Analysis of Bad Samaritans Book by Economist Ha-Joon Chang - Literature review Example

Introduction In the book Bad Samaritans, economist Ha-Joon Chang makes the argument that third world countries are generally not ready to compete onthe international stage, and that international policy that coerces them to do so is unsound. He makes the argument in language that anybody can understand, using examples that illuminate his thesis. He argues that superpowers became superpowers because they implemented protectionist policies, yet these same superpowers conveniently forget their own roots when they demand that third-world countries participate in free trade. He cogently makes the analogy that forcing developing countries to participate in free trade before the country is ready is akin to forcing his six year old child to get a job – it is a good short-term policy, in that money will be coming in, but a very poor long-term strategy, as the child’s growth will be stunted and he can never become a brain surgeon if he is forced to leave school at the age of six. His arguments are well-grounded, well-reasoned and difficult to refute. Analysis Chang begins by analyzing the developing countries in relationship to neo-liberal policies, and shows how the official history differs from the actual reality. According to Chang, the official history of neo-liberal policies is that these policies, which rely on laissez faire domestic policies, low barriers to the international flowing of goods, labour and capital; and “macroeconomic stability, both nationally and internationally, guaranteed by principles of sound money and balanced budgets” (Chang, 2008, p. 22) were adopted by developing and Third World countries in the 1980s, which led to the fall of communism in 1989, global economic integration, and a new “golden age of liberalism” (Chang, 2008, p. 23). Not included in this official history of neo-liberalism is any hint of coercion, nor any suggestion that these policies were not good for these developing countries. Chang contrasts this official story with what he calls “the real history of globalization” (Chang, 2008, p. 24). According to Chang, the real history is far different from the official story of globalism. The real history involves considerable coercion on the part of the neo-liberal countries, who are led by Great Britain and the United States. For instance, Britain, in the 1840s, used its might around the world to force weaker countries to accept low tariffs, while they themselves set their own tariffs high (Chang, 2008, p. 25). The coercion on these countries continue as the World Bank lends money to developing countries, while imposing draconian conditions to these loans, such as demanding that these countries correct budget deficits, privatize state-owned enterprises, and demanding that private sector businesses have limited debt. (Chang, 2008, p. 34). Other international coercions include forcing developing countries to raise interest rates and balance their budgets when these countries get into recessions, even though, when rich countries get into a recession, they do just the opposite (Chang, 2008, p. 158). Chang states that the World Bank gets away with these policies because it is essentially controlled by rich countries, whom collectively control 60% of the voting shares for the bank (Chang, 2008, p. 35). The coercion of these countries is galling for Chang, as these liberal policies have been harmful to developing countries. Chang points out that developing countries, prior to implementing neo-liberal policies had a per capita growth rate of 3.2% per year, then 2.1% in the two decades after the neo-liberalism policies have been implemented (Chang, 2008, p. 26). The policies that worked for these countries included protectionism and state intervention, and resulted in the per capita incomes growing at over 3% per year. Chang also states that these countries per capita growth rate average would be even worse than the paltry growth rate they have experienced since implementing neo-liberal policies, if China and India, two rapidly growing countries, were not included in the analysis (Chang, 2008, p. 27). Chang also notes that economic instability is being experienced in these developing countries, and has been experienced since the advent of the global neo-liberal policies, which means that “neo liberal globalization has failed to deliver on all fronts of economic life – growth, equality and stability” (Chang, 2008, p. 28). Chang later compares the developed countries coercion of developing countries to liberalize their trade policies to coercing a six year old child to get a job – while the six year old child can start earning money early, that same child will never become a brain surgeon if he is forced to leave school at the age of six to get a job. Likewise, developing countries will not thrive if they are forced into international competition too early (Chang, 2008, p. 66). Chang’s central argument is that, like his six year old son, developing countries need to be protected until their infant industries are developed enough to sustain the country and then, and only then, should they develop more neo-liberal policies (Chang, 2008, p. 73). Moreover, Chang shows the hypocrisy of Great Britain, who is one of the countries trying to coerce the developing countries into neo-liberal policies. As Chang points out, Great Britain became a super-power because of protectionist policies, and that, before implementing these policies, their economy was backwards. Then, Henry VII in the 15th Century decided to use protectionist policies for textile manufacturing, as he banned the export of unfinished cloth to the Low Countries, along with a tax on exporting raw wool. These policies were aimed at protecting the British industry of manufacturing clothing, while destroying competitor’s ability to manufacture clothes because of the export bans and taxes (Chang, 2008, p. 41). These policies help Great Britain become the leader of the high-tech industry, due to its status as the world leader in wool manufacturing, and this income, in turn, helped it finance “the massive import of raw materials and food that fed the Industrial Revolution” (Chang, 2008, p. 42). Thus, according to Chang, Great Britain would not have become the super power it did without its early protectionist policies that helped it become a world leader in textile manufacturing. America had its own advocate for protectionist policies during this time in Alexander Hamilton, who was the country’s first treasury secretary. Hamilton, in 1791, stated that America needed to protect its own “infant industries” from foreign competitors until these industries had the ability to stand on their own feet (Chang, 