Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang (pg. 26-27)
In the official history of globalization, the early post-Second-World-War period is portrayed as a period of incomplete globalization. While there was a significant increase in integration among the rich countries, accelerating their growth, it is said, most developing countries refused to fully participate in the global economy until the 1980's, thus holding themselves back from economic progress.
This story misrepresents the process of globalization among the rich countries during this period. These countries did significantly lower their tariff barriers between the 1950's and the 1970's. But during this period, they also used many other nationalistic policies to promote their own economic development–subsidies (especially for research and development, or R&D), state-owned enterprises, government direction of banking credits, capital controls and so on. When they started implementing neo-liberal programmes, their growth decelerated. In the 1960's and the 1970's, per capita income in the rich countries grew by 3.2% a year, but its growth rate fell substantially to 2.1% in the next two decades.
But more misleading is the portrayal of the experiences of developing countries. The postwar period is described by the official historians of globalization as an era of economic disasters in these countries. This was because, they argue, these countries believed in ‘wrong’ economic theories that made them think they could defy market logic. As a result, they suppressed activities which they were good at (agriculture, mineral extraction and labour-intensive manufacturing) and promoted ‘white elephant’ projects that made them feel proud but were economic nonsense–the most notorious example of this is Indonesia producing heavily subsidized jet airplanes.
The right to ‘asymmetric protection’ that the developing countries secured in 1964 at the GATT is portrayed as ‘the proverbial rope on which to hang one’s own economy!’, in a well-known article by Jeffrey Sachs and Andrew Warner. Gustavo Franco, a former president of the Brazilian central bank (1997-99), made the same point more succinctly, if more crudely, when he said his policy objective was ‘to undo forty years of stupidity’ and that the only choice was ‘to be neo-liberal or neo-idiotic’.
The problem with this interpretation is that the ‘bad old days’ in the developing countries weren’t so bad at all. During the 1960's and the 1970's, when they were pursuing the ‘wrong’ policies of protectionism and state intervention, per capita income in the developing countries grew by 3.0% annually. As my esteemed colleague Professor Ajit Singh once pointed out, this was the period of ‘Industrial Revolution in the Third World’. This growth rate is a huge improvement over what they achieved under free trade during the ‘age of imperialism’ and compares favorably with the 1-1.5% achieved by the rich countries during the Industrial Revolution in the 19th Century. It also remains the best that they have ever recorded. Since the 1980's, after they implemented neo-liberal policies, they grew at only about half the speed seen in the 1960's and the 1970's (1.7%). Growth slowed down in the rich countries too, but the slowdown was less marked (from 3.2% to 2.1%), not the least because they did not introduce neo-liberal policies to the same extent as the developing countries did. The average growth rate of developing countries in this period would be even lower if we eclude China and India. These two countries, which accounted for 12% of total developing country income in 1980 and 30% in 1000, have so far refused to put on Thomas Friedman’s Golden Straitjacket."
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