The Myth of Free Trade and the Secret History of Capitalism, by Ha-Joon Chang
Ha- Joon Chang, South Korean economist at the University of Cambridge, published Bad Samaritans in 2007. The book is a critique of the late 20th and 21st century’s dominant ideology (both in politics and economics), neoliberalism. In this book, he outlines the crucial differences between, what he calls, official and unofficial history of neoliberalism, and seeks to explain how developed countries are trying to “sell” this ideology to developing countries as a guaranteed road to prosperity. Throughout witty historical examples, and empirical evidence, he critiques free trade, foreign investment, private ownership, patent laws, low inflation and cultural stereotypes.
The prologue of Bad Samaritans begins with an article published in The Economist called: “Mozambique’s economic miracle”. In this article, Ha- Joon Chang predicted that one of the poorest economies of the today’s world, Mozambique, will become one of the biggest economies in 2061. Even though it is difficult to imagine that the country with the lowest GDP growth per capita will achieve such economic success, it is not unprecedented. South Korea is one of those miracle economies that started as one of the poorest economies after the 2nd World War and transformed itself into one of the richest countries, both economically and technologically. For developing countries, South Korea serves as an example and triumph of neoliberal ideology. With examples of infant industry protection, governments intervention and supervision of manufacturing, Ha-Joon Chang shows that South Korea’s economic success story, much like others, is not due to small governments and free markets. In the prologue, the author also introduces readers with the term: the Unholy Trinity. The Unholy Trinity consists of Bretton Woods organisations: International Monetary Fund, World Bank and World Trade Organisation (previously GATT), and are given this derogatory term because they were pushing the neoliberal agenda to developing countries. After the Third World Debt Crisis, Bretton Woods organisations (alongside developed countries such as the U.S. and the UK) lent the money to emerging economies with the attached terms and conditions that included: deregulation, privatisation, opening up international trade and investment, etc.
With examples of infant industry protection, governments intervention and supervision of manufacturing, Ha-Joon Chang shows that South Korea’s economic success story, much like others, is not due to small governments and free markets. In the prologue, the author also introduces readers with the term: the Unholy Trinity. The Unholy Trinity consists of Bretton Woods organisations: International Monetary Fund, World Bank and World Trade Organisation (previously GATT), and are given this derogatory term because they were pushing the neoliberal agenda to developing countries. After the Third World Debt Crisis, Bretton Woods organisations (alongside developed countries such as the U.S. and the UK) lent the money to emerging economies with the attached terms and conditions that included: deregulation, privatisation, opening up international trade and investment, etc.
The author, in 9 chapters, describes how neoliberal ideology that these organisations are trying to implement in developing countries that have not worked out the best in the past. In the first chapter, Chang focuses on the official history of neoliberalism. Here, he discusses Thomas Friedman’s work, “The Lexus and the Olive Tree” in which he states that half of the world is intended on building a better Lexus, and the other half is fighting over who owns which olive tree. In Friedman’s view, countries that fight over the olive tree have to put on a Golden Straitjacket (accept policies of neoliberalism) to prosper economically. Ha-Joon Chang mentions Friedman’s work because it is modelled on the fictional (official) history of neoliberalism. The official history told the story of how the UK and the U.S. prospered economically after implementing neoliberal policies. It suggests that after the British adopted liberal policies in the 19th century, those policies gained popularity in the U.S. and other countries because of it is macroeconomic stability, low inflation, balanced budgets and industry productivity. After it has been abandoned in post World War 1 and brought back again in the 1980s, it served as a wake-up call for other developing countries that decided to embrace policies that made these rich countries rich. As the new era of global integration emerged and telecommunications developed, openness was crucial for nation’s prosperity.
The real history, however, is much different, as argued by the author. In the book’s second chapter he discusses Daniel Defoe’s work in economics: “A Plan for the English Commerce” (1728) in which he outlines protectionist policies of Henry VII and Elizabeth I, such as subsidies, distribution of monopoly rights and government intervention. Those policies that were different to the core values of neoliberalism brought the UK success in its woollen manufacturing industry and put the country on the map as one of the most leading economies in the world at the time of Tudors’ reign.
Moreover, rich countries were only imposing low tariffs in countries that they were importing from while keeping high tariffs for their exports. When developing countries decided to implement neoliberalism and participate in globalisation after the late 80s, their growth rate stagnated. They suppressed activities that they were good at, and soon they were run by IMF and the World Bank, organisations that contributed to the increase of inequality in these countries.
In further chapters, the author talks about regulation of foreign investment and questions if foreign capital is essential. According to Bad Samaritans, developing countries should open their markets for that money to circulate on their market. He also discusses a theory of how foreign direct investment is not just there to bring money, but a lot of other benefits that will increase development. The author signifies that developing countries have to be cautious of the fact that foreign direct investment can go out as well as in. Foreign investment can also generate additional demands for foreign currency, undercharge and overcharge each other to earn more profit, and then transfer that money to tax havens.
