Tyler Cowen keeps banging on about different types of food. Now Ha Joon-Chang is muscling in on that action. He is shilling a new book, 'Edible Economics', in Aeon.
He begins with a long complaint against British cuisine in the mid-Eighties. He doesn't understand that this was a product of the long shadow thrown by War and Post-War rationing where work canteens got hold of good ingredients and provided good food for employees. Even in the early Eighties, it was usual for white collar workers- including the Management cadre- to have a one hour, three course, lunch in the Company dining room. This was the main meal of the day. At night, you had supper- a sandwich or something light.
In the Fifties and Sixties, most Girls were taught 'Home Economics' and were good enough cooks. The Sunday roast was something to look forward to but as more and more women went to work, weekday meals were filling rather than tasty.
Rising wages in manufacturing meant that restaurants dropped their culinary standards because of staffing problems. Technological limitations obtaining at that time affected the quality of processed food. During Rationing, fish and chips had become the National cuisine. This could be of good enough quality. Fish was cheap and latch key kids were happy to consume vinegar soaked chips when not chowing down on Mars bars. The Chinese and the Indians and the Portuguese and Italians provided more flavourful food for those able to tolerate such foreign filth, On the other hand, there was a big pent up demand for American fast food franchises. The 'Wimpy' chain survived in England after folding in the US. The British sausage roll or Cornish pasty remained dire but so long as you could 'breakfast three times a day', you could eat well enough. Bacon and Eggs are difficult to muck up.
What about Economics? It was known to be shit. South Korea, by listening to Irma Adelman and concentrating on Tardean mimetics, had shown that 'Development Economics' and the mathematical theory of Economic growth was utterly stupid and mischievous. Marxist Econ was dead in the water. Keynesianism had shat the bed fifteen years ago. Thatcher's doctrinaire Monetarism failed spectacularly. With the end of exchange controls and 'Big Bang' , Markets gained the whip hand over Government Economic Policy. Lamont's defeat at the hands of the likes of George Soros in 1992 put an end to any pretensions to policy relevance that Oxbridge Econ might have had. In the mid Seventies Brian Walden and Peter Jay and Samuel Brittan had an impact on politics. By the Nineties, Jay- Callaghan's son-in-law, had become a flunkey of Robert Maxwell. Academic Economists sought grants from foreign MNCs or ended up in bed with International bureaucracies of an obviously useless type. Having made a commodity of themselves, Rothbard's law- eminent Economists specialize in what they are worst at- operated with a vengeance.
This was not how the young Korean saw things. There had once been a golden age of British economics. Nutters like Maurice Dobb or utterly useless tossers like Sraffa were taken seriously in distant parts of the world. Then, the Godfather movies came out. Third World elites understood that Mafia dons, not ones from Cambridge, alone understood Political Econ.
Up to the 1970s, economics was populated by a diverse range of ‘schools’ containing different visions and research methods – classical, Marxist, neoclassical, Keynesian, developmentalist, Austrian, Schumpeterian, institutionalist, and behaviouralist, to name only the most significant.
They were all utterly shit.
These schools of economics – or different approaches to economics – had (and still have) distinct visions in the sense that they had conflicting moral values and political positions, while understanding the way the economy works in divergent ways. I explain the competing methods of economists in my book Economics: The User’s Guide (2014), in a chapter called ‘Let a Hundred Flowers Bloom – How to “Do” Economics’.
Why not say that there were once many ways to do Alchemy? Lead can be turned into Gold either by the use of sex magic or else by catching and holding a leprechaun, or else by messing about with alembics and tinctures of mercury.
Not only did the different methods coexist but they interacted with each other. Sometimes, the competing schools of economics clashed in a ‘death match’ – the Austrians vs the Marxists in the 1920s and ’30s,
Both were shit.
or the Keynesians vs the neoclassicals in the 1960s and ’70s.
There are no closed economies. Everything is microeconomics. The problem is Knightian Uncertainty. General Equilibriums are 'anything goes'.
At other times, the interactions were more benign. Through debates and policy experiments tried by different governments around the world, each school was forced to hone its arguments.
Fuck off! Everybody doubled down on repeating hysterical lies.
Different schools borrowed ideas from each other (often without proper acknowledgement). Some economists even tried the fusion of different theories – for example, some economists fused the Keynesian and the Marxist theories and created ‘post-Keynesian’ economics.
Which was useless. Voters lost interest when they realized that they themselves would be funding that shit-show through their taxes.
Economics until the 1970s was, then, rather like the British food scene today: many different cuisines, each with different strengths and weaknesses, competing for attention; all of them proud of their traditions but obliged to learn from each other; with lots of deliberate and unintentional fusion happening.
