International Affairs Forum: Perhaps to start, you could talk about the central assertion in your two most recent books "Kicking Away the Ladder" and "Bad Samaritans."
Prof. Ha-Joon Chang: The basic contention focuses on the set of policies known as the Washington consensus, or neo-liberal policies depending on who says it. This package is made up of trade liberalization, openness to foreign investment, liberalized financial markets and the privatization of state owned enterprises. It has been pushed on developing countries for the last 20 to 25 years, and it has produced very poor results. Let's make that clear. When these policies were first recommended, especially following the 1982 Third World debt crisis, the thought process was that developing countries had been inefficient with stagnant economies. It’s true that the policies in developing countries weren't perfect, but in the 60s and 70s they were growing at about 3% per year in per capita terms.
IA-Forum: You’re talking about a period of Interventionism?
Prof. Chang: Yes, that was when they had import substitution and industrialization; they had a lot of stable enterprises. Let's not gloss over the fact that there were lots of problems in many countries, but even then they were clocking up a 3% growth rate. In the last 20 to 25 years they've barely grown at 2%. That's largely thanks to star performances by countries like China and India. Those two countries have liberalized, but haven't followed the neo-liberal formula. If you look at regions that have faithfully followed the Washington recommendations like Latin America and sub-Saharan Africa, growth has basically collapsed. Latin America in the bad old days of import substitution used to grow at 3.1%. In the last 25 years it has grown at 0.5%. So that's the first thing.
To make it even worse, if you look at the history of the rich countries, the policies that they push on developing countries today were not the policies they themselves used to develop. They don’t work, they have never worked; so what is the basis for recommending or even imposing this policy package which has no evidence of success?
I'm trying to show that if you look at all the success stories in history, starting from the 18th century British experience down to late 20th century Korean and Chinese experiences, the policies that made these countries successful are very different, almost indeed the opposite, from what the Washington institutions are pushing.
IA-Forum: "In Kicking Away the Ladder" one of your concluding points is: “[I]nfant-industry promotion does not guarantee economic development, but historically, very few countries have achieved economic development without it.” Is the protection of infant industries, in your mind, one of real the keys?
Prof. Chang: Yes, in "Bad Samaritans," to bring out the point more clearly I use the example of my young son, who in the book appears as a six-year-old boy. At some level he is a total sponger. I pay for his education, food, lodging and everything. That means that I’ll save a lot of money if I pushed him into the labor market. He'll earn money and I won't have to pay for those things. So it looks like a win win; he'll become more competitive because he has to survive in a harsh environment. But I don't do that because he's a clever kid and if I keep supporting him for another 12 to 15 years God knows what he might become. Perhaps a medical doctor, nuclear physicist or chartered accountant. So that's why I send him to school rather than make him work. By the same logic, if you liberalize your trade at a low level of development you are forever going to be doing low-grade activities like agriculture or very labor-intensive manufacturing. So if you want to develop better industries, you need to protect your local producers for a while before they can accumulate the capabilities to compete with the big boys.
Now, does it mean that everyone who goes to school, or everyone that is supported by their parents, is going to succeed? No. They also have to work hard, sometimes there is luck involved. It doesn't guarantee success, but we still maintain schools and keep sending kids there because on average, sending kids to schools is better for them. On the other side of the coin, of course there are people who become fantastically successful after only six years of education. But this doesn’t prove that other people shouldn’t go to school. In that sense it's important to look at real life experiences and you'll find that in country after country you have the government protecting and promoting infant industries. On the basis of that reading of history I make this point, and I don't take it as an iron law because there are forces working for and against it. In some cases you protect industries too much, you protect the wrong industry, even when policies prove incorrect you keep protecting it. So you can speculatively fail with these kinds of policies, but that doesn't mean that you can succeed without them.
IA-Forum: In "Kicking Away the Ladder" you who used to a very prophetic quote by the German philosopher Friedrich List who wrote in 1885:
Prof. Chang: It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him.
Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth.
IA-Forum: Do you see the Neo-liberal agenda or Washington consensus, as a straightforward Qui Bono or who benefits situation; is it simply hegemony maintenance or leakage prevention?
Prof. Chang: Well, I think the motivation is quite complex. There are clearly people who know what they're doing. For example, recently the U.S. submitted a proposal to the WTO saying we have to tighten regulations on subsidies. That proposal included things like the government investing in what they call ‘non-equity worthy companies’, even if they are private companies. This way you are squashing the future competition from the beginning. If the Japanese government didn't support the car industry, or if the Nokia group didn't cross subsidize the electronics industry then you don't have these competitors. So there are clearly attempts to make it difficult for the followers to catch up with you.
