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 Chalmers Johnson on the Myth of Free TradePosted on Jan 24, 2008
Ha-Joon Chang is a Cambridge economist who specializes in the abject poverty of the Third World and its people, groups, nations, and empires, and their doctrines that are responsible for this condition. He won the Gunnar Myrdal Prize for his book “Kicking Away the Ladder: Development Strategy in Historical Perspective” (2002), and he shared the 2005 Wassily Leontief Prize for his contributions to “Rethinking Development in the 21st Century.” The title of his 2002 book comes from the German political economist Friedrich List, who in 1841 criticized Britain for preaching free trade to other countries while having achieved its own economic supremacy through high tariffs and extensive subsidies. He accused the British of “kicking away the ladder” that they had climbed to reach the world’s top economic position. Chang’s other, more technical books include “The Political Economy of Industrial Policy” (1994) and “Reclaiming Development: An Economic Policy Handbook for Activists and Policymakers” (2004).
Bad Samaritans
By Ha-Joon Chang Bloomsbury Press, 288 pages
His new book is a discursive, well-written account of what he calls the “Bad Samaritans,” “people in the rich countries who preach free markets and free trade to the poor countries in order to capture larger shares of the latter’s markets and preempt the emergence of possible competitors. They are saying ‘do as we say, not as we did’ and act as Bad Samaritans, taking advantage of others who are in trouble.” “Bad Samaritans” is intended for a literate audience of generalists and eschews the sort of exotica that peppers most economic writing these days—there is not a single simultaneous equation in the book and many of Chang’s examples are taken from his own experiences as a South Korean born in 1963. Ha-Joon Chang’s life is conterminous with his country’s advance from being one of the poorest on Earth—with a 1961 yearly income of $82 per person, less than half the $179 per capital income in Ghana at that time—to the manufacturing powerhouse of today, with a 2004 per capita income of $13,980. South Korea did not get there by following the advice of the Bad Samaritans. Chang’s prologue contains a wonderful account of how post-Korean War trade restrictions and governmental supervision fostered such projects as POSCO (Pohang Iron and Steel Co.), which began life as a state-owned enterprise that was refused support from the World Bank in a country without any iron ore or coking coal and with a prohibition on trade with China. Now privatized, POSCO is the world’s third largest steel company. This was also the period in which Samsung subsidized its infant electronics subsidiaries for over a decade with money made in textiles and sugar refining. Today Samsung dominates flat-panel TVs and cell phones in much of East Asia and the world. Chang remembers quite clearly that as a student “We learned that it was our patriotic duty to report anyone seen smoking foreign cigarettes. The country needed to use every bit of foreign exchange earned from its exports in order to import machines and other inputs to develop better industries.” He is frankly contemptuous of New York Times columnist Thomas Friedman’s best-seller “The Lexus and the Olive Tree” (2000) and its argument that Toyota’s Lexus automobile represents the rich world brought about by neoliberal economics whereas the olive tree stands for the static world of no or low economic growth. The fact is that had the Japanese government followed the free-trade economists back in the early 1960s, there would have been no Lexus. Toyota today would be, at best, a junior partner to some Western car manufacturer or, worse, have been wiped out. In Chang’s conception, there are two kinds of Bad Samaritans. There are the genuine, powerful “ladder-kickers” working in the “unholy trinity” of the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO). Then there are the “ideologues—those who believe in Bad Samaritan policies because they think those policies are ‘right,’ not because they personally benefit from them much, if at all.” Both groups adhere to a doctrine they call “neoliberalism.” It became the dominant economic model of the English-speaking world in the 1970s and prevails at the present time. Neoliberalism (sometimes called the “Washington Consensus") is a rerun of what economists suffering from “historical amnesia” believe were the key characteristics of the international economy in the golden age of liberalism (1870-1913). Thomas Friedman calls this complex of policies the “Golden Straitjacket,” the wearing of which, no matter how uncomfortable, is allegedly the only route to economic success. The complex includes privatizing state-owned enterprises, maintaining low inflation, shrinking the size of the state bureaucracy, balancing the national budget, liberalizing trade, deregulating foreign investment, making the currency freely convertible, reducing corruption, and privatizing pensions. It is called neoliberalism because of its acceptance of rich-country monopolies over intellectual property rights (patents, copyrights, etc.), the granting to a country’s central bank of a monopoly to issue bank notes, and its assertion that political democracy is conducive to economic growth, none of which were parts of classical liberalism. The Golden Straitjacket is what the unholy trinity tries to force on poor countries. It is the doctrinal orthodoxy taught in all mainstream academic economics departments and for which