Fuck off! The British food scene is market driven. Econ was, albeit indirectly, State funded. Essentially, undergrads were exposed to nutters in the hope that they would recoil in disgust and quietly become Chartered Accountants.
This intellectual ‘monocropping’ of economics has narrowed the intellectual gene pool of the subject
Monocropping doesn't narrow the gene pool. It is likely that where it occurs, the Seed Companies will maintain widening inventories some of which are G.M.
Since the 1980s, however, economics has become the British food scene before the 1990s.
It has lost salience. Governments ignore economists. If voters are foolish enough to listen to a Varoufakis, they quickly repent their folly.
One tradition – neoclassical economics – is the only item on the menu.
Sadly, you just have to pretend to learn or teach it. You don't have to absorb its main lesson- which is that there is a market for economic theories where 'information asymmetry' has changed such that it is 'common knowledge' that Academic economists are stupider and more ignorant than almost everybody else.
Like all other schools, it has its strengths; it also has serious limitations. This ascent of the neoclassical school is a complex story, which can’t be adequately considered here.
It's a mathematical formalism, that is all.
If told, the story would have many ingredients. Academic factors – like the merits and demerits of different schools, and the increasing dominance of mathematics as a research tool (which advanced knowledge of particular kind while suppressing others) – have mattered, of course.
There is a conspiracy to suppress the knowledge that this guy is actually a genius.
However, the ascent has also been critically shaped by power politics – both within the economics profession and in the outside world. In terms of professional power politics, the promotion of neoclassical economics by the so-called Nobel Prize in economic sciences (it is not a real Nobel prize but only a prize ‘in memory of Alfred Nobel’, given by Sveriges Riksbank, the Swedish central bank) has played a big role.
But there are actual Nobel Peace and Literature Prizes which are generally awarded to evil or illiterate people.
In terms of power politics beyond the profession, the neoclassical school’s inherent reticence to question the distribution of income, wealth and power underlying any existing socioeconomic order has made it more palatable to the ruling elite.
Ruling elite is refusing to admit that I and I alone deserve the title of Miss Teen Tamil Nadu.
The globalisation of education during the post-Second World War era, in which the disproportionate ‘soft’ cultural power of the United States has been the biggest influence, has played a crucial role in spreading neoclassical economics, which had become dominant in the US first (in the 1960s).
Neoclassical econ arose from the marginalist revolution in Europe. America was originally more 'Institutionalist'. To get a PhD in Econ at Harvard you had to know German not Math till about 1960. The Cowles Commission and, later on, the Rand Corp. did play a role in promoting mathematical econ and there was also a big influx of sub-standard Math mavens into Econ Departments. OR was actually quite useful as was dynamic programming, stochastic integrals and so forth. Econophysics together with Big Data can generate bubbles and thus enough volatility to maintain robustness all by itself. This means Pundits of all types can be wholly disintermediated.
But, whatever the causes, neoclassical economics is today so dominant in most countries (Japan and Brazil, and, to a lesser extent, Italy and Turkey are exceptions) that the term ‘economics’ has – for many – become synonymous with ‘neoclassical economics’. This intellectual ‘monocropping’ has narrowed the intellectual gene pool of the subject. Few neoclassical economists (that is, the vast majority of economists today) even acknowledge the existence, never mind the intellectual merits, of other schools.
They are all shit. Even if one turd gazes admiringly at another turd- both are flushed down the toilet.
Those who do, assert the other varieties to be inferior. Some ideas, like those of the Marxist school, they will argue, are ‘not even economics’. It’s claimed that the few useful insights these other schools once possessed – say, for instance, the Schumpeterian school’s idea of innovation,
A genius who noticed that cars had replaced horse drawn carriages. This conclusively proved that guys who earn a little money teaching Economics aren't completely blind.
or the idea of limited human rationality from the behaviouralist school – have already been incorporated into the ‘mainstream’ of economics, that is, neoclassical economics.
In other words, some poor schmuck gets paid a little money to teach that shite.
They fail to see that these incorporations are mere ‘bolt-ons’, like the baked potato beside a Pizzaland pizza, rather than genuine fusions – like Peruvian cuisine, with Inca, Spanish, Chinese and Japanese influences, or the dishes by the Korean American chef David Chang (no relation), with American, Korean, Japanese, Chinese and Mexican influences.
Similarly, mathematical physics is nothing but 'bolt-ons'. This is because physicists from other types of universes aren't able to immigrate or invade Physics departments on Earth. Indeed, I have heard that even octopuses face discrimination in gaining tenure.
