Free Trade is a Myth, Not a Mere Lie

AMY GOODMAN: Brown says he’ll raise the issue of a global fund at the next G20 meeting in July.

Well, my first guest has been among the leading economists to criticize the neoliberal policies imposed on poor nations but not followed by the West. Ha-Joon Chang is an economist at the University of Cambridge specializing in developmental economics. In 2005, he was awarded the Leontief Prize for Advancing the Frontiers of Economic Thought. He is author of the books Kicking Away the Ladder: Development Strategy in Historical Perspective, and his latest is called Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism.

Welcome to Democracy Now!, as you come from, well, Gordon Brown’s country to this one. First, what is your assessment of the situation right now? Warren Buffett has just said that the economy has gone off a cliff.

HA-JOON CHANG: Well, I think we are facing the biggest economic crisis since the Great Depression. Now, it probably wouldn’t get as bad as the Great Depression, because, unlike in the Great Depression, governments are more willing to intervene with deficit spending and nationalizing financial institutions and giving subsidies to industry and so on, whereas in the 1930s they more kind of adamantly held onto free market doctrines, which they subsequently abandoned, but, I mean, there was a period of time when they just held onto it and lost the opportunity. So I don’t think the impact would not be as severe as what it was in the 1930s, but yes, I mean, there’s no question that this is as big or possibly even bigger a crisis than what we saw in 1929.

AMY GOODMAN: Can you explain what are neoliberal policies? And then you can critique them.

HA-JOON CHANG: Yes. Well, basically, the reason why it’s called “neoliberal” is that it’s a successor to nineteenth century classical liberal doctrine. I mean, “liberal” in American usage usually means kind of the left to the center, but in the European usage, “liberal” means basically belief in the free market and private ownership and basically rule of money.

Now, neoliberals have moderated some of the old liberal beliefs. For example, the old liberals actually thought that democracy was bad for capitalism. You know, they thought if you have democracy, poor people vote and create things like income tax, which they have, but, I mean, it actually helped the economy rather than destroyed the economy like the liberals said. So the neoliberals [inaudible] some degree of progressive income tax. The liberals used to be against, for example, having a central bank. The neoliberals actually like the central bank pumping money into the economy when things are going wrong. So it has modified the classical liberal doctrine, but neoliberalism still has, in its core, belief in free market, free trade, deregulated economy and private ownership.

AMY GOODMAN: Do you find it funny that you’re saying—that Gordon Brown is saying what you have been saying for a while—

HA-JOON CHANG: That’s right, yeah.

AMY GOODMAN: —talking about the hypocrisy of the West? But explain what that is, what the US has done or what the West has done with poorer countries when they’re in trouble, and then what we do when we’re in trouble.

HA-JOON CHANG: That’s right, yeah. For example, when the developing countries go into financial crises like the rich countries are experiencing today, they were told by the IMF and the World Bank, and ultimately the rich country governments which control these institutions, that they have to cut spending; ideally, they should run budget surplus. They have to raise interest rate to 30, 50, even 80 percent in some countries. And basically, they have to tighten the belt. Now that the rich countries have the financial crisis, they have cut interest rate to practically zero. You know, I mean, when South Korea had its financial crisis back in 1997, the IMF insisted that the country runs budget surplus equivalent to one percent of GDP. This year in the US alone, budget deficit is estimated to be equivalent to something like 12 percent of GDP.

Now, I mean, how do you explain that? I mean, that these policies are not good enough for you? I mean, “We’ll use one set of policy, which we think are the good ones, but you have to use something else.” You know, the American writer Gore Vidal once upon a time famously said that the American economic system is socialism for the rich and capitalism for the poor, and the international macroeconomic policies have been like that. I mean, it’s what I call monetarism for the poor and Keynesianism for the rich. So when the rich countries have a fall in demand, they think nothing of boosting it up by printing money and increasing government spending; the poor countries shouldn’t do that.

Now, it’s not only the macroeconomic policy where this hypocrisy has a role. For example, the rich countries have been telling the developing countries to adopt free trade and told them, “Look, I mean, all countries in history probably, with the possible exception of Japan, have become richer through free trade. So how do you think that you guys can manage it otherwise?” Well, actually, if you look at the British history, American history, you find that today’s rich countries used protectionism, center, left and right, when they were developing countries. You know, I mean, for about one century, until the Second World War, the United States was actually the most protectionist country in the world. You know, there’s something there when Pat Buchanan said free trade is not free American, because in its 200 years of history, it has practiced free trade only for about fifty years.

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AMY GOODMAN: Our guest is Ha-Joon Chang. He is a world-renowned economist, wrote Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. I wanted to ask you about the Obama administration’s response to the financial crisis. This is President Obama speaking Friday in Columbus, Ohio.

PRESIDENT BARACK OBAMA: Now, there were those—there were those who argued that our recovery plan was unwise and unnecessary. They opposed the very notion that government has a role in ending the cycle of job loss at the heart of this recession. There are those who believe that all we can do is repeat the very same policies that led us here in the first place. But I also know that this country has never responded to a crisis by sitting on the sidelines and hoping for the best.

AMY GOODMAN: President Obama. Your response, Ha-Joon Chang?

HA-JOON CHANG: Right. Well, no, I mean, I agree with this sentiment, but the people he put in charge of the economy, like Paul Volcker and Larry Summers, I mean, these are people who actually created this problem. You know, Volcker is, if you like, the godfather of monetarism in this country. And Larry Summers, when he was at the World Bank as the chief economist and then when he was at the Treasury later, I mean, was going around the world preaching to other countries that they have to deregulate their financial market, open up their borders to the American and other rich country financial flows. Now, what they are doing now isn’t what they were doing before, but if they have started believing in something else, they should come clean and apologize, don’t you think? I mean, because these are the people, with others, who created these problems.

