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 Chalmers Johnson on the Myth of Free TradePosted on Jan 24, 2008
(Page 2) 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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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 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 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 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 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 |
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