I am not saying that neoclassical economics is particularly bad. Like all other schools of economics, it was built to explain particular things on the basis of certain ethical and political premises. So it is very good at some things but very bad at other things. The problem, rather, is the almost total dominance of one school, which has limited the scope of economics and created theoretical biases and blindspots.
Since only stupid people teach Econ, this doesn't matter in the slightest.
In the same way in which the country’s refusal to accept diverse culinary traditions made Britain before the 1990s a place with a boring and unhealthy diet,
It was healthier than what we have. Why? 'Home Economics' was discontinued. Girls could no longer whip up even simple dishes like leeks in white sauce. We started watching cooking shows while chowing down on takeaway.
the dominance of economics by one school has made economics limited in its coverage and narrow in its ethical foundation.
Also, it has made economists stupid and smelly.
Some readers may legitimately ask: why should I care if a bunch of academics become narrow-minded and engage in intellectual monocropping? However, you should all care, because, like it or not, economics has become the language of power.
Money is the language of power unless it's the other way around. Economists aren't good at making money or, if they are, we don't call them economists. We call them billionaires.
You cannot change the world without understanding it.
Sure you can. Cyanobacteria made the planet habitable by producing oxygen through photosynthesis.
In fact, I think that, in a capitalist economy, democracy cannot function effectively without all citizens understanding at least some economics.
For a Government to function effectively, the guys who pay the taxes need to get something in return. Otherwise, they figure out a way not to pay.
These days, with the dominance of market-oriented economics, even decisions about non-economic issues (such as health, education, literature or the arts) are dominated by economic logic.
Also sex. Billionaires have no trouble getting laid.
I have even met some British people who are trying to justify the monarchy in terms of the tourist revenue it allegedly generates. I am not a monarchist, but how insulting is it for the institution to be defended in that kind of way?
Not insulting at all. Saying 'the bloke pulling down the big bucks is adding a lot of value' isn't an insult. It is a compliment.
When so many collective decisions are formulated and justified with the help of the dominant economic theory, you don’t really know what you are voting for or against, if you don’t understand at least some economics.
In 2005 Bernie Sanders proposed a bill revoking China's most favoured nation status. Ten years later he could launch a challenge to Hilary. But Trump won. Why? He promised to protect Americans not just from low-wage competition abroad but also from migrants at home. Do Americans understand that the long term supply is elastic and thus there will be no windfall from tariffs? Probably. But, in the long term, we are all dead.
Economics is not like studying, say, the Norse language or trying to identify Earth-like planets hundreds of light-years away. Economics has a direct and massive impact on our lives.
It has none. Government policies impact our lives. But those policies are politically determined.
We all know that economic theories affect government policies
We all know that vested interest groups pay a little money to economic theorists of various sorts to make the case for policies that will benefit them. They don't care about the ideology of the economist in question. They just want them to demand what is in their own pecuniary interest. But they pay a lot more money to 'influencers' and Madison Avenue types.
regarding taxes, welfare spending, interest rates and labour market regulations, which in turn affect our daily material lives by influencing our jobs, working conditions, wages and the repayment burdens on our mortgages or student loans. Economic theories also shape the long-term collective prospects of an economy by influencing policies that determine its abilities to engage in high-productivity industries, to innovate, and to develop in an environmentally sustainable way.
I suppose you could say expectations are based on theories. Moreover, if there is a 'correct' economic theory, then there will be 'Rational Expectations'- i.e. the expected outcome will be the actual outcome. This gets rid of 'cobwebs' and stabilizes the market. However, this assumes there are enough arbitrageurs or market makers.
But beyond even that: economics doesn’t just influence economic variables, whether personal or collective. It changes who we are.
Money does that. Fame does that. Power does that. Theories don't. A loser is still a loser even if he has a very sophisticated theory of loser-dom.
Economics shapes us in two ways. First, it creates ideas:
No. We create ideas. If they are based on experience, they may be useful.
different economic theories assume different qualities to be at the essence of human nature,
No. They assume that different people have different preferences or that the same person has different preferences at different times. What matters is aggregate behaviour.
so the prevailing economic theory forms cultural norms about what people see as ‘natural’ and ‘human nature’.
It has no such power. The fact is people with different economic theories have the same view of human nature. It isn't the case that Keynesians consider it right and proper to decapitate Monetarists while Monetarists think it only natural to shove hamsters up the butt-holes of Actuarial Scientists.
The dominance in the last few decades of neoclassical economics,
Financial markets are dominant but Technical analysis dominates in short term trading. For the long term, fundamental analysis is better. But, it is ideographic.
which assumes that human beings are selfish, has normalised self-seeking behaviour.
