- 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).
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- His new book is a discursive, well-written account of
what he calls the "Bad Samaritan", "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, "Bad Samaritans: The Myth of Free
Trade and the Secret History of Capitalism" (Bloomsbury Press, 2007)
- ____________________
- 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 Company), 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.
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- 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.
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- 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).
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- 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, et cetera), 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.
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- 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 six to eight percent in the
Low Countries, eight to twelve percent in Germany and Switzerland, and
around twenty percent in France.
-
- 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 forty percent tariff on manufactured imports
into the United States was an established fact. Hamilton provided the blueprint
for US economic policy until the end of the Second World War. The 19th
and early 20th century US tariffs of forty to fifty 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 thirty percent right up to the 1990s, neither
American nor Chinese protectionism inhibited foreign direct investment
but rather seemed to stimulate it. With the US 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 US government actually paid for fifty to seventy 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 sixty 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 General Mobutu and Indonesia under General 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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- 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".
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- 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?
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- 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".
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- 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 sixteen billion pounds sterling a year. This
amounts to more than one 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 US 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.
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- 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 US 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.
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- 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."
- Another salient aspect of the neoliberal canon has a
much less hoary history than free trade. The idea of the state intervening
to grant a monopoly to an inventor or a creative artist to exploit his
or her device is relatively new and was once thought to be contrary to
the idea of liberalism. Chang observes, "The technological 'arms race'
between backward countries trying to acquire advanced foreign knowledge
and the advanced countries trying to prevent its outflow has always been
at the heart of the game of economic development". During the 18th
century, this competition took on a new dimension with the emergence of
modern industrial technologies that had much greater potential for productivity
growth than traditional technologies. The result was a vicious international
competition to recruit skilled foreign workers, machine smuggling, and
industrial espionage. The origins of patents, copyrights, and protection
of trademarks are to be found in Britain's attempts to protect its advanced
technologies by erecting legal barriers against their outflow. The other
industrializing countries in Europe and the United States had to violate
those laws in order to acquire superior British technologies.
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- The first measure to protect IPRs (intellectual property
rights) was a 1719 English ban on the migration of skilled workers. The
law made it illegal to recruit experienced workers for jobs abroad - known
as "suborning". Emigrant workers who did not return home within
six months of being warned would lose their right to lands and goods in
Britain and their citizenship would be revoked. This was followed by a
new act in 1750 prohibiting the export of "tools and utensils"
in the wool and silk industries, extended by the Tools Act of 1785 to the
export of many different types of machinery. The development of science
in conjunction with industry meant that a lot of disembodied knowledge
could be written down in a language that could be understood by anyone
with appropriate training. Once an idea is written down in general scientific
and engineering language, it becomes much easier to copy. It thus became
more important to protect the ideas themselves than the workers or machines
employing them. Beginning with some German states in the 16th century and
with Britain in 1623 with the Statute of Monopolies, governments granted
ten years of protected monopoly to inventors of "new arts and machines".
Britain introduced the first copyright law in 1709 and the first trademark
law in 1862.
-
- It is not obvious that providing incentives to inventors
and accepting the social costs of monopolies increase innovation or do
anything more than enrich corporations who can file endless patent infringement
suits and slow down change by making frivolous but patentable minor changes
in old techniques. According to Chang, "The patent lobby talks nonsense
when it argues that there will be no new technological progress without
patents". For example, nonprofit organizations, such as universities,
subsidize a great deal of research. Several classical students of innovation,
such as the economist Joseph Schumpeter, discounted the importance of patents.
Schumpeter believed that the natural if short-lived monopoly that comes
with invention was more than enough. One thing is certain: Extending the
term of protection for existing work, which is advocated by all the Bad
Samaritan rich countries, cannot create new knowledge.
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- The United States is the most serious protectionist.
In 1998, the US Copyright Term Extension Act extended the period of copyright
protection from the life of the author plus fifty years to the life of
the author plus seventy years. The Disney Corporation led the fight for
this extension since the copyright on Mickey Mouse, created in 1928, was
due to expire. As a result the new law became known in some circles as
the Mickey Mouse Protection Act.
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- Despite the enormous sums paid to lawyers for work on
patent law, it should be understood that as a practical matter patents
are important in only three industries - computer software, entertainment,
and the pharmaceutical industry. But they are a critical stumbling block
for economic development. Some 97 percent of all patents and the vast majority
of all copyrights and trademarks are held by economically advanced countries,
which use them to deny medicines, textbooks, and computers to underdeveloped
countries, exploit epidemics such as HIV/AIDS to extract excess profits,
and kick away the ladder for countries trying to catch up. As Chang concludes,
"The most detrimental impact [of the patent system] lies in its potential
to block knowledge flows into technologically backward countries that need
better technologies to develop their economies. Economic development is
all about absorbing advanced foreign technologies." Among the best
things we could do today to help the Third World would be to shorten the
period of protection, drastically raise the originality bar, and make compulsory
licensing and imports of generics easier.
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- With "Bad Samaritans", Chang has succinctly
and comprehensively exposed the chief structures of economic imperialism
in the world today. What is now required is the leadership to undermine
and dismantle the barriers that keep so much of the world so poor.
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