AMY GOODMAN: What do you think needs to be done right now?

HA-JOON CHANG: Well, I think one important thing that this country needs to do is basically to abandon this obsession with private ownership and go for nationalizing the banks. You know, what the government is proposing now is basically “We’ll plug whatever gap that emerges in the banking sector, because if they go down, we go down all together.” No, I mean, at one level it’s true. But if you want to do that, you have to actually make people answer to these demands. So, now that the taxpayers are paying all this money, why not actually nationalize these banks and make them public servants so that they answer to those who have paid for them?

AMY GOODMAN: What do you think of the debate here in the United States, while you’re here watching television, the whole controversy over nationalizing the banks?

HA-JOON CHANG: Well, I think that this is the legacy of, if you like, neoliberal dominance. I mean, somehow, what you guys call the N-word here is a dirty word. But actually, in the history of capitalism, there are many countries that have run very successful economies on the basis of nationalized banking sector. For example, France until the 1990s, I mean, was basically based on nationalized banking system, and still the government has quite a lot of stake in the banking sector. Singapore, which people believe is some example of free market economy, is actually, in that country, more than 20 percent of national output is produced by nationalized companies.

AMY GOODMAN: You’re originally from South Korea.

HA-JOON CHANG: That’s right, yeah.

AMY GOODMAN: What about South Korea?

HA-JOON CHANG: Well, in South Korea, too, you know, I mean, it didn’t use public ownership as much as Singapore or France, but there are very successful companies like POSCO, the steel company, that is now the third largest steel company in the world, was started out as a government-owned enterprise. I think this notion that public enterprises do not work and therefore nationalization will be a disaster, I mean, it’s not supported by evidence.

AMY GOODMAN: What about nationalization of companies like GM and Chrysler?

HA-JOON CHANG: Well, if you—no, I mean, let’s play by the capitalist logic. If the taxpayers are paying the money, you have to nationalize them. You know, I mean, the whole problem, people say, is that all these bankers were playing with other people’s money. So now, I mean, that they are being paid by the taxpayers, it is only right that the taxpayers control these companies. If they don’t want this money and they don’t want to be nationalized, they should go bankrupt.

AMY GOODMAN: Ha-Joon Chang, I wanted to ask you about Latin America, how leaders there are responding to the economic crisis after decades of following Western demands. Earlier this year, the World Social Forum was held in Brazil. Several Latin American presidents criticized the US for exercising double standards and allowing massive state intervention in financial markets. This is Ecuadorian President Rafael Correa.

PRESIDENT RAFAEL CORREA: [translated] The guilty parties in this crisis try to give lessons on morality and good economic handling. The most powerful people on the planet have united to find a therapy for the dying. They’re getting together—the central bankers, the representatives of large financial firms, the people primarily responsible for the crisis.

AMY GOODMAN: Ecuadorian President Rafael Correa. He’s also a trained economist and was reportedly influenced by your work.

HA-JOON CHANG: Yes. I mean, I think he has read my work, and in a number of places, he has quoted me. Yes, but Rafael is only—I mean, the striking examples of a whole group of Latin American leaders which have abandoned neoliberalism and are seeking their own ways. I mean, you know, today, which country in Latin America really listens to the United States? I mean, only Colombia and Chile. And I mean, even Chile now has President Bachelet, who famously joked that the reason why the United States doesn’t have a coup d’etat is—unlike Latin America, is that it doesn’t have US embassy. And, of course, that led to a diplomatic stir there. But now, even in Paraguay, I mean, the country which was ruled by military dictator General Stroessner for thirty-five years, has this left-wing former bishop as the president. And the whole continent has basically been drifting away from the neoliberal American strategy. And with this crisis, they’ll move away even further, unless America changes its approach to the continent.

AMY GOODMAN: One of the people you take on big time in your book is Thomas Friedman. Your first chapter, “The Lexus and the Olive Tree Revisited: Myths and Facts About Globalization.” We only have a minute to go, but what do you think are the myths that need to be debunked in this country?

HA-JOON CHANG: Well, basically, the myth is that America has been founded on the free market; the government has done very little; it has thrived under free trade. But actually, if you look at the history, this is actually the country that has succeeded most with protectionist policies. This is a country which has huge industrial policy, only that it’s called research funding in defense industry and research funding in health research. It actually spends, in proportional terms, a lot more money than Japan or European countries in supporting research and development, thereby steering the industries into certain directions. So let’s put it this way. I mean, this country has to basically come to terms with what it has done. I mean, it has been haunted by this ideology that, “Oh, we never did anything other than free market and free trade.” It’s time to give that up.

AMY GOODMAN: Do you think that America will continue to be a leader in the world economically, or do you think this is going to fundamentally change its position?

HA-JOON CHANG: No, I think in relative terms, it’s obviously in decline, but, I mean, it’s still, by far, the single richest economy in the world. And, you know, I mean, I give credit where it’s due. I mean, it’s the only country which became the world hegemony and created room for other countries to rise together. These were the Marshall Plan days, which sadly ended in the ’70s, and the US became even more kind of insistent on pushing these wrong policies on the developing countries and some other countries. But, you know, it has a great record, and I think that the country should exploit that history and try to reinvent itself as a new leader in the world.

AMY GOODMAN: I want to thank you, Ha-Joon Chang, for being with us. His latest book, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. Safe travels back to Cambridge.

HA-JOON CHANG: Thank you.

AMY GOODMAN: He’s an economist there at the University of Cambridge in Britain.