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The Open Door Policy: An OverviewThe Open Door Policy of Liberia,
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IntroductionThis
study on Liberia’s economic development before the violent coup of 1980
which ended over 130 years of exclusive Americo-Liberian rule was
initially published in the early 1980s. The decision to again publish its
main findings and conclusions - this time on the web -
is motivated by the renewed interest in the importance of Foreign
Direct Investments and private sector development in developing countries.
In general, many of the lessons which the Liberian experience teaches us
are as applicable to Sub-Saharan African countries in the beginning of the
21st century as they were for Liberia at the end of the 20th century.
The
study has been realised after a four year residence in Liberia which
enabled the author to benefit from unique material from the National
Archives and from various Ministries in Monrovia. Visits to many foreign
companies and numerous conversations with Liberians of all classes have
also contributed to it. The disappearance of historical material with
respect to Liberia’s economic history as a result of climate,
carelessness, and the civil war added another reason for publishing the
summary of the study which is also available in the libraries of the World
Bank, the I.M.F. and the Library of Congress, Washington D.C. The
author has analysed the capacity of the Government of Africa’s oldest
republic to effectively deal with the foreign investors it had invited and
to supervise the resulting investments. Furthermore, the financial
contribution of foreign companies to the Liberian Treasury and the use of
these financial means by the Liberian Government have been analysed. The
consequences for the Liberian economy and society of the activities of
foreign investors have also been studied. Liberia’s
foreign investments boom was at its zenith during the 1960s. As a result,
the economy grew spectacularly and with a two-digit rate the country even
shortly belonged to a small group of countries which had the fastest
growing economies in the world. Since
the publication of this study on foreign investments and economic
development nearly twenty
years have elapsed. This period brought tremendous changes to Liberia and
its population. The increasing political chaos which followed the 1980
coup culminated in the civil war that raged during the 1990s. When the war
ended the country was devastated, the foreign investors had left and the
economy had fallen into ruins.
Below
follows the study’s summary as originally published.
SUMMARY19th
century - conquest and colonization
In
the beginning of the 19th century, groups of free-born blacks, freed slaves and mulattoes
from the United States of America emigrated to the west coast of Africa.
In 1847, 25 years after the first successful colonisation, they proclaimed
an independent Republic, which they named Liberia. At that time they
numbered about 3,000: men, women and children. Conflicts The
indigenous population in the area of the new Republic outnumbered them by
far. They reacted hostilely to the new arrivals, who soon made their lands
a part of their republic although they did not consider them as fellow
citizens. Consequently, many armed conflicts resulted which threatened the
survival of the country. The continued existence of the Republic, however,
was not only threatened from within. Especially in the case of English
merchants who, supported by their government, refused to acknowledge the
political souvereignty of Liberia and evaded the import and export duties
to a large extent. This refusal on the part of European merchants was one
of the reasons which motivated the Liberians to partially close the
country to foreigners. Hence, foreign trade activities were limited by the
“Ports of Entry” Law in 1864 to six areas along the coast. This
protective policy was also based on the desire to safeguard the economic
interests of the political leaders. On
the other hand, the 1864 law had unexpected and undesirable consequences.
For the coastal tribes who did not live near one of the six ports, trade
with the Europeans, their usual practice, became illegal. Therefore they
rebelled and it forced the central government to finance many military
expeditions. These increased government expenditures coincided with
diminishing public revenues, partly caused by the fall in trade which
ocurred after 1864. Hence, the financial situation of the Republic
deteriorated continuously. Moreover, during the last 25 years of the 19th
century, the Liberian leaders witnessed the colonisation of the areas
surrounding the Republic by England and France. Specifically, since 1880,
the political independence of Liberia was menaced by the increasing
colonial imperialism of Europe. The role of foreignersThe
Americo-Liberians, as the descendants of the founders of the Republic
preferred to call themselves, were internally divided about the role of
foreigners, particularly Caucasians, in the development of the country. At
the turn of the century, the group in power favoured cooperation in order
to promote the economic development of the country. Simultaneously, they
hoped to obtain protection for themselves against the intrusive European
colonial powers which had succeeded in seizing territory that the
government in Monrovia claimed. The turn of the century: The ’Open Door Policy’In
the present study, it is shown for the first time that the Open Door
Policy, first introduced by U.S. President William McKinley and his
Secretary of State, John Hay with respect to China at the end of the 19th
century, served as a model for the policy of the same name which the
Liberian Government also wanted. The Liberian leaders, however, did not
succeed in otaining the political and diplomatic support of the United
States, which country they still considered their homeland even after the
creation of the republic. For this reason, the idea of a political Open
Door Policy slowly shifted to an Economic Open Door Policy. The
exploitation of the country’s natural resources was severely hampered,
if not prevented, by the lack of control exercised by the Liberian
Government over the rebellious tribes in the hinterland and by the lack of
physical infrastructure, notably ports. Only after these obstacles had
been removed was the road paved for the entry of foreign investors.
