Author Topic: Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism  (Read 300 times)

0 Members and 1 Guest are viewing this topic.

Offline trad123

  • Full Member
  • ***
  • Posts: 1467
  • Reputation: +264/-78
  • Gender: Male
Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang

https://openlibrary.org/books/OL17963379M/Bad_samaritans



In the 1980s, as developing countries across the world struggled with crushing debt burdens and slow-growing economies, they were pushed—by the United States and international financial institutions—to embrace a set of policies that promised to rescue them. These policies, which are often grouped under the label neoliberalism, proceeded from the assumption that developing countries interfered too much with the workings of their markets. Instead, countries needed to lower tariffs and embrace free trade, privatize state-owned industries, end subsidies to businesses and consumers, balance their budgets, and be friendlier to foreign investment. If a country got its financial house in order and let the free market work its magic, in other words, it had a good chance of watching its economy boom.

But neoliberalism turned out not to be the panacea its advocates promised. Even as developing countries opened up their markets, sold off assets, and cut back on spending, their economies for the most part stagnated. In fact, over the past twenty-five years, growth rates in most of the developing world have been lower than they were during the 1960s and ’70s, when state interventionism was in economic vogue. And while there have been some massive success stories in recent decades—most obviously China and India—the gap in wealth between the developed world and most developing countries has actually widened. Plenty of explanations have been given for neoliberalism’s failure, including the persistence of corruption, the importance of culture, and the simple failure on the part of many countries to follow the neoliberal agenda completely. But in his new book, Bad Samaritans, the Cambridge economist Ha-Joon Chang offers a more succinct solution to the puzzle: Neoliberalism didn’t work because the advice it gave made no sense. In thrall to the “myth of free trade,” Chang argues, neoliberals ignored the “secret history of capitalism”: If developing countries’ embrace of the free market has failed to deliver what it promised, it’s because “free markets are not good at promoting economic development.”

This is, to say the least, a conclusion that most economists would find less than credible, at least in such a blunt formulation. But Chang sets out to prove it not theoretically but empirically, by retelling the history of economic development. As he sees it, the dominant economic powers of the past two centuries—Great Britain and the United States—succeeded not because they let the free market reign but because they didn’t. The US, from the days of Alexander Hamilton, used tariffs to protect “infant industries”—by keeping prices on imports high, the tariffs made domestic products more attractive, giving domestic producers a chance to develop. Great Britain, meanwhile, did adopt a policy of almost unrestricted trade in the mid-nineteenth century, but Chang argues that it did so only after using tight restrictions on imports to become the world’s leading industrial power.

In the twentieth century, meanwhile, most of the great economic success stories—including Japan and the so-called Asian Tigers, like Taiwan and South Korea—limited imports and foreign investment, subsidized new industries to get them off the ground, and generally violated most of the rules of neoliberalism. Yet their economies grew at enormously fast paces, turning them in just a couple of a generations from underdeveloped backwaters into prosperous, bourgeois societies. Even those countries that have failed to make much headway against poverty, including most of Latin America and Africa, generally grew faster when their governments took active roles in restricting and guiding the market. What history tells us, in other words, is that free trade and free markets are more of a bane to developing countries than a boon. And those rich countries that insist poorer ones follow neoliberal prescriptions are hypocrites, insisting on solutions they themselves did not follow.

Chang isn’t advocating socialism, exactly—although he does offer up a long defense of state owner­ship of enterprises. What he’s pushing instead are aggressive government policies designed to protect and nurture domestic manufacturers, allowing countries to ascend the technological ladder so that they can eventually compete with wealthier nations. Chang believes that private investors are impatient and unwilling to sacrifice present returns for future gains. As a result, they will not take risks on new industries in poor countries, at least not in the absence of some other advantage (like tariff protection or government subsidy). If governments create protective umbrellas—via tariffs, subsidies, loose intellectual-property rules, restrictions on imports, and the like—for domestic companies, though, those companies will have a chance over time to become globally competitive, raising the level of prosperity of the country as a whole. Chang acknowledges that these umbrellas have costs—they raise prices for consumers in developing countries and often cut off access to better and cheaper foreign goods—but those are outweighed by the future benefits.

2 Corinthians 4:3-4

And if our gospel be also hid, it is hid to them that are lost, In whom the god of this world hath blinded the minds of unbelievers, that the light of the gospel of the glory of Christ, who is the image of God, should not shine unto them.

Offline Yeti

  • Full Member
  • ***
  • Posts: 1415
  • Reputation: +648/-176
  • Gender: Male
Great. An article by some Chinese communist explaining to us what is wrong with capitalism. If capitalism were so bad and communism so good, why are the United States and western countries so far ahead of China and Latin America in general and all the other communist countries in the world?


Offline trad123

  • Full Member
  • ***
  • Posts: 1467
  • Reputation: +264/-78
  • Gender: Male
Chapter 2: The double life of Daniel Defoe

Daniel Defoe, the author of Robinson Crusoe, had a colourful life. Before writing novels, he was a businessman, importing woollen goods, hosiery, wine and tobacco. He also worked in the government in the royal lotteries and in the Glass Duty Office that collected the notorious ‘window tax’, a property tax levied according to the number of a house’s windows. He was also an influential author of political pamphlets and led a double life as a government spy. First he spied for Robert Harley, the Tory speaker of the House of Commons. Later, he complicated his life even further by spying for the Whig government of Robert Walpole, Harley’s political arch-enemy.

As if being a businessman, novelist, tax collector, political commentator and spy wasn’t providing sufficient stimulus, Defoe was also an economist. This aspect of his life is even less well known than his spying. Unlike his novels, which include Robinson Crusoe and Moll Flanders, Defoe’s main economic work, A Plan of the English Commerce (1728), is almost forgotten now. The popular biography of Defoe by Richard West does not mention the book at all, while the award-winning biography by Paula Backscheider mentions it largely in relation to marginal subjects, such as Defoe’s view on native Americans. However, the book was a thorough and insightful account of Tudor industrial policy (under England’s Tudor monarchs) that has much to teach us today.

