Archive for the ‘Book Reviews’ Category

In ‘Bad Samaritans’, Ha-Joon Chang takes a historical approach in attempting to answer the question, how do poor countries become rich? Chang provides his answers  by looking closely at how today’s rich countries constructed and managed their economic and industrial policy. He traces the history of the UK, US, the Scandinavian countries, and other more recent rich countries, such as Japan and Chang’s native South Korea. The result is an important work with conclusions that sharply contradict the current neoliberal free market orthodoxy peddled by rich countries and international organizations today.

 

It should be stated right from the outset that Chang is no ideologue: he is no diehard lefty, no commie fundamentalist, no anti-capitalist iconoclast. He simply calls it as he sees it, and is refreshingly honest – and entertaining – in his commentary on the current of the economic ideals prescribed by the rich countries, and how they differ so starkly from the policies that they themselves pursued in their infancy.

 

Chang challenges orthodox policy recommendations in a number of different areas. He looks at tariffs, subsidies and protected industries, and the idea that they should not be tolerated in the name of free trade; he looks at the destructive tendencies of unregulated capital flows and foreign direct investment, and finds that the benefits they provide are often incidential and modest, far outweighed by the damage they usually cause; he examines the idea that public enterprise is inferior to private and finds the evidence to be wanting, and in certain important circumstances contrary; he looks at the concept of intellectual property, and how it has often been taken too far, leading to a stifling of creativity; and so on.

 

Chang’s conclusions, as mentioned, frequently and consistently go against neoliberal doctrine. He argues that free trade is antithetical to a poor country’s development. He details the history of how rich countries used such trade barriers as tariffs and subsidies for key industries liberally, and were crucial to their development of industries that could compete at the international level. Without them, he states, these rich countries would not be where they were today. He also tackles the almost religious obsession we see today about private enterprise at all costs (see my earlier post on this topic, inspired by Chang’s chapter on this in the book).

 

One particularly interesting chapter is on intellectual property rights. While not against them in principle (or even in practice), Chang warns of the dangers of over-protection, and how a scenario has arisen in the developed world where the criss-crossing of property rights has actually led to a stifling of creativity. An important innovation may often involve the violation of a number of very simple processes that have nonetheless been copyrighted. He also argues that poor countries are impeded by international copyrights – and that the rich countries all violated or did not protect international copyrights in their development.

 

Ha-Joon Chang writes in a style that is both understandable to the layman, yet thorough and comprehensive enough to be convincing for non-economists and economists alike. He makes important examples using humor, such as the idea that his son should not go to school but rather enter the job market at the age of six, because free trade demands it.

 

Chang has written an illuminating and important book, and I cannot recommend it strongly enough. Through simple, historical examples and balanced and non-ideological language, he tells the story of how rich countries developed, and how the game has changed today to deny today’s developing countries the opportunities to develop in the same way. Nonetheless, I have a number of criticisms of Chang’s work.

 

– There is a growing recognition amongst serious economists that GDP is a limited measure of economic well-being, and reliance on this measure obscures other important elements of economic prosperity. Chang recognizes this limitation of GDP in this book…and promptly forgets about it. Throughout the book, he compares GDP growth rates of countries under different policies and regimes as proof of their success or failure. His main metric in the book, consistently and throughout, is GDP. While it does not significantly detract from his arguments – we all know that rich countries by and large have lower poverty and inequality than their poorer counterparts – but we will never move beyond GDP as the main measure of prosperity of important economists such as Chang if do not chip away at its superiority in their works.

 

– Chang paints a picture of industrial policy as being central to development, as opposed to more ‘micro’ elements as health, education, and credit for the poor. He acknowledges their importance, but dismisses the idea that they alone will magically lead to development. And he’s right, without doubt, that a country needs overarching economic objectives, such as investing in research in certain strategic sectors. But nonetheless, and related to the point above, I would have liked to see a greater discussion of greater health and education and better individual outcomes as an ends unto itself. A detailed discussion is probably beyond the scope of the book, however.

 

– Ha-Joon Chang does not discuss the environmental importance of a proper development strategy, and this is important. He contrasts how the rich countries developed with the options open to the poor countries today, but does not look at the changing ecological realities today. He advocates a policy of manufacturing and industry, but does not provide solutions, or even suggestions, of how this may be possible without us trashing the environment (as the rich countries did over the decades and centuries) and pushing the world over the precipice. This is important: it’s all well and good arguing that the poor countries should be allowed the same developmental opportunities as the rich had, but we have to be responsible. Economics as a discipline has consistently failed to recognize humanity’s place in the world and its role in maintaining ecological balance; this has to change. Development policy must be formulated with the ecology and the environment in mind. If this means a new paradigm of development, then so be it. Ha-Joon Chang does not touch on this.

