TRADING IN ILLUSIONS
Deep liberalization is a country’s acceptance and adherence to policies and regulations imposed by financial institutions and developed nations on developing economies to open their borders to free trade. Dani Rodrik is very sceptical to the idea of ‘deep liberalization,’ because he believes that in their keenness to develop the standard of living and flow of foreign investment into their country, they forget that such liberalization practices are in fact, vastly overstating the effectiveness of economic openness as a tool for fostering development. As Rodrik said, “There is plenty of evidence that financial liberalization is often followed by financial crash -- just ask Mexico, Thailand, or Turkey.” These countries, in their pursuit to increase the rate of economic growth, failed to understand its effect on capital-account liberalization. They had to pay the price for their inattentiveness and comply with the orders of IMF, WB, and leading multilateral organizations. During the Asian financial crisis, “Malaysia was able to recover quickly after the imposition of capital controls in September 1998, because Prime Minister Mahathir Mohamad resisted the high interest rates and tight fiscal policies that South Korea, Thailand, and Indonesia adopted at the behest of the International Monetary Fund” remarked Rodrik.
Dani Rodrik’s view is spot on, because those countries that followed a system of combining the opportunities offered by world markets and policies that ensure growth through the mobilization and capabilities of domestic institutions and investors have done remarkably well. Countries such as China, India, and to a certain extent Brazil, have done well and are successful. Implementing such growth strategies is hard unless that country has a strong government at the center, effective economic, and foreign policies. Dani Rodrik named a few countries that kick-started investment and growth in the past. “Public enterprises during the Meiji restoration in Japan; township and village enterprises in China; an export processing zone in Mauritius; generous tax incentives for priority investments in Taiwan; extensive credit subsidies in South Korea; and infant-industry protection in Brazil during the 1960s and 1970s” are examples of countries that practiced and succeeded in developing strong home-grown business models, that incorporate effective, development strategies tailor-made to prevail to domestic institutional strengths.
Today, many of the domestic institutions in China and India compete with the best in international markets, because their respective governments grabbed the opportunities offered by world markets, and designed and rolled out policies that ensured competition and growth through the mobilization and capabilities of domestic institutions and investors.