In the book (henceforth A Plan), Defoe describes how the Tudor monarchs, especially Henry VII and Elizabeth I, used protectionism, subsidies, distribution of monopoly rights, government-sponsored industrial espionage and other means of government intervention to develop England’s woollen manufacturing industry – Europe’s high-tech industry at the time. Until Tudor times, Britain had been a relatively backward economy, relying on exports of raw wool to finance imports. The woollen manufacturing industry was centred in the Low Countries (today Belgium and the Netherlands), especially the cities of Bruges, Ghent and Ypres in Flanders. Britain exported its raw wool and made a reasonable profit. But those foreigners who knew how to convert the wool into clothes were generating much greater profits. It is a law of competition that people who can do difficult things which others cannot will earn more profit. This is the situation that Henry VII wanted to change in the late 15th century.

According to Defoe, Henry VII sent royal missions to identify locations suited to woollen manufacturing. Like Edward III before him, he poached skilled workers from the Low Countries. He also increased the tax on the export of raw wool, and even temporarily banned its export, in order to encourage further processing of the raw material at home. In 1489, he also banned the export of unfinished cloth, save for coarse pieces below a certain market value, in order to promote further processing at home. His son, Henry VIII, continued the policy and banned the export of unfinished cloth in 1512, 1513 and 1536.

As Defoe emphasizes, Henry VII did not have any illusions as to how quickly the English producers could catch up with their sophisticated competitors in the Low Countries. The King raised export duties on raw wool only when the English industry was established enough to handle the volume of wool to be processed. Henry then quickly withdrew his ban on raw wool exports when it became clear that Britain simply did not have the capacity to process all the raw wool it produced. Indeed, according to A Plan, it was not until 1578, in the middle of Elizabeth I’s reign (1558–1603) – nearly 100 years after Henry VII had started his ‘import substitution industrialization’ policy in 1489 – that Britain had sufficient processing capacity to ban raw wool exports totally. Once in place, however, the export ban drove the competing manufacturers in the Low Countries, who were now deprived of their raw materials, to ruin.

Without the policies put in place by Henry VII and further pursued by his successors, it would have been very difficult, if not impossible, for Britain to have transformed itself from a raw-material exporter into the European centre of the then high-tech industry. Wool manufacture became Britain’s most important export industry. It provided most of the export earnings to finance the massive import of raw materials and food that fed the Industrial Revolution.A Plan shatters the foundation myth of capitalism that Britain succeeded because it figured out the true path to prosperity before other countries – free market and free trade.

(. . .)
2 Corinthians 4:3-4

And if our gospel be also hid, it is hid to them that are lost, In whom the god of this world hath blinded the minds of unbelievers, that the light of the gospel of the glory of Christ, who is the image of God, should not shine unto them.

Offline Matto

  • Hero Member
  • *****
  • Posts: 6705
  • Reputation: +3722/-371
  • Gender: Male
  • Love God and Play, Do Good Work and Pray
    • Julian Moore
Great. An article by some Chinese communist explaining to us what is wrong with capitalism. If capitalism were so bad and communism so good, why are the United States and western countries so far ahead of China and Latin America in general and all the other communist countries in the world?
Bad take. You sound like a neocon boomer here. Not saying you are one. But that is a neocon boomer take.
I Love Watching Butterflies . . ..

Offline Yeti

  • Full Member
  • ***
  • Posts: 1415
  • Reputation: +648/-176
  • Gender: Male
I am neither a neocon nor a boomer. But perhaps we could get off the subject of me (i.e. ad hominem) and instead discuss the arguments I made, viz. that the United States and similar countries are vastly wealthier than countries that practice government-controlled economies or are outright communist. I mentioned China as a communist country and Latin America in general as heavily socialist. Those places are mired in poverty despite the populations being relatively civilized (in comparison to people in Africa, for example) and having tremendous natural resources.


Offline trad123

  • Full Member
  • ***
  • Posts: 1467
  • Reputation: +264/-78
  • Gender: Male
PROLOGUE

(. . .)

In 1961, eight years after the end of its fratricidal war with North Korea, South Korea’s yearly income stood at $82 per person. The average Korean earned less than half the average Ghanaian citizen ($179).1 The Korean War – which, incidentally, started on June 25, Mozambique’s independence day – was one of the bloodiest in human history, claiming four million lives in just over three years (1950–3). Half of South Korea’s manufacturing base and more than 75% of its railways were destroyed in the conflict. The country had shown some organizational ability by managing to raise its literacy ratio to 71% by 1961 from the paltry 22% level it had inherited in 1945 from its Japanese colonial masters, who had ruled Korea since 1910. But it was widely considered a basket case of developmental failure. A 1950s internal report from USAID – the main US government aid agency then, as now – called Korea a ‘bottomless pit’. At the time, the country’s main exports were tungsten, fish and other primary commodities.

As for Samsung, * now one of the world’s leading exporters of mobile phones, semiconductors and computers, the company started out as an exporter of fish, vegetables and fruit in 1938, seven years before Korea’s independence from Japanese colonial rule. Until the 1970s, its main lines of business were sugar refining and textiles that it had set up in the mid-1950s.2 When it moved into the semiconductor industry by acquiring a 50% stake in Korea Semiconductor in 1974, no one took it seriously. After all, Samsung did not even manufacture colour TV sets until 1977. When it declared its intention, in 1983, to take on the big boys of the semiconductor industry from the US and Japan by designing its own chips, few were convinced. Korea, one of the poorest places in the world, was the sorry country I was born into on October 7 1963. Today I am a citizen of one of the wealthier, if not wealthiest, countries in the world. During my lifetime, per capita income in Korea has grown something like 14 times, in purchasing power terms. It took the UK over two centuries (between the late 18th century and today) and the US around one and half centuries (the 1860s to the present day) to achieve the same result.3 The material progress I have seen in my 40-odd years is as though I had started life as a British pensioner born when George III was on the throne or as an American grandfather born while Abraham Lincoln was president.

