Can The (Economic) Ladder Be Restored?
ED “Why Don’t You Sanction Me?” Kain promised a coming thread on protectionism a couple of days back but so far no (copyright protected) dice. So I thought I would initiate the discussion. I think it could be a good one–and we can get the libertarian members of the League all riled up :).
As a first shot in this direction, I point anyone interested to check out Ha Joon Chang’s recent book Bad Samaritans.
Summarizing the essentials of his argument in an article entitled Kicking Away the Ladder, Chang writes:
There is currently great pressure on developing countries to adopt a set of “good policies” and “good institutions” – such as liberalisation of trade and investment and strong patent law – to foster their economic development. When some developing countries show reluctance in adopting them, the proponents of this recipe often find it difficult to understand these countries’ stupidity in not accepting such a tried and tested recipe for development. After all, they argue, these are the policies and the institutions that the developed countries had used in the past in order to become rich. Their belief in their own recommendation is so absolute that in their view it has to be imposed on the developing countries through strong bilateral and multilateral external pressures, even when these countries don’t want them.
Naturally, there have been heated debates on whether these recommended policies and institutions are appropriate for developing countries. However, curiously, even many of those who are sceptical of the applicability of these policies and institutions to the developing countries take it for granted that these were the policies and the institutions that were used by the developed countries when they themselves were developing countries.
Contrary to the conventional wisdom, the historical fact is that the rich countries did not develop on the basis of the policies and the institutions that they now recommend to, and often force upon, the developing countries. Unfortunately, this fact is little known these days because the “official historians” of capitalism have been very successful in re-writing its history.
His book gives page after page of detail concerning how the US, England, France, Germany, Japan, South Korea, all employed some form of protectionism during their industrialization phase. Just as say a China is doing now. With many of the same problems we hear of today from East Asia: like countries devaluing their currencies in the 19th century, not obeying patent laws (the US was guilty of this one), huge import tariffs, and the like.
I’m not advocating protectionism per se for those countries who have largely passed through the early phases of industrialization. It may be a moot point as the capital may now so global it can’t be controlled by national economies/governments even if they wanted to, but Chang at the very least has showed how the Washington Consensus (via IMF, World Bank) towards the developing world during the 90s/2000s was so hypocritical and destructive. And by not learning those lessons then, history is now repeating itself. The same underlying factors that caused bubbles bursting during that phase in countries around the globe–Mexico, 1997 Asian Crisis (Thailand esp.), Argentina, Russia in the early 90s–are now coming to bear in the US.
In other words, I’m not how well Chang’s policy prescriptions work, but as a critique of self-labeled Free Trade policy relative to the developing world, it is brutal and dead on the money. It also suggests economic policy might need to be set up relative to the developmental position a country is currently at. Instead of saying attempting to impose one economic theory–Keynesian, monetarist, neo-liberal, etc.–to all places at the same time.