Thursday, December 24, 2009

The Secret History of Capitalism and The Myth of Free Trade (versus Protectionism): Is Free Trade Always the Answer?

"National interest should take precedence over cheap consumer goods purchased from a foreign power." – Friedrich List
 (August 6, 1789 – November 30, 1846), a leading 19th century German economist.

Hi All,

Any seriously thinking and concerned Filipino will note that the dominant orthodoxy is globalization aka neoliberalism (free trade) supposedly for us to economically catch-up , to attain economic/material progress -- for an underdeveloped country like ours. 

Any young Filipino who takes a course in national economic development (political economy) essentially obtains exposure solely in the gospels of
Adam Smith and David Ricardo, i.e. on the "market system" with its "invisible hand," and "comparative advantage," respectively. 

These are the gospels of the current economic thinking or global orthodoxy aka (westernized=Americanized) that are preached as the only way to progress for less-developed countries (LDCs) or underdeveloped countries like our homeland to escape poverty, to making economic miracles, to better standards of living.

To the knowledgeable and critically-minded Filipino, he knows that our traitorous technocrats during the Ramos regime were early signatories to the secretive agreements/negotiations with the WTO and its trading rules (replacing the GATT)--the organization created in 1995 by the rich countries led by the G7 club and enforced by the IMF and WB combo ostensibly founded to help the poor countries towards development. 

With the signing, the next 14 years to the present are and in the foreseeable future shall be full of the same punishments: but deeper, greater and wider impoverishment and misery to our fellow native Filipinos.

All these punishments will be endlessly worsening for the born and unborn generations unless native Filipinos in the homeland become educated, raise their nationalist consciousness, understand and thus become united to act against our collaborationist technocrats and rulers with their foreign partners/sponsors ( resident foreigners and transnational corporations (TNCs) who maintain and spread lies and who obviously have much to gain from our dumbing down and resultant massive ignorance and disunity.

Below is an eye-opening, almost plain, economics commonsense analogy/article (further expounded in the book "Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism" by the highly regarded and influential Korean author Ha-Joon Chang, a Professor and Director of Developmental Economics at the University of Cambridge (England).

It is sadly interesting to note how naive and subservient we Filipinos are to take the words of our former colonizer - the U.S.A., on matters of national sovereignty, and most especially including that of our national economic development.

We native Filipinos have been led to and still believe in Walt W. Rostow's hypothesis in the 1967 publication of his book "Stages of Economic Growth - Anti-Communist Manifesto ," which to the intelligent but simple-minded (oxymoron?) so-called educated appears clear and simple.

Such so-called educated maybe unconsciously aware --AS IF we operate in a vacuum, with no foreign interests strongly and actively militating against our own economic take-off decades ago; by keeping us in economic bondage after "granting" our political independence, with its strings of pre-conditions disastrous to our native people and homeland, i.e. parity rights, military bases, military advisory group, etc.

I stumbled on 
Ha-Joon Chang's works (a few listed below) and I find his factually-based books, etc. publications highly analytical, readable and recommendable to those who
seriously want to know and understand the truth about economic history in the Western world and the Asian economic miracles of recent decades; and compare where our homeland and our fellow native Filipinos stand or left behind after religiously following and doing what our foreign friends and Americanized minds dictated.

Ha-Joon's arguments in his book are historically accurate, if one bothers to seriously verify the world's economic history. Unfortunately, his appeal to the developed nations will surely fall on deaf ears as similar appeals in the past: greed versus social justice and true fairness.

In our own particular case in the homeland, only an informed native citizenry of "what has happened and what's still going on" can provide the opportunity for fundamental changes in the economic-political system; and also the needed social transformation for the common good of our impoverished native majority.

- Bert



"Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism"
- Ha-Joon Chang, a Professor/Director of Developmental Economics, Cambridge University (England).

CHAPTER 3: Is Free Trade Always the Answer?

I have a six-year-old son. His name is Jin-Gyu. He lives off me, yet he is quite capable of making a living. After all, millions of children of his age already have jobs in poor countries.

Jin-Gyu needs to be exposed to competition if he is to become a more productive person. Thinking about it, the more competition he is exposed to and the sooner this is done, the better it is for his future development. I should make him quit school and get a job.

