The lies behind free trade
The Lies Behind Free Trade
Washington, Feb 6 2007 (Prensa Latina) — Rich countries preach free markets and free trade to the poor countries in order to capture larger shares of the latter’s markets and preempt the emergence of possible competitors, says Cambridge economist Ha-Joon Chang.
His latest book, Bad Samaritans, gives an insight on the disastrous trade policies of the industrialized countries which have been responsible for abject poverty in the Third World.
Chang has won the Gunnar Myrdal Prize for his essay "Kicking Away the Ladder: Development Strategy in Historical Perspective" and shared the Wassily Leontief Prize for his contributions to "Rethinking Development in the 21st Century."
The first awarded book criticizes Britain for preaching free trade to other countries while having achieved its own economic supremacy through high tariffs and extensive subsidies.
His new title is, according to Chalmers Johnson in Truthdig.com, a discursive, well-written account of what Chang calls the bad Samaritans, people who preach free markets and free trade to poor countries, taking advantage of those who are in trouble while keeping extensive subsidies to their agricultural producers.
There is not a single simultaneous equation in the book and many of Chang’s examples are taken from his own experiences as a South Korean born in 1963, says Johnson.
This was the period in which Samsung subsidized its infant electronics subsidiaries for over a decade with money made in textiles and sugar refining. Today Samsung dominates flat-panel TVs and cell phones in much of East Asia and the world.
A similar evolution had Pohang Iron and Steel Co.which began as a state-owned enterprise that was refused support from the World Bank and today is the world’s third largest steel company.
In Chang’s conception, there are two kinds of Bad Samaritans. There are the genuine, powerful "ladder-kickers" working in the "unholy trinity" of the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO).
Behind the ideologues of Bad Samaritans is neoliberalism, which stands for privitizing 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.
Chang notes that the histories of today’s rich countries contradict this doctrine, mostly as a result rather than a cause of economic growth, says Chalmers Johnson in his review published Tuesday.
Chang’s 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."
The 19th and early 20th century US tariffs of 40 to 50 percent were then the highest of any country in the world. With the US abandonment of overt protectionism after it became the world’s richest nation, it still found measures to advance its economic fortunes beyond what market forces could have achieved.
For example, the US government actually paid for 50 to 70 percent of the country’s total expenditures on research and development from the 1950s through the mid-1990s, usually under the cover of defense spending.
The Third World was not always poor and economically stagnant. From the Marshall Plan (1947) to the first oil shock (1973), the United States was a Good Samaritan and helped developing countries by allowing them to protect and subsidize their nascent industries.
The developing world has never done better, before or since. But then, in the 1970s, scared that its position as global hegemony was being undermined, the United States turned decisively toward neoliberalism.
Through draconian interventions into the most intimate details of the lives of their clients, including birth control, ethnic integration, and gender equality as well as tariffs, foreign investment, privatization decisions, national budgets, and intellectual property protection, the IMF, World Bank, and WTO managed drastically to slow down economic growth in the Third World.
Forced to adopt neoliberal policies and to open their economies to much more powerful foreign competitors on unequal terms, their growth rate fell to less than half of that recorded in the 1960s (1.7 percent instead of 4.5 percent).
Since the 1980s, Africa 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.
The disaster has been so complete that it has helped expose the hidden governance structures that allow the IMF and the World Bank to foist Bad Samaritan policies on helpless nations.
The United States has a de facto veto in both organizations, where rich countries control 60 percent of the voting shares. The WTO has a democratic structure (it had to accept one in order to enact its founding treaty) but is actually run by an oligarchy. Votes are never taken.
Because of the shortcomings of neoliberalism, the main international development bureaucracies as well as much of the academic economics establishment have been busy trying to find plausible scapegoats or excuses.
Among these stands out the excuse of corruption in poor countries. But the cases of Zaire (yesterday, the Congo) under Gen. Mobutu and Indonesia under Gen. Suharto. were flagrantly corrupt, murderous military dictators they received red-carpet treatment by the World Bank and the IMF. Corruption is, of course, a problem, but to say that it is the reason for the spectacular failures of neoliberal economic programs is unconvincing.
Another scapegoat is Culture against which List/Chang say that economically successful nations are almost pathologically afraid of competitors coming up from below and therefore try to block their progress by kicking away the ladder.
One of the strengths of Chang’s new book lies in the half-dozen lucid chapters on development and international trade, with a sound knowledge of history, comments Johnson.
The present world lives an allegedly enlightened age of free trade. Nonetheless, European citizens support their dairy industry with subsidies and tariffs to the tune of 16 billion pounds sterling a year. This amounts to more than 1 pound per cow per day, when half the world’s people live on less.
The US subsidizes corn and exports it to Mexico, where it is the staple diet of most of the people. These exports, however, drive small Mexican farmers into bankruptcy and encourage their illegal immigration into the United States, where a racist backlash is directed against them.
Japan is one of the world’s richest countries, with a remarkably even per capita income distribution, but it still lavishly subsidizes its extremely inefficient rice growers and prevents the import of rice that could easily compete on price with domestic rice.
Reduction of tariff revenues also plays havoc with national budgets in poor countries. Because they lack efficient tax collection capabilities and because tariffs are the easiest taxes to collect, developing countries rely heavily on them.
Add to this lower level of business activity and higher unemployment that results from IMF-ordered trade liberalizations, which reduce income tax revenue.
When such countries are then put under further IMF pressure to reduce their budget deficits, falling revenues mean severe cuts in spending, often eating into vital areas like education, health, and physical infrastructure, damaging long-term growth.
"In the long run," writes Chang, "free trade is a policy that is likely to condemn developing countries to specialize in sectors that offer low productivity growth and thus low growth in living standards. This is why so few countries have succeeded with free trade, while most successful countries have used infant industry protection to one degree or another."
According to Chang, "The patent lobby talks nonsense when it argues that there will be no new technological progress without patents." For example, nonprofit organizations, such as universities, subsidize a great deal of research.
Some 97 percent of all patents and the vast majority of all copyrights and trademarks are held by economically advanced countries, which use them to deny medicines, textbooks, and computers to underdeveloped countries, exploit epidemics such as HIV/AIDS to extract excess profits, and kick away the ladder for countries trying to catch up.
With "Bad Samaritans," Chang has succinctly and comprehensively exposed the chief structures of economic imperialism in the world today.
What is now required, says Chalmers Johnson’s review of the book, is the leadership to undermine and dismantle the barriers that keep so much of the world so poor.
