An Ordinary Person

Book Review: Bad Samaritans | August 31, 2008

Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang

South Korean economist Ha-Joon Chang’s book turns conventional wisdom and logic about neoliberal “free trade” — the official ideology of how rich countries became rich and the policies developing countries are supposed to follow to prosperity — on its head. Taking a long-range, historical view of global economics, Chang debunks myths and misconceptions about contemporary understanding of the free trade model of economic development.

Free-trade globalization orthodoxy, according to Chang, argues that the only path to development is to follow certain economic prescriptions:

[P]rivatize state-owned enterprises, maintain low inflation, reduce the size of government bureaucracy, balance the budget (if not running a surplus), liberalize trade, deregulate foreign investment, deregulate capital markets, make the currency convertible, reduce corruption and privatize pensions.

According to Chang, had countries such as South Korea and Japan followed these policies early on in their economic development, their industries would, at best, be junior partners to western companies or at worst, would have been wiped out by the competition. Japan and South Korean would have remained third-rate economic powers instead of the economic and technological powerhouses they are today.

The (Not So) Secret History of Capitalism

Chang argues that through institutions like the World Trade Organization, the World Bank, and the International Monetary Fund, industrialized nations have been successful in forcing developing countries to adopt free-trade policies as preconditions for loans and aid. Chang argues that such agreements are made in bad faith because the developed countries, themselves, would have never attained development of their economies had they followed these policies, themselves, earlier in their history.

Chang argues that rather than follow laissez-faire, free-trade as the path to development, current economic giants in Western Europe and the U.S. followed a protectionist strategy that combined military might, exploitation of colonies, high tariffs, strong regulation of foreign trade and investment, domestic subsidies, and strong restrictions to foreign competition in key industries.

Chang argues that the industrialized world nurtured and subsidized “infant industries” — industries that were regarded as long-term investments to be protected from direct foreign competition — until these industries were strong enough to compete in the global market. Virtually all developed countries took this path to economic development, including the much ballyhooed South Korean and Japanese economies. Had these infant industries been exposed to international competition too soon, Chang argues, they would have been wiped out.

By forcing developing countries to adopt free-trade economic policies, rich countries are “kicking away the ladder” of the only tried and true path to economic development presumably, to eliminate future competition. By exposing the economies and domestic markets of developing countries to global forces, Chang argues that home-grown industries are not given a chance to develop and grow. Developing countries, thus, remain stuck at their level of development in an unequal partnership with industrialized countries.

The Big Picture

Bad Samaritans is a book about global economics written for the mass market. It was written with the layperson in mind as its primary audience. Technical concepts and acronyms that were not everyday reading, however, were used liberally like Foreign Direct Investment (FDI), greenfield, brownfield, State-Owned Enterprises (SOE), Transnational Corporations (TNC). Getting through the book, therefore, was a minor struggle for me.

Once I got through the technical aspects and began to understand the big picture, I realized that this was a very important book with significant contributions to add to contemporary debates about globalization.

In addition to development economics for developing countries, issues such as intellectual property laws and regulations and piracy, the relationship between democracy and free markets, privatization as a development strategy, corruption in developing countries, and the role of culture in economic development are also tackled by Chang. One after another, neoliberal, free-market arguments are convincingly demolished as myth and ideology and the actual realities underlying these issues are presented as more complex than popularly understood and presented by globalization free-traders.

The Path to Development

Chang’s prescription for developing economies as a strategy for economic development can be summed up in one paragraph in the last chapter:

So far I have shown that it is important for developing countries to defy the market and deliberately promote economic activities that will raise their productivity in the long run — mainly, though not exclusively, manufacturing industries. I have argued that this involves capability-building, which, in turn, requires sacrificing certain short-term gains for the sake of raising long-term productivity (and thus standards of living) — possibly for decades.

According to Chang, the proper role of developed countries and institutions like the World Bank, IMF, and the WTO, is to get out of the way of developing countries and encourage those who are trying to follow this long-term, nationalistic and protectionist strategy.

Neoliberal, free-trade policies serve to impede and kill off these types of long-term development efforts. Rather than allow developing economies to nurture and grow their home-grown “infant industries,” free-trade policies encourage developing countries to focus their economies on less-productive activities such as agriculture which bring gains only in the short run. True economic development, according to Chang, follows from emulating and mastering advanced foreign technologies, applying them to manufacturing, and protecting national industries from foreign competition for a long time. It is decades before such efforts will bear measurable fruit but Chang argues there is no other viable path to an industrialized economy.

