If Free Trade is So Obviously The Best Option…

Then comes the not-really-rhetorical question…

"If firms have become so mobile as to make national regulation powerless, why are the Bad Samaritan rich countries so keen on making developing countries sign up to all those international agreements that restrict their ability to regulate foreign investment? Following the market logic, so loved by the neo-liberal orthodoxy, why not just leave countries to choose whatever approach they want and then let foreign investors punish or reward them by choosing to invest only in those countries friendly towards foreign investors? The very fact that rich countries want to impose all these restrictions on developing countries by means of international agreements reveals that regulation of FDI is not yet futile after all, contrary to what the Bad Samaritans say." (98)

Ha-Joon Chang, Bad Samaritans – The Guilty Secrets of Rich Nations and The Threat to Global Prosperity.

3 thoughts on “If Free Trade is So Obviously The Best Option…

  1. You have to make a distinction between genuine free traders and people who call themselves free traders but do not put the principles into practice.

    Still, wherever things are improving for ordinary people you will probably find that there has been a move towards free trade, however mixed with other contradictory policies (eg India and China).

    • Actually, it’s more complicated than that. Free trade works under certain conditions and definitely not if shoved down the collective throats of developing countries before they’re ready for it. In that case, it’s a disaster.

      You should read the book. It shows with data that free trade works after a country has strengthened industries and economic sectors and has strong institutions to manage and support FDI and other liberalization measures.

      And the data are clear, for instance, in Africa, that things got WAY WAY worse when they liberalized.

      And it may very well be what you call “other contradictory policies” (why contradictory? It is not contradictory to liberalize some areas and maintain other under governmental control as the Asian tigers have successfully done) that improve living standards.

  2. Thanks SocProf! I need to read the book and you probably need to read well-informed critics of the book like this reviewer.

    “The fundamental problem of Chang’s argument is he didn’t see or didn’t want to see that the embracement of the “neo-liberal” recipe was much more driven by the prevalent and INTERNAL economic crises that “state socialism” has inflicted on many developing countries than by some outside lunatics whose agenda was to promote an ideology at the cost of people’s welfare being.”

    “The reason of this cognitive problem is Chang fails to admit (like many others who advocate “statist” approach to development) that “statist approach” might be able to create a fast jump-start for development because state has a strong ability of mobilizing resources, BUT such an approach is never successful in creating SUSTAINABLE development, which is why almost all countries that experimented socialism encountered crises after late 1970s. When these developing countries turn to “neo-liberal” approach, some succeeded like China and India, and some failed like Argentina and Bolivia, but if they didn’t turn to “neo-liberal” approach, ALL would fail (as they were already failing).”

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