Developed/Rich Countries Came to Be Due to Protectionism, Not Free Trade

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“There is no literate population in the world that is poor; there is no illiterate population that is anything but poor.” – John Kenneth Galbraith (1908-2006)

“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)

"The selfish spirit of commerce knows no country, and feels no passion or principle but that of gain" - Thomas Jefferson, 1809

"What else do bankers do -- walk-in and turn-off the lights in the country." - William Slee, 1978


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[NOTE: This post is a shortened and slightly updated version of my 2006 previous posting which has all the original references and footnotes, Refer to this URL: http://thefilipinomind.blogspot.com/2006/08/resource-rich-but-poor-nations-why.html]

When fellow Filipinos from then Senator Gloria Arroyo (one of the early,enthusiastic proponents of us joining or signing on the 1995 WTO Agreements) to our influential native technocrats - all probably with vested interests in the perpetuation of WTO Agreements/Rules and brainwashed with the "free-market" economic system of Adam Smith-- talk of a "level playing field" in the global trade, I try hard to humor myself because I find these traitors to our native people disgustingly enraging.

These fellow Filipinos continue to fool and keep the native majority ignorant. They continually mislead us into believing that we, impoverished people of an underdeveloped country, are in a horizontal or equal relationship with the rich, powerful and advanced industrialized nations, all supposedly friendly competitors in the globalized market.

Common sense and reality show us that the 14-year results of WTO in the Philippines signed into by our homeland's leadership since the Fidel Ramos presidency, continued by then Estrada and current Arroyo regimes have only hastened our national de-industrialization (whatever industries, however light and little we had) and agricultural deterioration. Their combined consequences being the loss of work for millions of native Filipinos --to join the ranks of the poor and the worsening impoverishment of the native majority.

A serious study of the national histories, or more precisely, of the histories of national economic development of rich/developed nations, will demonstrate that they neither believed nor practiced "free-market/free-trade economies." All of them-- England, the United States, Western European countries, Japan --lied about how they became what they are today --if looked at under their now proselytized model of "economic globalization" aka "economic liberalism" aka "free-trade" via rich nations-controlled WTO rules (more aptly, neoliberalism or neocolonialism).

For 150 years, England practiced economic protectionism in agriculture and industry. So did the United States after Alexander Hamilton, a Founding Father, wrote that America should encourage national industrialization with subsidies and tariffs; Japan did so for 100 years. And they continue to do so since "they", the developed/rich nations with their transnational corporations (TNCs), define and lay down the WTO Agreements. They do it to us via their arm-twisting enforcers, i.e. the IMF and WB As the saying goes: "He who has the gold, makes the rules."

Native Filipinos, especially the so-called educated (whether from our local universities, private and public, or from abroad) have been bombarded about the "free trade" gospel as the only way to national development and the "invisible hand" of the free market. No one seems to have heard of Friedrich List, the leading critique of Adam Smith's "free trade" gospel (include me after an MBA from UP). We Filipinos need to learn, understand and realize that the past, present and popularized "free-trade" aka globalized economy will not lead to our own, our children and grandchildrens' long-term betterment.

We Filipinos all need to know that our economic deterioration, especially in the last 35 years or so, has been facilitated by religiously following developmental rules/theories, whether from Walt Rostow's Stages of Growth, Smith's Wealth of Nations, and the latest spin of "globalization" (which condemns nationalism and protectionism of poor countries) formulated by the rich and strong nations. Global economics is not about friendly countries fairly doing business, it is about the strong countries screwing the weak countries.

The following article (I shortened this one) provides a good introduction on how the strong nations enriched themselves and how they now continually do so at the expense of the weak (thus continually poor) ones.

I have linked a website for a Filipino NGO, i.e. Fair-Trade Alliance that promotes the re-imposition of higher tariffs for imports that compete with local products and lower tariffs for imports not locally produced. However, such efforts need to have the native majority educated for nationalism to be successfully realized.

