the state.

East Asia

I cannot think of one single example of an East Asian economy that has industrialised over this period without some form of selective, targeted protectionism or state intervention. There is much that PNG can learn from the development experience of East Asia.

‘Free trade is good, but only when there is an even playing field.’

East Asian countries have developed their economies in three stages:

• The first stage is import substitution industrialisation, where select industries are protected in order to allow local production to substitute imports and create the foundations of a modern industrial economy;
• The second stage is export oriented industrialisation where, having developed a comparative advantage in select industries, the nation focuses on exporting products from those industries;
• The third stage is trade liberalisation, which commences once the economy, and those industries that underpin it, are mature and developed enough to be able to compete with fully developed industrialised economies.

Ideology

The free trade ideology, which is so popular these days, ignores this historically proven progression in developing economies. It therefore doesn’t work when it comes to transitioning a country from under-developed to full industrialisation.

Imposing a free trade environment on a country that is not ready for it is highly detrimental to the country in question.

The State must engage with the private sector and develop a clear vision of which industries PNG plans to develop.

Free trade is good, but only when there is an even playing field. I challenge anyone to prove that trade between PNG and any industrialised nation occurs on an even playing field. In fact, I would go so far as to say that liberalisation of trade with PNG favors other nations at the expense of PNG.

The only way to successfully make the transition from underdeveloped economy to an industrialised economy is to make progressive, strategically targeted protectionist interventions by the State.

The State must engage with the private sector and develop a clear vision of which industries PNG plans to develop a comparative advantage in over the long term.

Michael Kingston is Chief Executive Officer at K K Kingston and a trained economist.