Critics of free trade tend to fall into two camps, irrational and rational. The irrational camp includes hard core socialists and developed world nationalists such as Lou Dobbs, who have an almost religious belief in certain statist policies as some sort of recipe for broad based prosperity absent much evidence and they simply ignore any evidence that policies such as protectionism may do more harm than good. Ha-Joon Chang falls into the second group. His book is generally quite well written and he regularly acknowledges the trade offs involved in his discussions.
Anyone looking for evidence to raise trade barriers or further regulate markets in the developed world won't find it in this book. Chang is quite critical of "neoliberalism" but he generally seems to suggest low trade barriers on trade and foreign investment are wise in the developed world, or at least he doesn't think they are wrong. His argument is whether such policies are wise in the developing world and he goes on to argue for state-driven development strategies for developing nations.
Some of his arguments are interesting and even persuasive. Chapter 9 ("Lazy Japanese and thieving Germans") provides one of the best rebuttals I have seen of the argument that suggests some cultures are destined to fail. He doesn't say culture doesn't matter; merely that it isn't fixed over time.
Chapter 8 ("Zaire vs. Indonesia") has an interesting discussion of corruption. He suggests corruption is not necessarily incompatible with economic growth and modern China is certainly an example of the argument's validity. Nevertheless, he concludes corruption is worth fighting because it erodes confidence in governing institutions.
Other parts of the book are less compelling. One of his central messages is that proponents of free trade are ignorant of (or at least unwilling to acknowledge) the history of protectionism among now developed world economies. That may be true of the free traders he encounters casually but anyone who is even remotely familiar with the economic and political history of the US and UK would know they employed protectionism in the past.
I can't completely reject the argument that developing nations should engage in some protection of domestic producers, but his discussion of the topic tends to omit two problems. He rarely discusses the downsides of protectionism, such as the fact that if tariffs are used, it raises the prices of consumer goods to citizens, rich and poor alike, of those countries. Second, he admits that industries should not be protected in perpetuity but seems to assume such protections will be phased out at an "appropriate" time. Protected industries and their advocates generally don't want to give up the special privileges they enjoy and are often quite successful at delaying or even preventing the day of reckoning. Developed world agricultural subsidies are a perfect example. It is much easier to prevent a special privilege from being enacted in the first place then to end it once it is in place and has developed a constituency to defend it. At some point the costs of a protection that has outlived its usefulness outweighs whatever initial benefits it might have brought.
His discussion of state-owned industry in Chapter 5 also omits certain complications. He ignores the political difficulty in rationalizing a money-losing state owned enterprise. Unions can make demands of a private firm but ultimately they don't have an interest in seeing it go bankrupt. However, there is less of a restraint on union demands in the public sector because the treasury can be seen as a bottomless till. On page 113 he also makes an argument for state ownership of natural monopolies, such as electricity or land line telephones, ignoring the poor performance of many instances when these industries are in state hands.
Chang likes to cite countries that rejected the free market approach, but he is often selective in his examples. Some Asian countries, such as South Korea, China and Japan do appear to have successfully managed state-driven development. However, there are still plenty of others that are less appealing. Many of the far left love to cite Venezuela but much of Venezuela's success is from the oil bonanza, not necessarily wise economic policy. After a decade of increasing state control, nearly half the Venezuelan work force remains employed in the informal economy, devoid of labor protections enjoyed by those in less statist economies; even though Venezuela is flush with oil revenues.
Chang makes some mistakes or dubious statements in a few cases. He associates the Chrysler bailout with the Reagan Administration, when it was actually enacted under President Jimmy Carter. He also makes a reference to the "September 11 bombing of the Word Trade Center" which makes him sound like some nut job conspiracy theorist, although I did a Google search and didn't find any references that associate him the 9/11 conspiracy theories, it was a curious statement just the same.
I gave the book three stars because it is generally well written and acknowledges real world trade offs. I don't find all or even most of his policy prescriptions persuasive but he does make some of the better arguments for state driven development in the underdeveloped nations. Anyone interested is some credible counter arguments should check out Freedom From Want: American Liberalism and the Global Economy or In Defense of Globalization: With a New Afterword
Facebook
Twitter