This book is aptly named. Bad Samaritans are the industrialized or developed countries of the world which, having achieved development and riches using specific policies, use that very economic power thus gained to deny identical policies to today’s underdeveloped countries.
Ha-Joon ChangIn 1958 a Japanese car company shipped a vehicle to the USA hoping to make an impact in that market. The effort was a flop. That car, the Toyopet, was the crowning effort of a company called Toyota.
Here’s a little bit of the Toyota story Chang narrates. “Toyota started out as a manufacturer of textile machinery (Toyoda Automatic Loom) and moved into car production in 1933. The Japanese government kicked out General Motors and Ford in 1939 and bailed out Toyota with money from the central bank (Bank of Japan) in 1949. Today, Japanese cars are considered as 'natural' as Scottish salmon or French wine, but fewer than 50 years ago, most people, including many Japanese, thought the Japanese car industry simply should not exist.”
“Half a century after the Toyopet debacle, Toyota's luxury brand Lexus has become something of an icon for globalization, thanks to the American journalist Thomas Friedman's book, The Lexus and the Olive Tree. The book owes its title to an epiphany that Friedman had on the Shinkansen bullet train during his trip to Japan in 1992. He had paid a visit to a Lexus factory, which mightily impressed him. On his train back from the car factory in Toyota City to Tokyo, he came across yet another newspaper article about the troubles in the Middle East where he had been a long-time correspondent. Then it hit him. He realized that 'half the world seemed to be . . . intent on building a better Lexus, dedicated to modernizing, streamlining, and privatizing their economies in order to thrive in the system of globalization. And half of the world—sometimes half the same country, sometimes half the same person—was still caught up in the fight over who owns which olive tree."
Friedman’s view, glimpses of which may also be found in “The World is Flat: A Brief History of the Twenty First Century"´ is based on what has come to be known as the ‘neo-liberal economic orthodoxy’. Ha-Joon Chang provides a précis: poor countries need to ”privatize 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 him, this is the only path to success in the new global economy.”
How did this orthodoxy gain such powerful and ubiquitous currency? There're several interconnected reasons we may explore. First, Social Science Faculties in Universities tend, as standard practice, to teach ‘Business’ and ‘Economics’ as two separate or distinct disciplines. Yet the fact is few students would confuse what they learn in Sociology with what is taught in Economics 101. On the contrary, it would be hard to imagine similar perceptions of 'Business' vs. 'Economics'—similarities abound.
Nevertheless, Universities generally arrange their departmental activities in this way, so there's a Business School and an Economics Department. The 'softer' disciplines in the 'Social Sciences', and definitely economic history, are relegated to the lowest promontories of the subject landscape.
Economists use mathematics, coupled in modern times, with sophisticated modelling enabled by erstwhile unimaginable computing power that allow results of investigations that present a 'façade of scientific certainty'.
But Economics has not, and never shall achieve the status of Physics. Behavioral and a host of other issues defy the precision, unambiguity or 'certainty' of physical laws.
Consider a rather interesting and perceptive comment of molecular biologist Arthur Lesk on this issue as he perceives it in his own field of scientific endeavour:
‘ . . . biology lacks the magnificent compression of the physical sciences, where a small number of basic principles allow quantitative prediction of many observations to high precision. A biologist confronted with a large body of inexplicable observations does not have faith that discovering the correct mathematical structure will make sense of everything by exposing the hidden underlying regularities. . . . A famous physicist once dismissed my work, saying: ‘You’re not doing science, you're just doing archaeology!’ . . . it emphasizes a genuine and severe obstacle to applications of mathematics in biology.’
Quoting this truly revealing observation Vela Vellupillai points out that "It is one of the illusions, enthusiastically maintained by mathematically competent economists, that economics is capable of a similar ‘magnificent compression’ of its principles to a ‘small number of basic principles’ that has led to the persistent faith in the application of the mathematical method in economics.
Keynes—considered the founding father of macroeconomics—famously thought ‘if economists could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid.’ I would happily settle for economics being compared to archaeology and our scientific activity placed on a level with that of the archaeologist. It would be a noble analogy.
This sentiment is by no means unique. A famous mathematician—who also made interesting contributions to analytical economics—observed that the veneer of mathematics tends: '[T]o dress scientific brilliancies and scientific absurdities alike in the impressive uniform of formulae and theorems. Unfortunately however, an absurdity in uniform is far more persuasive than an absurdity absolutely unclad.’ [emphasis added]
[From K. Vela Velupillai 'Computable Foundations for Economics'—an excellent collection of pathbreaking essays that, in addition to insightful coverage of algorithmic economics, game theory and classical behavioral economics, critically assess mathematical approaches to the discipline.]
Herein lies the significant danger of economic theoretical possibilities elevated to universal truth flying in the face of historical facts. A range of assumptions constrain yet permit, or enable, creation of truly useful theoretical models. In trade theory for instance, invocation of perfect competition and restriction to two-country / two-commodity models of international trade do convey powerful insights. This is useful, easy to grasp even for the beginner in an economics course.
So admittedly, economists have a lot that is useful and insightful to say. We should and undoubtedly do, benefit from these insights. Yet, to apply uncritically, the resultant theoretical results to trade in the real-world, particularly if one seeks to understand or promote development among the planet's underdeveloped countries is a fatal error.
Ha-Joon Chang discusses the authentic, verifiable real world history of international trade and development highlighting ever-present pitfalls of unquestioning acceptance of what has become a widely held or 'orthodox' view of economic development—success in overcoming poverty. This is certainly the view prevalent in the Bretton Woods Institutions—the International Monetary Fund [IMF] and the International Bank for Reconstruction and Development [IBRD] or World Bank. These are the institutions, truth be told, that at the end of World War II, took over from the British Colonial Office responsibility for, and control of the then 'emerging' nations beginning with India in 1947.
Historically, free trade followed, not preceded economic development of today's industrialized countries. More importantly, 'free trade' was for centuries, enforced by decree and military might of imperial power. In modern times it's abundantly clear that free trade benefits citizens, companies and countries participating in the exchange. When however, one factors in differing levels of development among trading partners, the outcome is not unambiguously gainful to all! Furthermore, outcomes worsen with disguised protectionism and rules of the game calculated to favour the 'developed world'.
Contrast 19th century USA which, to the enduring irritation of its former colonial master protected its markets during the drive to industrialization. Cotton and other agricultural output simply wouldn't have cut it! Consider two particularly interesting comments on US trade policy. First, “the new country required a new economics, one grounded in different political institutions and economic conditions than those prevailing in the Old World”. The second is that of a US Congressman of the time, who argued that English trade theory, “like most English manufactured goods, is intended for export, not for consumption at home”.
Another great clue is the fact that Thomas Jefferson tried, in vain, to prevent publication of David Ricardo’s Principles in the USA during a period of controversy over protectionism and the infant industry argument for protection of American industrial development. Ha-Joon Chang considers it “… especially interesting to note … that many US intellectuals and politicians during the country’s catch-up period clearly understood that the free trade theory advocated by British Classical Economists was unsuited to their country.”
Anyone reading 'Bad Samaritans' should be convinced that attention to economic history—not merely interest, inflation and unemployment rates for the last few quarters and gyrations of stock markets—is a useful activity for a truly accurate grasp of the world around us. And this, not merely for economists.
This book is a refreshing exploration of substantive issues, littered with relevant evidentiary historical facts, infused with a generous dash of humor.
