Economics

The  Washington Consensus  is that agreement on the basics of economic development in the third world. This consensus includes low taxes, small states, political democracy, free trade, low inflation, small welfare states and low interest rates. For Chang, this is a recipe for disaster at best, at worst, a cynical ploy by western businesses to render the third world unable to compete with western sources of capital and technology.

As a matter of course, this book centers around making two arguments
That the first world industrialized and became the scientific and technological nodal point in the world based on tariffs and mercantile policies. The devotion to free trade is largely a post World War II phenomenon.

That the best way for the third world to industrialize is to follow the example of South Korea or Singapore strong states that keep out foreign competition while funneling funds to national, infant industries just like the west.

    The bad Samaritans, the western banking establishment represented in the International Monetary Fund and kindred institution, have spread poverty and misery around the globe through neo-liberal economic policies. Since the 1960s, third world growth has slowed considerably, from 4.1 on average in the 1960s to just over 1 today (27-28). But this understates the problem, since these percentages do not take into consideration the massive amount of productive capacity added over and above the lat 1960s levels. Mexico and the Ivory Coast are just two examples of disastrous liberal policies that led to debt and unemployment. Examples abound (68-69).

    South Korea and Singapore are Changs main examples of state led growth. The state serves as an economic actor (i.e. a productive actor) by mobilizing domestic resources to channel into domestic industries. To do this, the state must intervene between the global stage and the national one, and also between the companies who produce things and the workers who work for them. These relationships must be controlled in the early part of industrialization to permit the accumulation of capital that can be used later for social reforms. In general, Chang holds that short term gains (such as increases in wages) should be sacrificed for long term state goals.

    In order for the Korean or Chinese model to work elsewhere in the third world, several things must exist. These include a strong, streamlined and honest civil service and an honest and fair judiciary (217). There is certainly no relationship between the size of the state and economic growth, as the recent example of China proves. It also seems that the state itself must be dedicated to national ends. The examples of Indonesia and Zaire serve well here. The Indonesian state was seen s corrupt. But the money raised in this manner was plowed into domestic industry.  In Zaire, the same amount of corruption existed, but this money was quickly whisked away to Swiss banks (161). Therefore, a strong legal culture mixed with a nationalist approach to economic development seems to be the recipe for success. Therefore, in states where corruption is endemic and elites serve themselves, no amount of free trade or protection will help them. In general, Chang seems to argue most of all that the worst possible situation for the third world state to be in is to have a bureaucracy that is venal and corrupt.

    Tariffs are a good thing. This is another argument from Chang that goes against the  Washington Consensus.  tariffs are a good thing for mans reasons. As a source of revenue, tariffs are rather easy to collect while many third world states struggle to wrong money out of well connected economic elites. Secondly and most importantly, tariffs permit infant industries to survive. It is the height of economic absurdity for an infant industry in Africa to go head to head with its Japanese or German counterparts. The African industry would never get off the ground, and all local consumption will (in terms of short term rationality) go to the foreign brands. Only under tariff protection can an infant industry survive (59-60). The destruction of local industry is a common consequence to foreign direct investment and hence, is destructive to local and state sovereignty. The  Washington consensus,  needless to say, holds that sovereignty is an outdated concept.

    What angers Chang more than anything else is the fact that the west industrialized behind tariff walls, long before there was any advanced competition to contend with. If this is true, how much more important are tariffs to the third world today The west prospered behind tariff walls under mercantilist policies (the heart of European development, based entirely on tariffs), yet today, the IMF holds that tariffs will retard development (129-130). Ultimately, argues Chang, the only real rational purpose for the  Washington consensus  is that liberal trade policies are the best ways for advanced corporate interests to take larger and larger shares of third world markets as well as preempt any serious competition from developing in the future. This  consensus  exists only to serve the elite interest and is not a rational principle of development economics unless it is attached to the immediate interests of American or British capital smarting against Chinese competition.

    Chang contends that the economists of the developed world live in well subsidized university and state office complexes. They are a spoiled group that normally do not have the energy or nerve to stand up to the establishment and its respectability.  Groupthink  is a problem in academia, where dissident professors are loathe to risk the censure of their peers to go against the  consensus.  The Bad Samaritans are precisely these academics and government officials who know only the consensus and know the opposition only by caricature.

    Another important issue to Chang is patents and intellectual property rights in general. Since the scientific infrastructure of the third world is so low, the existence of intellectual property rights is a major disadvantage for it. Chang, as part of the  level playing field  the third world needs to thrive, advocates that the developing world ignore patents, and take what they can in order to catch up. Such a policy would be far better than the doomed foreign aid industry.

    In general, the approach of Chang is not theory, but history. This, above all else, is the main issue in third world development polemics. The problem with intellectuals in the field is that theory is placed above all else. The third world should imitate the history of the developed world. For this to occur, they would need to practice import substitution, erect high tariff walls, and, more generally, have the state intervene in nearly every aspect of the production process to ensure a lack of corruption and that the nations interest is being served. The west did no different. China is doing no different (29-30). Chang even advocates high inflation if necessary, citing South Koreas high inflation during its take off period in the late 1960s (156-160).

    The  secret history of capitalism  is based around this statist idea, an idea at the heart of mercantilism, and the same idea at the heart of Asian development. Even more, the west did not have the legal strictures the current developing world has the west polluted freely, used child labor and forced workers to work very long hours with no investment in health and safety (40-55). This is the  secret history,  namely, that the west industrialized through the use of the most ruthless methods, methods that would earn the most harsh condemnation from western politicians today.   The state, putting it mildly, has been the central economic actor in the development of industrial capitalism, and it continues to be so today throughout the world. For the advanced world to advocate laissez-faire when such conditions were forcible created and maintained by the state in the past is historical illiteracy and economic warfare on the poor. Without state protection, the third world does not stand a chance.

    In conclusion, the real issue here is the proper application of economic history to economic theory (40-43). The two areas seem to fight one another rather than cooperate. There was a time when Japanese and Germans were considered poor examples of economic actors and workers. It was just the right combination of things that set these two peoples to silence the stereotypes and see the connection between personal self interest and the lack of bureaucratic corruption. In other words, bureaucratic efficiency and lack of corruption serves the personal interests of the state and the economy far better than the short term route of corruption. But this is the true, underlying thesis of this work everything in economic development seems to be aimed at the short term, while only long term struggles and plans can take the third world out of poverty. Liberal democracy places the short term interests of politicians and places them far ahead of what really matter, long term planning. A strong state is central to economic growth (178). free markets can allocate resources, but it cannot develop an economy (12-14). Only a full national mobilization can do that.

    In general, the great strength of this work is its readability. It is not meant for economists, but serves a quick read for those who want to hear an intelligent, economic argument for statism. The great weakness of the book is its lack of sensitivity to changing morals. Chang is not saying that child labor should be used in the third world, but that the west needs to be very careful what it condemns. The fact that the west used these institutions to finance its early development merely says that development comes at a high cost after all Stalin and Hitler all saw high growth rates. Mao, it should be noted, did not.