numerous Nobel prizes in economics have been awarded. In addition to being an economist, Ha-Joon Chang is a historian and an empiricist (as distinct from a deductive theorist working from what are stipulated to be laws of economic behavior). He notes that the histories of today’s rich countries contradict virtually all the Golden Straitjacket dicta, many of which are logically a result rather than a cause of economic growth (for example, trade liberalization). His basic conclusion: “Practically all of today’s developed countries, including Britain and the US, the supposed homes of the free market and free trade, have become rich on the basis of policy recipes that go against neo-liberal economics.” All of today’s rich countries used protection and subsidies to encourage their manufacturing industries, and they discriminated powerfully against foreign investors. All such policies are anathema in today’s economic orthodoxy and are now severely restricted by multilateral treaties, like the WTO agreements, and proscribed by aid donors and international financial organizations, particularly the IMF and the World Bank. Chang offers some fascinating vignettes of men and books that were infinitely more important in the economic development of the rich countries than Adam Smith’s “The Wealth of Nations.” These include a precis of a virtually unknown book by Daniel Defoe, “A Plan of the English Commerce” (1728), on Tudor industrial policy in developing England’s woolen manufacturing industry. As a result of many of Defoe’s ideas, manufactured woolen products became Britain’s most important export industry. Chang continues with a short life of Robert Walpole, the chief architect of the mercantilist system. By 1820, thanks to Walpole’s protectionist policies, Britain’s average tariff on manufactured imports was between 45 and 55 percent, whereas such tariffs were 6-8 percent in the Low Countries, 8-12 percent in Germany and Switzerland, and around 20 percent in France.
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By Gregorio, January 29 at 3:36 pm # Re: federalism and individualismJoe, Federalism is a form of social organization based upon strong central control, as you note. Free market individualism has long been thought to be antipathetic to federalism. Now look at history. The states’ rights Republicans, the party of Lincoln, have usurped confederalism (states’ rights) in favor of federalism every time, with individuals now including corporate persons; the small federal government getting bigger under Republican presidents than under Democratic presidents; strong federal control over the economy occurring as wage and price controls under Nixon; the pursuit of the dictatorial unitary executive by Republican neocons like Cheney and Wolfowitz whose Department of Homeland Security and Justice Department encroaches upon individual liberties otherwise guaranteed by the constitution; a Defense Department driven by military-industrial pressures and thriving on no-bid contracts - all the trappings of federalism from the states’ rights people. Confederalism, on the other hand, gives precedence to the constitution where the federal government oversees the states to insure they stay within the bounds of the bill of rights that protects individuals. It just so happens that the alleged states’ rights free marketeers push for strong central control, not out of concern for the individual free market of Adam Smith, but to perpetuate and intensify the oligopoly that Lincoln made possible. A confederation would not and could not have a large standing army, a federation can, by resorting to individual income tax over and above anything the individual has to give to the state he lives in.
By allanR, January 28 at 11:11 pm # Johnson and Subsidies“I’ve always been amazed at how much better the food outside the US is...(they use local ingredients when the price is competitive with shipping factory ingredients)...” I think you support Johnson’s argument for the use of subsidies. The Europeans have subsidized small farmers for a long time, as have the Japanese their small rice farmers, thus allowing those consumers the luxury of fresh, unadultered produce. What the Europeans and Japanese dont do is subsidize gigantic agribusiness. For their subsidies the U.S. taxpayers get plastic food. And there seems to be not end in sight.
By Joe, January 28 at 6:39 pm # Gregorio post- Gregorio- In its broad Western sense, “federalist” suggests strong central control. Can you clarify?
By Anna Churchill, January 28 at 4:36 pm # Back to Basics PShttp://www.schumachersociety.org/buddhist_economics /english.html
By Anna Churchill, January 28 at 4:12 pm # Back to BasicsAnyone remember EF Schumacher? Buddhist Economics? It is interesting to see that by default the idea of regionalism and all that implies will come home to roost--after the fall, of course. I keep waiting for when it will be proposed that neighborhoods create home kitchen garden clubs utilizing all that unused land that surrounds even the most modest home in the US. In Europe, where land is scarce every scrap of dirt in one’s back garden is often used to grow parsely or a tomato--here it all goes to waste. What does this have to do with the issues in the article? Everything.
By Joe, January 27 at 10:43 pm # You guys are breaking my heart. jackpine savage--for your amusement, here is one duty assigned the Philippines Bureau of the Treasury: Under Republic Act No. 6657: quote from DC’s post: Douglas-- you have once again scared the living fuck out of me. I’m too big to fit under my desk. What to do.
