“Kicking away the ladder” to prevent others climbing up

A new book by a Cambridge academic reveals how the industrialized countries are denying developing countries the opportunity to pursue the very policies of state intervention and trade protection which had fostered the development of their own economies.

by Chakravarthi Raghavan

GENEVA: The industrialized nations of today have become rich by adopting a range of policies on trade, intellectual property, active state role in the economy, state-directed industrial policies and other instruments to achieve  their own development; but “kicking away” the ladder they had used to climb up, they are now trying to prevent the developing nations from using the same policies, calling on the latter to instead adopt so-called “good policies” and “good institutions”.

This is the thrust of a just-published book, Kicking Away the Ladder (Anthem Press, 187 pages), by Ha-Joon Chang, an economist from South Korea who is an Assistant Director of Development Studies at Cambridge.

“Good policies” are the Washington Consensus policies promoted by the IMF, the World Bank and the Washington think-tanks. And “good institutions” are the American models of the market, banking and financial institutions, the models that were forced on the Far East and South-East Asia in the wake of the 1997 financial crisis, and the western democratic models down to their minutiae.

The book is an advocacy effort that is useful for civil society activists in the North and Third World negotiators at the World Trade Organization, as it assembles in one place several of the academic and other studies in these areas, and in a sense appeals for fairness and understanding from both the industrialized world and their institutions, as well as the wider development policy establishment.

The trouble with “good governance”

Under the rubric of “good governance”, the spotlight has also been thrown on corruption in the developing world, and these ‘scandals’ used to promote deregulation, privatization and other pet ideologies.

However, in the face of the burgeoning corporate scandals and political links in the US, Western Europe and Japan, it is very difficult for even the Bretton Woods institutions or the likes of Transparency International to argue that political and corporate corruption are problems of the developing world and that there is a need for “good governance” in the developing world by way of adopting neoliberal policies. The corruption and abuse of power in these countries need to be addressed, but are issues to be tackled and exposed by their own civil society and public opinion and not  by trade and finance conditionalities or hectoring from abroad.

Indeed, who can point a finger elsewhere, in the face of the scandals involving US President George W Bush himself over the Harken energy company and SEC investigations (when his father was in the White House) of  his  selling  shares, and  the  charges being investigated relating to Haliburton and Vice-President Dick Cheney’s involvement, and the ‘crony capitalism’ in Washington DC?

Less well-known are the still unfolding scandals of the saga of Bush’s acquisition in partnership (and subsequent sale) of the Texas baseball club and the stadium, financed by public funds, and of the ‘land-grab’ by Bush and partners in the area through “condemning” (forcible acquisition) of privately held property at a cost which in some cases was less than 10% of the market value of the land.

In this situation, talk from Washington of good governance and the US models has for the moment become muted, while a hectoring tone to the South from the international institutions, which dare not say much about the US, will smack of hypocrisy.

And while Nobel economics laureate Joseph Stiglitz was recently chastised by the IMF for his remarks about former IMF first deputy managing director Stanley Fischer’s high-ranking position in Citigroup, there is and has been for some time talk among the public about the revolving door between those in authority and academia and private corporations and the conflicts of interest and colouring of judgement in the advice imparted by the international financial institutions.

The Bretton Woods institutions, and more recently the UN (after virtually abandoning an independent role in the economic and social sectors, and joining and promoting the Bretton Woods policies) and the UNDP, had joined in efforts to promote “good governance” in the developing world. Only recently, after the outbreak of the various market scandals in the US, has the UN begun to have some worries (about its embrace of the transnational corporations and the Global Compact) and distance itself, or at least begin to look for cover by trying to get some civil society groups to come for dialogue too.

Economic policies and political motivations

Chang covers in his book the successful policies adopted by Europe and Britain, North America, and later by Japan and the East Asian nations in terms of tariff and non-tariff protection of infant industries, state assistance and subsidies for production and exports, copying, including through industrial espionage, technologies from abroad and adapting these technologies across a wide range of sectors, as also the social conditions they adopted.

He brings out that most of the developed nations had in the past industrialized behind protection of their domestic markets, using infant-industry arguments and keeping tariffs high. He states too that if the costs of transportation in those periods, which have now been much reduced for seaborne and air transport, and the productivity levels of the developing world, like that of India, are taken into account, the tariffs of countries like India (accused of having very high tariffs and advised by the Bhagwatis and the World Bank et al. to slash tariffs to 5-10% levels) are in fact much lower than those that prevailed in the US and several of the European countries in their development stages.

While giving a summary view of various instruments used in the past by today’s developed nations, the author stops short of setting out a more detailed agenda for action. Without expanding on what the developing nations themselves could do and what the civil society advocacy groups could promote, it may become a mere appeal for ‘solidarity’ and ‘charity’.

Among the areas lightly touched upon or alluded to in the book and that could have benefited from elaboration are the US’ political and strategic instruments and policies in the Cold War era, firstly in Europe and then also in Japan, South Korea, Taiwan and South-East Asia - both overt military policies and confrontations as in the Korean war, as well as covert operations by the CIA that played an important part in the development and industrialization of Japan, South Korea and the East Asian “miracle” economies (including the funding of Japan’s Liberal Democratic Party, the Italian Christian Democrats, and the anti-communist labour movements). More detailed treatment would also have been welcome on the role of the money and finance system in the Bretton Woods era and subsequently until the late 1980s, which allowed the export-led growth strategies of East Asian economies, as well as the subsequent use (1997 East Asia meltdown, and then of Russia and Latin America) of financial instruments to “kick away the ladder”.

