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Author Topic: History debunks the free trade myth
rasmus
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posted 04 July 2002 04:10 AM      Profile for rasmus   Author's Homepage     Send New Private Message      Edit/Delete Post
Clcik!

quote:
History debunks the free trade myth

Ha-Joon Chang
Guardian

Monday June 24, 2002

You are visiting a developing country as a policy analyst. It has the highest average tariff rate in the world. Most of the population cannot vote, and vote buying and electoral fraud are widespread.

The country has never recruited a single civil servant through an open process. Its public finances are precarious, with loan defaults that worry investors. It has no competition law, has abolished its shambolic bankruptcy law, and does not acknowledge foreigners' copyrights. In short, it is doing everything against the advice of the IMF, the World Bank, the WTO and the international investment community.

Sounds like a recipe for development disaster? But no. The country is the US - only that the time is around 1880, when its income level was similar to that of Morocco and Indonesia today. Despite wrong policies and sub-standard institutions, it was then one of the fastest-growing - and rapidly becoming one of the richest - countries in the world.



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Apemantus
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posted 04 July 2002 04:17 AM      Profile for Apemantus        Edit/Delete Post
Absolutely correct, though what the author neglects to mention is that once a country has developed, withdrawal of tariffs and subsidies towards a free trade model does increase trade, GDP and economic development.

He/she is correct that free trade is not the immediate solution for a lot of countries, though interestingly, the biggest barrier some developing countries face is the agricultural subsidy given by the rich nations to their own farmers that make it so difficult for developing country farmers. However, decades, perhaps a century down the line, free trade is eminently better than protectionism. But, that is not mentioned.


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Jacob Two-Two
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posted 04 July 2002 04:42 AM      Profile for Jacob Two-Two     Send New Private Message      Edit/Delete Post
Well, you have a point that free trade is a better policy once a country is developed, but only if it has developed to a point of relative strength with its trading partners.

Ask China, one of the quickest growing economies in the world and also one of the heaviest tariff users. It's protectionist policies have protected it from foreign industries that would have turned it into a third world country if given the chance. Now that they are emerging as an economic superpower, however, they are loosening their trade policies a little (they still have one of the strongest tariff regimes in the world). As they become stronger, no doubt it will loosen more. If they ever decide that they are in a position to openly compete with the EU and the US, they will start clamoring for free trade, just like all other economic superpowers do.

The reason? Free trade always benefits the stronger economy, which does not need the protectionist policies. It is good sense, for instance, for Canada to seek free trade with Africa because our industry can crush theirs like a bug (there are moral issues with such a policy, but I digress). Free trade with a superpower like the US, on the other hand, is economic suicide, as we are finding out much to our chagrin.

That's what the US knew in 1880. It adopted a highly protectionist stance to allow it to grow into a superpower that would challenge Britain (who was, predictably, clamoring for free trade). It did more than just develop, it became the biggest economy on the planet, a "development" that few other countries can aspire to.

From the point of view of the world's strongest economy, free trade makes nothing but sense. The trouble with Canada is that we keep setting policy based on what makes sense for the US, rather than for ourselves.

And by the way, I think a bigger problem for third world agriculture than our own subsidies, is that "our" global financial institutions forbid them from providing their own subsidies to their farmers. A bit of self-serving hypocracy, no? Much like free trade itself.


From: There is but one Gord and Moolah is his profit | Registered: Jan 2002  |  IP: Logged
Apemantus
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posted 04 July 2002 05:00 AM      Profile for Apemantus        Edit/Delete Post
quote:
From the point of view of the world's strongest economy, free trade makes nothing but sense

You need to be more specific - free markets IN other countries than their own makes nothing but sense for the world's strongest economy. Completely free trade within and without their own country would at least cripple the steel and agricultural industries in the USA.

This is why some people think anti-free traders are biased to their own extreme views because they equate free trade with destroying poorer countries whereas, in fact, truly free global trade presents a bigger threat to the developed countries.

