Monday, 10 July 2017

The myth that Ha Joon Chang is against mainstream economics

The following is extracted from an interview published in Truthout. My comments are in bold.
Ha-Joon Chang: The biggest myth about globalization is that it is a process driven by technological progress. This has allowed the defenders of globalization to brand the critics as "modern Luddites" who are trying to turn back the clock against the relentless progress of science and technology.
However, if technology is what determines the degree of globalization, how can you explain that the world was far more globalized in the late 19th and the early 20th century than in the mid-20th century? During the first Liberal era, roughly between 1870 and 1914, we relied upon steamships and wired telegraphy, but the world economy was on almost all accounts more globalized than during the far less liberal period in the mid-20th century (roughly between 1945 and 1973), when we had all the technologies of transportation and communications that we have today, except for the internet and cellular phones, albeit in less efficient forms.

The World was much less globalised between 1870 and 1914 than in the 1950's in absolute terms. Hundreds of millions of subsistence farmers in Asia and Africa and Latin America had virtually no connection with global markets. Even in many parts of Europe, linkages to global markets were very weak. The great Russian famine of 1891 was exacerbated by poor transport links and bottlenecks in the distribution of relief shipments- for example, those sent from America. The great Indian famines of the 1870's and 1890's showed British administrators, like Sir Bartle Frere, that the majority of the native population had no reliable connection to global markets and thus local food availability deficits could not be remedied by the cash nexus. China too suffered terrible famines. The North China famine probably had more casualties than the Indian famines of the period. This was despite no overall global food availability deficit. 

It was not till technology and infrastructure improved greatly that the terms of trade started to move against primary products from the 'Global South'. However, this meant that in relative terms Globalisation might appear to decrease- for e.g. India's share of World Trade dropped quite steeply. This did not mean that Indians got richer. No. They were pursuing stupid autarkic policies and asserting their proud independence by passing around the begging bowl in a shameless manner. It was not till India dropped its 'principled' opposition to Globalisation, and Gandhian addiction to panhandling, that living standards and life chances started to improve for the majority.
Technology is a determinant of globalisation- it makes transport and infrastructural linkages more feasible and cheaper- but it isn't the only factor to be considered.

 Between 1914 and 1950 large parts of the globe were affected by warfare or internecine conflict. This meant that even Liberal Britain had to introduce conscription and restrictions on Economic freedom of various types. The US- which had a Protectionist history- though not directly threatened, did face an internal political crisis (one which featured a 'Capital Strike') which complicated its response to a purely financial crash. Thus, US citizens lost the right to hold gold along with many other quintessentially Liberal freedoms.
After the Second World War, the Militarisation of Societies meant that incentive structures and patterns of behaviour diverged greatly from what had previously obtained. Ex army personnel employed by Corporations brought a different ethos with them. The post-war Japanese Corporation is an example of relatively flat income distribution combined with extreme disparity in power and status.  Other post war economies were characterised by a similar 'habitus' and/or social compact. However, the divorce between ownership and control, or 'Managerial Revolution' was not actually as equitable a process as Macro-Economic statistics might indicate. There were a lot of 'perks' and rent seeking opportunities for those at the top which the figures don't capture.
What is different about today's globalisation and that of the 'Liberal' late Victorian/Edwardian era is that it is colour and gender blind. Thus, a young female factory worker in China can become a billionaire because the barrier to entry into global informational and financial markets has fallen greatly in a manner advantageous to vast numbers of people- including women- whose ancestors lived miserable malnourished lives. 
No doubt, under Victorian Liberalism, some Chinese or Indian peasants were shipped off under articles of indenture to work in plantations and a few who survived terrible conditions had some prosperous descendants. However, power remained with the metropolitan bourgeoisie. It took considerable political struggle and sacrifice for these people- similar to the victims of outright chattel slavery- to gain Civic Rights and Social Mobility.
The reason why the world was much less globalized in the latter period (i.e. after the second World War) is that, during the period, most countries imposed rather significant restrictions on the movements of goods, services, capital and people, and liberalized them only gradually. Actually the restrictions were imposed during war time and were only gradually lifted because of Balance of Payments considerations which only ceased to have salience after the collapse of the Bretton Woods system of fixed exchange rates. However, rationing of foreign exchange in a manner unfavourable to the working class did not immediately disappear. Indeed, there was a lot of rationing and 'restrictive covenants' and price and service provision discrimination which was quite legally practised for the greater part of that period.

 What is notable is that, despite [its] lower degree of globalization … this period is when capitalism has done the best: the fastest growth, the lowest degree of inequality, the highest degree of financial stability, and -- in the case of the advanced capitalist economies -- the lowest level of unemployment in the 250-year history of capitalism. This is why the period is often called "the Golden Age of Capitalism."
The Soviet Union and China (prior to the Great Leap forward) saw an even more rapid improvement in living standards (because not being bombed or shot increases productivity) and Samuelson himself believed there was some substance to Khrushchev's boast that Communism would bury Capitalism by providing workers with a higher standard of living. 

