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
In a recent contribution to The New York Times, you talked about establishing “a new international agreement that allows a transparent, forward-looking and time-bound protectionism.” Do you think that’s possible in the current global climate?
At the moment, there are a lot of people repeating the mantra that we should not give in to the temptation of protectionism and that, if we did, the whole world will collapse. But whatever they say, countries are being forced to become more protectionist out of necessity. These are extraordinary times, and extraordinary things can happen. Only a year ago, who would have thought that the U.S. would nationalize half the financial system, the IMF would officially recommend deficit spending, and the head of the UK financial regulatory authority, famous for its “light-touch” regulation, would pledge to introduce more “intrusive” regulatory measures?
Who would you say is getting it most wrong when it comes to economic policy?
Oh! Most people [laughs]. No, I’m being too harsh. It’s difficult to say because people suddenly changed their tune. I mean Larry Summers, now your Economic Supremo, when he was at the World Bank and the U.S. Treasury, he used to go around the world asking countries to deregulate and open up their financial system. Now he’s suddenly in favor of financial regulation, so has he got it wrong or not? I don’t think it was just a matter of a particular person or three. It was, in a way, a collective madness. It just became such a religion that people would just not look at the evidence and listen to rational arguments simply because it was sort of against the religious doctrine.
What’s the one thing you would like to say to the average American living through the current economy?
Actually, I’m now preparing a book, provisionally titled “23 Things That They Don’t Tell You about Capitalism.” The first thing that I say there is that there’s no such thing as a free market. It’s like those kung fu movies where these guys fly, but actually they are on wires. When you accept the legitimacy of [government] regulations, you don’t even see them as wires and you think that this market stands alone. No, it’s not the case. People have been told that things like minimum wage and national health insurance are all anti-free market things. No, there’s actually no theory that says these things are anti-free market. The free market economists all love to attack these things as political meddling with market forces, but in the end, their view of where the boundary between where the market and the state should lie is as legitimate or as illegitimate as anyone else’s. So in that sense, once you accept that there is such a thing as a free market, you’ve already lost the battle. ♦