Very true. Prior to Alfred Marshall, the Brits had zero interest in money. They engaged in the slave trade and the opium trade and the Empire racket purely out of a spirit of Christian charity.
People who act in an altruistic way are derided as ‘suckers’ or are suspected of having some (selfish) ulterior motives.
e.g. Mother Theresa wanting to get into Heaven. Had this not been the case, she would have set up a hedge fund.
Were behaviouralist or institutionalist economic theories dominant, we would believe that human beings have complex motivations, of which self-seeking is only one of many; in these views, different designs of society can bring out varying motivations and even shape people’s motivations in diverse ways.
We understand that suicide bombers might be in a hurry to get to a Paradise where they will sleep with 72 virgins.
In other words, economics affects what people see as normal, how people view each other, and what behaviour people exhibit to fit in.
Yet people who have no idea what the word 'economics' means may have even more cynical views.
Economics also influences who we are by affecting the way the economy develops and thus the way we live and work, which in turn shapes us.
Which is why we should scold Economics and send it to bed without any supper. Otherwise, Economics may turn us into neo-liberals. This is one of the leading causes of sodomy in South Korea.
For example, different economic theories offer contrasting views on whether developing countries should promote industrialisation through public policy intervention.
Why not retard it instead?
Different degrees of industrialisation, in turn, produce a variety of types of individuals. For example, compared with those who live in agrarian societies, people who live in more industrialised countries tend to be better at time-keeping, as their work – and consequently the rest of their lives – is organised according to the clock.
People with watches are better at time-keeping.
Industrialisation also promotes trade union movements
unless they are suppressed as they were in England by the Combination Acts. South Korea only recognized the KCTU in 1999. Only in 2025 did South Korean Trade Unions get the type of (limited) immunity from damages which UK workers have enjoyed since 1906.
by amassing large numbers of workers in factories where they also need to cooperate much more closely with each other than in farms.
In the Soviet Union, there were no big factories. That is why there were no Trade Unions- right? China has only one Trade Union with 300 million members. It is wholly subordinated to the Ruling Party.
These movements in turn create centre-Left political parties
only in multi-party polities.
that push for more egalitarian policies, which may be weakened but do not disappear even when factories disappear, as has happened in most rich countries in the past few decades.
Anyone can push for 'egalitarian policies'. There may be money in it for you, if for nobody else. The need to fight 'total wars' militated for more egalitarian policies. It is no accident that countries which applied them, including South Korea, had conscription and faced an existential military threat.
We can go further and assert that economics influences the kind of society we have.
Why not go further still and say society influences people?
First, by shaping individuals differently, varying economic theories make societies of contrasting types.
No. Culture & Religion & Education & Tardean mimetic effects do that. What works even better is 're-education' in Gulags. What is interesting is that societies can transition from totalitarian to liberal democratic very quickly.
Thus, an economic theory that encourages industrialisation
which is what the Brits had in the nineteenth century
will lead to a society with more forces pushing for more egalitarian policies, as explained above.
Unless those forces are beaten to death. The plain fact is inequality increased when industrialisation took place. But the same could be said of the agricultural revolution.
For another example, an economic theory that believes humans to be (almost) exclusively driven by self-interest will create a society where cooperation is more difficult.
No. The reverse happens. Why? Cooperation is positive sum. That's why businessmen prefer to form a cartel rather than indulge in wasteful competition. Where people are driven by higher motives than filthy lucre, cooperation may become impossible. Gandhi was famous for non-cooperation, not for making life easier for the Viceroy.
Second, different economic theories have different views on where the boundary of the ‘economic sphere’ should lie.
No. The economic sphere encompasses both public and private realms. Where there are externalities or repugnancy markets, there may have to be a public intervention.
So, if an economic theory recommends privatisation of what many consider to be essential services – healthcare, education, water, public transport, electricity and housing, for example – it is recommending that the market logic of ‘one-dollar-one-vote’ should be expanded against the democratic logic of ‘one-person-one-vote’.
An accountant may recommend privatization based on the fact that the Government has no money and is shit at running things. But truly essential services- Army, Police etc.- aren't privatized.
People won't vote for non-existent public health care etc. What would be the point?
Finally, economic theories represent contrasting impacts on economic variables, such as inequality (of income or wealth) or economic rights (labour vs capital, consumer vs producer). Differences in these variables, in turn, influence how much conflict exists in society:
No. Religious or ethnic differences create conflict. If Labour wants to fight Capital by not working, Labour doesn't eat. Capital fucks off and lives large elsewhere.
greater income inequality or fewer labour rights generate not just more clashes between the powerful and those under them but also more conflicts among the less privileged, as they fight over the dwindling piece of pie available to them.