Moreover, people like Galbraith, Tinbergen, Morishima etc pointed out that what was actually happening looked more like 'convergence' to something Weberian and Bureaucratic, not Capitalist at all.
Obviously, the Post War era was going to have some unusual features. The end or reduction in hostilities, freed up resources which, in turn, could be used much more efficiently than ever before because of technological and engineering breakthroughs made during the War or by the Military Industrial complex. There was also a baby boom which itself may be causally linked to the World War. Thus there were plenty of 'low lying fruit' and, because of Cold War rivalries, there was also direct Super power f.d.i for industrial development.
It may be argued that the pattern of International Trade in the post War period was shaped by a type of Economic thinking which rejected the autarkic or corporatist mindset of the Thirties.  However, in reality, this wasn't always the case. France under De Gaulle grew at a good clip despite his bizarre economic ideology. The truth is, not economists but pragmatic technocrats made up policy as they went along. Consider, ENI- the Italian oil and gas company. Enrico Mattei turned it into a giant. But, what was it? Did it fall into the category of Public Sector or Private Sector or Mafia sector? In the end, nobody cared. 

One reason even leaders whose worldview was shaped by the war started to retreat from dirigisme is because it had become obvious that traditional Economic theories of Trade and Development were worthless shite. 

Intra-industry trade became a big feature and export led growth, based on carefully nurtured acquired advantage, proved a far better vehicle for rapid growth than import substitution. South Korea was about as poor, more corrupt, more politically divided and faced a far greater existential threat than Kerala- with which it was comparable in terms of education and land distribution. Kerala, as part of India, was excluded from globalisation and ended up exporting people. Korea also exported people but also built up huge export industries some of which are now technological leaders and dominate their field. Still, the fact is 'the Golden Age of Capitalism' wasn't very golden for most Koreans. Indeed, its protectionist strategy was initially very costly though later on, after a shakeout, benefits began to flow through. 

In any case, it was only after the socially polarising consequences of inflationary bias in Advanced Democracies proved resistant to Monetarist medicine, that 'Globalisation' really came into its own as a way to hold down costs while letting unemployment rise to its natural level.
Crucial to the cost containing potential of Globalised supply chains was greatly improved technology of an inherently novel type- things like computers and fax machines and electronic dildos- now more commonly used as smartphones.
Technology only sets the outer boundary of globalization -- it was impossible for the world to reach a high degree of globalization with only sail ships. It is economic policy (or politics, if you like) that determines exactly how much globalization is achieved in what areas.
What determines how much globalization is achieved, other things being equal, is the absence of war or the threat of war. Iran and Russia and North Korea would probably like more, not less, globalization but can't get it because of a perceived military threat.
The current form of market-oriented and corporate-driven globalization is not the only -- not to speak of being the best -- possible form of globalization. A more equitable, more dynamic and more sustainable form of globalization is possible.
Yes. It is already happening. Zhou Qunfei makes touchscreens for mobile phones. She is 45 years old and worth 10 billion US dollars. Not bad for a girl who went to work in a distant factory at the age of 16.
Ha Joon Chang admits that the post War World was more equitable because Globalisation based on European Imperialism could not sustain itself militarily. However, it seems poor people are irremediably stupid and sold themselves into slavery to big Corporations because they didn't understand this was just a form of neo-colonialism.
He says-
Unfortunately, starting in the 1980s but accelerating from the mid-1990s, there has been a rollback of the sovereignty that the post-colonial countries had been enjoying. The birth of the WTO (World Trade Organization) in 1995 has shrunk the "policy space" for developing countries. The shrinkage was intensified by subsequent series of bilateral and regional trade and investment agreements between rich countries and developing ones, like Free Trade Agreements with the US and Economic Partnership agreements with the European Union.
India liberalised at the start of the Nineties. What 'rollback of sovereignty' has it experienced? None. Which foreign company can cause a political storm in India by threatening to lay off workers? Not a single one. By contrast, what Tata Steel does with its British subsidiary can affect the outcome of more than one Parliamentary seat.
No doubt, 'policy space' for stupid bureaucrats shrank. But the Indians realised this was a good thing. Finally, under Narendra Modi, they got rid of the Planning Commission because it was a waste of space.
The second thing that distinguishes the post-1973 globalization is that it has been driven by transnational corporations far more than before. Transnational corporations existed even from the late 19th century, but their economic importance has vastly increased since the 1980s.
OMG! Has this man never heard of the British East India Company or the Dutch East India Company or the Royal Africa Company or other Seventeenth and Eighteenth Century enterprises which engaged in the Slave Trade? Adam Smith and Edmund Burke exposed the malpractices of these 'transnational corporations'. Surely, this Cambridge economist has read at least the former?
They have also influenced the shaping of the global rules in a way that enhances their power. Most importantly, they have inserted the investor-state dispute settlement (ISDS) mechanism into many international agreements. Through this mechanism, transnational corporations can take governments to a tribunal of three adjudicators, drawn from a pool of largely pro-corporate international commercial lawyers, for having reduced their profits through regulations. This is an unprecedented extension of corporate power.
It is not unprecedented at all. Rather, what has happened is that MNC privilege has been curtailed. American Defence Contractors enjoyed extraterritoriality in Iran under the Shah. Employees of I.B.M or E.D.S could literally get away with murder. In Leftist India, the Government bent over backwards to ensure that Union Carbide's CEO escaped the clutches of the Indian courts. There was a time when the United Fruit Company could topple regimes in 'banana Republics'.  
Rules based Globalisation can curb Corporate malpractice. It is true that stupid bureaucrats and ignorant politicians found that ISDS could boomerang upon them. Canada thought ISDS was a stick to beat the Mexicans with, not a gun pointed at their heads by investors in dirty Energy.
Politicians and bureaucrats are now  smartening up and hiring better lawyers on the one hand and working with their counterparts abroad to change the rule-set. No doubt, Trump's election has thrown a spanner in the works for the moment. Still, there is no reason to believe this was an inevitable outcome or that the situation, going forward, is irremediable.