There are other people who think they are really doing a favor to the developing countries by recommending these policies because they have such a distorted notion of history, if they know it at all. They have such a trust in the magic of the free market they think: ‘Well, the theory says this is the best policy. Everyone who has become richer has more or less followed free trade and free market policies, so who are these people in developing countries who think they can do otherwise?’ So for them it's not even like getting rid of the competition, it's just doing good while recommending the obvious policies.
IA-Forum: Even in the face of the numerous failures you’ve discussed?
Prof. Chang: You'd be amazed how people are able to find excuses. They try to explain these things within a paradigm, so if some countries don't do well they talk about the burdens of geography, burdens of history, lazy culture, or corruption. I haven't written it officially, but I sometimes in my talks refer to ABP, which is ‘Anything But Policy’. The policies don't work, and then people find some other excuses. The counter evidence has to be so overwhelming before people begin to admit that there is something wrong. But I think it's now finally happening.
IA-Forum:A Paradigm Shift in some sense?
Prof. Chang: Yes, I think its happening. In the very early days of IMF and World Bank structural adjustment in the 1980’s, they said: ‘We need more time, you can't expect results in just a few years’. Then after four or five years it still didn’t produce any results, and they started saying look, it is because these governments really didn't correctly implement these policies; they’re corrupt, or they're incompetent so they have to do it better. They tried to fix some of those things and it still didn't work and they said it’s because they haven't done enough. They are now finding all kinds of excuses: political problems, corruption, culture, geography, ethnic fragmentation. Okay these things matter and actually this is one of the points that earlier critics of structural adjustment were making. These are very different countries, how can one-size-fit-all? At that time, the IMF and World Bank said: ‘No, do you think there are different physics in Ghana than in the US? Economics is a science and it should work everywhere.’
Now that their theory doesn't work, they’re suddenly rediscovering the power of history and politics which they themselves argued was irrelevant. So yes, I think that there is a gradual but clear sign of a paradigm shift. I mean, it's not going to happen overnight. I think that things are changing on the margins, and hopefully in the next 10 or 20 years we should see a more fundamental shift in general opinions.
IA-Forum: In your article "Breaking the Mould," you talk about the need to change the approach to neo-liberalism. Do you see a mixed model, you mentioned a Keynesian approach in your article, as being a more viable option for developing economies?
Prof. Chang: For everyone, I think. Why did we have the so-called golden age of capitalism in the 50’s, 60’s and early 70’s? Of course part of it was postwar reconstruction. But one other reason was better regulation of capitalism. Financial markets were more stable, and politics became more stable with the development of better welfare states. What you need to do depends on which country you're talking about. Everywhere you look countries do better when they have some kind of regulated capitalism, and regulation can be more or less depending on the country's political system, culture, values, and social goals. This idea that ‘the less constraints you put on the market the better it does’ is clearly disproved by history. In Breaking the Mould I tried to show on a more theoretical level how this market-state dichotomy is very misleading. It puts you in the wrong frame which creates a certain bias. Of course, I don't think anyone can claim to be unbiased. The difference is that some people know how they are biased. I think we really need to bring in a totally different framework to understand the relationship between the market, the state and other institutions. In doing that, if you translate it into a concrete action plan it will point towards a more mixed economy.
IA-Forum: Are there economic models or frameworks that you use as examples, or that you point to currently as successful models which are broadly applicable?
Prof. Chang: Once again, there are some things whose value really depends on what you want. The USA apparently has the highest standard of living, because it has the highest per capita income in terms of purchasing power parity. This measurement has its limitations, but at least according to that criterion it can claim to have the highest living standards. However, if you actually look at income as per purchasing power parity, in terms of the hours worked America actually has a much lower standard of living. Its productivity is quite low in the sense that Americans work, depending on the country, 10% to 15% more than the Europeans. Europeans work much shorter hours. They produce not as much as the Americans, but per hours worked they produce a lot more and they have more free time. In my view it's a better arrangement, but I'm perfectly willing to admit that some people might want to work longer so that they can buy another TV. Who am I to criticize them? So there are these things that are really a matter of value judgment.
Why do you have so much pressure for protectionism and union conservatism in the US? Because it's is a very lousy welfare state. Especially in Scandinavia, the welfare state is strong. This in combination with good re-training programs means that people are less worried about keeping their current jobs.