 

Despite these criticisms, this book is a must-read for pretty much anyone. If for no other reason, read this book and understand that mainstream economics does not have all the answers. Neither does Chang, but after reading this book, a non-economist would have a better appreciation of economics as a discipline (and that it is not a science, but rather, has evolved to serve certain interests).

9.5/10

 

Ever since the financial crash of 2008, the subject of global economics has been at the tip of everyone’s tongues. A period of remarkable economic growth came to an abrupt end, and to this day most of us are feeling the effects of it. Now when it comes to understanding the strange and often contradictory world of economics, there are definitely worse people to look to than Paul Krugman. Professor of Economics at Princeton University, New York Times columnist and Nobel Prize winner aside, Krugman was voted 6th in a poll of the world’s 100 top intellectuals by Prospect.

The Conscience of a Liberal (also the name of Krugman’s blog) traces the path of inequality in the United States from the late 19th century to the present day, and how – after a period of relative economic equality in the 60’s – income distribution in the United States today is as bad as, if not worse than, it was in the early 20th century. By inequality, we’re essentially talking about the difference in the income of the richest and poorest members of society.

Over the course of the book, Krugman describes the evolution of the two main political parties in the US, the Democrats and the Conservatives. He shows how during the 70’s and 80’s, the Republican party was hijacked by ‘movement conservatives’, or as some have described it, the ‘conservative labrynth’ – a network of media outlets, right-wing think tanks and corporations supported by wealthy benefactors dedicated to spreading a version of conservatism that is vehemently opposed to the tenets of the New Dealintroduced by Roosevelt in the 1930’s.

Krugman spends much of the book discussing the rise of movement conservatives and their hijack of the Republican Party. He also talks about how they were able to achieve so much support – to the extent that they were able to win elections consistently – with such unpopular economic policies. The economics of these movement conservatives, Krugman argues, increased inequality as they decreased taxes for the richest segments of society while weaking social safety nets. So how did a party with such policies manage to consistently win elections?

Krugman discusses a number of interesting and valid methods in which the Republican party were able to convince voters to vote for them, but the most influential – and ugliest – of their tactics, he argues, was for them to play the race card. According to him, the Republicans were able to convince a majority of voters to choose them despite unfair economic policies was to play on the fears of white voters, at a time when racism, whether hidden or overt, was a major factor in American life. Now to those of us who did not grow up in America during this time, it can seem a strange argument, particularly when reading a book written by a prominent Economist, not a sociologist or historian. However, Krugman backs his argument strongly, and convinces the reader of the validity of his argument.

Towards the end of the book, the author looks to the future, and claims that progressives and liberals need to focus on one major issue in the coming years: healthcare. Krugman claims that achieving universal healthcare is a must. Every other developed economy has universal healthcare, and so the US lags behind. Krugman outlines the main features that a healthcare plan must have, and the difficulties that would be involved in trying to implement this in the US. Now this book was written before the recent healthcare bills were passed, and so comparing Krugman’s ideas with the actual details of the current healthcare would certainly make for interesting reading for those interested in the subject.

Krugman packs many a punch in this book, and is not afraid to tread on any toes. Theodore Roosevelt once uttered these words:

“We had to struggle with the old enemies of peace – business and financial monopoly, speculation, reckless banking, class antagonism, sectionism, war profiteering. They had begun to consider the Government of the United States as a mere appendage to their own affairs.

We know that Government by organized money is just as dangerous as Government by organized mob. Never before in history have these forces been so united against one candidate as they stand today. They are unanimous in their hatred for me – and I welcome their hatred.”

Krugman shares Roosevelt’s spirit in this regard, and offers a stinging indictment of the state of the modern Republican party. While Obama may be attempting a bipartisan approach, reaching out to a Republican party that has no interest in playing ball, Krugman argues that in many cases a bipartisan approach is simply unworkable.

The focus of the book is ultimately inequality in the US, but by demonstrating the direct effect of movement conservatism’s harmful economic ideology, Krugman shows us how this inequality came about, and why a progressive Government must focus on healthcare reform (which Obama has now done) in order to halt the rise in inequality and take major step towards a fairer society. The book provides a fascinating look at the rise of the Republicans in their current form, and Krugman makes a strong argument for the rejuvination of public institutions in the US. A must read.