To explain further why this ideology is deeply rooted in countries’ minds, the author explains the arguments for neoliberalism and seeks to find flaws in them. He talks about how privatisation has been a centrepiece of neoliberal agenda, and appear as a polar opposite to beliefs of communism.
“John Kenneth Galbraith, one of the most profound economic thinkers of the 20th century, once famously said: ‘Under capitalism, man exploits man; under communism, it is just the opposite.’ He was not suggesting that capitalism and communism were the same, he would have been the last person to do so; Galbraith was one of the leading non-leftist critics of modern capitalism. What he was expressing was the profound disappointment that many people felt about the failure of communism to build the egalitarian society it had promised.” (Chang, p.89.)
The author proposes the argument that individuals will act selfishly to maximise their profit and therefore create a more efficient economy. He also lists state-owned success stories that serve as an example of how individualistic theory does not always apply and creates more greed due to its deregulation. Neoliberalism has been so focused on privatisation and its success in maximising efficiency, that it has often overlooked that for economic development it does not matter if the cat is black (private) or white (public), as long as it catches mice. (Chang, p.108.)
In further chapters, the author discusses patents and their protection laws, mentioning how developing countries suffer because of sky-high prices of medicine (HIV in African countries) and how important it is to “borrow” the ideas in order to develop their technologies. Here, he gives an example of his native Korea and how, before their economic success; they have been copying other products and selling them instead of the originals, and how that lead into Koreans developing their industries such as Samsung. Furthermore, he outlines the idea that strong protection of inventions would generate efficiency in creating ideas, whereas the reality is much different. He compares patents with salt; too much and too little are bad for your body, and we have to balance it right by allowing developing countries to acquire new technical knowledge with a fair price. We should not only make technology acquisition easier, but also encourage them to develop new ones.
I have mentioned these seven chapters because they had the biggest impact on my study
and understanding of the history of neoliberalism. However, the rest of the content is worthy of mentioning. The author talks about low inflation as one of the neoliberal golden rules. He talks about how free market and democracy are not always natural partners, and he talks about cultural stereotypes that usually follow developing countries (they are poor because they are lazy or do not plan ahead).
Throughout the whole book, the author clearly presents his main arguments. Neoliberalism as strict ideology did not work in developed countries and it is definitely not working in developing countries. While the world’s strongest economies implemented neoliberal values where it suited them, and used government and infant industry protection elsewhere, they were imposing strict neoliberal policies to countries that have yet to developed their industries, but are slowed down by these Bad Samaritans.
With often amusing examples; such as the example of raising his son by neoliberal ideas that he mentions in Chapter 2, he explains the attitude of rich countries towards the global south countries, without using any complicated or unclear terms. It is comprehensive to all readers, not just economists.
However, he fails to mention how the world should not only focus on development of industries to succeed economically. Even though he acknowledges the importance of health, education and welfare he does not describe them as crucial to the development of country and its society. He does not signify how for economic development, countries have to focus on both micro- and macro- economics rather than just on one.
Another big issue that this book has not discussed is the environmental issue that is omnipresent in the whole world today. Even though the author emphasises the importance of giving the opportunity to developing countries to develop economically as richer countries, nowhere in the book does he consider the environmental consequences that development of certain industries could have on our environment.
Also, Ha-Joon Chang did not discuss the dangerous growth of the financial sector in developing countries. Although the book was written a year before the world’s economy collapsed, uncontrollable growth of the financial sector and its deregulation was another prominent issue that neoliberal ideology has created, even then. As an economist who is very critical of the new world order, he should have at least mentioned the banks, investors and the problems they were causing at the time, because of their deregulation policies. In my opinion, it would have been an example of how developed states were also hit by the consequences of their often praised ideology.
Nevertheless, this book has more strengths than weaknesses. It has been frustratingly hard to enter the world of economics and understand why the developing countries are struggling with their economic development throughout last century. Confusing jargon often used in economics is one of the reasons why economics seem so unapproachable. Another reason is that the issues of this ideology are not deeply discussed in developed countries. The right-winged governments and the media have never mentioned that the root of all troubles in the globalised world lies in neoliberal views and ideas. We are taught the official history (discussed by Ha-Joon Chang) and are lead to believe that governments, taxes, rules and regulation are the cause of all of our problems. We have been so focused on maintaining and saving democracy that we are taught that there is no difference between individualistic ideals in the industry and the idea of individuals in free nations. The developed countries that, in today’s world, act like bullies knowingly blur the distinct line between the ideals of democracy and the ideals of neoliberalism. The most important thing that this book has taught me, and the most important thing it portrays, is that there is a democracy without neoliberalism. There is an individual and collective level that has to coexist. Without a stable society, an individual is nothing and cannot survive. Individuals driven by their own greed and self-interest do not attribute to society and, as a consequence, society will not contribute to them.
Chang, H. (2008). Bad samaritans. New York, NY: Bloomsbury Press, p.89., p108.