The point many NGOs are making is not that trade should not be free (though for some countries they make the point about subsidies and protectionism), but that it should be either free-for-all, or free-for-none.

It is not necessarily the rules that are the problem, but that the rules do not apply equally!

[ July 04, 2002: Message edited by: Apemantus ]


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Jacob Two-Two
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posted 04 July 2002 04:06 PM      Profile for Jacob Two-Two     Send New Private Message      Edit/Delete Post
That may be true. I've never seen any evidence of it, since there has never been a totally free-trade world. I have serious doubts, but I'll grant the point.

It still begs the question, however, of how such a regime would be achieved. How do you stop countries from being protectionist? Should you do so if protectionism is in their best interests?

To belabour the obvious, the US is a fine case in point. A huge proponent of free trade, it side-steps it's own treaties whenever it is expedient to do so. Could there be any way of preventing such activities?

It seems that a "free-for-all" would still become a double-standard, since strong countries would just do what they had to, regardless of their trade agreements, and smaller countries would be forced by economic pressure to "honor their agreements".

Heads I win, tails you lose (god, I love that expression).


From: There is but one Gord and Moolah is his profit | Registered: Jan 2002  |  IP: Logged
DrConway
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posted 04 July 2002 04:31 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post
At the risk of recycling old material, may I direct you folks to an article of mine.
From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
Apemantus
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posted 04 July 2002 08:13 PM      Profile for Apemantus        Edit/Delete Post
quote:
It seems that a "free-for-all" would still become a double-standard, since strong countries would just do what they had to, regardless of their trade agreements, and smaller countries would be forced by economic pressure to "honor their agreements".

But that is the problem whatever the system - enforcing it. If you had protectionism as the rule, rich countries might break it and liberalise their markets so they could develop quicker and become more powerful (some say that is what happened), so the issue remains enforcement...

Whenever a system involves power, and even one based on words, as an example, would involve power (those most able at languages, for instance), you have to have means of enforcing the rules (however those rules have been arrived at)...


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nonsuch
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posted 04 July 2002 09:11 PM      Profile for nonsuch     Send New Private Message      Edit/Delete Post
Developing Nations

I have a lot of trouble with this expression.
It’s not merely a question of political correctness; it includes a set of unstated assumptions. Do we know what these countries are supposed to be ‘developing’ into? Industrial, obviously, and capitalist goes without saying. Maybe in a hundred years, if they do what we want, they can be just like us. But is that the best thing for every country in the world? Did anybody ask how these countries want to develop - or whether they want international trade at all?

We used to call them ‘backward’ countries. Not very polite, but relatively honest, it meant: uncivilized. Mud huts and communal wells; not a museum or palace in sight. Subsistence farming, no electricity, handmade pots and maybe an ox to pull the plough. It meant: People there live the way people there have lived for a thousand years – no progress. So we colonized them, taught them to wear clothes, plant tea and worship Christ.

Then the same countries came to be referred to as ‘underdeveloped’, which carried the subtext: We’re helping them to become modern, by sending the aristocrats’ children to school in Europe and getting the gold out as fast as we can.

Now, they’re ‘developing’ countries. A few old peasants still have the mud hut and a couple of goats, but we’ve turned most of the people into urban industrial wage-slaves, who don’t own anything, and we’re busy buying up their grandchildren’s birthright for a mess of outmoded guns.


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Jacob Two-Two
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posted 05 July 2002 02:43 AM      Profile for Jacob Two-Two     Send New Private Message      Edit/Delete Post
quote:
Whenever a system involves power... you have to have means of enforcing the rules

But protectionism isn't a system that requires enforcing. Protectionism is pick-and-choose depending on the whims of the individual country, unlike free trade which requires everyone to play by the same rules. Protectionism doesn't preclude liberalisation whereas free trade precludes protectionism.

Oh, and nonesuch, apparently you haven't heard that the Global Order is updating it's condescension. The world bank has declared that poor countries are now to be known as "low-income countries under stress". I guess they've stopped pretending these places are developing, but can they admit what's causing the stress?