Shortly hereafter, the European colonial powers began the political
decolonisation of Africa, thus removing the need for a political Open Door
Policy. The early 20th century: the ’Firestone Colony’Before
the end of the Second World War, the only important foreign investor in
Liberia was the American “Firestone Tire & Rubber Company”, which
in 1926 had obtained an enormous concession agreement from the Liberian
Government. During the 1926-1951 period, Liberia’s dependence on this
company slowly increased and was finally complete. For this reason the
country became colloquially known in this period as the “Firestone
Colony”. This changed when iron ore production was begun in 1951. The
mine was exploited by another U.S. company, the “Republic Steel
Company”. In
the following 20 years, the highly attractive investment facilities
offered by the Liberian Government, the abundance of natural resources and
the political and social stability caused an invasion of foreign
investors. The Open Door Policy: a success?Since
the arrival of foreign investors, Liberia has changed tremendously. Before
the arrival of Firestone, the monetary economy was virtually negligable
and, significantly, was found only in the coastal areas. Even in 1950, one
could hardly speak of ‘one country’’ because of the separation
between coastal areas and hinterland. The two regions were separated by
lack of roads and other means of communication and even by different laws.
The latter was changed as late as the 1960s. The political power stayed,
however, in the hands of the Americo-Liberians. In
the 1970s the results of the Open Door Policy were impressive at first
sight: Liberia had the largest registered merchant fleet in the world as a
result of a flag of convenience policy. Liberia had become Africa’s
first and the world’s third exporter of iron ore. The most important
investors were giants of the U.S. rubber industry: Firestone, Goodrich and
Uniroyal. Important American industries in the steel sector such as
Bethlehem Steel Corporation and Republic Steel Corporation both have large
investments in Liberia’s iron ore mines. Within
a period of 25 years, Liberia had succeeded in attracting foreign
investments exceeding 1 billion U.S. dollars, among which was the largest
post-war Swedish investment abroad and the largest German investment in
tropical Africa. The Open Door Policy: some questionsIn
spite of this apparent success of the Open Door Policy, some questions
arise of which the most important are:
The Open Door Policy: the negative sideAt
the time of the introduction of the Open Door Policy, Liberia was
characterised by a shortage of skilled labour, the lack of institutions
which could check upon or supervise the arriving multinationals and an
underestimation at the government level of the necessity to integrate all
foreign investments in one overall development policy. Liberia did not
escape from some of the negative consequences which may accompany foreign
investments. The use of foreign capital and labour cost Liberia an average
of $ 100 million per year at the end of the 1970s. The depenence of the
government on the concession sector prevented the Liberian Government from
following an independent policy without risking the collapse of the
national economy. The many labour intensive investments for other than
rice production which the Liberian Government naievely accepted, drew on
the available labour force in the subsistence sector. Even as the
population grew, this caused a lower output of rice which made increasing
imports of the country’s staple food a necessity. This was further
complicated by the indifferent agricultural policy of the government. A
dual economy The
national economy had developed into a dual system in which the concession
sector had litttle or no connection with the rest of the economy. Above
all, the Liberian economy was marked by: an exceptional dependence on
foreign investors who exported their production, nearly all unprocessed,
to processing industries in economically more developed countries. The
Liberian Government shared less in the profits of foreign investments than
it had initially thought. As this study shows, the Liberian Government
owes this particularly to itself by allowing (i) long tax holidays, (ii)
long exemption periods of import and export duties, (iii) special tax
tariffs for some investors and (iv) many and large tax deductable items in
cases where investors were liable to taxes. On
the other hand, investors sometimes abused the lack of control by the
Liberian State on their activities, resulting in tax evasion, illegal
exploitation of natural resources of the country and the use of
complicated structures which negatively affected the Liberian Treasury.
The country could not cope with this adverse situation because of the
absence of experienced administrators. Two illustrative examplesThe
unequal relation existing between the Liberian State and the foreign
investors can be illustrated with two striking examples:
ConclusionOne of the most important conclusions of this study is that the disappointing results of the Open Door Policy cannot be blamed only on ignorance and the lack of knowledge on the part of Liberia at the time of negotiations with foreign investors. They were also caused by the fact that the ruling Americo-Liberian minority voluntarily accepted the dependence on foreign investors and refused to cooperate and integrate with the tribal population of the country. Because of this, the economic, as well as the political future of the country depends on the realisation of an acceptable combination of foreign investments, economic development and national unification for all parties concerned. For more information
on this subject: © fpm van der kraaij F.P.M.
van der Kraaij
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