Book review: Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang.
This book attacks orthodoxies of the World Bank, IMF, WTO, neo-liberal economists, free-market economists, and pundits such as Thomas Friedman. Chang often implies that they all share a common orthodoxy, but the ideas he attacks are usually questioned by some of those groups.
His criticisms of the World Bank, IMF, and WTO are often correct, but it shouldn’t be surprising that they serve goals that don’t coincide with needs of developing countries.
His most important argument is a defense of mercantilist protection of infant industries. He shows that the evidence on the effects of tariffs is sufficiently mixed that his selective use of examples can give the impression that he has shown tariffs promote economic growth in developing countries. He makes claims of the form “X would have failed without protection”, but doesn’t say why his ability to predict failure is more reliable than other alleged experts (e.g. MITI’s belief that Honda would fail in the auto business). This provoked me into searching for more complete tests of the effects of tariffs. The evidence I found confirms that his confidence that tariffs work is foolish, but I was surprised to find that the evidence is too unclear to provide a guide to policy decision.
Chang has a good argument that the common orthodoxy about comparative advantage is a less conclusive reason for removing tariffs than it appears. But his attempts to describe a mechanism by which tariffs can be beneficial are naive. He talks about government protecting infant industries the way a parent protects a child, without any analysis of the political forces which cause governments to protect entrenched declining industries at the expense of less politically powerful startups.
He gives only vague hints about how to distinguish the tariffs he thinks are good from bad tariffs. I’ll offer a suggestion: any tariff that is designed to meet his notion of a good tariff should be set by statute to decrease to zero over a period of about a decade and never be reinstated for an industry to which they’ve been applied under this statute.
His complaints about privatizing state-owned enterprises contain some valid points. I wish people didn’t assume government and stockholder control are the only available choices. Having governments spin off enterprises as nonprofits would sometimes (often?) be a better option.
His comments about how patents and copyright affect developing countries are mostly correct. But he underestimates our dependence on drug patents when he implies that the 57% of drug research funding that comes from not-for-profit sources means we could get 57% of the results without commercial funding. A drug startup that will go broke if it doesn’t produce something valuable does different work than someone whose success comes from publishing papers.
Chang’s modest suggestions for patent reform would provide much less improvement than ideas I’ve found by reading free-market economists (e.g. prizes instead of patents, or Kremer’s patent buyout proposal).
His comments about inflation assume that it produces some benefits, but he shows no awareness of the economic literature which disputes that assumption.
He has plausible hypotheses that increasing market forces might cause an increase in corruption in some countries. I see no easy way to estimate the size of these effects.
His arguments that cultures change in response to economic change more than most people realize are strong enough to lower my opinion of Fukuyama’s book Trust (Fukuyama seems unaware that the German current high-trust culture is very different from a century ago when they had a reputation for dishonesty). But Chang exaggerates a lot when he says immigrants from poor countries working much harder in rich countries proves that work habits result from economic conditions rather than culture – those immigrants are unlikely to be typical of the culture they came from.
