Bad Samaritans

"The three leading countries of industrial capitalism – the United States, Germany and Japan – developed by using techniques, as Ha-Joon Chang points out, that are the opposite of what are supposed to work. There are endless bestselling books about how the West developed and how it became rich. It’s a genre that says that if you just have democracy and government acts as an umpire and doesn’t interfere in the market, factories and aerospace industries will somehow just spring out of nowhere. That is not how the industrial world actually developed. Germany in many ways led the world economically before 1945 and it was an authoritarian state for most of that period. The same is true for Japan. China today is an authoritarian state and it’s catching up economically much more quickly than democracies like India. I think we should be in favour of democracy for its own sake, whether or not it promotes economic growth. But you certainly can’t make the argument from history that democracy is the source of economic growth. The other thing that is part of the conventional wisdom is that government can only fail if it engages in protectionism. The problem is, Germany, Japan and the United States, and also Britain before the 1840s, became the leading economic powers in the world by means of naked protectionism. They used tariffs and subsidies, and they kept out foreign products and privileged their own producers. All of these things that are supposed to lead to ruin actually succeeded in the case of the four or five leading powers, including the United States. The United States was the most protectionist country in the world from the Civil War up until World War Two. During that period it had the most rapid growth and the greatest industrial success of any society in history. Get the weekly Five Books newsletter This does not mean that protectionism works at every level. As Chang points out, protectionism can be very useful for a country like the United States in the 19th century or Britain in the 18th century or various developing countries today that want to catch up, but once they have caught up it tends to become counterproductive. If you have world-class industries and are no longer worried about foreign competition killing off your own factories, then you want to expand your market. At that point – and it happened with Britain in the 1840s and the United States by the middle of the 20th century – the leading industrial power wants to open up foreign markets so that in addition to its own consumers, it can have access to consumers in other countries for its superior industries. The truly radical thing about Ha-Joon Chang’s approach, which I think is quite right, is that he’s saying there is no one-size-fits-all policy for all economies at all times in history. The set of rules which would benefit the US in 2012 may not be the ones that would help Brazil to catch up. If you go down that road, you come to the conclusion that the project of having a single set of rules in trade and finance that all countries must agree on is profoundly misguided. April 20, 2012. Updated: July 6, 2022 Five Books aims to keep its book recommendations and interviews up to date. If you are the interviewee and would like to update your choice of books (or even just what you say about them) please email us at [email protected]"