I am glad my article on trade and protectionism generated debate among the readers of Prospect and others. In the article, as well as in my book Bad Samaritans: Rich Nations, Poor Policies and the Threat to the Developing World, I advance a totally unconventional view, so I do not expect to be accepted by all people. However, it is sad to see that some people refuse to see my argument for what it is.
One common reaction to my argument has been to argue that “Toyota [or South Korea, the USA, or whichever of my examples they find most difficult to dismiss] was an exception.” (See the review of my book in the Economist). But my argument does not rest on these few cases, however dramatic they may be. The weight of my argument lies in the demonstration that virtually all countries that have economically succeeded over the last two centuries (from 18th-century Britain, through to 19th century USA and Germany, down to late 20th-century east Asia and Europe) have done so by going against the free-market, free-trade orthodoxy (some in more ways than others). Most of them were protectionist. If they were not, they “deviated” in other ways. Switzerland and the Netherlands refused to grant patents until the early 20th century, while Singapore has had a huge state-owned enterprise sector (producing 30 per cent of GDP). My critics may dismiss one or two cases as exceptions that prove the rule, but if virtually all the relevant cases have to be dismissed as exceptions, then the rule that they are trying to defend is not meaningful any more.
Another symptom of my critics’ deliberate blindness is their assumption that I advocate some kind of across-the-board import substitution model simply because I say protectionism is usually necessary (although not sufficient) for economic development. However, there is a huge difference between the across-the-board import substitution model and the kind of protectionism I advocate. What I advocate is protectionism intended not to close off the economy but to create the space for domestic producers in developing countries to acquire the higher-level productive capabilities that they need in order to fully (albeit strategically) engage with the global economy in the long run. I explicitly said in the article that this type of protectionism is not anti-trade or anti-globalisation—in the long run, it is in fact more pro-trade and pro-globalisation than the free trade orthodoxy, as it is the best way to promote growth and international trade. This point was obviously not taken by my critics. As I said in my exchange with some free-trade economists following the review of my book in the Financial Times, I feel like a man being accused of promoting copious consumption of vodka when all I have done is to recommend moderate amounts of red wine as a part of a balanced diet.
I should obviously try harder in the future to persuade my critics, but in turn I hope they make an effort to see what I am saying instead of having a Pavlovian reaction to words like “protectionism” and “regulation.”
Unfortunately the free market as an ideal construct has replaced god in the modern world, it is the ghost in the machine that animates the spontaneous order of the universe. Perhaps Dawkins should write a book about that.
Seemingly sane people will insist that the market has magical properties to naturally organise efficiency out of nothing, with no sense of what the precursors for that might be in practice (OK to be fair the information economists are starting to try to extend the models a bit.)
As such your critics are most likely attacking the existential threat of what you say rather than the evidence, since the evidence is fairly overwhelming. There seems to be a fairly stark divide between the model builders and those strange economists who are actually concerned about substantive economies and their particular histories.
Thankyou for giving a voice to those heretics, and introducing some evidence to the debate.
Mind you, most of the people who commented in the former debate engaged with substantive historical questions, so perhaps it is mainly professional economists who buy into the ideal market models.
“Bad Samaritans” and “Kicking Away the Ladder” are no doubt two books any preuniversity student should read before choosing a degree in economics.
I remember that during my studies I used to regard the history of economics a boring subject. At the time, I believed there was more truth in the mathematical models developed by famous economists. Only too late, I came to understand that the mathematical models and other economic theory were just a convenient way to support a political agenda. Now I have a high regard for economic history and for those, like Professor Chang, who use it, among other things, to separate serious research from modern theology.
What about the sector analysis? Protectionism will not always lead to competitive edge, if developing nations neglect the need of targeting. I see targeting was more critical than protectionism, especially in East Asia. Take the examples of Korean archery teams and LPGA players. They were not protected. Rather, the initial signs of success during the dabbling at stage made policy makers convinced of targeting them (or protecting them) during their take off stage. It took less than one decade before they took over global leadership in the competition. In a similar vein, semiconductor, shipbuilding, automobile, and other sectors took the global leadership in competition because of targeting. Protectionism simply denotes tariffs, FDI restrictions, and patent right (or similar property rights) restrictions. Sector Analysis refers to a more intentional complex and long term innovation strategy of a country. All Marxists economists have already mentioned the tendency of US protectionism in the 18th and 19th century. It is nothing new. Worse, the book seems to neglect sectors and targeting.
Fair point Inghyu, but what you are saying is that protectionism is better when done well, not really an argument against the main point of the book…
Ingyu, I think you have inadvertently supported Chang’s argument. Chang does not argue protectionism is sufficient for a successful development strategy. But it may be (and most likely is based on his historical analysis) an important pre-condition as part of an overall development strategy. Of course, Chang’s argument does not delve deeply into what is required for a successful development strategy but that would be driving too far away from his main concern. See Johnson, Wade, Amsden, Weiss for what a successful development ’strategy’ requires. I think Chang’s book is another important contribution to the deconstruction of the neo-liberal assumption that free-trade and neo-liberal institutions will lead to economic prosperity for developing countries. In fact, it is the great shame of the current generation that such a book is required against the ‘conventional’ wisdom.
In my opinion one of the very important reasons given for “infantile industry” protection, is the acquisition of neccessary skills and knowledge in strategically important areas, that in turn with maturity lead to efficiencies and innovations in high value added, technologically sophisticated goods and services. If this argument is correct, and i think it is, then the role of state in another very important area, namely the development of human capital through competetive educational system, is also very critical, and is an area constantly under emphasized by the neo-liberal prescriptions. I have not seen them advocating the modernization of a developing country’s educational system to bring it upto par with the developed world. I have not seen them pushing for the establishment of institutions like Tokyo institue of technology, MIT, CalTech, etc. Nowhere, i have seen them calling upon the developing countries to make the world class education in science and technology as one of the main priorities.
As Dr. Chang pointed out, that the research and development infrastructure of the USA, is not only the largest in the world but is also mainly subisidized through public money, so one would expect any prescriptions aimed at closing the gap between the rich and the poor countries to point to this knowledge gap too, and emphasize the role of the state in closing it
What we are seeing, slowly, I think, is the emergence, or re-emergence of pragmatism. The reality of East Asian Economic development is based upon it.
Chang makes an important anology of drawing a parallel between individual human development and developmental economics. Perhaps Stephen Covey mores succinctly stated this in his book, “The Seven Habits of Highly Successful People”, which he called the maturity continuum: a person developes through three stages, dependency, interdependency and finally interdependency. A third world country is dependent upon a first world country for its advanced products, then it implements some form of protectionism to develop capabilities, then it when it is capable, it drops the protection and competes on an international level.
The Japanese developed this to an art form, as Chalmers Johnson noted, in his book “MITI and the Japanese Miracle” by implementing protection and export promotion simultaneously for infant industries. They also found ways to insure high levels of domestic competition for these industries to ensure their development was of the highest order.
The real problem is applying an ideology to a problem. The real solution is in allowing for pragmatism. Whatever works, works.