Free trade and developing countries

David Ray's Is free trade good for innovation? (Dec. 10, 1996) is good. He explodes the myth that developing countries can improve access to international flows of technology by free trade. Restrictive policies of Japan, Korea and Taiwan may have helped rather than impeded their becoming the most technologically successful countries in the Asian region. However, one cannot advocate restrictive trade policies because one would find that Singapore, Hong Kong and Malaysia were able to derive significant technological benefits from relatively open trade and foreign investment regimes.

As is evident from Latin America, a decade of democratic regimes broadly committed to low inflation, free economies and open trade have not brought sustained economic growth. Mexico's guerrilla groups, Argentina's trade unionists and Brazil's ladles clash with the authorities. The economists predict that the region may grow by 3-4 percent, and hardly any of this growth reaches the poor. In India, the former prime minister, a staunch advocate of free trade, and his ministerial colleague (caught with tons of hard cash everywhere in his house) face corruption charges and may be imprisoned any time.

Thus free trade, like various others, is only a policy, an instrument in the hands of a nation. An instrument in itself can neither be good nor bad. A developing nation should have a strategy of its own in becoming one of the technologically successful countries. Its trade policy, whether open or restricted, should be an integral part of this strategy. The governments and politicians (especially of unequal societies) advocating free trade should complement this policy with a faster microeconomic and institutional reform, or else they will have to face widespread cynicism. After all, a democracy is supposed to function by persuasion.

D. PRABHAKAR

Jakarta