"Turning to the United States, Chang focuses on Alexander Hamilton, the first American secre-tary 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 pro-vided the blueprint for US economic policy until the end of the Second World War."_________________________________________
by Chalmers Johnson
(February 14, Colombo, Sri Lanka Guardian) Ha-Joon Chang is a Cambridge economist who specializes in the abject poverty of the Third World and its people, groups, nations, and em-pires, 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 Perspec-tive” (2002), and he shared the 2005 Wassily Leontief Prize for his contributions to “Re-thinking 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 ac-cused the British of “kicking away the ladder” that they had climbed to reach the world’s top economic position. Chang’s other, more tech-nical books include “The Political Economy of Industrial Policy” (1994) and “Reclaiming De-velopment: An Economic Policy Handbook for Activists and Policymakers” (2004).
His new book is a discursive, well-written ac-count 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 possi-ble 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 audi-ence of generalists and eschews the sort of ex-otica that peppers most economic writing these days - there is not a single simultaneous equa-tion in the book and many of Chang’s exam-ples are taken from his own experiences as a South Korean born in 1963.
Ha-Joon Chang’s life is conterminous with his country’s advance from being one of the poor-est 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 Ko-rea did not get there by following the advice of the Bad Samaritans. Chang’s prologue con-tains a wonderful account of how post-Korean War trade restrictions and governmental su-pervision fostered such projects as POSCO (Pohang Iron and Steel Company), which be-gan 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 elec-tronics subsidiaries for over a decade with money made in textiles and sugar refining. To-day Samsung dominates flat-panel TVs and cell phones in much of East Asia and the world.
Chang remembers quite clearly that as a stu-dent “We learned that it was our patriotic duty to report anyone seen smoking foreign ciga-rettes. 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 con-temptuous 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 eco-nomics 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 part-ner to some Western car manufacturer or, worse, have been wiped out.
In Chang’s conception, there are two kinds of Bad Samaritans. There are the genuine, power-ful “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 “ideo-logues - 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 be-came the dominant economic model of the English-speaking world in the 1970s and pre-vails at the present time. Neoliberalism (some-times called the “Washington Consensus”) is a rerun of what economists suffering from “his-torical amnesia” believe were the key charac-teristics of the international economy in the golden age of liberalism (1870-1913).
Thomas Friedman calls this complex of poli-cies the “Golden Straitjacket”, the wearing of which, no matter how uncomfortable, is alleg-edly the only route to economic success. The complex includes privatizing state-owned en-terprises, maintaining low inflation, shrinking the size of the state bureaucracy, balancing the national budget, liberalizing trade, deregulat-ing foreign investment, making the currency freely convertible, reducing corruption, and privatizing pensions. It is called neoliberalism because of its acceptance of rich-country mo-nopolies over intellectual property rights (pat-ents, copyrights, et cetera), the granting to a country’s central bank of a monopoly to issue bank notes, and its assertion that political de-mocracy is conducive to economic growth, none of which were parts of classical liberal-ism. The Golden Straitjacket is what the un-holy trinity tries to force on poor countries. It is the doctrinal orthodoxy taught in all main-stream academic economics departments and for which numerous Nobel prizes in economics have been awarded.
In addition to being an economist, Ha-Joon Chang is a historian and an empiricist (as dis-tinct from a deductive theorist working from what are stipulated to be laws of economic be-havior). 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 eco-nomic growth (for example, trade liberaliza-tion). 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 coun-tries used protection and subsidies to encour-age their manufacturing industries, and they discriminated powerfully against foreign in-vestors. All such policies are anathema in to-day’s economic orthodoxy and are now se-verely restricted by multilateral treaties, like the WTO agreements, and proscribed by aid donors and international financial organiza-tions, particularly the IMF and the World Bank.
Chang offers some fascinating vignettes of men and books that were infinitely more im-portant in the economic development of the rich countries than Adam Smith’s The Wealth of Nations. These include a precis of a virtu-ally 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 ex-port industry. Chang continues with a short life of Robert Walpole, the chief architect of the mercantilist system. By 1820, thanks to Wal-pole’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 secre-tary 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 pro-vided 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 protection-ism 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 govern-ment 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 de-veloping countries by allowing them to protect and subsidize their nascent industries. The de-veloping world has never done better, before or since. But then, in the 1970s, scared that its position as global hegemon was being under-mined, the United States turned decisively to-ward neoliberalism. It ordered the unholy trin-ity 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 in-vestment, 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 experi-enced a fall in living standards - which should be a damning indictment of neoliberal ortho-doxy because most African economies have been virtually run by the IMF and the World Bank over the past quarter-century. The disas-ter has been so complete that it has helped ex-pose the hidden governance structures that al-low the IMF and the World Bank to foist Bad Samaritan policies on helpless nations. The United States has a de facto veto in both or-ganizations, 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 actu-ally run by an oligarchy. Votes are never taken.
Because of the shortcomings of neoliberalism, the main international development bureaucra-cies as well as much of the academic econom-ics establishment have been busy trying to find plausible scapegoats or excuses. One of the most transparent was Paul Wolfowitz’s em-phasis 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 cor-rupt 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 neolib-eralism are the cases of Zaire (yesterday, the Congo) under General Mobutu and Indonesia under General Suharto. Both Mobutu and Su-harto were flagrantly corrupt, murderous mili-tary 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 Indo-nesia, the money from corruption mostly stayed inside the country in the hands of Su-harto’s numerous relatives, who used some of it to create jobs and incomes. In Zaire, the pro-ceeds from corruption went straight into Swiss banks and other hidden foreign accounts. Cor-ruption is, of course, a problem, but to say that it is the reason for the spectacular failures of neoliberal economic programs is unconvinc-ing.
To Be Continued….