The house I was born and lived in until I was six was in what was then the north-western edge of Seoul, Korea’s capital city. It was one of the small (two-bedroom) but modern homes that the government built with foreign aid in a programme to upgrade the country’s dilapidated housing stock. It was made with cement bricks and was poorly heated, so it was rather cold in winter – the temperature in Korea’s winter can sink to 15 or even 20 degrees below zero. There was no flushing toilet, of course: that was only for the very rich.

Yet my family had some great luxuries that many others lacked, thanks to my father, an elite civil servant in the Finance Ministry who had diligently saved his scholarship money while studying at Harvard for a year. We owned a black-and-white TV set, which exerted a magnetic pull on our neighbours. One family friend, an up-and-coming young dentist at St Mary’s, one of the biggest hospitals in the country, somehow used to find the time to visit us whenever there was a big sports match on TV – ostensibly for reasons totally unrelated to the match. In today’s Korea, he would be contemplating upgrading the second family TV in the bedroom to a plasma screen. A cousin of mine who had just moved from my father’s native city of Kwangju to Seoul came to visit on one occasion and quizzed my mother about the strange white cabinet in the living room. It was our refrigerator (the kitchen being too small to accommodate it).My wife, Hee-Jeong, born in Kwangju in 1966, tells me that her neighbours would regularly ‘deposit’ their precious meat in the refrigerator of her mother, the wife of a prosperous doctor, as if she were the manager of an exclusive Swiss private bank.

A small cement-brick house with a black-and-white TV and a refrigerator may not sound much, but it was a dream come true for my parents’ generation, who had lived through the most turbulent and deprived times: Japanese colonial rule (1910–45), the Second World War, the division of the country into North and South Korea (1948) and the Korean War. Whenever I and my sister, Yonhee, and brother, Hasok, complained about food, my mother would tell us how spoilt we were. She would remind us that, when they were our age, people of her generation would count themselves lucky if they had an egg. Many families could not afford them; even those who could reserved them for fathers and working older brothers. She used to recall her heartbreak when her little brother, starving during the Korean War at the age of five, said that he would feel better if he could only hold a rice bowl in his hands, even if it was empty. For his part, my father, a man with a healthy appetite who loves his beef, had to survive as a secondary school student during the Korean War on little more than rice, black-market margarine from the US army, soy sauce and chilli paste. At the age of ten, he had to watch helplessly as his seven-year-old younger brother died of dysentery, a killer disease then that is all but unknown in Korea today.

Years later, in 2003, when I was on leave from Cambridge and staying in Korea, I was showing my friend and mentor, Joseph Stiglitz, the Nobel Laureate economist, around the National Museum in Seoul. We came across an exhibition of beautiful black-and-white photographs showing people going about their business in Seoul’s middle-class neighbourhoods during the late 1950s and the early 1960s. It was exactly how I remembered my childhood. Standing behind me and Joe were two young women in their early twenties. One screamed, ‘How can that be Korea? It looks like Vietnam!’ There was less than 20 years’ age gap between us, but scenes that were familiar to me were totally alien to her. I turned to Joe and told him how ‘privileged’ I was as a development economist to have lived through such a change. I felt like an historian of mediaeval England who has actually witnessed the Battle of Hastings or an astronomer who has voyaged back in time to the Big Bang.

Our next family house, where I lived between 1969 and 1981, at the height of Korean economic miracle, not only had a flushing toilet but also boasted a central heating system. The boiler, unfortunately, caught fire soon after we moved in and almost burned the house down. I don’t tell you this in complaint; we were lucky to have one – most houses were heated with coal briquettes, which killed thousands of people every winter with carbon monoxide poisoning. But the story does offer an insight into the state of Korean technology in that far-off, yet really so recent, era.

In 1970 I started primary school. It was a second-rate private school that had 65 children in each class. We were very proud because the state school next door had 90 children per class.Years later, in a seminar at Cambridge, a speaker said that because of budget cuts imposed by the International Monetary Fund (more on this later), the average number of pupils per classroom in several African countries rose from 30-something to 40-something in the 1980s. Then it hit me just how bad things had been in the Korean schools of my childhood.When I was in primary school, the poshest school in the country had 40 children in a class, and everyone wondered, ‘how do they do that?’ State schools in some rapidly expanding urban areas were stretched to the limit, with up to 100 pupils per class and teachers running double, sometimes triple, shifts. Given the conditions, it was little wonder that education involved beating the children liberally and teaching everything by rote. The method has obvious drawbacks, but at least Korea has managed to provide at least six years’ education to virtually every child since the 1960s.

In 1972, when I was in Year 3 (US third grade), my school playground suddenly became a campsite for soldiers. They were there to pre-empt any student demonstrations against the martial law being imposed by the president of the country, (former) General Park Chung-Hee. Thankfully, they were not there to take on me and my friends. We Korean kids may be known for our academic precocity, but constitutional politics were frankly a little bit beyond us nine-year-olds.My primary school was attached to a university, whose rebellious students were the soldiers’ target. Indeed, Korean university students were the nation’s conscience throughout the political dark age of the military dictatorship and they also played the leading role in putting an end to it in 1987.