No. One side hires guys with guns and shoots the other side if it tries any rough stuff. There may be misery. There is little conflict.
Understood like this,
by a fucking cretin
economics affects us in many more fundamental ways than when it is narrowly defined – income, jobs and pensions.
Not if the Army and the Police can fuck over anyone who tries any rough stuff.
That is why it is vital that every citizen needs to learn at least some economics.
But not from this cretin.
If we are to reform the economy for the benefit of the majority,
we have to get elected or else be smart enough to be worth consulting. Teaching and writing retarded shite won't help.
make our democracy more effective, and make the world a better place to live for us and for the coming generations, we must ensure some basic economic literacy.
Only general purpose productivity matters. Raise that by all means. I suppose, Korea used heavy handed methods to achieve this- e.g. the New Village Movement- but the determination of the Koreans to emulate and outdo Japan, their former oppressor, was matched with extraordinary skill, stamina, and need to achieve. Development is based on Tardean mimetics but lazy people should choose lazy mimetic targets while those with high 'need for achievement' should emulate the richest and most successful countries.
South Korea was a plausible candidate to become a sort of junior Japan and that is what it did. North Korea could be like Communist China except with more Soviet Aid. That worked quite well so long as the Soviets were prepared to subsidize the regime.
Independent India could be like Colonial India- i.e. be a night-watchman state save when, for some reason, the balance of payments constraint lifted in which case it could do a bit of infrastructure investment and village development. The big question was whether there could be a floating exchange rate and free convertibility. If this happened, you were likely to get foreign direct investment on the one hand and, on the other, local entrepreneurs importing cheap 'capital-goods' which raised factor productivity and generated a profit. This wasn't possible under Bretton Woods and remained rather theoretical because capital markets were pretty shitty. It takes time for Markets to learn to regulate themselves. Short to Medium term, you have speculators and fraudsters who, inevitably, establish corrupt connections with politicians and bureaucrats.
The alternative was a 'zaibatsu' approach- i.e. work with a select group of industrialists who start of as sub-contractors but then benefit from the privatization of a new industry set up by the Government. The problem here is that, in a Democracy, there is nothing to stop the zaibatsus from switching support to the opposition party. It takes decades for politicians to get the whip hand such that big industrialists impartially support whichever party wins the election. Often, this is because the industrialist is using 'pyramiding' to achieve control rights with little 'skin in the game'. Indeed the nationalized banks and insurance companies may be providing most of the finance.
Back in the early Nineties, it was hoped that the World Bank could supply cheap money for infrastructure and local contractors would quickly 'learn by doing' in partnership with the best global enterprises in the relevant field. Sadly, 'activists' can scare off the World Bank. Hence the reliance, in India, on 'Ambanis & Adanis' as well as the older industrial business houses.
Frontline has an interview with Chang where they ask him-
Earlier this year, responding to Trump’s Liberation Day tariffs, you told Jacobin magazine that “there should be no return to free trade”.
There was no free trade. If the West didn't like your politics, they could sanction the fuck out of you or use opaque Human Rights or Environmental clauses in Trade treaties. Now, China has an equally effective threat-point. But, Growth is the key. If you aren't growing faster than your rival, your threat point diminishes.
For economists, policymakers, and a generation that came of age over the last three decades in India and Asia, free trade and globalisation drove economic growth.
It removed the binding balance of payments constraints. If you don't have enough hard currency, you have to tighten your belt one way or another. Subsidizing food means less infrastructure investment which means lower productivity which means having to finance a bigger food subsidy.
Why shouldn’t the world return to it?
If you have foreign currency reserves, you have some freedom of action. If you don't, you have to try to play off super-power overlords or pick a side and stick to it. The problem is that- as newly independent states in the Sixties found out- the 'overlord' might suddenly turn stingy. Maybe investing in terrorism could give you a bargaining chip. Alternatively, like North Korea, you could run your finances in the manner of a Mafia boss.
In all of this, there are terminological confusions, if I may put it like that. Engaging in international trade, being able to export to global markets, is essential for economic development.
Sadly, it is neither a necessary nor a sufficient condition. Getting conquered by guys who can raise productivity is what works best- more particularly if they ethnically cleanse hunter-gatherers and subsistence farmers.
Because as a developing country, you need to import advanced technologies whether it is in the form of machines, or intermediate inputs, or technology licensing, and you have to pay for them with foreign exchanges.
No. You can permit foreigners with skill and capital to settle in your country. Development, traditionally, was about migration. Human beings are more mobile than other factors of production. Pretending decolonization changed this fundamental fact about our species was foolish.
