Book review: Ha-Joon Chang — Bad Samaritans

badsamaritansRandom House, 2007
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Read a typical book which espouses liberal free-trade globalisation and a typical reaction is “Yes, but…” Books such as “Lexus and the Olive Tree” are well written, and carry you along in the sweep of the argument. But you have a niggling sense of unease that something must be wrong with what’s being said — that it can’t be that simple. Like listening to an interview with a bullying politician you know there are counter-arguments, if only he would shut up and let you think.

This book articulates that “but” comprehensively and elegantly.

Chang is not anti-globalization (he recognises that development is faster when countries are interconnected — though he does note the DPRK’s invention of synthetic thread, vinalon, developed in complete isolation), and is not anti-free-markets per se. But his major point is that you should only have a level playing field when players are of equal ability.

He uses a powerful analogy. His 6-year old son, Jin-gyu, is currently protected from the harsh outside world. He gets his clothes, food and education paid for by Chang. This is surely protectionism. The free-traders would have Jin-gyu go out into the streets to clean shoes in order to earn an honest living. Chang argues if this were to happen his son would be forever locked into low-paid manual jobs. It is only by Chang nurturing his son through university that he stands the chance of becoming an engineer or a brain surgeon. Similarly, opening up a developing nation to unbridled free trade may certainly provide the incentive to increase their fledgling industries’ productivity (but without providing the wherewithal). But the risk is that the industries will be destroyed by the unequal competition. Without protection, a developing nation’s economy will be forever low-tech, restricted to to the extport of agricultural or other natural resources. Free trade, he argues, only works when you want to maintain the status quo of comparative advantages. And it’s therefore clearly in the interests of rich nations to promote free trade.

The “Bad Samaritans” of the title are the leading nations and institutions of the developed world, whose well-meaning prescriptions (dispensed by the IMF and other development organisations) to improve the economic health of the developing world are not effective. The conditions which go along with aid packages — privatisation, monetary and fiscal discipline — can do more harm than good.

Chang’s viewpoint is clearly influenced by the experience of South Korea, whose development since the early 60s has been meteoric — and nurtured by policies far from liberal: protectionist, undemocratic, corrupt, debt-funded: everything which we are told should make for a basket-case economy, according to the liberals. He argues however that the neo-liberal orthodoxy has a distorted view of history. He points out the hypocrisy of their viewpoint: namely that those countries who now prescribe the free-market medicine only reached their current advanced state of economic development through decades or even centuries of protectionism.

Chang questions many of the central propositions of the neo-liberal thesis. He argues that

  • State-owed businesses are not necessarily badly managed and privately owned businesses not necessarily better governed — hence privatisation is not a solution to anything
  • Moderate inflation is not necessarily a bad thing
  • Foreign investment, even foreign direct investment, is not necessarily a good thing
  • Balanced budgets can prevent development
  • To say that nations don’t advance because of the wrong “culture” portrays a neo-colonial mindset and misses the point that culture follows economic development, not the other way round.
  • Corruption and lack of development are not as correlated as you might think
  • Protection of intellectual property has gone too far and is constraining innovation
  • Democracy does not necessarily promote development

All Chang’s arguments are well illustrated with fascinating historical examples.

Chang’s espousal of selective trade barriers for developing countries is clearly dependent on the developed countries not wanting to erect retaliatory barriers to protect their own industries. And here’s the “but” to Chang’s thesis. Going back to Chang’s analogy of his 6-year old, not many people are going to want to help subsidise him through school and university if ultimately he’s going to put them out of a job.

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