The horizon is not so far as we can see, but as far as we can imagine

Book Review: Bad Samaritans, by Ha-Joon Chang

So, if you’re going to read only one book about free trade and neoliberalism in relation to developing nations, this is the one to read.

The bottom line is this: The standard advice given by Western economists and experts about how to modernize or industrialize is wrong, actively harmful, and hurts countries.

Countries that do industrialize through mercantile policies (there are maybe four, including Russia), almost without exception, do not engage in free trade; they engage in managed trade behind protective barriers.

This was true of Japan, Korea, and China, among others. (China used iron-like control over currency as its barrier: Trump is wrong now, but not wrong for the key industrialization period.)

Moreover, growth in developing countries was better, generally speaking, under Bretton Woods, which allowed developing countries tariffs and so on. Once neoliberals took over and took it as their mission, in the IMF, World Bank, and elsewhere, to bust tariffs and subsidies and create “free markets,” growth slowed in countries trying to develop using a non-mercantile policy.

In other words, again, if you did what Western experts wanted done, you got hurt bad.

The advice was truly horrendous, based on what should be an essentially niche matter — “comparative advantage.”

Comparative advantage is garbage. Japan’s original comparative advantage was silk production, not cars or advanced electronics. If they had chosen to emphasize their existing comparative advantage, rather than change their comparative advantages, they would be a third world country still.

Those countries which did follow this advice, were usually told that their comparative advantage was in cash crops or commodities. True enough.

Unfortunately, most developing countries have an advantage in cash crops or other commodities. When they all started taking that advice at the same time, it led to increases in supply, which collapsed prices.

To make most cash crops, you have to shove subsistence farmers off their land and set up plantations. The money from exports which was supposed to feed those people didn’t show up, and governments were required to stay the course, going further into debt, rather than being able to pay off their debts with all the money they had been told they would earn.

(Aside: The removal of people from subsistence farming is one reason I doubt the extreme poverty stats, which are based on money. When Mexicans were shoved off their farms due to NAFTA, into slums, they wound up eating less nutritious food for which they had to pay. They had more money, but it’s not clear to me they were better off.)

Chang goes into all of this in far more detail than I can, and the book is well worth reading as a sort of “bullshit inoculation” for common economic nostrums. Most of what we are told causes development simply does not; what does work is known, and as much as possible the world system is set up today to not allow it.

If you want to develop, you either need to be big enough to do mercantalism whether the US likes it or not, be able to bribe US elites (China is both big and bribes US elites) or you need to be a nation the US considers a key ally (like Japan or South Korea), which it is willing to allow to industrialize behind various protections. (Japan’s first industrialization was done as a British ally.)

That’s it, that’s all.

Worth reading.

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  1. V. Arnold

    I’m a fan of Ha-Joon Chang; he’s not a neo-liberal fan boy. He’s a pre-eminant teacher of the world of economies and their function.
    Just before I left the states I had an enlightened revelation about debt/credit; it forever changed the way I saw debt/credit.
    Debt is literally a killer. Until one understands debt they have no business borrowing via credit cards or any other means, IMO.
    Until one understands that debt can be a tool; that one should not incur the slightest debt.
    Among the myriad things not taught in public education; classes in finance are nowhere to be found.
    My own recommendation, besides Ha-Joon Chang, is David Graebers book; Debt; the First 5,000 Years.

  2. The Stephen Miller Band

    So, does he Hat Tip Naomi Klein with her Disaster Capitalism Thesis? If not, it, and he, are lacking. The Capitalism of the future is Disaster Capitalism. Disaster is the next Bubble Economy since we’re inextricably wedded to Growth until we are no more. Disaster & its immiserating implications is the next, and only, Growth Industry.

    I’m sure GM, Ford, Chrysler and Tesla will be happy when Trump destroys its competition — Hyundai/Kia.

  3. Creigh Gordon

    V. Arnold, a key to understanding debt is that finance is an overhead cost to the real economy (the real economy being production of goods and services). The biggest scam that finance has perpetrated is convincing policy makers that finance is part of the real economy. That has resulted in policies that allow finance to outgrow its legitimate purposes and become parasitic.

  4. V. Arnold

    Creigh Gordon
    August 12, 2017

    That is not the debt I was speaking to/of; my focus is on personal debt, the micro as opposed to the macro.
    The thoroughly corrupted, western financial system, is of little concern to me.
    Many times many people are in self imposed debt hell because they do not understand the games being imposed upon them by the unscrupulous banking and credit systems.
    My appreciation of Chang is that he is one, like Hudson, Black, and Keen, who tell it like it really is.
    It is not always easy to see where personal responsibility and predatory practices separate.
    Thanks for the reply.

  5. V. Arnold

    It is not always easy to see where personal responsibility and predatory practices separate.

    To clarify a bit; I do not know how much greed and stupidity play into personal debt hell; and how much is due to ignorance.
    For my own situation it was plain stupidity. The shock of it was enough to change my credit/debt POV to this day. That was 25 years ago…

  6. “Kicking away the ladder”

    Lots of countries developed – till they put a stop to mercantile regimes.

  7. Willy

    The easy part is repeating Chang quotes:
    The harder (but IMO not impossible) part is paraphrasing Chang quotes into clear and obvious soundbites to help redirect cult zombie need to fight some tribally-loathed enemy, towards the real enemies.

  8. CMike

    For the record, at Willy’s link where it reads:

    “When I give food to the poor, they call me a saint. When I ask why the poor have no food, they call me a communist.”
    ― Ha-Joon Chang, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism

    That should read:

    “‘Cuando doy comida a los pobres, me llaman santo. Cuando le pregunto por qué los pobres no tienen comida, me llaman comunista.'”
    ― Archbishop Hélder Câmara

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