I can hear you say I must be mad. Myopic. Cruel. If I drive Jin-Gyu into the labour market now, you point out, he may become a savvy shoeshine boy or a prosperous street hawker, but he will never become a brain surgeon or a nuclear physicist. You argue that, even from a purely materialistic viewpoint, I would be wiser to invest in his education and share the returns later than gloat over the money I save by not sending him to school.

Yet this absurd line of argument is in essence how free-trade economists justify rapid, large-scale trade liberalisation in developing countries. They claim that developing country producers need to be exposed to maximum competition, so that they have maximum incentive to raise productivity. The earlier the exposure, the argument goes, the better it is for economic development.

However, just as children need to be nurtured before they can compete in high-productivity jobs, industries in developing countries should be sheltered from superior foreign producers before they "grow up." They need to be given protection, subsidies, and other help while they master advanced technologies and build effective organisations.

This argument is known as the "infant industry" argument. What is little known is that it was first theorized by none other than the first finance minister (treasury secretary) of the United States - Alexander Hamilton, whose portrait adorns the $10 bill.

Initially few Americans were convinced by Hamilton's argument. After all, Adam Smith, the father of economics, had already advised Americans against artificially developing manufacturing industries. However, over time people saw sense in Hamilton's argument, and the US shifted to protectionism after the Anglo-American War of 1812. By the 1830s, its industrial tariff rate, at 40-50 per cent, was the highest in the world, and remained so until the Second World War.

The US may have invented the theory of infant industry protection, but the practice had existed long before. The first big success story was, surprisingly, Britain - the supposed birthplace of free trade. 

In fact, Hamilton's programme was in many ways a copy of Robert Walpole's enormously successful 1721 industrial development programme, based on high (among world's highest) tariffs and subsidies, which had propelled Britain into its economic supremacy.

Britain and the US may have been the most ardent - and most successful - users of tariffs, but most of today's rich countries deployed tariff protection for extended periods in order to promote their infant industries. Many of them also actively used government subsidies and public enterprises to promote new industries. 

Japan and many European countries have given numerous subsidies to strategic industries. The US has publicly financed the highest share of research and development in the world. Singapore, despite its free-market image, has one of the largest public enterprise sectors in the world, producing around 30 per cent of the national income. Public enterprises were also crucial in France, Finland, Austria, Norway, and Taiwan.

When they needed to protect their nascent producers, most of today's rich countries restricted foreign investment. In the 19th century, the US strictly regulated foreign investment in banking, shipping, mining, and logging. Japan and Korea severely restricted foreign investment in manufacturing. Between the 1930s and the 1980s, Finland officially classified all firms with more than 20 per cent foreign ownership as "dangerous enterprises."

While (exceptionally) practicing free trade, the Netherlands and Switzerland refused to protect patents until the early 20th century. In the 19th century, most countries, including Britain, France, and the US, explicitly allowed patenting of imported inventions. The US refused to protect foreigners' copyrights until 1891. Germany mass-produced counterfeit "Made in England" goods in the 19th century.

Despite this history, since the 1980s the "Bad Samaritan" rich countries have imposed upon developing countries policies that are almost the exact opposite of what they used in the past. 

These countries condemning tariffs, subsidies, public enterprises, regulation of foreign investment, and permissive intellectual property rights is like them "kicking away the ladder" with which they climbed to the top - often against the advice of the then richer countries.

But, the reader may wonder, didn't the developing countries already try protectionism and miserably fail? That is a common myth, but the truth of the matter is that these countries have grown significantly more slowly in the "brave new world" of neo-liberal policies, compared with the "bad old days" of protectionism and regulation in the 1960s and the 1970s (see table). 

And that's despite the dramatic growth acceleration in the two giants, China and India, which have partially liberalized their economies, but REFUSE to fully embrace neo-liberalism.

Growth has failed particularly badly in Latin America and sub-Saharan Africa, where neo-liberal reforms have been implemented most thoroughly. In the "bad old days," per capita income in Latin America grew at an impressive 3.1 per cent per year. In the "brave new world", it has been growing at a paltry 0.5 per cent. In sub-Saharan Africa, per capita income grew at 1.6 per cent a year during 1960-80, but since then the region has seen a fall in living standards (by 0.3 per cent a year).