After he had come to power in a military coup in 1961, General Park turned ‘civilian’ and won three successive elections. His electoral victories were propelled by his success in launching the country’s economic ‘miracle’ through his Five Year Plans for Economic Development. But the victories were also ensured by election rigging and political dirty tricks. His third and supposedly final term as president was due to end in 1974, but Park just could not let go.Halfway through his third term, he staged what Latin Americans call an ‘auto-coup’. This involved dissolving the parliament and establishing a rigged electoral system to guarantee him the presidency for life. His excuse was that the country could ill afford the chaos of democracy. It had to defend itself against North Korean communism, the people were told, and accelerate its economic development. His proclaimed goal of raising the country’s per capita income to 1, 000 US dollars by 1981 was considered overly ambitious, bordering on delusional.

President Park launched the ambitious Heavy and Chemical Industrialization (HCI) programme in 1973. The first steel mill and the first modern shipyard went into production, and the first locally designed cars (made mostly from imported parts) rolled off the production lines. New firms were set up in electronics, machinery, chemicals and other advanced industries. During this period, the country’s per capita income grew phenomenally by more than five times, in US dollar terms, between 1972 and 1979. Park’s apparently delusional goal of $1, 000 per capita income by 1981 was actually achieved four years ahead of schedule. Exports grew even faster, increasing nine times, in US dollar terms, between 1972 and 1979.

The country’s obsession with economic development was fully reflected in our education. We learned that it was our patriotic duty to report anyone seen smoking foreign cigarettes. The country needed to use every bit of the foreign exchange earned from its exports in order to import machines and other inputs to develop better industries. Valuable foreign currencies were really the blood and sweat of our ‘industrial soldiers’ fighting the export war in the country’s factories. Those squandering them on frivolous things, like illegal foreign cigarettes, were ‘traitors’. I don’t believe any of my friends actually went as far as reporting such ‘acts of treason’. But it did feed the gossip mill when kids saw foreign cigarettes in a friend’s house. The friend’s father – it was almost invariably men who smoked – would be darkly commented on as an unpatriotic and therefore immoral, if not exactly criminal, individual.

Spending foreign exchange on anything not essential for industrial development was prohibited or strongly discouraged through import bans, high tariffs and excise taxes (which were called luxury consumption taxes). ‘Luxury’ items included even relatively simple things, like small cars, whisky or cookies. I remember the minor national euphoria when a consignment of Danish cookies was imported under special government permission in the late 1970s. For the same reason, foreign travel was banned unless you had explicit government permission to do business or study abroad. As a result, despite having quite a few relatives living in the US, I had never been outside Korea until I travelled to Cambridge at the age of 23 to start as a graduate student there in 1986.

This is not to say that no one smoked foreign cigarettes or ate illicit cookies. A considerable quantity of illegal and semi-legal foreign goods was in circulation. There was some smuggling, especially from Japan, but most of the goods involved were things brought in – illegally or semi-legally – from the numerous American army bases in the country. Those American soldiers who fought in the Korean War may still remember malnourished Korean children running after them begging for chewing gum or chocolates.Even in the Korea of the 1970s, American army goods were still considered luxuries. Increasingly affluent middle class families could afford to buy M&M chocolates and Tang juice powders from shops and itinerant pedlars. Less affluent people might go to restaurants that served boodae chige, literally ‘army base stew’. This was a cheaper version of the classic Korean stew, kimchee chige, using kimchee (cabbages pickled in garlic and chilli) but substituting the other key ingredient, pork belly, with cheaper meats, like surplus bacon, sausages and spam smuggled out of American army bases.

I longed for the chance to sample the tins of spam, corned beef, chocolates, biscuits and countless other things whose names I did not even know, from the boxes of the American Army’s ‘C Ration’ (the canned and dried food ration for the battlefield). A maternal uncle, who was a general in the Korean army, used to accumulate supplies during joint field exercises with his American colleagues and gave them to me as an occasional treat. American soldiers cursed the wretched quality of their field rations. For me they were like a Fortnum & Mason picnic hamper. But, then, I was living in a country where vanilla ice cream had so little vanilla in it that I thought vanilla meant ‘no flavour’, until I learnt English in secondary school. If that was the case with a well-fed upper-middle-class child like me, you can imagine what it must have been like for the rest.

When I went to secondary school, my father gave me a Casio electronic calculator, a gift beyond my wildest dreams. Then it was probably worth half a month’s wages for a garment factory worker, and was a huge expense even for my father, who spared nothing on our education. Some 20 years later, a combination of rapid development in electronics technologies and the rise in Korea’s living standards meant that electronic calculators were so abundant that they were given out as free gifts in department stores. Many of them ended up as toys for toddlers (no, I don’t believe this is why Korean kids are good at maths!).

Korea’s economic ‘miracle’ was not, of course, without its dark sides. Many girls from poor families in the countryside were forced to find a job as soon as they left primary school at the age of 12 – to ‘get rid of an extra mouth’ and to earn money so that at least one brother could receive higher education.Many ended up as housemaids in urban middle-class families, working for room and board and, if they were lucky, a tiny amount of pocket money. The other girls, and the less fortunate boys, were exploited in factories where conditions were reminiscent of 19th-century ‘dark satanic mills’ or today’s sweatshops in China. In the textile and garment industries, which were the main export industries, workers often worked 12 hours or more in very hazardous and unhealthy conditions for low pay. Some factories refused to serve soup in the canteen, lest the workers should require an extra toilet break that might wipe out their wafer-thin profit margins. Conditions were better in the newly emerging heavy industries – cars, steel, chemicals, machinery and so on – but, overall, Korean workers, with their average 53–4 hour working week, put in longer hours than just about anyone else in the world at the time. Urban slums emerged.