-Bert

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Never did a Nation Develop under Adam Smith Free Trade
Trade was felt to be the bloodstream of British prosperity. To an island nation it represented the wealth of the world, the factor that made the difference between rich and poor nations. The economic philosophy of the time (later to be termed "mercantilism") held that the colonial role in trade was to serve as the source of raw materials and the market for British manufacture, and never to usurp the manufacturing function.6 (Emphasis added)

Adam Smith’s own words exposes free trade as only a cover for the same past mercantilist policies: "The ultimate object ... is always the same, to enrich the country by an advantageous balance of trade. It discourages the exportation of the materials of manufacture [tools and raw material], and the instruments of trade, in order to give our own workmen an advantage, and to enable them to undersell those of other nations in all foreign markets: and by restraining, in this manner, the exportation of a few commodities of no great price, it proposes to occasion a much greater and more valuable exportation of others. It encourages the importation of the materials of manufacture, in order that our own people may be enabled to work them up more cheaply, and thereby prevent a greater and more valuable importation of the manufactured commodities.7

In her early development, Britain structured her laws to protect her industry and commerce. The British Enclosure Acts of the 15th, 16th, and 17th centuries were sparked by the labor shortage created by the Black Death and the need for sheep farming to produce for the wool market created by the Hanseatic traders.

As opposed to today’s industry fleeing from high-priced skilled labor and moving to cheap labor, skilled artisans of almost every product in world commerce were brought to England from all over the world to train British labor in those skills. Bounties were given to promote exports of manufactures. And custom duties were enacted to protect those new industries.

Dutch commerce was undercut by the Navigation Acts requiring British products to be transported in British ships. English warships attacked Dutch shipping and English exports and imports rapidly increased. The Methuen treaty of 1703 with Portugal shut the Dutch off from trade with the Portuguese Empire.

The suddenly idled Dutch capital and skilled labor emigrated to the protective trade structure of England. The trade and commerce of France and Spain were overwhelmed by similar strategies. Every one of these policies under which Britain developed were the yet-unwritten philosophies of Friedrich List. None were the yet-unwritten philosophies of Adam Smith.8

And Adam Smith himself knew this well. Note his last statement in this quote:
A small quantity of manufactured produce purchases a great quantity of rude produce. A trading and manufacturing country, therefore, naturally purchases with a small part of its manufactured produce a great part of the rude produce of other countries; while, on the contrary, a country without trade and manufactures is generally obliged to purchase, at the expense of a great part of its rude produce, a very small part of the manufactured produce of other countries.

The one exports what can subsist and accommodate but a very few, and imports the subsistence and accommodation of a great number. The other exports the accommodation and subsistence of a great number, and imports that of a very few only. The inhabitants of the one must always enjoy a much greater quantity of subsistence than what their own lands, in the actual state of their cultivation, could afford. The inhabitants of the other must always enjoy a much smaller quantity.... Few countries ... produce much more rude produce than what is sufficient for the subsistence of their own inhabitants. To send abroad any great quantity of it, therefore, would be to send abroad a part of the necessary subsistence of the people.

It is otherwise with the exportation of manufactures. The maintenance of the people employed in them is kept at home, and only the surplus part of their work is exported.... The commodities of Europe were almost all new to America, and many of those of America were new to Europe. A new set of exchanges, therefore, began to take place which had never been thought of before, and which should naturally have proved as advantageous to the new, as it certainly did to the old continent. The savage injustice of the Europeans rendered an event, which ought to have been beneficial to all, ruinous and destructive to several [most] of those unfortunate countries.9

All Successful Nations Developed under Friedrich List’s Principles of Protection of Tender Industries and Markets
Friedrich List describes the protectionist maxims under which Britain developed:b

Always to favour the importation of productive power, in preference to the importation of goods.
Carefully to cherish and to protect the development of productive power.

To import only raw materials and agricultural products, and to export nothing but manufactured goods.

To direct any surplus of productive power to colonization, and to the subjection of barbarous nations.

To reserve exclusively to the mother country the supply of the colonies and subject countries with manufactured goods, but in return to receive on preferential terms their raw materials and especially their colonial produce.

To devote especial care to the coast navigation; to the trade between the mother country and the colonies; to encourage sea fisheries by means of bounties; and to take as active a part as possible in international navigation.

By these means to found a naval supremacy, and by means of it to extend foreign commerce, and continually increase her colonial possessions.

To grant freedom in trade with the colonies and in navigation only so far as she can gain more by it than she loses.

To grant reciprocal navigation privileges only if the advantage is on the side of England, or if foreign nations can by that means be restrained from introducing restrictions on navigation in their favor.

To grant concessions to foreign independent nations in respect of the import of agricultural products, only in case concessions in respect of her manufactured products can be gained thereby.

In cases where such concessions cannot be obtained by treaty, to attain the object of them by means of contraband trade.

