Bad Samaritans (Chapter 2) by Ha-joon Chang
Chapter 2 The double life of Daniel Defoe
How did the rich countries become rich?
1. (p.41) How did Britain have transformed itself from a raw-material exporter into the European center of the then high-tech industry? Free market and free trade or protectioniism?
- In Daniel Defoe's A plan of the English Commerce(1728), he describes how the Tudor monarchs, especially Henry Ⅶ and Elizabeth Ⅰ, used protectionism through tariffs, export subsidies, government-sponsored industrial espionage and other means of government intervention(regulation to control the quality of export products) to develop England's woolen manufacturing industry. The protectionist policies of Robert Walpole, prime minister, also banned exports from its colonies that competed with its own products to other countries.
2. (p.46) When did the view of Adam Smith, the world's first free-market economist, become influential in British economy?
- In The Wealth of the Nations(in 1776), Smith argued that the restrictions on competition were bad for the British economy. Smith understood that Walpole's policies were becoming obsolete. Once British industries had become internationally competitive, protection became less necessary and even inefficient, as Smith observed. Therefore, adopting free trade was now increasingly in Britain's interest. It was not until 84 years after The Wealth of Nations was published that Britain became a genuine free trading nation.
3. (p.49) What is the history of America's protectionism?
- Alexander Hamilton's 'infant industries' argument (Report on the Subject of Manufactures in 1791) : The core of his idea was that a backward country like US should protect its 'industries in their infancy' from foreign competition and nurture them to the point where they could stand on their own feet.
- Abraham Lincoln(1861-5) : He was a strong advocate of infant industry protection and American manufacturing through the highest tariffs on manufactured imports. Disagreement over trade policy, in fact, was possibly more important than slavery in bringing about the Civil War.
- Until the First World War, the tariffs on manufactured imports remained at 40-50%, the highest in the world. Being the most protectionist country in the world throughout the 19th century and right up to the 1920s, the US was the fastest growing economy. It was only after the Second World War that the US - with its industrial supremacy now unchallenged - liberalized its trade and started championing the cause of free trade.
4. (p.56) Given that protectionism is bad for economic growth, how can the two most successful economies in history have been so protectionist?
- None of the other countries among today's wealthy nations were ever as protectionist as Britain or the US. France, Germany, and Japan - the three countries that are usually considered to be the homes of protectionism - always had lower tariffs that Britain or the US. The average industrial tariff rates in the two nations were 50-55% at their height.
5. (p.61) What is the right lesson from history?
- History tells us that, in the early stage of their development, virtually all successful countries used some mixture of protection, subsidies and regulation in order to develop their economies.
- Unfortunately, another lesson of history is that rich countries have 'kicked away the ladder' by forcing free-market, free-trade pocicies on poor countries. Already established countries do not want more competitors emerging through the nationalistic policies they themselves successfully used in the past.
- Fortunately, history also shows that it is not inevitable that successful countries act as Bad Samaritans. The US allowed poor countries to develop their economies through nationalistic policies, launching US' Marshal Plan, which resulted in 'Golden Age of Capitalism'(1950-73) in Europe.