Mahoshada in his article on January 16, 2005, advocates free trade, particularly free imports as he considers "both exports and imports are good". He is advising the government to refrain from restricting imports, as this is harmful to long-term economic development. Mahoshada of course, as revealed in his articles, believes that the free market is the ideal framework for economic growth and the state should only provide the infrastructure, fight inflation and balance budgets and do almost nothing else, leaving the market forces alone, so that the invisible hand of the price mechanism could guide production and distribution. The main prescriptions of his philosophy are liberalization and deregulation of all economic activity by removing restrictions on market forces to allow free trade and free movement of foreign capital and free fluctuation of prices and by privatization of state-owned business enterprises to remove the state from economic activity: in other words, adopt the free market (or the American model) or trickle-down economic model.

The laissez faire prescriptions of liberalization, deregulation and privatization are the stereotyped reforms recommended by the IMF/World Bank/WTO for developing countries. What is forgotten is that these prescriptions result in the loss of economic sovereignty – loss of freedom to determine economic and social policies that suit a country best – what the latest UNCTAD Report on Trade and Development (2004) refers to as "loss of policy space". Any developing country needs to develop its economy rapidly and that can be done by creating and promoting agriculture and industry to produce goods both for the domestic market and exports. Besides, that is the only way of utilizing the country’s physical and human resources, create employment and income and remove poverty. Non-selective trade liberalization however tends to frustrate these development efforts by flooding the country with cheap imports to undermine domestic agriculture and industry.

Developing countries are advised to pursue export-led growth by producing new manufactures, but a country cannot export manufactures without first building the capacity to produce them and for this purpose import substitution can provide the necessary impulse. It would be na`EFve to expect developing countries; in particular, those which are struggling with basic production problems, to become fully-gown exporters of manufactures unless they first set up industries to manufacture goods to replace imports. Such industries need to have selective protection against cheap imports. If it is not done, the country may never have manufacturing industries of its own and is likely to remain in an impoverished state.

The stagnation of Sri Lanka’s subsidiary food production, on which thousands of farmers depend for employment and income, in recent years has also been partly caused by inadequate protection against cheap imports. Actually in the last four years, 1999 to 2003, production of some subsidiary food crops declined: big onions by 51 per cent, red onions and chillies by 16 per cent and maize by 5 per cent. The authorities in Sri Lanka have also kept import prices of sugar, milk and fish low in order to keep the cost of living down, but cheap imports from developed countries make it difficult to increase domestic production which only meets 15 per cent of the requirements in sugar and milk. Sugar cane cultivation, diary farming and fishing are some of the most effective ways of providing employment and improving living conditions. The excessive expenditure of foreign exchange too can be saved at least to some extent by increasing domestic production. In 2003, we spent Rs. 11,540 million on milk and milk products, Rs. 11,196 million on sugar and Rs. 6, 089 million on fish, mainly dried and canned. Should we go on importing these without encouraging domestic production?

Domestic industry similarly has no chance of survival in competition with cheap imports resulting from non-selective liberalization. The initial import liberalization in Sri Lanka destroyed about 5000 small and medium industries while the subsequent import liberalization undermined and crippled several domestic industries big and small. The removal of the 35 per cent import tariff, crippled the nascent textile industry while liberalization undermined domestic industries such as paper, iron and steel, hardware, brass fittings, sanitary ware, glassware, tea machinery, electrical fittings, electrical appliances, such as refrigerators and motor spare parts throwing many workers into unemployment. Further, the creation of a ‘level playing field’ and according national treatment to foreign capital deprives the government of the power to protect and build up domestic industries. On the contrary, it enables TNCs to take over domestic business. To hasten this process, foreign investors are given tax holidays and other concessions. The liberalization imposed by the IMF on South Korea and Thailand after the currency crisis of 1997-1998, enabled several TNCs to swallow up local industries such as motor vehicles, electronics, chemicals and banks and other financial institutions.

The liberalization prescribed by the IMF has deprived millions of poor people of access to food, health, education and housing and led to "IMF riots" in Indonesia 1998, Bolivia 2000 and Ecuador 2001. In Bolivia, the free market policies brought in little foreign capital, ruined domestic industries and created unemployment on a large scale that the former President of the country, Gonzalo Sanchez de Lozada, says "This stuff about the invisible hand – it just does not work that way" and admits that the old model is due for a make-over with government intervention in the economy. In Russia, liberalization and privatization did not create an efficient and competitive market – but instead large private monopolies, the oligarchs and the Mafiosi with control over industry, trade, banking and the news media.

Protecting infant industries in the U.S.

