The New York Review of Ideas » Q&A | June 2009
Free Market Protectionism
Cambridge Professor Ha-Joon Chang on the limits of capitalism.
By Flora Fair
There was a time when “protectionism” was a dirty word, but the current economy has left room for debate. No one could be happier about this than economist and Cambridge professor Ha-Joon Chang, author of Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (Bloomsbury Press, 2008). In it, he rails against the idea that countries must adhere to a free trade, free market policy to flourish, and asserts that all wealthy nations (the United States included) used protectionism to grow their economies.
Citing Friederich Hayek and Karl Marx as influences, Chang argues that any emerging economy needs a mix of protectionist measures, free market opportunities and government guidance. He took time out during a tour marking the book’s paperback release to discuss his unorthodox theories about protectionism, and why the current economic meltdown is changing views about the best way to nurture national economies.
Do you think a lack of protectionism is the main, if not the sole, reason that developing nations are failing economically?
Protectionism alone doesn’t necessarily develop or destroy the economy. It depends on when you use it, how you use it, how you target it, how you combine it with other policies. Even when they were all using protectionist policies, countries like Japan and South Korea were far more successful than some of the other countries in Latin America and Africa because their policies were very well-designed, well-targeted. So I’m not saying that it’s just this or that.
But free markets aren’t the best way to achieve growth?
When a country is asked to swallow free-market capitalism, you are told, “Look, we have to generate more wealth before we can distribute it.” That makes sense if it does generate more growth—but does it? No. Not just in developing countries, but in the developed countries, growth rate in the last 25 years has been lower than what it was in the ‘60s and ‘70s. And this is not even counting the current downturn.
Given the economic downturn, have criticisms of Bad Samaritans changed since the book’s 2007 release?
Definitely, there is a lot more receptiveness to my ideas this time around. Today, free-market ideas are on the defensive. At least people are willing to listen to arguments coming from the other side, like mine. Some of the topics that I discuss in the book were out of most people’s radar screens only a year ago, but are at the heart of the debate today. This time, for example, I was discussing with people whether the U.S. should nationalize the bailed-out banks, but a year ago, most Americans thought state-owned enterprises—the topic of chapter 5 of Bad Samaritans—is not an issue for them.
And what role should government play?
The exact combination of government and the private sector will have to defer across countries because they all have different needs, different capabilities, different goals. But the ideology that has ruled the world in the last 25-30 years is that the government has no role to play other than basically building roads and running primary schools.
When South Korea was improving its economy in the 1960s, it was exporting goods in exchange for opening up its markets. Isn’t that counter to your idea of protectionism for developing countries?
That’s what a lot of people are confused about. Engaging with the international economy and exporting are not incompatible with protectionism. The point is that if a country wants to develop export industries in the first place, it may have to employ some protectionist policies. For example, a chapter in my book about trade policy is titled, “My six-year-old son should get a job.” The point being that I have a six-year-old son who—I don’t use this word there—is basically a total “sponger.” My wife and I pay for his food, pay for his lodging, education, healthcare, Nintendo games, and God knows what. So why can’t he work? He is certainly capable of working and earning his keep. I save money by not sending him to school and pushing him into the labor market.
So why not?
I don’t force him to work because I believe that if I invested in him for another 12-15 years, he can become a lot of things: A brain surgeon, nuclear physicist, accountant—you name it. Of course, there’s a chance that this guy will come out to be a total waste of time. But even if there’s a 20 percent chance—or even a 10 percent chance—that he will become one of those things, I’m willing to make the investment. Because I know that if I pushed him into the labor market, there’s a 99.9 percent chance that he will not be one of those things.
And how does this connect to the world economy?
Basically, a country needs to develop certain capabilities to engage with the global market, where everyone is so much more advanced than you are. Even to export pretty basic things like a cheap transistor radio, which used to be one of South Korea’s main exports. The country first needed to develop these industries on the protectionist subsidies and so on. But engaging in the world economy and protecting young producers is totally compatible.
So you’re serving your own interests by educating yourself through others who have done it.
That’s right. Isaac Newton famously said, “I can see further than other people because I stand on the shoulders of the giants.” So it would be madness for developing countries to even think that, “Oh, I can live on my own,” because you are effectively committing suicide then. During that period, you basically do things to promote these countries so that they can compete in the world economy on equal terms in due course. I mean, this kind of protection is very different from the North Korean kind of protectionism, because here you are protecting your economy so you can participate in the world economy on better terms. In the North Korea case, you are protecting your economy in order not to participate in the world economy.