Because they were usually up in the low mountains that comprise a great deal of the Korean landscape, they were nicknamed ‘Moon Neighbourhoods’, after a popular TV sitcom series of the 1970s. Families of five or six would be squashed into a tiny room and hundreds of people would share one toilet and a single standpipe for running water. Many of these slums would ultimately be cleared forcefully by the police and the residents dumped in far-flung neighbourhoods, with even worse sanitation and poorer road access, to make way for new apartment blocks for the ever-growing middle class. If the poor could not get out of the new slums fast enough (though getting out of the slums was at least possible, given the rapid growth of the economy and the creation of new jobs), the urban sprawl would catch up with them and see them rounded up once again and dumped in an even more remote place. Some people ended up scavenging in the city’s main rubbish dump, Nanji Island. Few people outside Korea were aware that the beautiful public parks surrounding the impressive Seoul Football Stadium they saw during the 2002 World Cup were built literally on top of the old rubbish dump on the island (which nowadays has an ultra-modern eco-friendly methane-burning power station, which taps into the organic material dumped there).

In October 1979, when I was still a secondary school student, President Park was unexpectedly αssαssιnαtҽd by the chief of his own Intelligence Service, amid mounting popular discontent with his dictatorship and the economic turmoil following the Second Oil Shock. A brief ‘Spring of Seoul’ followed, with hopes of democracy welling up. But it was brutally ended by the next military government of General Chun Doo-Hwan, which seized power after the two-week armed popular uprising that was crushed in the Kwangju Massacre of May 1980.

Despite this grave political setback, by the early 1980s, Korea had become a solid middle-income country, on a par with Ecuador, Mauritius and Costa Rica. But it was still far removed from the prosperous nation we know today. One of the slang expressions common among us high-school students was ‘I’ve been to Hong Kong’, which meant ‘I have had an experience out of this world’. Even today, Hong Kong is still considerably richer than Korea, but the expression reflects the fact that, in the 1960s or the 1970s, Hong Kong’s per capita income was three to four times greater than my country’s.

When I went to university in 1982, I became interested in the issue of intellectual property rights, something that is even more hotly debated today. By that time, Korea had become competent enough to copy advanced products and rich enough to want the finer things in life (music, fashion goods, books). But it was still not sophisticated enough to come up with original ideas and to develop and own international patents, copyrights and trademarks.

Today, Korea is one of the most ‘inventive’ nations in the world – it ranks among the top five nations in terms of the number of patents granted annually by the US Patent Office. But until the mid-1980s it lived on ‘reverse engineering’. My friends would buy ‘copy’ computers that were made by small workshops, which would take apart IBM machines, copy the parts, and put them together. It was the same with trademarks. At the time, the country was one of the ‘pirate capitals’ of the world, churning out fake Nike shoes and Louis Vuitton bags in huge quantities. Those who had more delicate consciences would settle for near-counterfeits. There were shoes that looked like Nike but were called Nice, or shoes that had the Nike swoosh but with an extra prong. Counterfeit goods were rarely sold as the genuine article. Those who bought them were perfectly aware that they were buying fakes; the point was to make a fashion statement, rather than to mislead. Copyrighted items were treated in the same way. Today, Korea exports a large and increasing quantity of copyrighted materials (movies, TV soaps, popular songs), but at the time imported music (LP records) or films (videos) were so expensive that few people could afford the real thing.We grew up listening to pirate rock’n’ roll records, which we called ‘tempura shop records’, because their sound quality was so bad it sounded as if someone was deep-frying in the background. As for foreign books, they were still beyond the means of most students. Coming from a well-off family that was willing to invest in education, I did have some imported books. But most of my books in English were pirated. I could never have entered and survived Cambridge without those illegal books.

By the time I was finishing my graduate studies at Cambridge in the late 1980s, Korea had become a solid upper-middle-income country. The surest proof of this was that European countries stopped demanding that Koreans get an entry visa. Most of us by then had no reason to want to emigrate illegally anyway. In 1996, the country even joined the OECD (Organisation for Economic Co-operation and Development) – the club of the rich countries – and declared itself to have ‘arrived’, although that euphoria was badly deflated by the financial crisis that engulfed Korea in 1997. Since that financial crisis, the country has not been doing as well by its own high standards, mainly because it has over-enthusiastically embraced the ‘free market rules’ model. But that is a story for later.

Whatever its recent problems have been, Korea’s economic growth and the resulting social transformation over the last four and a half decades have been truly spectacular. It has gone from being one of the poorest countries in the world to a country on a par with Portugal and Slovenia in terms of per capita income.5 A country whose main exports included tungsten ore, fish and wigs made with human hair has become a high-tech powerhouse, exporting stylish mobile phones and flat-screen TVs coveted all over the world. Better nutrition and health care mean that a child born in Korea today can expect to live 24 years longer than someone born in the early 1960s (77 years instead of 53 years). Instead of 78 babies out of 1, 000, only five babies will die within a year of birth, breaking far fewer parents’ hearts. In terms of these life-chance indicators, Korea’s progress is as if Haiti had turned into Switzerland.6 How has this ‘miracle’ been possible?

For most economists, the answer is a very simple one. Korea has succeeded because it has followed the dictates of the free market. It has embraced the principles of sound money (low inflation), small government, private enterprise, free trade and friendliness towards foreign investment. The view is known as neo-liberal economics.

Neo-liberal economics is an updated version of the liberal economics of the 18th-century economist Adam Smith and his followers. It first emerged in the 1960s and has been the dominant economic view since the 1980s. Liberal economists of the 18th and the 19th centuries believed that unlimited competition in the free market was the best way to organise an economy, because it forces everyone to perform with maximum efficiency. Government intervention was judged harmful because it reduces competitive pressure by restricting the entry of the potential competitors, whether through import controls or the creation of monopolies.Neo-liberal economists support certain things that the old liberals did not – most notably certain forms of monopoly (such as patents or the central bank’s monopoly over the issue of bank notes) and political democracy. But in general they share the old liberals’ enthusiasm for the free market.And despite a few ‘tweaks’ in the wake of a whole series of disappointing results of neo-liberal policies applied to developing nations during the past quarter of a century, the core neo-liberal agenda of deregulation, privatization and opening up of international trade and investment has remained the same since the 1980s.