(Chalmers Johnson, president of the Japan Policy Research Institute and professor emeritus at the University of California, San Diego, is the author of numerous books.)
(February 14, Colombo, Sri Lanka Guardian) Ha-Joon Chang is a Cambridge economist who specializes in the abject poverty of the Third World and its people, groups, nations, and em-pires, 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 Perspec-tive” (2002), and he shared the 2005 Wassily Leontief Prize for his contributions to “Re-thinking 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 ac-cused the British of “kicking away the ladder” that they had climbed to reach the world’s top economic position. Chang’s other, more tech-nical books include “The Political Economy of Industrial Policy” (1994) and “Reclaiming De-velopment: An Economic Policy Handbook for Activists and Policymakers” (2004).
His new book is a discursive, well-written ac-count 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 possi-ble 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 audi-ence of generalists and eschews the sort of ex-otica that peppers most economic writing these days - there is not a single simultaneous equa-tion in the book and many of Chang’s exam-ples are taken from his own experiences as a South Korean born in 1963.
Ha-Joon Chang’s life is conterminous with his country’s advance from being one of the poor-est 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 Ko-rea did not get there by following the advice of the Bad Samaritans. Chang’s prologue con-tains a wonderful account of how post-Korean War trade restrictions and governmental su-pervision fostered such projects as POSCO (Pohang Iron and Steel Company), which be-gan 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 elec-tronics subsidiaries for over a decade with money made in textiles and sugar refining. To-day Samsung dominates flat-panel TVs and cell phones in much of East Asia and the world.
Chang remembers quite clearly that as a stu-dent “We learned that it was our patriotic duty to report anyone seen smoking foreign ciga-rettes. 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 con-temptuous 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 eco-nomics 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 part-ner to some Western car manufacturer or, worse, have been wiped out.
In Chang’s conception, there are two kinds of Bad Samaritans. There are the genuine, power-ful “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 “ideo-logues - 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 be-came the dominant economic model of the English-speaking world in the 1970s and pre-vails at the present time. Neoliberalism (some-times called the “Washington Consensus”) is a rerun of what economists suffering from “his-torical amnesia” believe were the key charac-teristics of the international economy in the golden age of liberalism (1870-1913).
Thomas Friedman calls this complex of poli-cies the “Golden Straitjacket”, the wearing of which, no matter how uncomfortable, is alleg-edly the only route to economic success. The complex includes privatizing state-owned en-terprises, maintaining low inflation, shrinking the size of the state bureaucracy, balancing the national budget, liberalizing trade, deregulat-ing foreign investment, making the currency freely convertible, reducing corruption, and privatizing pensions. It is called neoliberalism because of its acceptance of rich-country mo-nopolies over intellectual property rights (pat-ents, copyrights, et cetera), the granting to a country’s central bank of a monopoly to issue bank notes, and its assertion that political de-mocracy is conducive to economic growth, none of which were parts of classical liberal-ism. The Golden Straitjacket is what the un-holy trinity tries to force on poor countries. It is the doctrinal orthodoxy taught in all main-stream academic economics departments and for which numerous Nobel prizes in economics have been awarded.
In addition to being an economist, Ha-Joon Chang is a historian and an empiricist (as dis-tinct from a deductive theorist working from what are stipulated to be laws of economic be-havior). 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 eco-nomic growth (for example, trade liberaliza-tion). 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 coun-tries used protection and subsidies to encour-age their manufacturing industries, and they discriminated powerfully against foreign in-vestors. All such policies are anathema in to-day’s economic orthodoxy and are now se-verely restricted by multilateral treaties, like the WTO agreements, and proscribed by aid donors and international financial organiza-tions, particularly the IMF and the World Bank.
Chang offers some fascinating vignettes of men and books that were infinitely more im-portant in the economic development of the rich countries than Adam Smith’s The Wealth of Nations. These include a precis of a virtu-ally 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 ex-port industry. Chang continues with a short life of Robert Walpole, the chief architect of the mercantilist system. By 1820, thanks to Wal-pole’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 secre-tary 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 pro-vided 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 protection-ism 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 govern-ment 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 de-veloping countries by allowing them to protect and subsidize their nascent industries. The de-veloping world has never done better, before or since. But then, in the 1970s, scared that its position as global hegemon was being under-mined, the United States turned decisively to-ward neoliberalism. It ordered the unholy trin-ity 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 in-vestment, 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 experi-enced a fall in living standards - which should be a damning indictment of neoliberal ortho-doxy because most African economies have been virtually run by the IMF and the World Bank over the past quarter-century. The disas-ter has been so complete that it has helped ex-pose the hidden governance structures that al-low the IMF and the World Bank to foist Bad Samaritan policies on helpless nations. The United States has a de facto veto in both or-ganizations, 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 actu-ally run by an oligarchy. Votes are never taken.
Because of the shortcomings of neoliberalism, the main international development bureaucra-cies as well as much of the academic econom-ics establishment have been busy trying to find plausible scapegoats or excuses. One of the most transparent was Paul Wolfowitz’s em-phasis 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 cor-rupt 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 neolib-eralism are the cases of Zaire (yesterday, the Congo) under General Mobutu and Indonesia under General Suharto. Both Mobutu and Su-harto were flagrantly corrupt, murderous mili-tary 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 Indo-nesia, the money from corruption mostly stayed inside the country in the hands of Su-harto’s numerous relatives, who used some of it to create jobs and incomes. In Zaire, the pro-ceeds from corruption went straight into Swiss banks and other hidden foreign accounts. Cor-ruption is, of course, a problem, but to say that it is the reason for the spectacular failures of neoliberal economic programs is unconvinc-ing.
To Be Continued….
(Chalmers Johnson, president of the Japan Policy Research Institute and professor emeritus at the University of California, San Diego, is the author of numerous books.)
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