Chang: The assumption that globalization benefits everyone is based on mainstream economic theories that assume that workers can be costlessly re-deployed, if international trade or cross-border investments make certain industries unviable.
Mainstream ne0-classical economic theories assume that markets benefit everyone only if there is no need for markets and markets don't cost anything to run. They prove only that Economics, under ideal conditions, won't do any harm because it would be completely useless.  
Heterodox economic theories, mainstream or otherwise, assume that ordinary people are as stupid as shit and don't notice that they are being incessantly raped and robbed by evil politicians or corporations or some abstraction like 'neoliberalism' or 'austerity' or 'Populism' or 'Globalisation'. They counsel doing the stupidest thing possible under the circumstances because that's the only way ordinary people will wake up and understand that they are being sodomised and stolen from. Thus, what America needs to do is to actually do what Trump said he'd do while impeaching Trump because he is actively anally raping  every single American citizen on a daily basis.
In this view, if the US signs NAFTA with Mexico, some auto workers in the US may lose their jobs, but they will not lose out, as they can retrain themselves and get jobs in industries that are expanding, thanks to NAFTA, such as software or investment banking.
You will immediately see the absurdity of the argument -- how many US auto workers do you know who have retrained themselves as software engineers or investment bankers in the last couple of decades? Typically, ex-auto-workers fired from their jobs have ended up working as night-shift janitors in a warehouse or stacking shelves in supermarkets, drawing much lower wages than before.
The point is that, even if the country gains overall from globalization, there will always be losers, especially (although not exclusively) workers who have skills that are not valued anymore. And unless these losers are compensated, you cannot say that the change is a good thing for "everyone".…
Since the US Federal Govt. can't legally compensate every loser from Globalisation, it follows that Trump's Protectionism is what is required by the Rawlsian Difference Principle which focuses exclusively on the fate of the least well off.
Of course, most rich countries have mechanisms through which the winners from the globalization process (or any economic change, really) compensate the losers.
No. There is a safety net- a 'social minimum'- but no specific compensation. It may be argued that 'property rights in jobs'- e.g. statutory redundancy pay- represent compensation. This is not the case as it encourages 'last in first out' and imposes a higher Present Value loss on the youngster who gets fired than the old crock who has already been featherbedded.
 The basic mechanism for this is the welfare state, but there are also publicly financed retraining and job-search mechanisms -- the Scandinavians do this particularly well -- as well as sector-specific schemes to compensate the "losers" (e.g., temporary protection for firms to promote restructuring, money for severance payments for the workers). These mechanisms are better in some countries than others, but nowhere are they perfect and, unfortunately, some countries have been running them down. (The recent shrinkage of the welfare state in the UK is a good example.)
In your view, Ha-Joon Chang, is the convergence of globalization and technology likely to produce more or less inequality?
Chang: As I have argued above, technology and globalization are not destiny.
The fact that income inequality actually fell in Switzerland between 1990 and 2000 and the fact that income inequality has hardly increased in Canada and the Netherlands during the neoliberal period show that countries can choose what income inequality they have, even though they are all faced with the same technologies and same trends in the global economy.
Switzerland saw increased wealth inequality, more particularly at the top 0.05 percent, because of the way their tax system is structured. Canada doesn't have world famous brands for structural reasons and so will look different to the U.S. The Dutch legal system deals with debt differently and, in any case, the stupidity of their leaders make even Belgium's wholly dysfunctional state look good by comparison. Still, they are Dutch. They don't choose anything. Otherwise they wouldn't be Dutch.
There is actually a lot that countries can do to influence income inequality. Many European countries, including Germany, France, Sweden and Belgium are as unequal as (or occasionally even more so than) the US, before they redistribute income through progressive tax and the welfare state. Because they redistribute so much, the resulting inequalities in those countries are much lower.
Oh! So Globalisation is a good thing provided you have a decent 'Social Minimum' and are careful about the type of bilateral or multilateral Trade agreements you sign. Urm...isn't that the mainstream view? What is wrong with you? Do you not understand that a heterodox economist has to do more than just expose the myth that everybody isn't genuinely being anally raped and robbed by Neoliberalism but also give the most mischievous possible policy prescription? Other Cambridge economists have no difficulty with the second part. I appreciate that South Koreans don't like fucking up Economies, but you owe it your elevated position in an essentially worthless profession to rid yourself of such childish scruples.

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