In relation to the developing countries, the neo-liberal agenda has been pushed by an alliance of rich country governments led by the US and mediated by the ‘Unholy Trinity’ of international economic organizations that they largely control – the International Monetary Fund (IMF), the World Bank and the World Trade Organisation (WTO). The rich governments use their aid budgets and access to their home markets as carrots to induce the developing countries to adopt neo-liberal policies. This is sometimes to benefit specific firms that lobby, but usually to create an environment in the developing country concerned that is friendly to foreign goods and investment in general. The IMF and the World Bank play their part by attaching to their loans the condition that the recipient countries adopt neo-liberal policies. The WTO contributes by making trading rules that favour free trade in areas where the rich countries are stronger but not where they are weak (e.g., agriculture or textiles). These governments and international organizations are supported by an army of ideologues. Some of these people are highly trained academics who should know the limits of their free-market economics but tend to ignore them when it comes to giving policy advice (as happened especially when they advised the former communist economies in the 1990s). Together, these various bodies and individuals form a powerful propaganda machine, a financial-intellectual complex backed by money and power.

This neo-liberal establishment would have us believe that, during its miracle years between the 1960s and the 1980s, Korea pursued a neo-liberal economic development strategy.7 The reality, however, was very different indeed. What Korea actually did during these decades was to nurture certain new industries, selected by the government in consultation with the private sector, through tariff protection, subsidies and other forms of government support (e.g., overseas marketing information services provided by the state export agency) until they ‘grew up’ enough to withstand international competition. The government owned all the banks, so it could direct the life blood of business – credit. Some big projects were undertaken directly by state-owned enterprises – the steel maker, POSCO, being the best example – although the country had a pragmatic, rather than ideological, attitude to the issue of state ownership. If private enterprises worked well, that was fine; if they did not invest in important areas, the government had no qualms about setting up state-owned enterprises (SOEs); and if some private enterprises were mismanaged, the government often took them over, restructured them, and usually (but not always) sold them off again.

The Korean government also had absolute control over scarce foreign exchange (violation of foreign exchange controls could be punished with the death penalty). When combined with a carefully designed list of priorities in the use of foreign exchange, it ensured that hard-earned foreign currencies were used for importing vital machinery and industrial inputs. The Korean government heavily controlled foreign investment as well, welcoming it with open arms in certain sectors while shutting it out completely in others, according to the evolving national development plan. It also had a lax attitude towards foreign patents, encouraging ‘reverse engineering’ and overlooking ‘pirating’ of patented products.

The popular impression of Korea as a free-trade economy was created by its export success. But export success does not require free trade, as Japan and China have also shown. Korean exports in the earlier period – things like simple garments and cheap electronics – were all means to earn the hard currencies needed to pay for the advanced technologies and expensive machines that were necessary for the new, more difficult industries, which were protected through tariffs and subsidies. At the same time, tariff protection and subsidies were not there to shield industries from international competition forever, but to give them the time to absorb new technologies and establish new organizational capabilities until they could compete in the world market.

The Korean economic miracle was the result of a clever and pragmatic mixture of market incentives and state direction. The Korean government did not vanquish the market as the communist states did. However, it did not have blind faith in the free market either. While it took markets seriously, the Korean strategy recognized that they often need to be corrected through policy intervention.

Now, if it was only Korea that became rich through such ‘heretical’ policies, the free-market gurus might be able to dismiss it as merely the exception that proves the rule. However, Korea is no exception. As I shall show later, 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 the orthodoxy of neo-liberal economics.

Today’s rich countries used protection and subsidies, while discriminating against foreign investors – all anathema to today’s economic orthodoxy and now severely restricted by multilateral treaties, like the WTO Agreements, and proscribed by aid donors and international financial organizations (notably the IMF and the World Bank). There are a few countries that did not use much protection, such as the Netherlands and (until the First World War) Switzerland. But they deviated from the orthodoxy in other ways, such as their refusal to protect patents. The records of today’s rich countries on policies regarding foreign investment, state-owned enterprises, macroeconomic management and political institutions also show significant deviations from today’s orthodoxy regarding these matters.

Why then don’t the rich countries recommend to today’s developing countries the strategies that served them so well? Why do they instead hand out a fiction about the history of capitalism, and a bad one at that? In 1841, a German economist, Friedrich List, criticized Britain for preaching free trade to other countries, while having achieved its economic supremacy through high tariffs and extensive subsidies. He accused the British of ‘kicking away the ladder’ that they had climbed to reach the world’s top economic position: ‘t is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him [italics added]’.

(. . .)
2 Corinthians 4:3-4

And if our gospel be also hid, it is hid to them that are lost, In whom the god of this world hath blinded the minds of unbelievers, that the light of the gospel of the glory of Christ, who is the image of God, should not shine unto them.

Offline trad123

  • Full Member
  • ***
  • Posts: 1467
  • Reputation: +264/-78
  • Gender: Male
Chapter 2: The double life of Daniel Defoe

(. . .)

America enters the fray

The best critique of Britain’s hypocrisy may have been written by a German, but the country that best resisted Britain’s ladder-kicking in terms of policy was not Germany. Nor was it France, commonly known as the protectionist counterpoint to free-trading Britain. In fact, the counterbalance was provided by the US, Britain’s former colony and today’s champion of free trade.

