Thursday, 15 December 2011

An Alternative Common Sense

Bad Samaritans: The Guilty Secrets of Rich Nations & the Threat to Global Prosperity
Ha-joon Chang

London: Random House, 2007

“Meat imports are restricted…, which not only benefits local farmers but also inspecting firms… The export of raw rattan is about to be prohibited, which will benefit the rattan industry… Businesses have to give priority to local products…”

These are only some of the arguments put forward by Hal Hill and Monica Wihardja in an op-ed in The Wall Street Journal, ringing alarm bells about anti-reformist forces in the Indonesian Government. They argued that in spite of the upgraded investment ratings and political stability, the economic picture in Indonesia is slowly turning for the worse. That contrary to its liberal face, Indonesia is actually exercising policies favoring domestic production.

I have to admit, I’m a rookie when it comes to economic analysis. But I have this gut feeling that all those supposed evils mentioned by Professor Hill and Ms. Wihardja are not necessarily all that bad. I may be wrong here, but if a policy benefits local industries, shouldn’t that benefit the Indonesian people? And shouldn’t that mean more than the argument about being “reform” or “anti-reform”, whatever those two labels are supposed to mean these days?

These were some of the thoughts that kept on surfacing in my head as I read with much interest Professor Ha-joon Chang’s “Bad Samaritans: The Guilty Secrets of Rich nations and the Threat to Global Prosperity”. Going against the tide prevalent in a world dominated by free trade, comparative advantage, and other neo-liberalist values, Professor Chang’s book is an alternative account on development economics.

An established scholar currently teaching at Cambridge University, Professor Chang provides a fresh look on the state of today’s international economics. Professor Chang argues that while supposedly wanting to bring prosperity to developing countries, the world’s wealthy nations and major financial institutions (the ‘Bad Samaritans’) are in fact enlarging the gap between the developed and developing hemispheres. In May 2011, he was invited by President Yudhoyono to talk in front of the Indonesian Cabinet on lessons learned from the Korean economic development.

Of course, we’ve heard criticisms of liberal trade policies from many camps. But it’s always enlightening to learn more about them from a well established economist, and not some leftist demonstrator on the street, aggressively chanting the evils of globalization, wearing baklavas, fist punching in the air. It’s also stimulating to digest these well-researched, well-written criticisms not from a narrow, ultra-nationalist perspective, which is often regressive, thus resulting in isolationism and fear of the outside world.

Professor Chang suggests the need for people, particularly policymakers, in the developing world to carefully reconsider the tune of neo-liberalism that we’ve become used to listening. A tune which has been played so often, and so intense, that it has become entrenched in our minds as “the truth”. How the world today is so much engulfed in the unchallenged virtues of free trade and globalization. A condition in which any alternative tune proposed would be regarded simply as “backward”, or “anti-reformist”.

The book induces the reader to question the supposed superiority of notions such as comparative advantage and tariff reductions, particularly vis-à-vis the interests of developing countries. It forces us to reconsider the values of “infant industry theory” (developed by none other than Alexander Hamilton, the initiator of America’s industrialization and economic development in the 1800s) and the private vs. public enterprise argument (which overemphasizes on the ineffectiveness and inefficiency of public enterprises, while failing to consider similar conditions plaguing the private sector). It even delves into a discussion on corruption, and whether it destroys a national economy as much as the ‘Bad Samaritans’ would like us to believe.

Professor Chang does not one-sidedly criticize globalization, for this is exactly what many critics have often been guilty of. He gives credit where credit is due, describing that free trade is indeed beneficial for countries whose industries and comparative advantage have evolved. But for many developing countries, lacking in industrial capacity and relying too much on natural resources export, free trade only condemns them to a life of a second-class citizen in today’s international community.

In particular, Professor Chang criticizes the double standard eschewed by many developed, western countries. “Virtually all successful economies, developed or developing, got to where they are through selective, strategic integration with the world economy, rather than through unconditional global integration”. The United States was the most protectionist country up until the end of the Second World War, when their industrial supremacy had become unchallenged. So was Japan, when it strengthened its industrial base, at a time when its biggest export item was silk. And Korea did it too, when in the 1960s it fueled funds into its steel industry, which at the time, was completely non-existent.

We then ask the question, why are we being labeled as anti-reform when we try to emulate exactly all models of economic success since the time of Henry VII’s England? Are Indonesians today genuinely happy about being where they are in terms of economic growth, in particular economic production? Are we liberalizing our economy for want or for need? Or are we simply being bullied around by the developed world?

In the words of Professor Chang, “free market economists would argue, Mozambicans should be realistic and not mess around with things like cars (let alone hydrogen fuel cells!); instead they should just concentrate what they are already (at least ‘comparatively’) good at – growing cashew nuts”. We need to change this perspective, because if Japan had stayed with what it was good at (i.e. making silk), then we’d be deprived of the Hondas, Toyotas, and Suzukis roaming our streets today.

These are some thoughts worth considering, especially if we are prone to accepting opinions such as Professor Hill and Ms Wihardja’s as the norm. Have we accepted unconditional trade liberalization as common sense, thus labeling alternative perspectives as regressive and backward? If so, then maybe it is time for us to question, and even challenge, such norms, thus altering what's previously accepted as common sense.

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