» Friday, 27 March A.D. 2009
bad samaritans
I love simply browsing through the stacks at libraries--I find some of the most interesting books to check out on the spot or to file away for later reading. One such book I found recently was Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang. I enjoy reading a contrarian book now and then, although the subtitle of this one sounded a little over-the-top. The giant-sized endorsement on the back from Noam Chomsky also made me pause. But I checked it out anyway, figuring it didn't cost me anything and I could always stop if it got to be too weird.
I read the entire book. At no point was it too weird, and it made a lot of points that made a lot of sense.
Chang's basic point is this: the rich countries in the world go about promoting free trade and capitalism (“neo-liberalism”) as the cure to all ills for smaller, less developed countries. The story is that such tactics have worked to propel these rich nations into their current positions and will work the same sort of improvements in living standards and personal incomes in the smaller countries. However, if you look at history, the numbers tell a different story:
This story misrepresents the process of globalization among the rich countries during this period. These countries did significantly lower their tariff barriers between the 1950s and the 1970s. But during this period, they also used many other nationalistic policies to promote their own economic development -- subsidies (espeically for research and development, or R&D), state-owned enterprises, government direction of banking credits, capital controls, and so on. When they started implementing neo-liberal programmes, their growth decelerated. In the 1960s and the 1970s, per capita income in the rich countries grew by 3.2% a year, but its growth rate fell substantially to 2.1% in the next two decades.
Examples are given throughout the book of particular industries from particular countries who have benefitted from the protectionist policies of their governments: Toyota, Samsung, Nokia. The examples are not limited to the 20th century, either; he discusses how Britian's protectionist policies towards its textile industry helped propel Britian to the position of global influence it enjoyed in the 18th and 19th centuries. And that when Britain abandoned its protectionist policies, it was largely became it was no longer the dominant force that it once was, mostly because of the growing influence of the United States--which derived in part from its own protectionist policies.
(Interesting tidbit about Adam Smith's The Wealth of Nations: Smith did indeed campaign for the lifting of various protections for British industries--but only because they were mature industries and no longer needed the state to prop them up. It was time to grow up, to remove the protections, and subject the companies to actual market forces--not unlike kicking a college graduate out of the basement. (Indeed, Chang later likens the care and education of his six year old son to the protection that should be afforded to infant industries.) The father of free trade praised the Navigation Acts, which severly restricted the ability of British colonies to produce particular goods. History is sometimes a wee bit more complicated than the history books tell you...)
During the 1960s and the 1970s, when they were purusing the `wrong' policies of pretectionism and state intervention, per capita income in the developing countries grew by 3.0% annually. As my esteemed colleague Professor Ajit Singh once pointed out, this was the period of `Industrial Revolution in the Third World'. This growth rate is a huge improvement over what they achieved under free trade during the `age of imperialism' (see above) and compares favourably with the 1-1.5% achieved by the rich countries during the Industrial Revolution in the 19th century. It also remains the best that they have ever recorded. Since the 1980s, after the implemented neo-liberal policies, they grew at only about half the speed seen in the 1960s and the 1970s (1.7%). Growth slowed down in the rich countries too, but the slowdown was less marked (from 3.2% to 2.1%), not least because they did not introduce neo-liberal policies to the same extent as the developing countries did.
The same pattern is cited numerous times throughout the book: countries do not necessarily grow--and often wither instead--when adopting neo-liberal policies and countries do not necessarily wither--and often thrive instead--when they use “bad” policies.
The main criticism of the book falls upon the backs of the “rich countries” who, having achieved wealth, forbid other countries from utilizing those same strategies (“kicking away the ladder”). The rich countries, through the demands of the IMF, World Bank, and WTO, impose neo-liberal policies on countries that would benefit far more were they allowed more latitude in choosing their economic policies. Through tight monetary policy, draconian intellectual property laws, and the imposition of low trade barriers (which benefit the rich countries more by giving them access to cheaper goods), the developing countries are held back from actually growing those industries that will bring them sustained growth in the future.
(As an aside, I finished Postwar by Tony Judt recently. I only skimmed the last several chapters covering modern Europe, but I was amused at the economic posturing coming out of the EU. The EU has tigh restrictions on what sort of monetary policy entering countries must have: limits on government debt incurred on a per year basis, limits on total government debt, that sort of thing. Turns out that a couple of years ago, Germany and France (the two largest members of the EU) deliberately flouted these rules in an effort to stimulate the economies of their countries. When cries of protest were raised from other member nations (particularly nations only recently admitted who had contorted their economies to fit EU rules), Germany and France essentially said, “We are not beholden to your rules.”)
The above arguments comprise the core of the first three chapters of the book. The later chapters work out particular parts of the argument, discussing foreign investment, public vs. private enterprises, intellectual property laws, financial policy, and dealing with corrupt and/or undemocratic countries. The book is well-written and well-researched. I particularly appreciated the wide range of examples that Professor Chang gives: he doesn't just beat the drum and say, “This policy didn't work for country X, that policy didn't work for country X, free trade and capitalism are broken!” Instead, it's, “This policy didn't work for countries M-Z, that policy didn't work for countries I-R, these policies didn't work for countries A-N...why don't we acknowledge that there are problems here?” I also appreciated the discussion of key economic theorems about free trade...and the reminder that those theorems came with conditions that are often glossed over and/or unrealistic. If those conditions are not present, then the conclusions of the theorems are not valid, and arguments based on those theorems fall apart.
I do remember taking an economics class in college where the textbook was Paul Krugman's International Economics and the drum of free trade was pounded particular heavily. And during my time in that course or shortly thereafter, I do remember making myself persona non grata at a friend's house, if only for a short time, by incessently repeating the mantras of that course. If nothing else, Professor Chang's book has shown me--again--that the story in the real world is somehwat more complicated than the charts and graphs of an economics textbook suggests.
posted by Nate @ 7:49PM