Please see a clarification at the end of the article.
Every faith must have its myths. If it did not, how would it perpetuate its beliefs? Nowhere is this more rampant than in the dogma of free trade that is so zealously promoted by the neo-liberal orthodoxy. Despite the complete shambles that the capitalist system is in, the current global mess has not prevented its leading proponents, specially the neo-liberals, from preaching the virtues of free trade to a largely sceptical but helpless world. Helpless, because an inequitable system is even now being imposed on developing nations through free trade agreements and loan agreements.
That’s why Ha-Joon Chang’s Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism ought to be widely read and disseminated as the crisis in the US and Europe sets off a new debate on globalisation. This economist from Cambridge University provides reasoned arguments as to why developing nations should go against the prevailing wisdom and plump for development models that best suit their goals. To help them, Chang provides a dispassionate history of globalisation, ripping apart the various deceptions that have created the most enduring myths about free trade. This much-celebrated South Korean economist — he is the recipient of the Leontief Prize for Advancing the Frontiers of Economic Thought and the Myrdal Prize — does so with telling examples and simple analogies that make it an extremely accessible book.
His nationality helps to make his expose more credible. South Korea has been the myth-makers’ favourite example of the miracle that a free economy and trade system can work for a developing country. According to this version, South Korea is said to have pursued a truly neo-liberal economic policy during the miracle decades of the 1960s to the 1980s which allowed it join the ranks of the developed world by the 1990s. Complete rubbish, says Chang. What Korea did was to nurture certain industries selected by the government (in consultation with the private sector) and to give these full support through subsidies, high tariff protection and generous dollops of credit — this was easy since the government owned all the banks — and to set up huge state-owned ventures, such as POSCO, in critical sectors. If private enterprises were mismanaged, the state took them over and restructured them and sometimes sold them off again. The Korean government did welcome foreign investment but only in sectors that it deemed necessary. In sum, the country’s route to economic success was the result of carefully directed policy because “it did not have blind faith in the free market”.
Chang also does a good demolition job on other myths, notably the historical claims that Britain and the US are the homes of free trade. In fact, for a long time they were among the most protectionists nations in the world. Free trade was promoted in the late 19th century and early 20th century through colonialism and unequal treaties (remember Britain’s infamous opium war with China and the annexation of Hong Kong?) by rich nations who continued to maintain high industrial tariffs. Few countries, indeed, have succeeded without protectionism and subsidies, as the past of the leading economies shows. Yet few historians and economists dwell on this aspect while writing paeans to the benefits of globalisation. Bad Samaritans is, therefore, an important work in correcting this historical amnesia.
It is significant also for the radical ideas that Chang comes up with, ideas that completely turn conventional wisdom on its head. Among the more radical are: keeping foreign companies out may be good for poor countries in the long run (as proved by Japan’s success with the Toyota Lexus); some of the world’s best companies are owned and run by the state (Singapore Airlines, POSCO, Embraer*) and a huge state sector is good for the economy (Taiwan, Finland, France); corruption exists because there is too much, not too little, market; free market and democracy are not natural partners.
For countries like India Chang has a special word of caution. Whatever the rich nations, or the “Bad Samaritans” of the title, may preach about the benefits of skipping industrialisation and moving directly to the service economy, do not follow this advice, says the economist. No country has become rich solely on account of its service sector.
But knowing what may be right for their development is not enough for poor nations, warns Chang. The “Bad Samaritans” will use aid, regional trade pacts and the unholy trinity of the IMF, World Bank and the WTO to stop them from doing so. So it comes as quite a shock to discover at the end that the writer believes “the majority of Bad Samaritans are neither greedy nor bigoted”. Coming after 220 pages that went to prove just the contrary, this statement appears to have been thrown in as a pious hope. Heretics should be made of sterner stuff.
The ownership structure of Embraer underwent a change in 1994, making it a public company. We stand corrected.
THE MYTH OF FREE TRADE AND THE SECRET HISTORY OF CAPITALISM
Pages: 276; $26.95