New School Economic Review

Stop your children going to school & Free Trade

by Benjamin on May 10, 2010

This is the analogy Ha-Joon Chang presents in his relatively new book, Bad Samaritans, to promote free trade and open competition for developing nations. I think it’s a nice one, so thought I would share it:

“I have a six-year-old son. His name is Jin-Gyu. He lives off me, yet he is quite capable of making a living. I pay for his lodging, food, education and health care. But millions of children of his age already have jobs…

…Working might do Jin-Gyu’s character a world of good. Right now he lives in an economic bubble with no sense of the value of money. He has zero appreciation of the efforts his mother and I make on his behalf, subsidizing his idle existence and cocooning him from harsh reality. He is over-protected and needs to be exposed to competition, so that he can become a more productive person. Thinking about it, the more competition he is exposed to and the sooner this is done, the better it will be for his future development. It will whip him into a mentality that is ready for hard work. I should make him quit school and get a job. Perhaps I could move to a country where child labour is still tolerated, if not legal, to give him more choice in employment.”

I can hear you say I must be mad. Myopic. Cruel. You tell me that I need to protect and nurture the child. If I drive Jin-Gyu into the labour market at the age of six, he may become a savvy shoeshine boy or even a prosperous street hawker, but he will never become a brain surgeon or a nuclear physicist – that would require at least another dozen years of my protection and investment. You argue that, even from a purely materialistic viewpoint, I would be wiser to invest in my son’s education than gloat over the money I save by not sending him to school. After all, if I were right, Oliver Twist would have been better of pick-pocketing for Fagin, rather than being rescued by the misguided Good Samaritan Mr. Brownlow.” (Chang 2008: 65-6)

Therefore the Bad Samaritan in Chang’s title. He argues that free-trade policy-makers may mean well, through an incorrect understanding of their own history, but end up hurting developing countries through the policies they so assiduously pursue. Updating, and perhaps going further than his last book on the topic, Kicking away the Ladder (or “the purple one?” as a friend of mine put it yesterday), this books makes the argument in more detail that there is no reason for economists to recommend trade-liberalisation on the ground that it has always worked. In fact it looks as if most economic growth has coincided with periods of protectionism and infant industry protection. Everyone wants to be a brain surgeon it seems.

No Free Trade Agreement; Are you MAD?!

by Benjamin on January 16, 2010

Or maybe unpopular? At least that’s what it seems like if you have a look at this very nice picture of free trade agreement zones which include more than three countries: [large picture here]

So, who’s not in the club: Mauritania had a coup in 2008, Western Sahara is not technically a country according to the UN although I am sure that’s disputable. Iran is Iran and North Korea is North Korea. Turkmenistan is the country famous for once renaming their months and days according to the presidents whim – a new government has since changed that, but not much else. Somalia has famously become the pirate capital of the world and has no effective governance – and one suspects other countries would worry what effect an agreement would have on their relations with other trading partners who keep getting hi-jacked.

Panama does not – according to the map – have a free trade agreement with anyone in particular, but with one of the largest docking systems in the world and a WTO membership, one might claim that Panama has a trade agreement with everyone. But that could be conjecture. Similarly the grey dots in Europe might be the Vatican and Monaco perhaps (?), but these also have free trade with their ‘host’ countries Italy and France.

Mongolia – I don’t why Mongolia has chosen to exclude itself or why it’s neighbours exclude it. I guess there are some old tensions with China, and it was never incorporated into the Soviet Union so maybe it just likes its independence, or its two neighbours are not overly keen on the Parliamentary Republic?

Now I am not suggesting that free trade agreements are the utopia of economic policies, nor is this implying that these agreements are actual 100% free trade agreements. The EU is probably the closest thing to that with free labor and trade movement. But it is fascinating how this idea of a free trade agreement has become so popular, regardless of its proposed benefits.

U.S. talks free trade and imposes new sanctions

by Benjamin on April 29, 2009

The new U.S. Trade Representative, Ambassador Ron Kirk, said that the U.S. will reject protectionism and pursue negotiated trade liberalisation, and saying the U.S. is committed to the Doha WTO round which is a “once-in-a generation opportunity to forge a strong framework for the future of global trade” according to Bridges Trade Digest and The Dallas Morning News. (Kirk  served as mayor in Dallas for seven years, which might account for the coverage).

On the same day, Robert B.  Zoellick, the president of the World Bank, warned that

In London, leaders committed not to repeat the historic mistakes of previous eras. Since that G-20 meeting less than 3 weeks ago, 9 G-20 countries have taken or are considering 23 measures that restrict trade at the expense of other countries.  That’s almost half the G-20 member states.

Of those nine countries, the U.S. features most prominently on a World Bank fact-sheet of Actions against Trade since 02 April 2009. Argentina, Brazil, the EU and the US have all imposed trade sanctions over the last three weeks, on top of which are the recent pork import sanctions. The U.S. is stacking up restrictions on Chinese tires; Carrier bags from Indonesia, Vietnam and Taiwan; Chinese seating valves; Chinese oil derivatives; Citric acid from China and Canada; Canadian lumber and some chemicals from India and China.

Zoellick said that “four G-20 countries have lifted restrictions and are to be commended, but some have lifted restrictions with one hand and imposed them with the other”, while the U.S. is imposing them with both…