The complete title of Mr Chang's very educational book, at least for me, is Bad Samaritans- The myth of free trade and the secret history of Capitalism. Book reviews have never fascinated me since I have always held the notion that if you want to know what a book is all about, read it, rather than it's critique. Accordingly I never expected to indulge in such an endeavour.
Having chanced upon this gem, I however realised that in the sea of knowledge sometimes a review can assist in identifying the trees from the forest. Therefore I request the reader's indulgence on my first effort at a book review. Ha-Joon Chang, according to Wikipedia, is one of the leading heterodox economists (that are considered outside of mainstream economics) and institutional economists specialising in development economics. He is currently a Reader in the Political Economy of Development at the University of Cambridge. Mr Chang has authored several policy books in addition to the one under review.
Bad Samaritans was first published in 2007. The book is well researched and includes lessons from history which provide a differential perspective towards liberalism. The gist of Mr Chang's findings is that developing nations differ significantly from developed nations. Stated in this manner, everyone will nod their heads in agreement. Curiously however, as soon as the logic is extended to articulate that developing nations therefore need a different set of economic policies for growth, vigorous opposition erupts from mainstream economists.
However, the economic solutions currently projected as the panacea for all economic evils become questionable the minute it becomes evident that the witchdoctor did not practice what he preaches when the shoe was on the other foot. The carefully selected examples from history were an eye opener for me and all credit vests with the author for the brief quotations selected for this article from his extraordinary text.
My objective to review his book is to generate interest at the policy maker's level in Pakistan resulting in formulation of realistic economic policies going forward. It would be well neigh impossible to summarise the books entire arguments in this article; therefore the following paragraphs include some brief extracts on key issues which elucidate the issues.
Protectionism of Infant Industry
It was only after Second World War that the US- with its industrial supremacy now unchallenged-liberalised its trade and started championing the cause of free trade.
In Japan, the famous MITI (Ministry of International Trade and Industry) orchestrated an industrial development programme that has now become a legend. Japan's industrial tariffs were not particularly high after the Second World War, but imports were tightly controlled through government control over foreign exchange.
Free trade economists have to explain how free trade can be an explanation for the economic success of today's rich countries, when it simply had not been practiced very much before they became rich.
The free market dictates that countries stick to what they are good at. Stated bluntly, this means that poor countries are supposed to continue with their current engagement in low-productivity activities.
It took Toyota more than 30 years of protection and subsidies to become competitive in the international car market, even at the lower end of it. It was a good 60 years before it became one of the World's top car makers.
Regulating Foreign Direct Investment
In 1832, Andrew Jackson, today a folk hero to American free-marketers, refused to renew the license for quasi-central bank..... This was done on the grounds that the foreign ownership share of the bank was too high-30%. If we must have a bank.... It should be purely American.
To sum up, history is on the side of the regulators. Most of today's rich countries regulated foreign investment when they were on the receiving end. Sometimes the regulation was draconian...
But foreign investment follows, rather than causes, economic growth.
It took Nokia 17 years to earn any profit from its electronic subsidiary, which is now the biggest mobile phone company in the world. If Finland had liberalised foreign investment from early on, Nokia would not be what it is today.
State Owned Enterprises
As one foreign banker reportedly told the Wall Street Journal in the middle of the 1980s Third World debt crisis " (w)e foreign bankers are for the free market when were out to make a buck and believe in the state when we are about to lose a buck"
Singapore Airlines is one of the most highly regarded airlines in the world..... it has never made a financial loss in its 35 -year history..... The airline is state-owned enterprise, 57% controlled by Temasek, the holding company whose sole shareholder is Singapore's Ministry of Finance.
It would be a bad idea to sell public enterprises with natural monopolies or those providing essential services, especially if regulatory capability of the state is weak.
Copyrights and Patent
Exploiting the absence of a patent law, the Dutch electronics company, Philips, a household name today, started out in 1981 as a producer of light bulbs based on the patents "borrowed" from the American inventor, Thomas Edison.
Monetary Policy
-- Monetary policy that is too tight lowers investment.
-- A high interest rate policy raises the "price of future", so to speak, making long term investment unviable.
When the rich countries get into recession, they usually relax monetary policy and increase budget deficits. When the same thing happens in developing countries, the Bad Samaritans, through the IMF, force them to raise interest rates to absurd levels and balance their budgets,..
At the end I hope I have piqued enough interest in economists and policy makers in the country to read the text which may provide a fresh perspective on many issues. In my view the book is an excellent read.
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Book :'Bad Samaritans - The Myth of Free Trade and
the Secret History of Capitalism'
Author : Ha-Joon Chang
Publisher : Bloomsbury Press
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