2008, p. 49). Although Hamilton’s protectionist measures did not pass in his lifetime, they did come into fruition in the war of 1812, as the imports of British and European products were interrupted, which was a kind of de facto protectionist policy, as the American industries were allowed to develop without utilizing exports, and these industries found that this was a good thing. Therefore, after the War of 1812, when free trade could have resumed, America chose not to resume the free trade, imposing tariffs as high as 40%, thus realizing Hamilton’s vision. This resulted, according to Chang, in America’s own industrial revolution. Chang argues that, if not for these changes that forced America to adapt Hamilton’s vision, America would “never have been able to propel itself from being a minor agrarian power rebelling against its powerful colonial master to the world’s greatest super power” (Chang, 2008, p. 51). Chang argues that the current policies of the rich countries, referring to the policies of coercing poor countries into accepting neo-liberal philosophies, are in place because the super powers do not want further competition. In other words, the super powers know that, if they let these countries develop industries on their own, these countries will become developed and will challenge the super powers’ dominance (Chang, 2008, p. 61). Chang also argues that these policies are misguided and based upon “historical amnesia”, which is the notion that Americans and British believe that their countries were founded upon free-market principles, when Chang has shown that just the opposite is true – that these countries used protectionist policies when they were developing, and only switched to free market principles after their industries and manufacturing were already well established (Chang, 2008, p. 62). Chang believes that history definitively shows that protectionism and anti-liberal policies are the best policies for development, but the current neo-liberals do not see this. He points to the Marshall Plan, in which America helped Europe rebuild after World War II, while allowing poor countries the ability to protect and subsidize their goods more actively than rich countries. This resulted in a huge boom in global prosperity for the developed countries, and the developing countries prospered much more than they do presently (Chang, 2008, p. 63). The wealthy countries let these poor countries continue to use protection and subsidies until the 1970s, and these countries experienced growth during this period. Then, in the 1980s, the United States, led by Ronald Reagan, reversed this, and the World Trade Organisation began its new policy of forcing all member countries to undertake all agreements, which means that all WTO members must reduce their tariffs, give up import quota, export subsidies and most domestic subsidies, and this was the beginning of the end for these countries newfound prosperity (Chang, 2008, p. 63). Chang’s solution to these inequities is that poor countries should be allowed to develop their manufacturing sectors, and that these countries should “defy the market and deliberately promote economic activities that will raise their productivity in the long run” (Chang, 2008, p. 215). This process would involve building domestic capabilities, which would reduce short-term gains, but build the foundation for long-term viability (Chang, 2008, p. 215). Moreover, these countries should be allowed to develop protectionist policies, subsidies and regulations (Chang, 2008, p. 218). Discussion Chang makes a compelling argument, one that is well-reasoned and difficult to refute. It makes sense that the super powers gained their status as superpowers because they used protectionist policies, and that, only after their own domestic manufacturing sectors were firmly in place, were they able to use the world trade system to its full advantage. This is the historical evidence that Chang provides, and it is contradictory to the current conventional wisdom that free market principles are what established these countries. In view of these examples, and Chang’s argument that America and Great Britain would not be superpowers if they were not allowed to protect their infant industries, it seems only logical that developing countries now should be allowed to follow America and Great Britain’s historical examples and implement protectionist policies that protect their domestic capabilities. Yet rich countries are forcing these countries into free market principles before these countries are clearly ready for them. In this, it is difficult to understand. It is as if the rich countries have forgotten their heritage and have a revisionist history emblazoned in their collective brains. It seems obvious that nascent countries with nascent domestic productivity capabilities cannot compete on the world stage with countries that already have established their domestic sectors, and it seems obvious that these countries should be allowed protectionist policies. Yet the rich countries use the coercive techniques and institutions to insure that these countries are not allowed to protect their domestic industries, and are forced into policies that will keep them permanently third world. As Chang argues, this is foolish thinking and short-sighted, because, if third world countries are allowed to develop, then rich countries will have that many more markets to sell their goods. It is therefore prudent that these developing countries do be allowed to implement protectionist policies, that might include high tariffs and subsidies, at least until they are at a point where their growth is sustained enough to indicate that their domestic capabilities have taken root. And then, and only then, should they try to compete on a global scale. To do anything differently goes against history and logic. Conclusion Chang’s analysis of the situation between third world countries and rich countries, the so-called “Bad Samaritans” of the title is a compelling one and seems to be based upon logic and history. These rich countries use of coercion by forcing poor countries into international agreements that ostensibly “level the playing field” has resulted in a permanent condition for these poor countries, one that they have no hope to get out of if they are forced into neo-liberal policies that are inappropriate for them. Chang’s idea to allow these countries to institute protectionist policies until these countries have enough growth to sustain themselves is not only rational, but is based upon sound historical analysis. Source Used Chang, H. (2008). Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. New York, NY: Bloomsbury Press. 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