To make wars and to contract alliances with exclusive regard to her manufacturing, commercial, maritime, and colonial interests. To gain by these alike from friends and foes; from the latter by interrupting their commerce at sea; from the former by ruining their manufactures through subsidies which are paid in the shape of English manufactured goods.10

Napoleon knew all this well:

"Under the existing circumstances ... any state which adopted the principles of free trade must come to the ground .... [and] a nation which combines in itself the power of manufacturers with that of agriculture is an immeasurably more perfect and more wealthy nation than a purely agriculture one.”11

The Wealth of Nations does not consider the industrial development of the periphery of empire: “Adam Smith and J.B. Say had laid it down that ... nature herself had singled out the people of the United States [and most of the rest of the world] exclusively for agriculture.”

And Friedrich List, who challenged the philosophy of Adam Smith because his native Germany could not develop under a philosophy designed to maintain the supremacy of Britain, was criticized by his staunchest supporters for considering developing only Europe and America.12

William Pitt, British Prime Minister, studied Adam Smith’s Wealth of Nations closely and saw the opportunity to solidify Britain’s control of world trade. If the world could be convinced to follow Adam Smith, he reasoned that no other nation could compete with British industry even if the 12 protectionist policies addressed above were dropped. The British State Department, British intelligence and British industry funded correspondents, columnists, writers, lecturers, and think-tanks mounted a crusade to impose Adam Smith’s free-trade philosophy, as they interpreted it, on the world.13 So long as the undeveloped world could be made to believe this philosophy, they would hand their wealth to Britain of their own free will and it would not require an army:

Such arguments did not obtain currency for very long [in France]. England’s free trade wrought such havoc amongst the manufacturing industries, which had prospered and grown strong under the Continental blockade system, that a prohibitive règime was speedily resorted to under the protecting aegis of which, according to Dupin’s testimony, the producing power of French manufactories was doubled between the years 1815 and 1827.14

As Napoleon understood, unless it is also equal trade, one country’s free trade is another country’s impoverishment. Friedrich List, from whose classic much of this part of our story comes, observed the devastation that British free trade created in France, observed France’s rapid recovery when she protected herself against predatory British industry, and he also observed firsthand the rapid development of the newly-free United States when they ignored Britain's promotion of Adam Smith free trade as interpreted by British mercantilists.15



"The chief business of America is business" - President Calvin Coolidge, 1925

"The glory of the United States is business" - Wendell L. Willkie, 1936

“Nations, whose NATIONALISM is destroyed, are subject to ruin.” - Colonel Muhammar Qaddafi, 1942-, Libyan Political and Military Leader

"Upang maitindig natin ang bantayog ng ating lipunan, kailangang radikal nating baguhin hindi lamang ang ating mga institusyon kundi maging ang ating pag-iisip at pamumuhay. Kailangan ang rebolusyon, hindi lamang sa panlabas, kundi lalo na sa panloob!" --Apolinario Mabini, La Revolucion Filipina (1898)

“The first priority for any underdeveloped country, before it can begin the economic and social development most appropriate to the needs of its people, is the seizure of power by the masses and the total destruction of the control and influence of the foreign power and local exploiting elite. Without this, nothing is possible.” – Felix Green, British Author, 1970

The Myth of "Catch-up Development"

The Myth Of 'Catch-Up Development'
By C. Douglas Lummis,Panos, January 1, 2000


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It was in 1949 that Harry S. Truman, in the speech celebrating his inauguration to the United States presidency, announced a massive new program to "develop the underdeveloped countries." By investing in these countries, and by offering them technical and economic aid, they would be enabled to advance toward "ultimate prosperity."

The idea was unprecedented. Even the expression "underdeveloped countries" was new: it was virtually unknown as a technical term in economics before Truman's speech. Of course what investment and aid would achieve, and did achieve, was the "mass mobilisation" of the world's peoples into the western-dominated capitalist economy. Why this should be expected to raise the world's poor to the economic level of the world's rich, when capitalism had always been known to widen the gap between the rich and the poor, was not explained by Truman.

Despite its manifest implausibility, the idea has dominated thinking about international economics for half a century. Say "development" and virtually anyone will imagine a process through which the poor countries "catch up" with the rich ones. But when we read statistics that the gap between the rich and poor countries continues to widen, or that (for example) death by starvation today is equivalent to 300 jumbo jet crashes per day, we tend to think, "development isn't working," rather than "this is how development works."

This "economic development" has had a half-century to work, and its catastrophic results lay before us. As we approach the end of the century perhaps this is a good time to review some of the reasons why "catching up through capitalist development" has always been, and must be, an impossible dream.

