avatar
Review of Ha-Joon Chang, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism


Ha-Joon Chang, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (London: Bloomsbury Press, 2008 [orig. 2007]).

Bad Samaritans is one of the most valuable English-language critiques of top-down, neoliberal globalization to have emerged in recent years. The book is essentially a more beginner-friendly version of Chang’s 2002 academic work Kicking Away the Ladder: Development Strategy in Historical Perspective (London: Anthem Press), but one that conserves all the meticulous scholarship, sound logic, and intellectual rigor sometimes sacrificed in the name of accessibility. The result is a searing indictment of the "free-trade" policies hypocritically forced upon underdeveloped nations by the governments of rich countries and by Western-dominated financial institutions like the World Bank and International Monetary Fund. Chang is hardly the first to raise this sort of critique, but he certainly ranks among the most articulate and most accessible of critics.

A particular strength of the book is its historical analysis of the means by which today’s industrialized countries developed their economies. The official narrative of course holds that the US, Britain, Germany, Japan, and others developed by adhering to the free-trade policies of Adam Smith and others, shunning protectionism and government intervention in the economy [1]. Chapter 2 thoroughly refutes this narrative through a brief summary of Western Europe’s development, with a particular focus on England’s textile industry. Starting under the Tudor monarchs in the fifteenth century, the English government adopted strong protectionist measures in order to develop its domestic industries. Henry VII, Elizabeth I, and others restricted, and eventually banned, the export of raw wool in order to drive textile producers in modern-day Belgium and the Netherlands out of business and thus allow for the growth of English textile manufacturing. Later, in the early eighteenth century, Prime Minister Robert Walpole (1721-42) formulated the explicitly mercantilist policy that remained in place for the next century, declaring that "nothing so much contributes to promote the public well-being as the exportation of manufactured goods and the importation of foreign raw matrial [sic]" (p. 44). Soon afterward the government also actively prevented textile manufacturing in Ireland and its North American colonies, and prohibited Indian textile imports. While some neoliberal economists (those who do bother to ground their arguments in history) point out that Britain renounced its mercantilist policy on overseas trade in the mid-1800s, Chang notes that it "adopted free trade only when it had acquired a technological lead over its competitors" through the use of high tariffs on imports, subsidies to domestic manufacturers, and various other forms of protectionism (p. 48). By that point, free trade was in fact highly beneficial to British industrialists who longed for low-priced primary imports to reduce the cost of sustaining the British labor force.

 

The United States government followed a similar strategy for promoting economic growth. Cherished heroes of high-school textbooks like Alexander Hamilton and Abraham Lincoln were in fact avid protectionists whose ideas for protecting "infant industry" remained fully in-force in the US through the late-nineteenth-century period of massive industrial growth. Like the English, the US government deployed a wide range of protectionist policies including tariffs, subsidies to domestic producers, deliberate relaxation of patent laws, and strict regulation on foreign investment. Although, like England, the US had gradually cut back on such measures by the early twentieth century, both countries returned to heavy protectionism—especially in the form of tariffs on manufactured imports—in response to the Great Depression, with the 1930 Smoot-Hawley Act being the most obvious example.

 

Those economies that developed in the decades following World War II—most notably, Japan, China, India, South Korea, and Taiwan—likewise benefited from extensive state intervention. Chang correctly notes that "virtually all the successful developing countries since the Second World War initially succeeded through nationalistic policies, using protection, subsidies and other forms of government intervention" (pp. 28-29). Moreover, high inflation was not necessarily an obstacle to development, despite long being targeted as the cardinal sin by neoliberals and their predecessors, the monetarists. In fact, annual inflation remained at almost 20 percent in South Korea throughout the 1960s and 1970s when the Korean economy was beginning to take off. Based on the actual experience of South Korea and other countries, Chang concludes that "the truth of post-1945 globalization is almost the polar opposite of the official history" (p. 31).

 

With the actual history well-documented in the early chapters, Chang then dissects the neoliberal economic policies that Western financial institutions and governments have promoted since the late 1970s and early 1980s in the Third World. The remaining chapters address most of the principal aspects of neoliberalism (privatization of industry, trade liberalization, reduction in government social spending, etc.), contrasting these prescriptions with the policies that allowed for the growth of the US, Western European, and East Asian economies.