Under British rule, America was given the full British colonial treatment. It was naturally denied the use of tariffs to protect its new industries. It was prohibited from exporting products that competed with British products. It was given subsidies to produce raw materials. Moreover, outright restrictions were imposed on what Americans could manufacture. The spirit behind this policy is best summed up by a remark William Pitt the Elder made in 1770. Hearing that new industries were emerging in the American colonies, he famously said: ‘[The New England] colonies should not be permitted to manufacture so much as a horseshoe nail’.25 In reality, British policies were a little more lenient than this may imply: some industrial activities were permitted. But the manufacture of high-technology products was banned.

Not all Britons were as hard-hearted as Pitt. In recommending free trade to the Americans, some were convinced that they were helping them. In his Wealth of Nations, Adam Smith, the Scottish father of free market economics, solemnly advised the Americans not to develop manufacturing. He argued that any attempt to ‘stop the importation of European manufactures’ would ‘obstruct instead of promoting the progress of their country towards real wealth and greatness’.

Many Americans agreed, including Thomas Jefferson, the first secretary of state and the third president. But others fiercely disagreed. They argued that the country needed to develop manufacturing industries and use government protection and subsidies to that end, as Britain had done before them. The intellectual leader of this movement was a half-Scottish upstart called Alexander Hamilton.

Hamilton was born on the Caribbean island of Nevis, the illegitimate child of a Scottish pedlar (who dubiously claimed an aristocratic lineage) and a woman of French descent. He climbed to power thanks to his sheer brilliance and boundless energy. At 22, he was an aide-de-camp to George Washington in the War of Independence. In 1789, at the outrageously early age of 33, he became the country’s first treasury secretary.

In 1791, Hamilton submitted his Report on the Subject of Manufactures (henceforth the Report) to the US Congress. In it, he expounded his view that the country needed a big programme to develop its industries. The core of his idea was that a backward country like the US should protect its ‘industries in their infancy’ from foreign competition and nurture them to the point where they could stand on their own feet. In recommending such a course of action for his young country, the impudent 35-year-old finance minister with only a liberal arts degree from a then second-rate college (King’s College of New York, now Columbia University) was openly going against the advice of the world’s most famous economist, Adam Smith.

The practice of protecting ‘infant industries’ had existed before, as I have shown, but it was Hamilton who first turned it into a theory and gave it a name (the term ‘infant industry’ was invented by him). The theory was later further developed by Friedrich List, who is today often mistakenly known as its father. List actually started out as a free-trader; he was one of the leading promoters of one of world’s first free trade agreements – the German Zollverein, or Customs Union. He learned the infant industry argument from the Americans during his political exile in the US in the 1820s. Hamilton’s infant industry argument inspired many countries’ economic development programmes and became the bête noire of free trade economists for generations to come.

In the Report, Hamilton proposed a series of measures to achieve the industrial development of his country, including protective tariffs and import bans; subsidies; export ban on key raw materials; import liberalization of and tariff rebates on industrial inputs; prizes and patents for inventions; regulation of product standards; and development of financial and transportation infrastructures.27 Although Hamilton rightly cautioned against taking these policies too far, they are, nevertheless, a pretty potent and ‘heretical’ set of policy prescriptions. Were he the finance minister of a developing country today, the IMF and the World Bank would certainly have refused to lend money to his country and would be lobbying for his removal from office.

Congress’s action following Hamilton’s Report fell far short of his recommendations, largely because US politics at the time were dominated by Southern plantation owners with no interest in developing American manufacturing industries. Quite understandably, they wanted to be able to import higher-quality manufactured products from Europe at the lowest possible price with the proceeds they earned from exporting agricultural products. Following Hamilton’s Report, the average tariff on foreign manufactured goods was raised from around 5% to around 12.5%, but it was far too low to induce those buying manufactured goods to support the nascent American industries.

Hamilton resigned as treasurey secretary in 1795, following the scandal surrounding his extra-marital affair with a married woman, without the chance to further advance his programme. The life of this brilliant if caustic man was cut short in his 50th year (1804) in a pistol duel in New York, to which he was challenged by his friend-turned-political rival, Aaron Burr, the then vice president under Thomas Jefferson.28 Had he lived for another decade or so, however, Hamilton would have been able to see his programme adopted in full.

When the War of 1812 broke out the US Congress immediately doubled tariffs from the average of 12.5% to 25%. The war also made the space for new industries to emerge by interrupting the manufactured imports from Britain and the rest of Europe. The new group of industrialists who had now arisen naturally wanted the protection to continue, and, indeed, to be increased, after the war.29 In 1816, tariffs were raised further, bringing up the average to 35%.By 1820, the average tariff rose further to 40%, firmly establishing Hamilton’s programme. Hamilton provided the blueprint for US economic policy until the end of the Second World War.

His infant industry programme created the condition for a rapid industrial development. He also set up the government bond market and promoted the development of the banking system (once again, against opposition from Thomas Jefferson and his followers).30 It is no hyperbole for the New-York Historical Society to have called him ‘The Man Who Made Modern America’ in a recent exhibition.31 Had the US rejected Hamilton’s vision and accepted that of his archrival, Thomas Jefferson, for whom the ideal society was an agrarian economy made up of self-governing yeoman farmers (although this slave-owner had to sweep the slaves who supported this lifestyle under the carpet), it 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.

2 Corinthians 4:3-4

And if our gospel be also hid, it is hid to them that are lost, In whom the god of this world hath blinded the minds of unbelievers, that the light of the gospel of the glory of Christ, who is the image of God, should not shine unto them.

Offline trad123

  • Full Member
  • ***
  • Posts: 1467
  • Reputation: +264/-78
  • Gender: Male
Chapter 2: The double life of Daniel Defoe

(. . .)

