Tuesday, December 23, 2008

Misunderstaning Ha-Joon Chang

I am a very much admirer of the work of Korean economist Ha-Joon Chang, he is considered just about the best critic of globalisation out there, for anyone interested in his work, he has blogged occasionally on CiF and also contributes to the FT's economist's forum.

It does appear that my enthusiasm for his ideas has gathered a bit of attention, a few days ago, I linked to a Prospect article he wrote a while back criticising current attitudes to protectionism. This article appears to have come in for some criticism (Thanks to Nick for pointing this out).

I think a lot of people have misunderstood his work and the nature of his views, he doesn't suggest that countries should adopt protectionist/activist policies as a route to wealth, he simply argues that protectionist policy tools should not be explicitly ruled out as an option. He also believes that policies such as trade liberalisation are not always win win situations and that the greater opportunities that it might provide could be offset by the damage it might do to jobs and businesses.

Another point I feel should be made is that his views do go far beyond just views on trade, here are a few:

  • He is skeptical about the benefits of unrestricted foreign exchange and unrestricted access to capital markets, he suggests that the liberalisation of Korea's capital markets permitted the developments that led to the Asian Financial Crisis.
  • He is also highly skeptical about foreign investments, he believes that governments should be careful about the kind of foreign investment they encourage making sure that investment is mutually beneficial rather than just being of benefit to the investor. In particular he believes that greenfield investment (investment that creates an entirely new business) is to be preferred over brownfield investment (where a foreign investor buys an existing business).
  • He has reservations about the privatisation of state enterprises, since often the state can get a very bad deal on the matter, privatisation deals can also be highly corrupt even in advanced nations (for example QinetiQ and CDC)
  • He believes that current international intellectual property rights are too strong and have held back business in the developing world as a result
The important lesson to be drawn from his work is that government intervention in the economy should not be discouraged in the kind of absolute way that it has been in recent times and that good pragmatic use of economic policy tools can in fact be beneficial. And that liberalisation policies should be pursued slowly and carefully with a clear view to the benefits and pitfalls. In terms of more advanced economies, I think that the lessons are that governments should not shy away from regulation and should not be afraid to take control of a few more of the levers of economic policy. Given recent events that seems, like a sensible plan.


Peter Risdon said...

Andreas, you weren't the source of my post. I had googled looking for the source of the, as I see it, myth after realising that Japanese protectionism had become totemic for those who support protectionism. I might even have found your post as a consequence, but I'm not sure whether I did or not because I was ignoring blog posts, looking for the origin.

I was kicked off by a CiF post at the Guardian, then saw the idea spouted on by a right-wing protectionist. I've seen the idea that Japan is an example of successful protectionism mention since I posted this piece. I think the Prospect piece I quoted is the source of these repetitions of this idea.

In short, if you were the source, I'd have linked back to you.

"government intervention in the economy should not be discouraged in the kind of absolute way that it has been in recent times..."

Are you serious? They've just nationalised half the banks and seem to be about to hand my money over to a collection of car companies right now.

My criticism of Chang's essay was that he left out important information, that this lacked intellectual and academic honesty, and that his conclusions are unreliable as a consequence. You haven't attempted to refute that argument so, at the moment, it must stand.

Wosanjira said...

I'm not an economist, but I share your admiration for Chang's work. He hasn't written on Africa, but there are strong parallels in the history Africa and Asia share in international trade: it has been as advantageous to us as opium was for China.

Trade liberalization has been the holy grail of economic solutions sold to Africa. Because there were so many wonderful examples of how well liberalization worked in Asia, its continual failure in Africa was blamed on the African people.

Now that those wonderful examples of trade liberalization at work in Asia have been shown to be red herrings, there are fundamental questions that the WTO (along with the IMF and World Bank) must look to in a very serious way BEFORE being trusted to advise Africa on trade and other aspects of macro-economic policy.

Although Chang's work has not been the driving force behind Africa's move towards more aggressive trade negotiations and strategies, it is gratifying to now have an academic showing how the argument made for wholesale free trade has a history of failure.