You need to earn hard currency. Without international trade, there will be no economic development. But that is not the same as free trade. Even if there is some degree of trade barrier, you can still export. For example, international trade as a proportion of GDP grew much faster in the 1970s than in the 1980s
because of better tech (e.g. transistors) & lower transaction costs on the one hand (stuff like containerization) on the one hand and OPEC on the other. I believe 'Baumol cost-disease' fell in many places- because of a previous expansion in education & training. But this also meant that 'differentials' for educated professionals got eroded. We had the first signs of a credentialist crisis.
—[a time] when there was a lot of trade liberalisation
because there had been devaluations & relaxations of exchange control regimes. Things like remittances altered the picture. In the1970s and 1980s, over a million South Koreans worked in the Gulf. Soon there was no need for this as South Korean industry attained excellence in more and more fields. One might say that the economic system was cruel or extractive with respect to the working class, but, eventually, they did reap the benefits. Was it all worth it? Only Koreans can answer that question.
—because trade barriers are only one of many things that determine the level of trade.
Income determines it. As incomes rise, countries don't mind importing cheap tat even if this means shitty sweat-shops in their own country shut down. Those who worked in such places could live better on the dole.
But more importantly, developing countries cannot develop with free trade.
Sure they can- through f.d.i. The trick is to get the investors to settle in your country.
I mean, this is something that I have said in many different ways—with historical record, from a theoretical perspective. South Korea was a very poor country until the early 60s. In 1961,
when South Korea was still a democracy
India’s per capita income was $88 and South Korea’s was $94. Essentially, the same level of development. But then, South Korea wanted to be a serious player in all sorts of high-tech industries—automobile, shipping, electronics.
It wanted to imitate Japan. India wanted to go in a Socialist direction. The problem was that land couldn't be collectivized and there couldn't be coercive 'Village Development'. Why? Dominant agricultural castes were too powerful. They would shoulder aside the educationally 'Forward Castes' and take control creating corrupt dynasties with strong links to organized crime.
I believe the South Korean Dictator gave the corrupt a choice. Invest your ill gotten gains in South Korean Companies or face expropriation. But there was a political angle to this.
Of course, when they started these industries, they had to protect them very, very heavily.
Only if they wanted to retain ownership.
Otherwise, they would have been wiped out.
Better to be wiped out than to survive as a subsidized, retarded, dwarf.
For example, when South Korea started producing its self-designed cars, the biggest company that was producing them was Hyundai, which [today] also has quite a big presence in India. In 1976, Hyundai produced 10,000 cars.
Because it only started the previous year. Hyundai had prospered because it was protected from Trade Union militancy. British Leyland was not. That's why though engineers from BL helped create the first South Korean car, the British company disappeared from the scene long ago.
That year, Ford produced 1.9 million cars. General Motors was approaching 4.8 million cars. Now if South Korea had free trade in cars back then, Hyundai would have disappeared overnight.
No. So long as the Dictator could be relied on to kill or incarcerate Commies & Labour Activists, there would have been a South Korean car industry. The big guys understood that Dictators have to appear Nationalistic so as to fight off the Lefties. One way or another a deal could have been done. The founders of some Korean companies- e.g. Hyundai- have family backgrounds similar to the Ambanis. Others, like Samsung's Lee family, are of higher social class and education. The commonality is that they did well as contractors in the Fifties. The Dictator took control of the finance side of things- e.g. Samsung's banks- but gave the chaebol protection from Labour and foreign competition.
I suppose the peculiar political situation of South Korea militated for some degree of crazy shit going down. Still, the Dictator did devalue on Irma Adelman's advise. India left it a bit late.
So until 1988, the South Korean government not only put up high tariffs, they banned the import of all foreign cars. And until 1998, they had banned the import of Japanese cars.
For obvious historic reasons.
And then they gave a huge amount of direct and indirect subsidies. This is what is called infant industry protection.
It is also called corruption or crony capitalism.
They developed automobile, electronics, shipbuilding,
that was important. New purpose built shipyards could get economies of scope and scale not available to old established shipyards. Otherwise, what Korea offered was 'greenfield' sites- i.e. no Unions- and thus low labour costs. Could the Koreans excel as engineers, designers, inventors etc? Yes. But it took a bit of time.
all these industries through similar measures.