What is Chang’s Motivation?

Is Chang some sort of left-wing ideologue, one might argue? After demolishing free-trade arguments one after another, does Chang expose himself as an ideologue with a leftist, anti-capitalist agenda?

After reading his book I would argue that Chang is neither a leftist nor anti-capitalist. He is more of a pragmatist who appreciates the power of capitalist economies, but whose primary interest is the economic development of developing countries. His agenda is righting the imbalances in international trade regulations, policies and institutions so that developing nations can have a fair chance of catching up to the developed world. This is an arena which is ruled primarily by power and politics and is heavily dominated by the global economic powers such as the U.S., the U.K., Western Europe, Japan, China, South Korea, etc.

Chang’s agenda is to expose the hypocrisy of the industrialized world in prescribing (or much more accurately, imposing) solutions and policies on developing nations that they, themselves, would not follow because these would result in social and economic instability to their societies. His method is to show how historically, the economic powers of the world have followed policies counter to the neoliberal, free-trade orthodoxy as the pathway to development.

In the interest of fairness and if these industrialized nations truly do want to live up to their high-flown rhetoric about spreading democracy and prosperity all over the world, Chang’s argument is a challenge for the developed world to live up to their own stated ideals. Let’s call a spade a spade and implement international policies, regulations and have institutions such as the World Bank, IMF and the WTO actually help developing countries instead of hurting them.

The Liberal Arts Dude gives Bad Samaritans five stars out of five! This is an excellent, thought-provoking book that deserves a wide audience.

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  1. Reminds me of a book I once read by the Filipino economist, Alejandro Lichauco. I think it was called Nationalist Economics and was published in the 80s. If I remember correctly, he briefly outlined how the US economy developed and how the US colonies at that time basically revolted from the UK because they were trying to impose an economic model on the US that’s similar to what the WTO/WB/IMF are currenlty imposing on the developing nations. He also critiqued the economic theories (like comparative advantage, free trade) behind the current models of development being pushed by the industrialized countries (i.e. basically the import dependent, export oriented, and foreign investment driven model) This was all before the whole “globalization” term was being used.

    I would sugget reading it. That’s what got me excited about economics and why I attempted to do a double major in economics and biology (I started off as a biology major).

    But sadly by the time I made the decision the neo-classical school of thought basically just won (the Soviet Union just collapsed) and the Canadian university’s curriculum reflected this. Where just 2 years before, there were classes that were teaching different economic models of development, now they only taught the neo-classical model and were even basically calling the keynesian school of thought out-dated and discredited. Econometrics – which basically was the mathematical justification for the neoclassical theories – was just starting to become popular. This was one of the reasons why I ended up dropping out of university…

    But yeah, I definitely check this book out – thanks for the review.

    Comment by ejosef — September 8, 2008 @ 2:06 am

  2. Hi Ejosef

    Many thanks for the tip on the book to read! I am always on the lookout for good economics books, especially counterpoints to the free-market, globalization doctrine that has dominated public debate the past decade or so. All the better that Lichauco’s book was written before the neoliberal heydey. I think Ha-Joon Chang is the first major salvo among mainstream economists and I am looking forward to following the debates as more voices and perspectives join in.

    Comment by Liberal Arts Dude — September 10, 2008 @ 1:29 am

  3. Hey Liberal Arts Dude:

    Thanks for the review, now I don’t have to read it. Just kidding. At a first-relatively-uneducated-glance, I think the author’s take on the world economy sounds logical. Especially the linking of military might/colonialism and prosperity. It makes a lot of sense. With colonies, the occupying country steals all the resources. With an advanced/brutish military one can force a country to trade, or the country runs the risk being turned into a colony.

    I personally don’t know a whole lot about the economy (I know a tiny bit though, I studied financial management in grad school) because there is so much to out there to study, but I often feel economics can be modeled by the children at a poorly run elementary school. The bullies take whatever they want!

    I certainly want to believe that economics is more complex than that, but there are so many economic situations that can be modeled that way. For example, if the U.S. wants something from another country, they can drum up an excuse to invade and seize it! I don’t think I need to name any names here, but a hundred-year occupation could eventually turn Iraq (there I said it) into a profitable bullying venture!

    To my knowledge, the most glaring example of bullying for economic prosperity in recent history is British colonialism. They colonized like it was going out of style and rooted themselves in weaker countries to control all the resources. If I am not mistaken, the British are still profiting.


    Comment by Ben K. Chappell Hine — September 15, 2008 @ 2:49 pm

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