Dec 10, 2013
Chalmers Johnson on the Myth of Free Trade
Posted on Jan 24, 2008
Turning to the United States, Chang focuses on Alexander Hamilton, the first American secretary of the treasury and the man who coined the term “infant industry.” Although he did not live to see it, by 1820 Hamilton’s 40 percent tariff on manufactured imports into the United States was an established fact. Hamilton provided the blueprint for U.S. economic policy until the end of the Second World War. The 19th and early 20th century U.S. tariffs of 40 to 50 percent were then the highest of any country in the world. Throughout this same period, it was also the world’s fastest growing economy. Much like contemporary China, whose average tariff was over 30 percent right up to the 1990s, neither American nor Chinese protectionism inhibited foreign direct investment but rather seemed to stimulate it. With the U.S. abandonment of overt protectionism after it became the world’s richest nation, it still found measures to advance its economic fortunes beyond what market forces could have achieved. For example, the U.S. government actually paid for 50 to 70 percent of the country’s total expenditures on research and development from the 1950s through the mid-1990s, usually under the cover of defense spending.
The Third World was not always poor and economically stagnant. Throughout the golden age of capitalism, from the Marshall Plan (1947) to the first oil shock (1973), the United States was a Good Samaritan and helped developing countries by allowing them to protect and subsidize their nascent industries. The developing world has never done better, before or since. But then, in the 1970s, scared that its position as global hegemon was being undermined, the United States turned decisively toward neoliberalism. It ordered the unholy trinity to bring the developing countries to heel. Through draconian interventions into the most intimate details of the lives of their clients, including birth control, ethnic integration, and gender equality as well as tariffs, foreign investment, privatization decisions, national budgets, and intellectual property protection, the IMF, World Bank, and WTO managed drastically to slow down economic growth in the Third World. Forced to adopt neoliberal policies and to open their economies to much more powerful foreign competitors on unequal terms, their growth rate fell to less than half of that recorded in the 1960s (1.7 percent instead of 4.5 percent).
Since the 1980s, Africa has actually experienced a fall in living standards—which should be a damning indictment of neoliberal orthodoxy because most African economies have been virtually run by the IMF and the World Bank over the past quarter-century. The disaster has been so complete that it has helped expose the hidden governance structures that allow the IMF and the World Bank to foist Bad Samaritan policies on helpless nations. The United States has a de facto veto in both organizations, where rich countries control 60 percent of the voting shares. The WTO has a democratic structure (it had to accept one in order to enact its founding treaty) but is actually run by an oligarchy. Votes are never taken.
Because of the shortcomings of neoliberalism, the main international development bureaucracies as well as much of the academic economics establishment have been busy trying to find plausible scapegoats or excuses. One of the most transparent was Paul Wolfowitz’s emphasis on poor-country corruption during his short tenure as president of the World Bank. He propounded the increasingly popular view that the World Bank gave good advice that failed because Third World leaders were corrupt and subverted its implementation. The problem with this idea is, as Chang puts it, “Most of today’s rich countries successfully industrialized despite the fact that their own public life was spectacularly corrupt.” He has in mind places like the late 19th century United States and post-World War II East Asia, about which Chang as a South Korean speaks with insights from the inside, and China today.
Among the conundrums encountered in trying to argue that corruption has subverted neoliberalism are the cases of Zaire (yesterday, the Congo) under Gen. Mobutu and Indonesia under Gen. Suharto. Both Mobutu and Suharto were flagrantly corrupt, murderous military dictators of the sort often preferred by the United States, but with one major difference—whereas Zaire’s living standards fell threefold during Mobutu’s rule, Indonesia’s rose by more than the same amount during Suharto’s rule. The explanation seems to be that in Indonesia, the money from corruption mostly stayed inside the country in the hands of Suharto’s numerous relatives, who used some of it to create jobs and incomes. In Zaire, the proceeds from corruption went straight into Swiss banks and other hidden foreign accounts. Corruption is, of course, a problem, but to say that it is the reason for the spectacular failures of neoliberal economic programs is unconvincing.
Rather than acknowledging that free trade, privatization, and the rest of their policies are ahistorical, self-serving economic nonsense, apologists for neoliberalism have also revived an old 19th century and neo-Nazi explanation for developmental failure—namely, culture. Chang believes that this reflects the popularity of Samuel Huntington’s thesis that we are experiencing a “clash of civilizations” or Francis Fukuyama’s contention that trust extending beyond family members critically affects economic development. Fukuyama argues, astonishingly, that the absence of such trust in the cultures of China (the fastest growing economy on Earth today), France, Italy, and (to some extent) Korea makes it difficult for them to run large firms, which are key to modern economic development. This is not so different from the 19th century German economist and sociologist Max Weber, who in 1904 identified the Confucian/Buddhist countries of China and Japan as economically backward because they did not have the Protestant ethic.
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