Sunday, January 27, 2008

The Golden Straightjacket of the mind

Book Review- Chalmers Johnson on the Myth of Free Trade Chalmers Johnson reviews Ha-Joon Chang's Bad Samaritans

This is the most important book of the year - it simply must be read. Granted, it is only a must-read because the world's intellectual elite - people who read books and newspapers and such things, in addition to academics and policymakers - is so terribly misled in terms of what constitutes good economics. (This is not strange or unprecedented; fifty years ago the same elite considered Freud's theories to be good, sound psychology.) But if there ever were a bubble in desperate need of popping, it is the consensus within the economics profession, policymaking circles, and the intelligentsia generally that neoliberal economic policies are the most effective at stimulating growth in poor countries, and propelling their populations into wealth and decent standards of living. In other words, the conventional neoliberal wisdom that un- or only daintily-regulated markets and minimal governtment intervention (aka distortion) produce the best economic outcomes for the world's poor countries is bunk.

"Thomas Friedman calls [neoliberal] 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, etc.), 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 [of the IMF, World Bank and WTO] 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.
[Chang] 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.
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. "

Besides showing that
"[s]ince the 1980s, Africa [among other examples] 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" - Chang more importantly delves into the oft-overlooked success of distinctly illiberal economic polices, some combination of which have been used virtually without exception by all now-developed countries. The same countries whose governments now preach the virtues of neoliberalism were the ones who most benefitted from illiberal economic policies - up until the point where their domestic industries were strong enough to compete with those of the rest of the world. This is all reminiscent of German economist Friedrich List's 1841 fulmination against Britain: "Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth."

List's words are inapposite only insofar as they concern penitence; today's rich countries do not even so much as acknowledge their past use of illiberal economic policies, let alone beg forgiveness for them.

Ha-Joon Chang will be speaking in New York according to the following schedule:

29 Jan., 6pm-8pm, New School
30 Jan., 11am-12pm UN DESA
30 Jan., 2pm-4pm Columbia

The New School talk is in Teresa Lang Center, 55 West 13th Street

The UN talk is in the conference room, 23rd floor, Two UN Plaza

The Columbia talk is in the International Affairs Building (420 West, 118th Street)

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