[PEN-L:27181] RE: another myth bites the dust?

["Devine, James" <jdevine@xxxxxxx>]

Title: RE: [PEN-L:27150] another myth bites the dust?

this article makes sense, but it should be stressed that tariffs were necessary but not sufficient to promoting the U.S. rise to the top. In addition, the U.S. benefited from having cheap access to raw materials and land (at the expense of the native population), a large domestic market (allowing a lot of competition within the country, so that monopolies didn't take over right away), and a relatively small technological gap vis-a-vis its competitors (England). (And it goes without saying that the U.S. wasn't dominated by any external power.) I don't think that the currently poor countries have all of these conditions.

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Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine

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History debunks the free trade myth

Ha-Joon Chang
Monday June 24, 2002
The Guardian

You are visiting a developing country as a policy analyst. It has
the highest average tariff rate in the world. Most of the
population cannot vote, and vote buying and electoral fraud are
widespread.

The country has never recruited a single civil servant through an
open process. Its public finances are precarious, with loan
defaults that worry investors. It has no competition law, has
abolished its shambolic bankruptcy law, and does not acknowledge
foreigners' copyrights. In short, it is doing everything against
the advice of the IMF, the World Bank, the WTO and the
international investment community.

Sounds like a recipe for development disaster? But no. The country
is the US - only that the time is around 1880, when its income
level was similar to that of Morocco and Indonesia today. Despite
wrong policies and sub-standard institutions, it was then one of
the fastest-growing - and rapidly becoming one of the richest -
countries in the world.

Especially in relation to trade policy. Many top economists,
including Adam Smith, had been telling Americans for over a
century that they should not protect their industries - exactly
what today's development orthodoxy tells developing countries.

But the Americans knew exactly what the game was. Many knew all
too clearly that Britain, which was preaching free trade to their
country, became rich on the basis of protectionism and subsidies.
Ulysses Grant, the Civil war hero and US president between 1868
and 1876, remarked that "within 200 years, when America has gotten
out of protection all that it can offer, it too will adopt free
trade". How prescient - except that his country did rather better
than his prediction.

The fact is that rich countries did not develop on the basis of
the policies and institutions they now recommend to developing
countries. Virtually all of them used tariff protection and
subsidies to develop their industries. In the earlier stages of
their development, they did not even have basic institutions such
as democracy, a central bank and a professional civil service....