 

Chapter 5, for example, assesses the controversy over state-owned enterprises (SOEs), concluding that they are not necessarily less efficient, and are frequently more efficient, than private enterprise. The major arguments that neoliberal elites use to denounce SOEs—such as the "principal-agent problem" referring to the potential lack of monitoring and accountability—"actually apply to large private-sector firms as well" (p. 107). The desirability of SOEs is especially apparent when the industry in question is responsible for providing vital services for the population-at-large. This discussion is especially relevant for countries where basic human rights and essential services have been left to the whim of private, profit-driven corporations, and where privatization has resulted in skyrocketing prices, increased corruption, and astoundingly inefficient service (few readers in the US will fail to note the applicability to the system of private health care in this country, though the system is often even worse in the Third World). Public opinion in both developed and underdeveloped countries seems to coincide with Chang’s argument: for example, a large majority of the US public has long favored a system of universal, single-payer health coverage, and over 80 percent of Latin Americans say that essential services and industries like water, education, electricity, health care, and hydrocarbons should be managed by the government [2].

 

Other chapters are equally incisive, dealing with the way that intellectual property rights, neoliberal restrictions on tariffs in the Third World, and other mechanisms help reinforce global inequalities by preventing poor nations from developing their domestic industries. The book as a whole leaves the reader with a clear sense of the profound hypocrisy of neoliberal economists and elites in the industrialized countries (though Chang remains somewhat generous in his assessment of these people’s intentions, a point to which I return below).

 

Within the industrialized countries, too, economic policies have increasingly followed the philosophy of "socialism for the rich, market discipline for the poor [and everyone else]" (Gore Vidal’s phrase, though many others have pointed out the same pattern in as many words). This pattern has reached its most blatant modern-day manifestation in the financial bail-outs of the past year, but has in fact been standard policy for several hundred years in the developed countries. Here the book would have benefited from more consideration of how current economic policy in the West itself continues to revolve around heavy, but selective, state intervention in economic matters. For example, the Pentagon is virtually absent from Chang’s analysis, despite the fact that it has long functioned as a massive system of state subsidies to private corporations as well as a highly-effective mechanism for the upward distribution of wealth and power in the US [3]. On the global level, there is no analysis of how immigration policy helps reinforce economic inequality (Adam Smith, of course, believed that the capitalist system depended on workers being free to migrate as necessary). Chang does, however, occasionally mention continued Western protectionism: although rich countries "have low average protection," they "disproportionately protect products that poor countries export" (p. 75)—most notably, agricultural goods.

 

The results of neoliberal policy have been devastating for most of the world’s people, a fact that by now needs little verification: even the World Bank’s own statistics point to several billion "losers" around the world over the past thirty years. Such policy, as Chang points out, has not even brought accelerated economic growth in most cases, let alone greater equality; average growth in the underdeveloped world during the period 1955-82 was about twice what it has been since the full-fledged onset of neoliberalism. But just as important, neoliberal policy has frequently undermined democracy in both a political and social sense, investing foreign elites and institutions with unprecedented power to determine the fate of underdeveloped countries. This undermining of democracy is not accidental, as Chang points out in a particularly insightful section on "[t]he political origins of economic rights" (p. 175). Greater participatory democracy, of course, often translates into social and economic policies quite antithetical to neoliberalism, as the poll results cited above suggest.

 

Interestingly, however, Chang nonetheless maintains that many neoliberal economists and officials in the global West are sincere in their policy prescriptions. He argues that many policymakers are oblivious to the real-world effects of neoliberalism and simply need to be "given a more balanced picture" (p. 221). Converting such people is not impossible: former World Bank Chief Economist Joseph Stiglitz’s fierce critiques of neoliberalism in recent years are a case in point. But Chang’s belief that neoliberal ideologues and Western governments can be convinced to support fundamentally different economic policies in the underdeveloped world through an "appeal to their enlightened self-interest" (p. 220) strikes me as a little too optimistic. Chang acknowledges the strong sense of self-interest that drives most policymakers, but believes that their self-interest is not incompatible with the development of poor countries. His main historical counter-example is the period of "import-substitution industrialization" (ISI) which lasted from the 1930s through the late 1970s, and in which underdeveloped countries, often with Western backing, adopted certain protectionist policies in order to develop their own domestic industries.