First, consider the statistics. According to the World Bank's 1988 World Development Report, the per capita Gross National Product for the 20 richest countries was $12,960 for 1986, with an annual average growth rate (1965-86) of 2.3 per cent. A simple calculation gives a yearly increase in per capita income of $298.08. The per capita GNP for the poorest 33 countries in that year was $270, with an annual growth rate of 3.1 per cent. The same calculation gives a one-year increase in per capita income of $8.37. For these countries to equal the $298.08 increase of the rich countries would require an annual growth rate of 110.4 per cent.

Of course, if the poor countries maintain a higher growth rate than the rich countries for a very long time, theoretically they can eventually catch up. How long would that take?

Supposing the growth figures in the World Development Report remain unchanged, we can calculate that the poor countries will achieve the 1986 income level of the rich countries in 127 years. But they still will not have caught up, for the rich countries will have developed further themselves. At these rates, the poor countries will actually overtake the rich countries in half a millennium, 497 years to be exact. At that time the world per capita income will be $1,049 billion per year.

But in fact the growth rate for the poorest countries excluding India and China (it was mostly China's reported growth rate of five per cent and vast population that skewed the figures) is less than that of the rich countries, which means they will catch up never. And many of them have negative growth rates. Such statistical games are useful in helping us to see how fanci-ful is the idea of "catching up" (a billion dollar income for every-one on earth - what would it mean?). But such a projection is also misleading in that it is not rooted in the reality of international economics.

The world economic system is designed to transfer wealth from the poor countries to the rich countries. A big part of the "economic wealth" of the rich countries is wealth imported from the poor countries. From where could wealth be imported to create the same condition for all?
The world economic system generates inequality, and it runs on inequality. So while we may fantasize a world of equal billionaires in half a millennium, it is not something that will occur under the rules of this game. It is rather like imagining a casino in which the customers' winnings are equal to the house take. The game is not designed to do that.

Then there is the environmental aspect. Presumably overtaking the rich would mean not simply having as much money as they do, but also being able to consume as much energy as they do. It has been estimated that for the present world population to live at the energy consumption level of the city of Los Angeles it would require five earths. The statistic is dubious, but it could be off by two or three earths either way and amounts to the same thing: it is not going to happen. (And it is important to remember that these consumption levels have not produced economic equality, or eliminated poverty, in Los Angeles either: there are fabulously rich and desperately poor people in that city.)

The division into rich and poor, then, is an axiom built into the phenomenon of "rich." It is fraud to hold up the image of the world's rich as a condition potentially available to all. Yet this is precisely what the myth of "catching up" does. It pretends to offer to all a form of affluence that presupposes the relative poverty of some. It idealizes the lives of people who do less than their share of the world's work (because others do more); consume more than their share of the world's goods (because others consume less; and whose lives are made pleasant by the services of people less affluent than themselves.

But "rich" is not of course the only form of wealth. There are other forms that can be shared. But these forms of wealth depend more on collective political decisions than on economic processes. The expression "commonwealth" is, after all, a translation into English of the Latin res publica, public thing, i.e. republic. Common wealth may take its physical expression in such things as public roads, bridges, libraries, parks, schools, churches, temples, or works of art that enrich the lives of all. It may take the form of commons: shared agricultural land, forests or fisheries. It may take the form of shared ceremonies, feast days, festivals, dances, public entertainments. It is perfectly possible for a community to put its emphasis on its common wealth, and at the same time to cultivate a taste for private moderation. Such choices are political, if by political we mean the fundamental decision-making in a community as to how its goods are distributed.

None of the above is meant to suggest that inequality is not a problem in the world - it is to suggest that it's not so much an economic problem as a political one, and its solution is not development, but justice. It is hoped that the above thoughts can help to remind us of the proper social location of the problem of economic inequality. The problem of the problem of inequality lies not in poverty, but in excess. "The problem of the world's poor," defined more accurately, turns out to be "the problem of the world's rich."

The ideology of economic development has taught the world's majority to feel shame at their traditionally moderate consumption habits; by revealing it for the fraud that it is, perhaps we can teach the world's minority to see the shame and vulgarity of their overconsumption habits, and the double vulgarity of standing on other people's backs to maintain those habits. Aristotle once wisely wrote:

The greatest crimes are committed not for the sake of necessities but for the sake of superfluities. Men do not become tyrants in order to avoid exposure to the cold.


C. Douglas Lummis teaches political theory at Tsuda College in Tokyo. He is the author of Radical Democracy (Cornell, 1996)

Source: http://www.globalpolicy.org/socecon/develop/2000/0101myth.htm