When an Aeroflot jetliner burst into flames during an emergency landing at Moscow’s Sheremetyevo International Airport two weeks ago, Russians mourned the 41 passengers and crew who died. But the catastrophe also marked a tragic failure of a certain economic idea – one that has returned to popularity recently after decades of obsolescence.
The plane was a Russian-built Sukhoi SuperJet 100, the first Russian-made jetliner since Soviet times. But the jet’s only significant buyer had been Aeroflot, whose majority owner is the Russian state, and therefore had no choice. Other airlines that had been talked into buying a few SuperJets, in Mexico and Ireland, had already grounded them before the crash, citing worries about manufacturing quality and maintenance. The industry consensus: This jetliner was not ready for prime time.
But President Vladimir Putin had championed – and heavily subsidized – the jet as a weapon in his campaign against sanctions imposed on Russia for having invaded Ukraine, and as part of his effort to market his brand of ultranationalist right-wing politics around the world.
The SuperJet 100, as with many products of the new economic nationalism, did not exist because it was better, or cheaper, or safer – it existed because politics demanded that it exist.
Mr. Putin is at the forefront of a group of right-wing leaders who are reviving an old left-wing idea that had been popular in Africa and Latin America in the postwar decades: import-substitution industrialization.
Last year, according to an analysis by Max Seddon of the Financial Times, Mr. Putin spent 637.5-billion roubles, or almost 5 per cent of Russia’s government revenue, on subsidizing Russian companies – most of them national monopolies which now lack any international competition – to produce products for the Russian market to replace imports (and, he now claims, eventually to become international export leaders). But it hasn’t worked. Russia’s economy has continued to decline. Mr. Putin’s ban on imports of European food and other goods, on top of the tariffs, has made life dangerously expensive and lowered standards of living.
And while today’s wave of right-wing nationalism, started by Mr. Putin and popularized by the likes of Donald Trump, Viktor Orban and Rodrigo Duterte, may be known for its racial identity politics and closed borders, its most damaging effects may be in its economic nationalism.
The goal of import substitution, whether in the postcolonial countries of the 1960s or in the right-wing “managed democracies” of the 2010s, is not to make better products, or less expensive products, or to create companies that invent ingenious new products. It’s to make products that aren’t foreign.
Such policies are good for local oligarchs and capitalists, who are given protected monopolies and captive markets. They are terrible for citizens, who experience rising prices, diminished quality and a worse standard of living. And they’re bad for the overall competitiveness of industry, which no longer needs to try very hard.
But they are heavily promoted today by populist-right leaders. In recent months, Mr. Trump’s extreme-right former aide Steve Bannon has been holding meetings with right-wing government leaders in Hungary, Italy and the Philippines, as well as with Britain’s Nigel Farage, to promote those old ideas under the banner of “economic nationalism.”
And just this week, India’s 600 million voters re-elected Narendra Modi, their Hindu-nationalist Prime Minister who originally came to office on a pledge to open up India’s protected, slow-moving industrial economy, but whose nationalist ideologies have sometimes trumped whatever economically liberal instincts he has. Many of India’s domestic plutocrats are protected – and Indian consumers are denied more affordable food and other products – with one of the steepest tariff regimes in the world; India’s import tariffs average 13.8 per cent, compared with Canada’s 2.6 per cent. Many of them have risen under Mr. Modi.
Despite strong overall economic growth, Mr. Modi’s “Make in India” campaign – to turn India into the next manufacturing success story – has faltered, in large part because of policies that attempt to restrict imports in favour of domestic goods, limiting the scope of its industries. As a consequence, India’s manufacturing has declined in recent years.
It is perfectly sensible for countries to want to help domestic companies succeed and protect them from collapse or takeover. But that means giving them the support and the trade and investment linkages they need to thrive in a larger economy, rather than isolating them under the glass dome of artificially created national monopolies.
For countries such as Canada, with domestic markets too small to even think of going it alone, there are two dangers in this alarming trend. One is that our competitive companies can no longer easily go “straight to global,” because so many countries are reviving old nationalist barriers to entry. The other is that we might fall prey to those ideas ourselves, and put our CEOs ahead of our better interests – an idea that has always loomed in the political background, and one whose consequences can be painful.