Abraham Lincoln and America’s bid for supremacy

Although Hamilton’s trade policy was well established by the 1820s, tariffs were an ever-present source of tension in US politics for the following three decades. The Southern agrarian states constantly attempted to lower industrial tariffs, while the Northern manufacturing states argued the case for keeping them high or even raising them further. In 1832, pro-free trade South Carolina even refused to accept the new federal tariff law, causing a political crisis. The so-called Nullification Crisis was resolved by President Andrew Jackson, who offered some tariff reduction (though not a lot, despite his image as the folk hero of American free market capitalism), while threatening South Carolina with military action. This served to patch things up temporarily, but the festering conflict eventually came to a violent resolution in the cινιℓ ωαr that was fought under the presidency of Abraham Lincoln.

Many Americans call Abraham Lincoln, the 16th president (1861–5), the Great Emancipator – of the American slaves. But he might equally be labelled the Great Protector – of American manufacturing. Lincoln was a strong advocate of infant industry protection. He cut his political teeth under Henry Clay of the Whig Party, who advocated the building of the ‘American System’, which consisted of infant industry protection (‘Protection for Home Industries’, in Clay’s words) and investment in infrastructure such as canals (‘Internal Improvements’).32 Lincoln, born in the same state of Kentucky as Clay, entered politics as a Whig state lawmaker of Illinois in 1834 at the age of 25, and was Clay’s trusted lieutenant in the early days of his political career.

The charismatic Clay stood out from early on in his career. Almost as soon as he was elected to Congress in 1810, he became the Speaker of the House (from 1811 until 1820 and then again in 1823–5). As a politician from the West, he wanted to persuade the Western states to join forces with the Northern states, in the development of whose manufacturing industries Clay saw the future of his country. Traditionally, the Western states, having little industry, had been advocates of free trade and thus allied themselves with the pro-free trade Southern states. Clay argued that they should switch sides to back a protectionist programme of industrial development in return for federal investments in infrastructure to develop the region. Clay ran for the presidency three times (1824, 1832 and 1844) without success, although he came very close to winning the popular vote in the 1844 ɛƖɛctıon. The Whig candidates who did manage to become presidents – William hαɾɾιson (1841–4) and Zachary Taylor (1849–51) – were generals with no clear political or economic views.

In the end, what made it possible for the protectionists to win the presidency with Lincoln as their candidate was the formation of the Republican Party. Today the Republican Party calls itself the GOP (Grand Old Party), but it is actually younger than the Democratic Party, which has existed in one form or another since the days of Thomas Jefferson (when it was called, somewhat confusingly to the modern observer, the Democratic Republicans). The Republican Party was a mid-19th-century invention, based on a new vision that befitted a country that was rapidly moving outward (into the West) and forward (through industrialization), rather than harking back to an increasingly unsustainable agrarian economy based on slavery.

The winning formula that the Republican Party came up with was to combine the American System of the Whigs with the free distribution of public land (often already illegally occupied) so strongly wanted by the Western states. This call for free distribution of public land was naturally anathema to the Southern landlords, who saw it as the start of a slippery slope towards a comprehensive land reform. The legislation for such distribution had been constantly thwarted by the Southern Congressmen. The Republican Party undertook to pass the Homestead Act, which promised to give 160 acres of land to any settler who would farm it for five years. This act was passed during the cινιℓ ωαr in 1862, by which time the South had withdrawn from Congress.

Slavery was not as divisive an issue in pre-Civil-War US politics as most of us today believe it to have been. Abolitionists had a strong influence in some Northern states, especially Massachusetts, but the mainstream Northern view was not abolitionist. Many people who were opposed to slavery thought that black people were racially inferior and thus were against giving them full citizenship, including the right to vote. They believed the proposal by radicals for an immediate abolition of slavery to be highly unrealistic. The Great Emancipator himself shared these views. In response to a newspaper editorial urging immediate slave emancipation, Lincoln wrote: ‘If I could save the Union without freeing any slave, I would do it; and if I could save it by freeing all the slaves, I would do it; and if I could do it by freeing some and leaving others alone, I would also do that’.33 Historians of the period agree that his abolition of slavery in 1862 was more of a strategic move to win the war than an act of moral conviction. Disagreement over trade policy, in fact, was at least as important as, and possibly more important than, slavery in bringing about the cινιℓ ωαr.

During the 1860 ɛƖɛctıon campaign, the Republicans in some protectionist states assailed the Democrats as a ‘Southern-British-Antitariff-Disunion party [my italics]’, playing on Clay’s idea of the American system which implied that free trade was in the British, not American, interest.34 However, Lincoln tried to keep quiet on the tariff issue during the ɛƖɛctıon campaign, not just to avoid attacks from the Democrats but also to keep the fragile new party united, as there were some free-traders in the party (mostly former Democrats who were anti-slavery). But, once elected, Lincoln raised industrial tariffs to their highest level so far in US history.35 The expenditure for the cινιℓ ωαr was given as an excuse – in the same way in which the first significant rise in US tariffs came about during the Anglo-American War (1812–16). However, after the war, tariffs stayed at wartime levels or above. Tariffs on manufactured imports remained at 40–50% until the First World War, and were the highest of any country in the world.
2 Corinthians 4:3-4

And if our gospel be also hid, it is hid to them that are lost, In whom the god of this world hath blinded the minds of unbelievers, that the light of the gospel of the glory of Christ, who is the image of God, should not shine unto them.


Offline Matto

  • Hero Member
  • *****
  • Posts: 6705
  • Reputation: +3722/-371
  • Gender: Male
  • Love God and Play, Do Good Work and Pray
    • Julian Moore
I am neither a neocon nor a boomer. But perhaps we could get off the subject of me (i.e. ad hominem) and instead discuss the arguments I made, viz.  
Are you a fool? I said your ideas are boomer neocon ideas, whether or not your person is a part of those types. And since you say you are not, you are doubly guilty. But the words posted by trad123 as I have read them speak for themselves and are impressive and I imagine if the whole work were posted it would be even better. 
I Love Watching Butterflies . . ..


 

Sitemap 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16