Both the history of rich countries and the recent records of developing countries point to the same conclusion. Economic development requires tariffs, regulation of foreign investment, permissive intellectual property laws, and other policies that help their producers accumulate productive capabilities. Given this, the international economic playing field should be tilted in favour of the poorer countries by giving them greater freedom to use these policies.

Tilting the playing field is not just a matter of fairness. It is about helping the developing countries to grow faster. Because faster growth in developing countries means more trade and investment opportunities, it is also in the self-interest of the rich countries.

The author teaches economics at the University of Cambridge. The article is based on his book Bad Samaritans - Rich Nations, Poor Policies, and the Threat to the Developing World (Random House).


PS. Ha-Joon's other books are:

The Rebel Within: Joseph Stiglitz and the World Bank (Anthem Studies in Development and Globalization) by Ha-Joon Chang (Paperback - Feb 25, 2002)
  1. Kicking Away the Ladder: Development Strategy in Historical Perspective by Ha-Joon Chang (Paperback - Sep 1, 2002)
  2. Globalization, Economic Development and the Role of the State by Ha-Joon Chang(Paperback - Dec 6, 2002)
  3. Rethinking Development Economics (Anthem Studies in Development and Globalization) by Ha-Joon Chang (Paperback - Jun 20, 2003)
  4. Brazil and South Korea: Economic Crisis and Restructuring by Edmund Amann and Ha-Joon Chang (Paperback - April 2004)
  5. Reclaiming Development: An Economic Policy Handbook for Activists and Policymakers (Global Issues) by Ha-Joon Chang and Ilene Grabel (Paperback - Sep 9, 2004)
  6. The East Asian Development Experience: The Miracle, the Crisis and the Future by Ha-Joon Chang (Paperback - Jul 24, 2007)
  7. Institutional Change and Economic Development by United Nations University and Ha-Joon Chang (Paperback - Nov 1, 2008)
“One of the major errors in the whole discussion of economic development has been the tendency to look at the United States or Canada and say that this has worked here, and therefore it must work in the poor countries.” – John Kenneth Galbraith (1908-2006)

"During times of universal deceit, telling the truth is revolutionary." - George Orwell


PLEASE DONATE CORE SUBJECT BOOKS TO OUR HOMELAND (i.e. your hometown public schools, Alma Mater, etc.). Those books that you and/or your children do not need or want; or buy books from your local library during its cheap Book Sales. Also, cargo/door-to-door shipment is best.  It is a small sacrifice.  [clean up your closets or garage - donate books. THANKS!]

" Fear history, for it respects no secrets" - Gregoria de Jesus  (widow of Andres Bonifacio)

Of 536 previous posts, the following listed links and the RECTO READER are essential about us native (indio)/ Malay Filipinos and are therefore always presented in each new post. Click each to open/read

OUR CULTURE: (full range of our learned values, attitudinal & behavioral patterns) 
  2. WHAT IS NATIONALISM [Filipino Nationalism] ?
  3. Impediments to Filipino Nationalism:
  4. Our Colonial Mentality and Its Roots 
  5. The Miseducation of the Filipino (Formation of our Americanized Mind)
  6. Understanding Our Filipino Value System
  7. The Ambivalence of Filipino Traits and Values
  8. Our Kind of Filipino Politics

  9. OUR RELIGION: (Belief Systems)
    1. Our Filipino Kind of Religion
    2. Our Filipino Christianity and Our God-concept
    3. When Our Religion Becomes Evil

    OUR HISTORY: (Nationalist point-of-view) 

