May 22, 2013
Chalmers Johnson on the Myth of Free Trade
Posted on Jan 24, 2008
Chang argues that culture simply does not work as an explanation for economic success. Extremely broad categories such as “civilization,” “Christian,” or “Muslim” obscure more than they reveal, and the modern histories of Germany, Japan, China, and many other countries suggest that Protestant-work-ethic-type cultures are the results of economic development, not their cause. In the early 19th century, the British endlessly generalized about Germany and Germans, calling them “a dull and heavy people” and “indolent,” saying “the Germans never hurry,” they are a “plodding, easily contented people ... endowed neither with great acuteness of perception nor quickness of feeling,” they are “not distinguished by enterprise or activity,” they are “too individualistic and unable to cooperate with each other,” they are “overly emotional,” and “the [German] tradesman and shopkeeper take advantage of you wherever they can, and to the smallest imaginable amount rather than not take advantage of you at all. ... This knavery is universal.”
It is discouraging to see this kind of thought rampant again in economic discourse, this time directed against the poor people of Africa, Latin America, and elsewhere. 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). Cultural explanations offer powerful support for the List/Chang proposition that economically successful nations are almost pathologically afraid of competitors coming up from below and therefore try to block their progress by kicking away the ladder. It is time to recognize, particularly in the English-language economic press, that a “level playing field” leads to unfair competition when the players are unequal. We have no trouble recognizing that a boxing match between people with more than a couple of pounds difference in weight is unfair. Why should we accept that the United States and Honduras should compete economically on equal terms?
One of the strengths of Chang’s new book lies in the half-dozen lucid chapters on particular, often rather technical aspects of development and international trade. These add up to a jargon-free primer on contemporary economic thought leavened with a sound knowledge of history. The best of these are on trade liberalization, foreign investment, public versus private enterprises, patents and copyrights, and macroeconomics. The most interesting of these are on trade liberalization and what today are rather ostentatiously called “intellectual property rights.”
We live in an allegedly enlightened age of free trade. Nonetheless, European citizens support their dairy industry with subsidies and tariffs to the tune of 16 billion pounds sterling a year. This amounts to more than 1 pound per cow per day, when half the world’s people live on less. The pattern is repeated with regard to a vast range of agricultural commodities grown in rich, developed countries. The U.S. subsidizes corn and exports it to Mexico, where it is the staple diet of most of the people. These exports, however, drive small Mexican farmers into bankruptcy and encourage their illegal immigration into the United States, where a racist backlash is directed against them. In many cases, the American proponents of farm subsidies are one and the same people who stir up hatreds against Mexican farm workers. Japan is one of the world’s richest countries, with a remarkably even per capita income distribution, but it still lavishly subsidizes its extremely inefficient rice growers and prevents the import of rice that could easily compete on price with domestic rice. This system helps perpetuate the one-party rule of the Liberal Democratic Party by mobilizing rich, protected farmers, who vote for the conservatives.
What’s wrong with such practices? All countries have domestic political interests, and successful politicians cater to them. The problem is the hypocrisy surrounding “free trade” and the lies that distort political rhetoric in virtually all economically advanced countries. According to Chang, “Belief in the virtue of free trade is so central to the neo-liberal orthodoxy that it is effectively what defines a neo-liberal economist. You may question (if not totally reject) any other element of the neo-liberal agenda—open capital markets, strong patents, or even privatization—and still stay in the neo-liberal church. However, once you object to free trade, you are effectively inviting ex-communication.” Under the Anglo-American-dominated World Trade Organization, a great deal of trade liberalization has taken place, but it has virtually all come at the expense of infant industries or cash crops in developing countries and has enriched exporters and consumers in rich countries. Not surprisingly, the system allows for protection and subsidies much more readily in areas where the rich countries want them and rejects any exceptions for developing countries. This is the main reason for the current revolt by virtually all Latin American countries against further U.S. interference in their economic policymaking.
Reduction of tariff revenues also plays havoc with national budgets in poor countries. Because they lack efficient tax collection capabilities and because tariffs are the easiest taxes to collect, developing countries rely heavily on them. Add to this lower levels of business activity and higher unemployment that results from IMF-ordered trade liberalizations, which reduce income tax revenue. When such countries are then put under further IMF pressure to reduce their budget deficits, falling revenues mean severe cuts in spending, often eating into vital areas like education, health, and physical infrastructure, damaging long-term growth.
Neoliberal theorists believe that when it comes to golden straitjackets “one size fits all”—except for those countries rich enough to afford a private tailor. The chief effect of the golden straitjacket has been not to promote growth but to turn healthy countries into basket cases. “In the long run,” writes Chang, “free trade is a policy that is likely to condemn developing countries to specialize in sectors that offer low productivity growth and thus low growth in living standards. This is why so few countries have succeeded with free trade, while most successful countries have used infant industry protection to one degree or another.”
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