Transcript #6
Thank you very much to all the speakers. We have about 15 minutes to go. Maybe, Mr. Ohno, would you like to start some initial responses to some of the critical points that the other speakers made?
Mr. Ohno: I just have two questions to Dr. Sachs. My first question is: of course, an urban FDI-driven growth strategy is very important for Africa, I agree completely. But you tend to underestimate, discredit agro-development or primary sector development. I wonder if that is so. I would emphasize an FDI-driven strategy change plus agro-based or primary-commodity-based development. I think these should be the two pillars for African development. That is my first question.
The second question is: when Dr. Sachs advised Russia in its transition, which is called a Big Bang transition, I think, there was a lot of privatization which was not very successful, liberalization and opening up. How do you square today's advice to Africa, which is based on a real-sector orientation, with your advice to Russia several years ago?
Mr. Sumi: Well, those are two very important questions, and maybe the answer to the first one is that both are important-manufacturing and agro-based industry. But do you have any words to respond with, Professor Sachs, and also on your suggestions on privatization, liberalization, the Big Bang approach, in the context of African countries?
Mr. Sachs: Well, I am glad you asked both questions. There needs to be investment in the rural areas, but there is an argument that floats around Africa which says that since 70% or 80% of the population is in the rural areas that is where all the emphasis needs to be. The process of development is a process of increasing urbanization, and I think that the urban sectors have been very much underemphasized in the policy advice and in the policy design, so that is why I put stress to them. I also do not believe that it will be possible to base development on the traditional primary commodities, whose terms of trade continue to decline very sharply. When I think about the traditional commodity producers in Asia, for example, take a case, a very successful case, Malaysia. Malaysia is a case that looked a lot like Ghana 40 years ago: it grew palm oil, natural rubber, and so forth. But it was not improving the palm oil and the rubber plantations that got Malaysia out of poverty, it was the export-processing zone that started in Penang in 1971, and it was Malaysia's transition to consumer appliances that was the real breakthrough for Malaysia. So I am not against the rural sector, I just think that we talk-and I am very much in favor of improved agricultural productivity and investing in that, but that will mean migration to the urban areas as food productivity rises, and Africa uniquely has not had urban-based export-oriented production, and that has been the most distinctive feature of Africa's export structure: the lack of urban export-based labor-intensive manufactures. That is why I put so much stress on that.
With respect to my advice to Eastern Europe, my advice to Eastern Europe was based on the geography of those countries, principally, and the initial conditions. With Poland, where I advised the so-called Big Bang in 1989, the argument was that this would lead to export-led growth to the European Union, and it did. Poland became the fastest growing country in Eastern Europe for the next ten years. With Russia, they did not listen to what I said, the United States did not listen to what I said, the World Bank and the IMF did not listen to what I said, so I left. I was an advisor to Russia for only a short period of time and have not been back for eight years, even physically to step foot in the country. So do not confuse what the advice given is and what the actual outcomes are. Russia, it should be understood, has a bigger problem, which is that it does not have a coastline that is significant in Europe. It is far from the main market that it faces, which is the European market. Actually, economically, Shanghai is closer to Europe than Moscow is. One is overland and it is expensive, and the other is by sea and it is inexpensive. Russia could have done much better, and I was not in favor of what was done in Russia-I just want to be clear to you. I was not in favor and that is why I resigned, very early on. I was in favor of what was done in Poland and am very happy with that.
So policies can be carried out very badly-that was one of the things you stressed, and I think the combination of what was advised in Russia by the Breton Woods Institutions, which I disagreed with, and what the Russians did, which was to steal a lot rather than privatize, was also very unwise. I am, by the way, in general in favor of privatizing the productive sectors. I do not think governments really ought to run hotels, steel mills, and so forth. They do not do a very good job. But privatization is a very tricky thing. It can be very corrupt, and corrupt privatization is no friend of development. Whereas, unfortunately, many people thought in Russia that corrupt privatization is as good as honest privatization, and I think that was a huge mistake and I quit because of that and I quit very early on.
Mr. Sumi: Thank you, Professor Sachs, very interesting responses. I believe that these are very eye-opening discussions, but are there any other points that you would like to make? Any of you? Yes, Mr. Chakramon, please.
Mr. Chakramon: There are two things that worry me most. First is that it seems to me that there has been a shift of paradigm from the old paradigm to a new paradigm at the turn of the century. We do not need a capital base anymore, we need a knowledge base. Even in the case of East Asia, they changed from a capital-based to a knowledge-based economy. But in Africa it is different. You still need a capital-based industry.
Secondly, the shift from owning assets to gaining assets or gaining access. For instance, Singapore recently announced that there will be a center for biotechnology in Singapore. Singapore has nothing. Singapore announced that they would like to be a hub for tourism in Asia. They said, they can gain access to Phuket, to Bali, to whatever. So they do not own assets, but they can gain access to anything. This is very important.
Third, we are talking about tangible assets for a very long period of time. We talked about FDI; we need FDI to bring money, set up nice factories, and so on and so forth. But I think it will change. It will change to intangible assets; property rights and intangible assets. And the country that owns these intangible assets, they are the richest.
Fourth, 20 years ago we talked about mass production, to reduce cost as much as possible. But at the turn of the century, we talk about customization. We shifted from an economy of skill to an economy of speed. This worries me because Africa will have to prepare for that. It has already changed. Besides that, when we talk about the agriculture sector, we are now going to change from intensive farming to productive farming, we change from supply-driven to market-driven, we change from the low-cost to a value-added change, and we change from mass production to product differentiation. At the moment, it seems to me that we are working, more or less, for developing countries like Thailand. The more we sell, the more we export. The margin is getting smaller, day-by-day and year-by-year. This is the thing that less developed countries are facing because of the paradigm shift. So this worries me most. The second thing is that what we call the biotechnology core breakthrough. I have heard that within 20 years or so, the world can double, triple, quadruple food supply because-I do not know if it is GMO, whatever it is-because of this, there will be a breakthrough in biology.
Last century, we experienced the breakthrough in ICT, but this century will be for biology. What will happen to Thailand? We are the largest rice exporter in the world. What happens to those who produce cassava or whatever-food products, staple foods? They will get poorer. I felt a chill from head to toes when I have learned that in the future there will be a biological breakthrough, like ICT, in the last century, like the petrochemical technology breakthrough in the last century, like the mechanical engineering breakthrough in the last century. But this century-and of course now people change the heart, we change everything, not just only for food but also health as well. So, if that is the case then, it is frightening.