What was that measure? It consisted of the Dictator making an industrialist an offer he couldn't refuse. Since the Dictator sent a lot of high quality troops to Vietnam, the US- though sometimes recoiling from the thug- remained on side. Still, most economists shared Joan Robinson's rosy view of North Korea. They thought the average South Korean was poorer and more brutally treated. An Indian journalist who visited both the North and the South in the late Sixties and Seventies noticed that people worked harder in the South. He thought this had to do with the determination to equal or surpass Japan. His readers thought this was because Capitalism is very evil and seeks to turn people into robots. I even heard that that in the North the indigenous spiritual tradition was cherished whereas the Dictator sought to uproot traditional religion in the villages and thus create a Christian majority. This was not the case. The Americans had grown wary of Christian Generals who turned out to be useless and who alienated the Buddhist majority.
Before economic liberalisation in 1991, India, too, exercised strong protectionist measures.
It protected workers in the organized sector. Japan, Korea, etc. got rural girls into factory dormitories and exploited the fuck out of them.
What went wrong with that approach?
It wasn't based on economics. It was based on ethics though, no doubt, the thing ended up as a rent-seeking shitshow.
In India, until the 1980s, protection was used to preserve existing producers
they had a licence to produce only up to a particular quantity of the product
rather than giving them the space to accumulate production capabilities and go out in the bigger world to fight.
In other words, India ignored
1) theory of comparative advantage
2) theory of economies of scope and scale
3) gravity model of trade
Also, fuck buying low and selling high. Why not buy high and sell low? Profits are vulgar. Losses are cool. Every industry should become 'sick' and end up being subsidized by the tax payer.
Look at the Indian car industry. Earlier, the Indian government believed that trying to produce things like nice cars was giving into Western consumerism. They kept producing the same Austin ambassador car. In the 1950s, this was okay because everyone had cars like that. But by the 1980s, it became a joke.
Sanjay Gandhi's Maruti was more than a joke. It was the reason he gave for wanting to take over the country.
And then they had to bring in Suzuki and all these Japanese producers to give the country better cars. That kind of protectionism doesn’t work.
It works well enough. We have nothing against Japanese tycoons. It is only Ambani & Adani whom Rahul attacks. My point is some Indians hate some other Indians more than they hate any foreigner.
Protection only works when you use it to develop your own infant industries, so that they can export to the global market.
No. You promise protection to a guy who sets up his factory in your country. He is assured of the domestic market and thus thinks it worthwhile to invest. But, if productivity rises thanks to the investment, he may also get export markets on the basis of scope and scale economies. Chang is thinking from the highly nationalistic Korean perspective.
When I say “Developing countries need infant industrial protection”, people say, “But how about India in the 1960s and 1970s.” That is not what infant industry protection is, because India’s earlier economic strategy froze the infant industry in the infant stage.
It had a license system for 'luxuries'. But even the Brits had helped the indigenous Iron & Steel industry (as Nehru pointed out in his Autobiography).
There was no ambition to make that infant grow up,
the ambition was to raise the wages of the workers. Why? They have more votes than industrialists. All the political parties have Trade Unions of their own.
go out in the bigger world, and fight the big boys,
Indians prefer to fight each other. If you want to do business, fuck off to Africa or America or wherever.
which is what South Korea has done with companies like Hyundai.
No. It is what the brothers running Hyundai wanted. The equivalent would be Modi backing Ambanis & Adanis.
The whole point is that you need a mixture of protectionism and active international trade in order to propel your economy forward.
No. You need to raise general purpose productivity. If this is happening, there is a Coasian solution- i.e. money for the subsidy is available regardless of trade policy.
After the infant industry protection phase, a particular industry or economy goes through a virtuous cycle of manufacturing.
Unless wages or bribes or both rise so that there is no surplus for investment.
That did not happen in India.
But there was 'featherbedding' of organized labour and a culture of corruption.
Exactly. A lot of developing countries have experienced what is called premature deindustrialisation. But I would say that India hasn’t even experienced industrialisation in the first place.
Parts of it did. You could see plenty of abandoned factories or 'sick units' in virtually every city
In the early 1960s, the manufacturing sector’s share of gross domestic product (GDP) in India was 14 per cent, and then it went up to 18 per cent [in the 2000s], and today it is 12 to 13 per cent.
Because Services aren't heavily Unionized or equally at the mercy of bribe-seeking Factory Inspectors.
Consider Brazil. It had, by the mid 1980s, a manufacturing sector that accounted for about 35 per cent of GDP.
Because the Military suppressed the Unions while borrowing heavily abroad to finance import-substitution. But this was done through public sector enterprises. Had protected industries been left in private hand, domestic savings could have been more effectively mobilized. The other thing is that volatility in commodity prices militated for a prudently managed Sovereign Wealth Fund. Still, some amount of 'Dutch Disease' was inevitable. The problem with public sector units is that there is a tendency to throw good money after bad rather than just take a write off on an uncompetitive unit.