Of course losing them might be unpleasant, but it's not the end of the world. But for American autoworkers, it is the end of the world. Sure, in this sense, having that kind of institution not only makes your society more equitable, but more efficient in making structural adjustments. There is much less resistance to restructuring, both within companies and in the economy itself. So there are certain things that I think are desirable for a more decent society. Economically, a welfare state is one thing. Also proper regulation by the government and a democratic political system. I think there are things that every society aspires to have; certain standards of living that a certain amount of solidarity and stability requires. But once again, if you go down to the details, the exact institutional arrangements can be quite different according to the country.
IA-Forum: So you agree with elements of neo-liberalism, but not its imposition or specific adjustments?
Prof. Chang: That's right. I'm not against the market in general. No country has achieved a high standard of living by completely suppressing the market. On the other hand, does it work best when there's no regulation whosoever? No. Of course, people will have different views on which is the right degree of regulation even in the same market, but this belief that ‘the less regulation there is the better it is’ is obviously false.
IA-Forum: So then, if you're talking about a developing country’s economy and what direction to take, or which institutions are a good idea; should there be a guide, or some kind of a model you would put forth?
Prof. Chang: I wouldn't call it a model, I think what I would recommend is what I call a cookbook approach. In all good cooking there are certain basic principles that you have to follow. Those things are a given. Beyond that, is there any reason why Moroccan food is better than Japanese food, or Swedish food is better than Korean food? No. It depends on your tastes. When you buy a cookbook, you initially copy a given recipe. But after a few times, you begin to experiment and change things. Sometimes it is because some ingredient is not easily available, or because you like spicy food and the recipe doesn't have enough chili in it. After a while, you begin to develop your own style. What you have to give developing countries is a cookbook with lots of different recipes. The Swedish model, the American model, the Italian model, the Japanese model, the German model. Countries should get this cookbook, look at the recipes, and see what they like the best; or what they think is most feasible. However highly I think of the Swedish model, it's impossible to replicate everywhere.
A lot of people think Sweden has always been one of those nice little countries where nothing goes wrong and no one fights with each other, no way! In the 1920s, Sweden had the highest number of industrial strikes in the world. It was only because they signed a pact between the unions and the employers association in the 1930s. Then came industrial peace with capitalists paying more taxes which led to the welfare state, and it became one of those nice peaceful countries. So in that sense, if I talk about the Swedish model a lot of people think: ‘what's the chance of that happening in Africa?’ But 50 years later, or a hundred years later, it can happen.
In that sense, what is wrong with the current orthodox is that they say there's only one recipe, and that everyone has to follow it, and that everyone who is a good cook has followed it. This is not true. All of the good cooks have their own recipes. For some countries this single neo-liberal recipe might work, but for most countries it won’t. We are constantly told that economic science has proven that these are the best policies and that everyone has to follow them; and all the successful countries have done it this way. So the cookbook consists of only one recipe. Instead, we should be telling countries that there are at least 30 recipes which have been working, take this book home and see what you like the most and try to learn from these experiences. Even if you think that the Swedish example is totally inapplicable to you, there might be one or two elements in there that you could use, so why not.
IA-Forum: Listening to what you're saying now, and in a number of your articles, you really emphasize the long term view. When you've talking about the history of the U.S. and the U.K., it's a long process.
Prof. Chang: Exactly. People often don't realize until how recently the rich countries weren't that rich. No really, in the 1950s there were a lot of British children going around without shoes. I mean imagine. There is a famous Swedish children’s story about a girl named Heidi from the mountains of Switzerland in the early 20th century. This girl was very poor. She collected white bread to give to an old lady who was her neighbor. They didn’t get to eat white bread that often, and that was only 60 or 100 years ago. Even now, many citizens of rich countries are not that rich, it's only because of this continuous process of economic growth that we have reached this level. With exception to sub-Saharan Africa and Latin America which have really suffered from IMF and World Bank policies, the developing countries have been doing better in the last 50 years than the rich countries did in the 19th century. Today’s developed countries were growing at most, in per capita terms, at up to 2% in the late 19th and early 20th century. Usually at 1.5%. Most developing countries have been growing faster than that. So in that sense, we might not realize how drawn out this process of development is, and has been, and will be. That’s why it's important to look at these things in a longer-term perspective. History becomes very useful, because you have countries which have been doing this for 150 or 200 years, and you can learn a lot of lessons from what happened to them in the past.
Ha-Joon Chang is a professor in the Department of Economics at the University of Cambridge. Prof. Chang is the author of Kicking Away the Ladder (2002) which was awarded the Gunnar Myrdal Prize, and most recently Bad Samaritans (2007); in addition to several other books and journal articles. Professor Chang was awarded the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought by Tufts University in 2005. He has also been a consultant for numerous UN agencies and international agencies, including the World Bank and the Asian Development Bank.
All Rights Reserved. Copyright 2002 - 2022