Almost all of today's rich countries used tariff protection and subsidies to develop their industries. Interestingly, Britain and the USA, the two countries that are supposed to have reached the summit of the world economy through their free-market, free-trade policy, are actually the ones that had most aggressively used protection and subsidies.
Contrary to the conventional wisdom, the historical fact is that the rich countries did not develop on the basis of the policies and the institutions that they now recommend to, and often force upon, the developing countries. Unfortunately, this fact is little known these days because the 'official historians' of capitalism have been very successful in re-writing its history.
"What is Wrong with the 'Official History of Capitalism'?", in Edward Fullbrook (ed.), A Guide to What's Wrong with Economics (2004), p. 280
95% of Economics is common sense deliberately made complicated.
Lecture at the RSA about his book 23 Things They Don't Tell You About Capitalism, September 2010.
It's not just about the current economic environment. History shows that slashing budgets always leads to recession.
The danger is not only that these austerity measures are killing the European economies but also that they threaten the very legitimacy of European democracies – not just directly by threatening the livelihoods of so many people and pushing the economy into a downward spiral, but also indirectly by undermining the legitimacy of the political system through this backdoor rewriting of the social contract.
Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (2008)Edit
The Korean economic miracle was the result of a clever and pragmatic mixture of market incentives and state direction.
Prologue, p. 15
The history of capitalism has been so totally re-written that many people in the rich world do not perceive the historical double standards involved in recommending free trade and free market to developing countries.
Prologue, p. 16
Britain and the US are not the homes of free trade; in fact, for a long time they were the most protectionist countries in the world. Not all countries have succeeded through protection and subsidies, but few have done so without them. For developing countries, free trade has a rarely been a matter of choice; it was often an imposition from outside, sometimes even through military power. Most of them did very poorly under free trade; they did much better when they used protection and subsidies. The best-performing economies have been those that opened up their economies selectively and gradually. Neo-liberal free-trade free-market policy claims to sacrifice equity for growth, but in fact it achieves neither; growth has slowed down in the past two and a half decades when markets were freed and borders opened.
Prologue, p. 17
Low inflation and government prudence may be harmful for economic development.
Prologue, p. 18
Corruption exists because there is too much, not too little, market.
Prologue, p. 18
Countries are poor not because their people are lazy; their people are 'lazy' because they are poor.
Prologue, p. 18
Ricardo's theory is absolutely right—within its narrow confines. His theory correctly says that, accepting their current levels of technology as given, it is better for countries to specialize in things that they are relatively better at. One cannot argue with that. His theory fails when a country wants to acquire more advanced technologies—that is, when it wants to develop its economy. It takes time and experience to absorb new technologies, so technologically backward producers need a period of protection from international competition during this period of learning. Such protection is costly, because the country is giving up the chance to import better and cheaper products. However, it is a price that has to be paid if it wants to develop advanced industries. Ricardo's theory is, thus seen, for those who accept the status quo but not for those who want to change it.
Ch. 2: 'The double life of Daniel Defoe; How did the rich countries become rich?', The double life of the British economy, p. 47
Rich countries have 'kicked away the ladder' by forcing free-market, free-trade policies on poor countries. Already established countries do not want more competitors emerging through the nationalistic policies they themselves successfully used in the past.
Ch. 2, Learning the right lessons from history, p. 61
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. Daniel Defoe, in the 18th century, thought that children could earn a living from the age of four.
Moreover, 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.
Ch. 3: 'My six-year-old son should get a job; Is free trade always the answer?', p. 65
Trade is simply too important for economic development to be left to free trade economists.
Producers in developing countries entering new industries need a period of (partial) insulation from international competition (through protection, subsidies and other measures) before they can build up their capabilities to compete with superior foreign producers. Of course, when the infant producers 'grow up' and are able to compete with the more advanced producers, the insulation should go. But this has to be done gradually. If they are exposed to too much international competition too soon, they are bound to disappear.
Ch. 3, Poor theory, poor results, p. 73
As South Korea shows, active participation in international trade does not require free trade. Indeed, had South Korea pursued free trade and not promoted infant industries, it would not have become a major trading nation. It would still be exporting raw materials (e.g., tungsten ore, fish, seaweed) or low-technology, low-price products (e.g., textiles, garments, wigs made with human hair) that used to be its main export items in the 1960s.
Ch. 3, More trade, fewer ideologies, p. 82
The importance of international trade for economic development cannot be overemphasized. But free trade is not the best path to economic development. Trade helps economic development only when the country employs a mixture of protection and open trade, constantly adjusting it according to its changing needs and capabilities. Trade is simply too important for economic development to be left to free trade economists.
Ch. 3, More trade, fewer ideologies, p. 83
History is on the side of the regulators.
Ch. 4: 'The Finn and the elephant; Should we regulate foreign investment?', ‘More dangerous than military power’, p. 96
All the alleged key causes of SOE [State-Owned Enterprise] inefficiency—the principal-agent problem, the free-rider problem and the soft budget constraint—are, while real, not unique to state-owned enterprises. Large private-sector firms with dispersed ownership also suffer from the principal-agent problem and the free-rider problem. So, in these two areas, forms of ownership do matter, but the critical divide is not between state and private ownership—it is between concentrated and dispersed ownerships.
Ch. 5: 'Man exploits man; Private enterprise good, public enterprise bad?', The pitfalls of privatization, p. 116
There is no hard and fast rule as to what makes a successful state-owned enterprise. Therefore, when it comes to SOE management, we need a pragmatic attitude in the spirit of the famous remark by China’s former leader Deng Xiao-ping: 'it does not matter whether the cat is white or black as long as it catches mice.'