Now, it is about 10 per cent. That is what premature deindustrialisation looks like.
No. That's what State-led development with giant PSUs looks like after a fiscal crunch.
But India, very worryingly, has not been able to maintain even the relatively low level industrial development that it had achieved by the 2000s.
It has quadrupled in absolute terms. It just hasn't increased its share of GNP very much. But, at the lower end, the value added is pretty small in labour intensive industries.
India still has ambitions of becoming a global manufacturing hub.
It has a huge internal market. The thing is inevitable.
Governments have tried to push it for two decades—Prime Minister Narendra Modi launched “Make in India” in 2014. Yet India has failed. It missed both waves of manufacturing diversification out of China; those investments went to South East Asia instead. Why does India repeatedly fail to industrialise?
Because it didn't have cruel Dictators. Still, labour law reform has been pushed through at the Centre. But implementation depends on the States.
I think, ultimately, that has to do with the political economy. Your business elites do not want serious industrialisation.
Sure they do. They'd also love to acquire farmland even if farmers change their minds, and to deal with only one Company Union, and not to get harassed by the 'Inspector Raj' and so forth. But the elites don't command a lot of votes.
The business elites are either in the financial sector or, even if they are in the industrial sector, they still have very strong links with financial capital which doesn’t like industrialisation because, for them, the most important thing is the rate of return.
This can't rise if there is incessant rent-seeking including nuisance law-suits. There is no business house in India which doesn't have a raft of plans for big industrial projects. Some have been inherited from fathers or grandfathers. Others represent a revival of what was achieved by the great-grand father.
In the short run, if you want to develop a serious industrial base, you need to go through a period when finance is repressed.
No. You need to go through a period when general purpose productivity rises across the board. Curb corruption by all means. Have strong regulation of Capital markets. Send Mundhra type scamsters to jail. That's how Finance gets to flourish. Don't forget arbitrage smooths things out. You get your capital cheap even though break-even is years away. Equity remains fungible because the market maker buys when it is cheap- e.g. a Hindenburg type bear raid- and sells as prices return to the equilibrium level.
Because if shareholders keep asking for money [in the form of return on investment], companies would not have the money to invest.
Shareholders want Capital Gains.
Arguably one of the most famous Indian companies—though I do not know whether it is still legally Indian—is steel manufacturer ArcelorMittal. But Lakshmi Mittal built the company through clever mergers and acquisitions rather than by coming up with innovative technologies.
He recruited good engineers and managers trapped in PSUs and sent them around the world. His Pakistani equivalent did well in Ukraine.
Your elites do not want to wait for 10 or 15 years and sacrifice short-term financial returns to build productive capabilities.
No. They want Capital Gains the same way people investing in AI do. If Finance is not 'repressed', equity is fungible. You take your profit when there is a tax advantage in doing so. Family offices are pretty sophisticated in such matters.
You need to invest in worker skills, infrastructure, and research and development (R&D).
But you only actually do so if it raises your valuation. There are systemic, institutional, things a country can do to raise total factor productivity. I suppose this would make R&D more remunerative.
I looked up the latest data on R&D in India, and as a proportion of GDP, it is barely 0.6 per cent,
because its people are poor. Also, smart Indians prefer to do R&D in rich countries where the pay and facilities are better.
compared to the OECD (Organisation for Economic Co-operation and Development) average of 3 per cent, and South Korea’s 5.2 per cent.
It must be said, back in the Fifties, there seemed some possibility that Indians would do fundamental R&D in fields like Atomic Energy, Electronic Computing, Space Rockets & Satellites, etc. There were some notable successes but, for a poor country, the priority always had to be food security. Sadly, the Nehruvian elite thought the agricultural sector infra dig.
I am afraid that there is no serious attempt to develop manufacturing in India.
What he means is that India wasn't colonized by Japan and feels no need to match or outdo Japanese industrialization.
Yes, earlier India built manufacturing industries, but there was no ambition to join the global economy. And later, [the government and companies] did say that they want to develop manufacturing, but they did not do anything serious because they did not want to forego their short-term interests in order to have a more dynamic, industrially driven economy.
No. Indian industrialists understood that if the peasants don't want to sell you their land, you won't get that land. That's what happened in Singur. Modi, around the same time, cancelled a land transfer when the farmer's changed their minds. Some Bombay based industrialists were angered by this. Then they realized that Modi was simply being realistic.
India, unlike Korea, is very big. Development must be done on the basis of subsidiarity with the Centre simply providing monetary stability and enforcing fiscal discipline. It should also improve Corporate governance and the working of Capital markets. What it should not and could not do was to put the whole country on a particular growth path.
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