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Apemantus
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posted 05 July 2002 04:56 AM      Profile for Apemantus        Edit/Delete Post
I would disagree with your view that protectionism doesn't require rules - for those that think protectionism works, it still requires that the country can protect its borders to stop goods from entering, requires that other countries do not try and break the protectionist barriers etc...

Anyway, which do you prefer and why? Protectionism or free trade?


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Apemantus
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posted 05 July 2002 07:49 AM      Profile for Apemantus        Edit/Delete Post
Re: developing nations - I keep forgetting to use it because it escapes my mind at the crucial moment (conditioning and all that) but I like:

Majority World.

It is nonjudgemental, and makes clear which is the bigger part of the world, and therefore if anything, invests it with the power that the inhabitants deserve even if they don't get it.

And those that think of it as politically correct, well, kiss my hairy ass!!!


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Zatamon
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posted 05 July 2002 09:23 AM      Profile for Zatamon     Send New Private Message      Edit/Delete Post
Please Apemantus, spare us the graphic details!
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nonsuch
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posted 05 July 2002 03:06 PM      Profile for nonsuch     Send New Private Message      Edit/Delete Post
I like 'majority world' and have no problem at all with political correctness. (Luckily - the penalty seems rather extreme.)
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rici
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posted 05 July 2002 03:26 PM      Profile for rici     Send New Private Message      Edit/Delete Post
quote:

... for many poor countries, the possibility of the next decades of the twenty-first century will not be to enter into a process of development, like South Korea and Taiwan did 20 years ago; rather, to survive the challenges of the technological revolution and global competition. This is undoubtedly shocking because it has always been thought that all countries could develop themselves. However, the experience of [the 20th century] indicates the opposite and invites us to think that which was unthinkable: that many countries, misnamed "in development", are not developing themselves, are not in the path to becoming "Newly Industrialised Countries"; rather, they are becoming stabilised as Inviable National Economies and if their situation becomes worse, they could implode into violence as Chaotic Ungovernable Entities, as has already happened in some countries in Latin America, Asia and above all Africa.

That's from El Mito de Desarrollo by Oswaldo de Rivero, a well-known Peruvian economist and diplomat. (And it's my translation.) I don't agree with everything he says, but he brings an interesting perspective to the issue and the book is well worth reading (and is available in English as The Myth of Development from Zed Books.)

On the original subject of this thread, de Rivero says:

quote:

...the gurus of globalization are convinced that all countries will achieving prosperity and development [despite the failure of the past], this time as the result of the planetary competition within a global free market. This conviction, which has utopian ingredients, presents globalization as an unstoppable process, outside of the power of human will, as though it were the universal law of gravitation, something which no-one can escape: not people, not businesses, not nations. What they don't say is that the US, Europe and Japan would have had a lot of difficulty developing themselves in this type of globalization. These countries protected and promoted their industries and mutually copied each others' technologies. Nor do they explain that this global economic space is not as free as is claimed, becuase it does not permit the free movement of human beings in search of employment nor the free copying of foreign technologies, which was once the norm.

(edited to add another quote)

[ July 05, 2002: Message edited by: Rici Lake ]


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Terry Johnson
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posted 05 July 2002 05:29 PM      Profile for Terry Johnson     Send New Private Message      Edit/Delete Post
quote:
Anyway, which do you prefer and why? Protectionism or free trade?


I'll defer to Marx, and his 1848 speech on free trade to the Democratic Association, a precursor of the First International.

quote:
But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.

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DrConway
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posted 05 July 2002 05:37 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post
On the other hand, John Maynard Keynes has been on record as being in "sympathy" with those who would prefer to keep production and distribution as local as possible.
From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
Zatamon
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posted 05 July 2002 05:50 PM      Profile for Zatamon     Send New Private Message      Edit/Delete Post
Dr C., you are not thinking of the infamous Hawaiian 'laundry ships' of the early 20th century, by any chance, are you?
From: where hope for 'hope' is contemplated | Registered: Sep 2001  |  IP: Logged

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