The Grand Narrative

In my last post, I very briefly mentioned my mixed feelings about free trade, and how The Economist magazine in particular seems perennially stuck in some Chicago School lecture hall, attributing successful economic development virtually anywhere to trade liberalisation. In turn, this makes the magazine recommend free-trade as the panacea to virtually all of a country’s ills, be they real-estate prices or AIDS, which can get a little monotonous. This is a pity, because it’s still an excellent magazine, and its unabashed liberalist take on world events means that even armchair socialists like myself can enjoy it, for we all know from this classic that liberalism is a core component of socialism. So, I was pleasantly suprised to read this book review in the latest edition. This review is the first I’ve ever heard about Ha-Joon Chang, but his ideas sound right up my alley, and I don’t think the perfunctory Economist rebuttal to his arguments quite succeeds. Make your mind up yourself: as articles on the Economist website are only freely available for a year, I’ve copied and pasted it here for everyone to read in the future. If the Economist has problems with me doing that, a faithful subscriber of about 5 years, then they can let me know.

Click here for information on buying it from Amazon.

Pistols at dawn
Aug 30th 2007
From The Economist print edition

AMERICA’S greatest treasury secretary, Alexander Hamilton, met an untimely death in a duel in 1804. But his economic ideas keep firing back. In his 1791 “Report on the Subject of Manufactures”, he quarrelled with the free-trade doctrines of Adam Smith and other liberal economists. He believed the government should shelter and nurse American industry through its infancy until it was strong enough to stand against Britain’s manufacturing might. Critics of free trade have reached for this “infant industry” argument ever since.

The latest thinker to pick up Hamilton’s flintlock is Ha-Joon Chang of Cambridge University. According to Mr Chang, the rich nations that now hector the poor on the importance of free trade, respect for intellectual property and hospitality to foreign investors broke all of those rules when they themselves were clambering up the development ladder. They are telling the poor world to “do as we say, not as we did”, he argues.

Mr Chang made his name with his 2002 book “Kicking Away the Ladder”. That work provides much of the scholarly gunpowder for “Bad Samaritans”. But in this more polemical tract, he adds the spark of personal reflection (he grew up in South Korea, which he believes owes its economic success more to Hamilton’s ideas than to Smith’s) and some mischievous rhetorical set-pieces.

He opens his book with a mock article from The Economist, published in 2039, which looks back at the unlikely rise of a world-beating hydrogen fuel-cell maker in Mozambique. The fuel-cell division prospered only after a long and costly apprenticeship, bleeding money for 17 years. The article is based, Mr Chang says, on a real piece about South Korea’s Samsung, which is now one of the world’s leading exporters of semiconductors, having started life as an exporter of fish, vegetables and fruit. And the 17 years of red ink, Mr Chang points out, is the length of time Nokia’s electronics division lost money.

When he isn’t imagining the future, Mr Chang curates awkward historical facts calculated to discomfort neoliberals. He takes particular delight in puncturing the free-trade pretensions of the British. In 1860, 84 years after the publication of “The Wealth of Nations”, Britain forswore most import duties. But in earlier decades Britain had prospered behind manufacturing tariffs as high as 55%. It also invented some of the tricks and contrivances now associated with East Asia’s aggressive export promotion, such as allowing exporters to reclaim duties paid on imported inputs.

Mr Chang argues that neoliberals have either forgotten or rewritten this “secret history”. Supported by a “financial-intellectual complex”, these ideologues urge poor countries to open up in the mistaken belief that free trade secured the West’s own prosperity.

But here Mr Chang’s own grip on the historical record is a bit shaky. Liberalism owes its resurgence in developing countries not to a “selective amnesia” about the 19th century, but to their recent and painful memory of post-war failure. In that period, many poor countries turned their back on trade with tragi-comic results. Cosseted industries turned out finished goods that were worth less than the imported materials from which they were made. Thomas Jefferson had warned the Hamiltonians that “the use of [subsidies] has been found almost inseparable from abuse.” In post-war Africa, Latin America and South Asia, he was proved right.

Only East Asia succeeded in encouraging manufacturing without discouraging exports. This was not an easy trick to pull off—import tariffs act as a tax on exporters, a burden the state had to offset with subsidies, duty drawbacks and cheap credit. Some scholars still wonder if this meddling was worth the risk and expense.

These devices were not the only thing the tigers had going for them. At the time of Mr Chang’s birth in 1963, South Korea was blessed with a young, literate and biddable workforce; it also lacked large tracts of arable land or rich deposits of natural resources. Even without the visible hand of government to guide it, the country’s future clearly lay in making stuff, rather than drilling, mining or growing it. Once its military government devalued the currency and loosened restrictions on imported materials, South Korea was free to fulfil its destiny. It began with light manufacturing, using simple technologies that did not require a long apprenticeship to master. Its growth was certainly impressive. But a country that saves and invests as heavily as South Korea did can arguably transform itself even without recourse to any Hamiltonian magic.

For all his scholarly verve, Mr Chang gives his readers no more than a glimpse of the lively debate that still flowers about the historical episodes he describes. His book will not settle this 200-year duel between the Hamiltonians and the liberals. But he succeeds in drawing a few flecks of blood on his opponents’ waistcoats.

Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism.
By Ha-Joon Chang
Random House; 276 pages; £18.99; to be published in America in December; $26.95

P.S. The Economist’s book reviews are always great by the way, and alone are almost worth the cost of the magazine. This book above was  covered in the same edition, and sounds much more interesting than Bad Samaritans to be honest. No really, if I was stuck on a bus for 5 hours, I’d definately plump for this one for, despite my reputation, I don’t spend all my evenings surfing the internet for ‘articles’ on S-lines and/or articles with actual words on Korean sociological issues, at least until I started this blog anyway.

Amazon info available here.

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