 

Part of the problem, though, is that despite the economic growth it often spurred, ISI ultimately proved ineffective in breaking the poor countries’ economic dependence on the rich nations and foreign capital. Most countries that adopted ISI policies faced a slew of problems—dependence on foreign capital imports, lack of domestic demand for manufactured goods, deeply-ingrained domestic inequality, among others—that severely limited the real benefits accruing to their populations. In fact, domestic inequality actually increased in many countries during the ISI period. For these reasons, by the late 1960s ISI and the structuralist economic school with which it was associated had quite justly come under intense criticisms from the emergent "dependency" theorists, who argued that economic policy prescriptions for the Third World must take greater account of the imperialistic motives of the rich nations and of the continual extraction of surplus wealth from the poor nations. While most ISI enthusiasts had insisted that the relationship between rich and poor countries could be mutually beneficial, dependency theorists (a group that incidentally came to include many former structuralists) were far more skeptical. Although some dependency theorists may have gone too far in the direction of demonizing all economic contact with the rich nations, clearly the optimism of the ISI theorists had turned out to be misguided.

 

Second, Chang’s implication that the motives of First World leaders during the ISI period were somehow benign—and their foreign economic policies cooperative and constructive—seems naïve. The notion that the US maintained an "enlightened approach to international trade with economically lesser nations" (p. 74) prior to the 1980s might come as a surprise to many in the Third World, particularly in Latin American countries like Guatemala, Bolivia, Cuba, and Chile, where the US used a combination of economic and military coercion to prevent nationalist regimes from implementing independent economic policies.

 

Finally, are the paths followed by nations who have used protectionism to develop their economies really ideal? Chang never says so, but he does imply that today’s rich nations represent laudable models to follow. Here the discussion suffers from a lack of attention to the need for socioeconomic redistribution in even the rich countries (and, in countries like the US, for quite dramatic redistributive policies), as well as from the lack of a more well-developed explication of how the rich nations’ development has been largely dependent on the direct or indirect exploitation of less-developed countries. 

 

But what I would deem a romanticization of the ISI period and an overly optimistic assessment of the prospects for cooperation do not negate Bad Samaritans‘ major strengths: most notably, a formidable historical analysis of the means by which today’s wealthy countries developed, and a powerful and comprehensive critique of the neoliberalism of the last thirty years. The book is an excellent primer for jargon-wary readers looking to develop a solid understanding of neoliberal globalization, its mechanisms, and effects.

 

 

Notes:

 

[1] Smith, in fact, did not shun all such intervention—he favored it, for example, to set minimum wages for workers—but in general he promoted minimal government action. He thought, however, that such policy would have a long-term leveling effect, resulting in relatively egalitarian societies (clearly not an admirable goal from the perspective of banking and corporate elites who promote "free trade" today for the Third World).

 

[2] For Latin Americans, see Corporación Latinobarómetro, Informe 2008 (November), http://www.latinobarometro.org/docs/INFORME_LATINOBAROMETRO_2008.pdf, 38. The US public‘s preference for single-payer health care is so well-established and so longstanding, in spite of constant bipartisan rhetoric decrying "socialized medicine," that it is impossible to cite all the relevant polls here; for just a few representative examples from the last six years see the polls cited on David Sirota’s blog, http://www.davidsirota.com/2006/03/news-flash-america-wants-single-payer.html, plus the long (and partial) list of polls cited on the website of the Western PA Coalition for Single-Payer Health Care, http://www.wpasinglepayer.org/PollResults.html.

 

[3] On US military spending, its motives, and consequences, see the recent book by Ismael Hossein-zadeh, The Political Economy of U.S. Militarism (New York: Palgrave Macmillan, 2006).

Leave a comment