Ch. 5, Black cat, white cat, p. 121
As water flows from high to low, knowledge has always flowed from where there is more to where there is less. Those countries that are better at absorbing the knowledge inflow have been more successful in catching up with the more economically advanced nations. On the other side of the fence, those advanced nations that are good at controlling the outflow of core technologies have retained their technological leadership for longer. The technological 'arms race', between backward countries trying to acquire advanced foreign knowledge and the advanced countries trying to prevent its outflow has always been at the heart of the game of economic development.
Ch. 6: 'Windows 98 in 1997; Is it wrong to 'borrow' ideas?', John Law and the first technological arms race, p. 127
The foundation of economic development is the acquisition of more productive knowledge.
The historical picture is clear. Counterfeiting was not invented in modern Asia. When they were backward themselves in terms of knowledge, all of today's rich countries blithely violated other people's patents, trademarks and copyrights. The Swiss 'borrowed' German chemical inventions, while the Germans 'borrowed' English trademarks and the Americans 'borrowed' British copyrighted materials—all without paying what would today be considered 'just' compensation.
Ch. 6, The lawyers get involved, p. 134
The days are over when technology can be advanced in laboratories by individual scientists alone. Now you need an army of lawyers to negotiate the hazardous terrain of interlocking patents. Unless we find a solution to the problem of interlocking patents, the patent system may actually impede the very innovation it was designed to encourage.
Ch. 6, The tyranny of interlocking patents, p. 128
The foundation of economic development is the acquisition of more productive knowledge.
Ch. 6, Harsh rules and developing countries, p. 142
Inflation is bad for growth—this has become one of the most widely accepted economic nostrums of our age. But see how you feel about it after digesting the following piece of information.
During the 1960s and the 1970s, Brazil's average inflation rate was 42% a year. Despite this, Brazil was one of the fastest growing economies in the world for those two decades—its per capita income grew at 4.5% a year during this period. In contrast, between 1996 and 2005, during which time Brazil embraced the neo-liberal orthodoxy, especially in relation to macroeconomic policy, its inflation rate averaged a much lower 7.1% a year. But during this period, per capita income in Brazil grew at only 1.3% a year.
If you are not entirely persuaded by the Brazilian case—understandable, given that hyperinflation went side by side with low growth in the 1980s and the early 1990s—how about this? During its 'miracle' years, when its economy was growing at 7% a year in per capita terms, Korea had inflation rates close to 20%-17.4% in the 1960s and 19.8% in the 1970s. These were rates higher than those found in several Latin American countries ... Are you still convinced that inflation is incompatible with economic success?
Ch. 7: 'Mission impossible?; Can financial prudence go too far?', There is inflation and there is inflation, p. 149
There is a big logical jump between acknowledging the destructive nature of hyperinflation and arguing that the lower the rate of inflation, the better.
Ch. 7, There is inflation and there is inflation, p. 150
Gore Vidal, the American writer, once described the American economic system as 'free enterprise for the poor and socialism for the rich'. Macroeconomic policy on the global scale is a bit like that. It is Keynesianism for the rich countries and monetarism for the poor.
Ch. 7, Keynesianism for the rich, monetarism for the poor, p. 158
History shows that, at earlier stages of economic development, corruption is difficult to control. The fact that today no country that is very poor is very clean suggests that a country has to rise above absolute poverty before it can significantly reduce venality in the system. When people are poor, it is easy to buy their dignity—starving people find it difficult not to sell their votes for a bag of flour, while under-paid civil servants will often fail to resist the temptation to take a bribe. But it is not just a matter of personal dignity. There are also more structural causes.
Ch. 8: 'Zaire vs Indonesia, Should we turn our backs on corrupt and undemocratic countries?', Prosperity and honesty, p. 166
Corruption often exists because there are too many market forces, not too few.
Ch. 8, Too many market forces, p. 170
Unlike what neo-liberals say, market and democracy clash at a fundamental level. Democracy runs on the principle of 'one man (one person), one vote'. The market runs on the principle of 'one dollar, one vote'. Naturally, the former gives equal weight to each person, regardless of the money she/he has. The latter give greater weight to richer people. Therefore, democratic decisions usually subvert the logic of market.
Ch. 8, Democracy and the free market, p. 172
Democracy and markets are both fundamental building blocks for a decent society. But they clash at a fundamental level. We need to balance them.
Ch. 8, Democracy and the free market, p. 174
Democracy is acceptable to neo-liberals only in so far as it does not contradict the free market.
Ch. 8, Democracy and the free market, p. 176
Culture changes with economic development.
Ch. 9: 'Lazy Japanese and thieving Germans; Are some cultures incapable of economic development?', Lazy Japanese and thieving Germans, p. 196
Markets have a strong tendency to reinforce the status quo. The free market dictates that countries stick to what they are already good at. Stated bluntly, this means that poor countries are supposed to continue with their current engagement in low-productivity activities. But their engagement in those activities is exactly what makes them poor. If they want to leave poverty behind, they have to defy the market and do the more difficult things that bring them higher incomes—there are no two ways about it.
Ch. 9, Defying the market, p. 210
Manufacturing is the most important...route to prosperity.
Ch. 9, Why manufacturing matters, p. 215
Global economic competition is a game of unequal players … Consequently, it is only fair that we 'tilt the playing field' in favour of the weaker countries. In practice, this means allowing them to protect and subsidize their producers more vigorously and to put stricter regulations on foreign investment. These countries should also be allowed to protect intellectual property rights less stringently so that they can more actively 'borrow' ideas from more advanced countries.
Ch. 9, Tilting the playing field, p. 219
23 Things They Don't Tell You About Capitalism (2010)Edit
Assume the worst about people and you get the worst.
Making rich people richer doesn't make the rest of us richer.
We are not smart enough to leave things to the market.
Financial markets need to become less, not more, efficient.