The IMF/World Bank have made opening up markets in developing countries a condition for loans, in the belief that this would lead to greater efficiency, higher growth and less poverty. They say that those countries which have given up on protection and become more export-driven have grown much faster than those nations that have maintained barriers to trade. Mahoshada repeats these arguments. What is ignored in these arguments is that successful countries develop industrial strength before they fully open up their markets. This is what the U.S. did. It industrialized in the nineteenth century behind hefty tariff barriers. "I don’t know much about the tariff" said Abraham Lincoln – "but I do know if I buy a coat in America, I have a coat and America has the money". When the country was flooded with cheap imports, tariffs described as the "American System" was imposed in 1816 to prevent the ruin of industry. They were followed in 1828 by the highest tariff of the half-century – "the Tariff of Abominations" – and then the Compromise Tariff of 1833, the Walker tariff of 1846 and the Morrill Tariff of 1861. It was those high tariffs which led to the rapid growth of manufacturing industries such as cotton textiles, iron and steel, lead, wood, hemp, woollen textiles, paper, leather, copper, steel rails and glass. The period after 1883 is remarkable for its great intensification of protection through such measures as the McKinley Tariff of 1890, the Dingley Tariff of 1897 and the Payne-Aldrich Tariff of 1909. As Professor Knowles states in his book: "Economic Development of the Nineteenth Century!" "From a low-tariff country the U.S. has become the leading protectionist country in the world". It is only after its industries were well established and required external markets that the U.S. began to preach free trade. It tend to forget its own history when it preaches developing countries to dismantle their protective tariffs and open the doors for cheap imports and undermine their infant industries (also see, Cambridge Economist, Ha-Joon Chang’s Kicking Away the Ladder: Development Strategy in a Historical Perspective)

America’s route was followed by Germany, Japan, Asian Tigers and India. Professor Okita stated once that Japan would not have an automobile industry had it allowed free imports of automobiles after World War II. Many do not know that most economies in East Asia did not start to fully liberalize imports until export growth was well established. These countries like the today’s industrialized countries have used a combination of policy tools opposed to the free trade orthodoxy: tariffs, tariff rebates on imported inputs in exports, export subsidies, restriction on the exports of raw materials used by key industries, government regulation of the quality of goods produced for export and government provision of information on export markets and marketing assistance. India would not have developed its large industrial sector had it allowed free imports in the early years after Independence.

Mahoshada waxes eloquently on free trade but there is no country which practises free trade entirely: they all have selective restrictions on trade to protect their industries. The U.S. preaches free trade and free markets to the rest of the world but it practises them at home only when they promote its interests. The agricultural market in the U.S. for example, is not free as it is distorted by massive producer subsidies to encourage inefficient production, export subsidies/credits to dump it in foreign markets and protective tariff and non-tariff barriers to keep out competing imports. Agricultural subsidies per farmer in the U.S. in 2001 amounted to US$ 20,000 or 22 per cent of production value. The U.S. has pumped US$70 billion over the last four years on subsidies and now proposes to spend US$ 180 billion over the next 10-years. Developing country exports are levied protectionist tariffs as high as 350 per cent on tobacco, 132 per cent on groundnuts, 90 per cent on cane sugar, 80 per cent on butter and 55-85 per cent on milk and milk products. In addition, tariff quotas are imposed on sensitive items such as milk, butter, sugar, tobacco, groundnuts and wheat.

Export oriented development prescribed by the IMF/World Bank and supported by Mahoshada does not mean that exports must be totally free of any restrictions for it has unexpected destructive effect on the environment. Fishermen and small-scale rice farmers in Thailand describe the destruction of the coastal eco-systems due to export-oriented shrimp farming. The large-scale expansion of industrial shrimp farming has helped destroy nearly half the country’s coastal mangrove forests between 1985 and 1990, devastating fish habitats and causing salinization of water supplies to paddy fields. The destruction of mangrove forests by prawn faming was a major cause of the devastation caused to the coastal belt in Sri Lanka by the recent Tsunami. Further, the encouragement of gem exports has led to industrial environmental damage to river beds, river basins and upcountry forests by gem mining. Should not such environmental damage be arrested by some sort of restriction of export of prawns and gems?

Further, by 1988, some 15 million hectares, nearly half of the land area of Thailand had been allotted to private logging concessions and 3.2 million hectares had been converted to export crop production. Thailand’s forest cover has declined from 53 per cent of its area in 1961 to 28 per cent in the late-1980s setting the stage for widespread soil erosion In 1988, heavy rains caused major flooding in the south with hundreds dying; this led to the government to declare a ban on all logging in 1989. Professor Saneh Chamarik, the Chairman of the Bangkok People’s Forum said: "these agencies must stop thinking only of economic growth numbers because these numbers have destroyed people’s lives as well as the environment".