    OUR  ECONOMY:  (Post-WW2 Agreements)
    1. President Roxas Railroaded the Approval of Bell Trade Act (Philippine Trade Act),1946 & Military Bases Agreements
    2. Bell Trade Act-1946 (Parity Rights)
    3. The Fallacy of "Philippines First"
    4. The Friar Lands Scandal-How Filipinos Were Being Robbed of The Soil
    5. Agrarian Reform - Conflicts During Implementation
    6. 16 Years of Agrarian Reform: The Lands Are Back in the Hands of the Lords, (Part 1 of 2)
    7. 16 Years of Agrarian Reform: Are Filipino Peasants Better Off Now? (Part 2 of 2)
    8. Globalization (Neoliberalism) – The Road to Perdition in Our Homeland
    9. Five(5) Years of Reasons To Resist WTO's Globalization & Learn WTO's Multilateral Punishments to the Philippines
    10. Resisting Globalization (WTO Agreements)
    11. Virtues of De-Globalization

    NOTE: Recto's cited cases, examples or issues were of his time, of course; but realities in our homeland in the present and the foreseeable future are expected to be much, much worse. Though I am tempted to update them with current issues, it's best to leave them as they are since Recto's paradigms about our much deepened national predicament still ring relevant, valid and true. In short, Recto saw the forest and never got lost in the trees. We native Filipinos have not learned from or not heeded his advice - Bert


THE FILIPINO MIND blog contains 537 published postings you can view, as of April 18, 2012. Go to the sidebar to search Past & Related Postings, click LABEL [number in parenthesis = total of related postings]; or use the GOOGLE SEARCH at the sidebar using key words [labels, or tags] for topics of interest to you. OR click a bottom label or tag to open related topics.

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"Those who profess to favor freedom
and yet deprecate agitation

are men who want crops without 
plowing up the ground;
they want rain without thunder and
They want the ocean without the
awful roar of its waters.
This struggle may be a moral one
or it may be a physical one

or it may be both moral and physical
but it must be a struggle.
Power concedes nothing without a
It never did, and never will." – Frederick Douglass
 American AbolitionistLecturerAuthor and Slave1817-1895


Anonymous said...


I stumbled on your site and find your views interesting. I just posted a comment saying this country is finished.

I've seen the countryside and as far as I can make out, we are still feudalist in structure. Our elections is a sham and I believe we are basically dealing with a monarchic structure similar to what the De Medicis or the Gonzagas had then in old Italy. And yes, that we are all disposable serfs

Our past "revolutions" were emotional rather than intellectual ones. We did not think, we were merely enraged and started walking out into the streets. Like unthinking, headless chickens. Advantage oligarchs.

So what will it take to turn this country around and by miracle, a rennaisance will occur? We don't have enough brilliant minds to lauch one... Or do we?

While I don't want to define myself, I lean towards libertarianism and I suggest people read up on it and maybe pick up a copy of George Orwell's 1984 to find out where they are in the here and now.

Your doing a good job.


Bert M. Drona said...


Thanks for the feedback. BTW, I did not see the comment you posted.

I agree with you that in toto, our homeland is still feudal, at best, semi-feudal despite the modernized urban areas.

I tend to agree that we are kaput but we still need to fight for the next generations of Filipinos; if we all now stop the struggle -if only in the form of informing our compatriots, then the new generations will have to continue it,

I do not see real and necessary (much delayed/mandated but not implemented) reforms; more so about radical changes for the better in the present or even the next generation given the rulers, past and present/near future; and coupled with the knowledge and understanding as shallow and limited as today.

I think and believe changes, even with the remotely probable assumption that we start today,will take at least a generation to attain at best as we operate not in a vacuum; with foreign and local vested interests working against any radical change for the benefit of the native majority; so it's really an uphill struggle with millstones dangling on our necks.

We have to be eclectic and not be bound by
"-isms" though I am convinced Filipino nationalism is a sine qua non for any struggle for the "common good." All our Asian neighbors whatever their ideology - rightwing or leftwing or neutral during or post-Cold War era to the present,deep down we'll see their roots in their own nationalisms.

I do not think we lack intelligent ones, we have many but they are not the type for social intelligentsia, we have been "schooled" (I am hesitant to call ourselves "educated") for the professions but lack developing the critical mind in the humanities, which is a prerequisite in understanding (and acting on) human nature and society.

Check out my SCRIBD pdf documents for some detailed publications.



Anonymous said...

Thanks, Bert.
Your excerpts and analyses are truly eye-openers. Keep at it.