By Joe, January 27 at 4:43 pm # Chalmers Johnson has a grasp of the connectedness of events and policy, a reality few US economists or lawmakers have incorporated into their thinking. Just by example, imagine Johnson signing legislation he has not even read..a common practice, I believe, in Washington. Pride in the usefulness of his mind would prevent my example, Johnson, from ever committing such a sin. HJ Chang, whose approach is the focus of this article, is one of a rare breed and is a blessing to this world. I have some problems with a few of the notions promoted here, though, mostly by author Johnson. Unless I am misunderstanding his argument, he encourages the heavy old-school hand of protectionism with such devices as tariffs on imports, this as one means of handling one’s economic problems. The problem with this is that manufacturing is never coming back to the US, so why burden consumers with more expense? Simply controlling spending and going back to a currency based on tangible commodities, say metals, would be far more effective and simpler to administer. It would also avoid the reprisals other nations would feel compelled to impose if only because they already feel the US is an overbearing member of the world community. As for his disdain for the patent process, simply improve it. Have it protect individuals only, not corporations. The 50-70% of R&D;research funded by the federals here is money wasted because, simply, our kids are stupid. They generally know nothing about history, math or writing. Our schools are, due to incompetent teachers, disasters overall. They demand conformity K-12 but offer no compelling reason for learning, no enthusiasm. The choked flow of technical and industrial knowledge to Africa, the example above, is not due to the patent system. It is due to individuals unwilling to share wealth or influence. Chalmers Johnson calls this class of individuals “neoliberals.” This is a confusing term for anyone trying to figure out the situation described. I feel easier calling it what it is: racist elitism. Finally, I just don’t understand the statement, “Commentators who denigrate the Philippines as East Asia’s only Catholic and therefore Latin American-type culture forget that only a half-century ago it was the second richest country in Asia (after Japan).” This is baffling to me on several levels, since I lived there for a time. The Philippines was occupied for maybe 300 years by the Spanish, then Terrorized by Pres. McKinley and his nutty hatchet man, Teddy Roosevelt (yes, the guy up on Mount Rushmore).
By GW=MCHammered, January 27 at 9:05 am # This reckless greed of the few harms the future of the many Never in human affairs have so few been allowed to make so much money by so many for so little wider benefit. Across the globe, societies and governments have been hoodwinked by a collection of self-confident chancers in the guise of investment bankers, hedge and private equity fund partners and bankers who, in the cause of their monumental self-enrichment, have taken the world to the brink of a major recession. It has been economic history’s most one-sided bargain. Last week’s financial panic was further evidence of the extreme foolhardiness with which global finance has been organised and managed. The staples of a settled life - jobs, pensions and house prices - are all under threat. The remuneration structure is a disaster. Hence the casino character of many new financial markets, which essentially operate as bookmakers accepting differing bets on future prices. Underneath their technical names - monoline insurance, derivatives, debt securitisation - lies little more than bookie principles and practice. Thirteen years ago, I tried to blow the whistle on financial market liberalisation in my book The State We’re In. It was obvious then what is even more obvious now: financial market freedom embeds short-termism, guarantees lower investment, works against business building and innovation, generates booms and busts, inflates house prices, creates system-wide risk and excessively rewards those who work in them. We need the financiers to serve business and the economy rather than be its master. http://www.guardian.co.uk/commentisfree/story/0,,22477 31,00.html
By al734, January 26 at 7:59 pm # Economics then cultureMarx is smiling: “...suggest that Protestant-work-ethic-type cultures are the results of economic development, not their cause...”
By Gregorio, January 25 at 2:34 pm # Winds of change coming too late?The intellectual atmosphere is incrementally changed by ‘little articles on blogs’ that tell people like you and me there are those in the rarified atmosphere of academia who question what is taken for common wisdom. These people should be celebrated. The nineteenth century notion of social Darwinism upon which libertarian, free market thinking alleges to be based, a notion that has endured for over a century and is part of neoliberalism, is increasingly discredited by biologists as both un-Darwinian, but also conflicting with nature and evolution as they are increasingly understood. Stephen J. Gould tried to point this out in the 1990s, that the predominant ethic in nature is symbiosis in the struggle with the physical world by nature’s creatures. Parasites and microbes that kill their hosts imperil their own future.
By Pathman25, January 25 at 1:03 pm # Expat: Did you see this article? Very sad. US and Thailand: Allies in torture
By Alex, January 25 at 12:16 pm # Multi-national not necessarily ImperialI agree with Chang and Johnson, that the “protectionism” of the early US economy helped foster and develop the business community within US borders. I don’t agree that the change is a function of imperialism as much as a function of multi-national corporations (MNC). Free trade is a boondogle promoted by the MNCs for the benefit of MNCs.
By GW=MCHammered, January 25 at 9:21 am # Dire Straits nailed today’s headlines 25 years ago: Warning lights are flashing down at quality control The caretaker was crucified for sleeping at his post The work force is disgusted downs tools and walks Doctor parkinson declared ’I’m not surprised to see you here I go down to speaker’s corner I’m thunderstruck |
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