The political aspects have been vividly brought out by Chalmers Johnson (2000) in Blowback: The Costs and Consequences of American Empire (Owl Books); Barbara Tuchman (1984), “The British Lose America” (in the book March of Folly), about the British Navigation Acts used to subjugate the American colonies; “The Role of Patents in the Transfer of Technology to Developing Countries” (UN-WIPO report, 1970, UN publication Sales No. 65.II.B.1); Chakravarthi Raghavan (1990), Recolonization: GATT, the Uruguay Round and the Third World (Third World Network and Zed Books); and WIPO’s own report on intellectual property rights to the Uruguay Round Negotiating Group on TRIPS. Some of the issues pertaining to economic development and finance have been brought out in Paul Bairoch and Richard Kozul-Wright (1998), “Globalization Myths”, in Kozul-Wright and Rowthorn (eds.) Transnational Corporations and the Global Economy (Wider/UNU); and UNCTAD’s Trade and Development Reports and East Asia Studies.

If the developing countries could not change the policies of the Bretton Woods institutions, it was because at their founding itself, the US made sure of a one-dollar-one-vote system and its own veto-wielding minority power, and the UN was forced, through the specialized agency agreements of the time (which the Norwegian Secretary-General Trygvie Lie protested, and Norway voiced in the UN General Assembly), not to exercise any jurisdiction, even coordination, over the IMF and World Bank. And more recently, the UN has not only surrendered to these institutions but embraced their policy advices.

And at the General Agreement on Tariffs and Trade (GATT), if the major developing countries were unable to prevent the outcome of the Uruguay Round negotiations, it was not for lack of knowledge; rather, it was the exercise of political and economic power by the US and Europe, joined by Japan and Canada, that resulted in the trade negotiators of developing nations choosing the path of “rational ignorance.”

The current activist groups of civil society organizations were mostly ignorant and unaware at that time, and were involved in charity works and appeals. It is only since the mid-1990s, after the emergence of the WTO as a powerful instrument of coercion via trade on domestic policies of countries (and the boasts of the then WTO Director-General Renato Ruggiero of the powerful new organization he was running and its attempts to write the world constitution for capital), that the Northern NGOs suddenly became aware and began campaigning in their own countries and lobbying the non-trade sections of their governments as well as their own public, appealing for fairness.

To these groups, Chang’s book, in highlighting the policies that were followed in their own countries and current efforts to “kick away the ladder” for others, would be a useful instrument for advocacy.

Ladder-climbing policies

The book outlines the British policies from the 14th century and the mercantilist era, and alludes to some of the colonial policies of the Dutch, Portuguese, Spanish and English which, some historians have brought out, involved looting and plunder in South Asia and China for capital accumulation and paying the costs of the industrial revolution in England; the subsequent adoption (almost a century after) of Adam Smith’s laissez faire policies and David Ricardo’s theories of free trade; British imperial rule in India (ensuring a market for Lancashire textiles) and the opium wars in China (for the right of British traders to sell opium to be able to buy Chinese silk!); and the brief interlude of the liberal order in the late 19th century.

Chang also brings out that far from being the dirigistic economy it is seen as, for a long time, the French were more ‘liberal’ in trade and economics than the English; and that, excepting for the Netherlands and Switzerland (who, both on account of an early technological lead in some sectors and the very small size of their own markets, could not indulge in protection), Europe was protectionist. But even the Netherlands and Switzerland in fact copied and stole processes and technology from some of their neighbours, including from Germany by Switzerland in regard to intellectual property rights in chemical processes and products even in the 1970s. As for counterfeiting, Germany, in exporting sewing machines to the UK in the 19th century, adopted tactics that were within the letter of the law even while violating trademark rights (by putting the “made in Germany” mark at the bottom of the machine, which 2-3 women using a machine would have to upend to see (p. 58)).

[Even today, the US, on grounds of consumer protection, has provisions by the Federal Trade Commission that only a product with 100% domestic content (both material and value-added processing) could be described and sold as “Made in USA.” The Europeans and Japanese have similar stated and unstated instruments of protection, with the additional advantage for Japan of its ideographic script and language being used as an instrument of market protection.]

One of the problems of development and development economics has been that publication by academic journals (English and French) abroad or studies from universities like Oxford, Cambridge, Sussex, MIT or Harvard carry more prestige and command a wider readership than writings by political and other economists publishing in their own languages and countries.

Even some of the studies mentioned by Chang have a suspicious lineage; for example, Walt Rostow’s theory of stages of development (a linear development theory and model that have been challenged) was really written by him as an “anti-communist manifesto” to wean off developing-country leaders from the appeals of state planning. (Rostow himself, like many in MIT at that time, was in fact associated with the CIA.)

A political perspective in the book would have had this added value of clearly bringing out the roots and origins of several policies now promoted. For instance, “stages of development” are still used to differentiate and divide the developing world to fend off the vague ideas of “flexibility” promoted by academics to provide some space for developing countries.

Until recently, many non-orthodox economists and academics took time to react to or address policy issues faced by developing countries, and there were the inevitable time delays between the writing and completing of a study and its publication (18-24 months). On the other hand, the promoters of free-trade dogmas, like Jagdish Bhagwati, were expending much energy and effort not only to publicize their views but also to try to influence policymakers and even heads of some governments through direct letters and contacts.

There is a need for some counter-efforts by academics and institutions promoting a counterview to address themselves in response to the obsolete orthodoxies of the Washington Consensus. Such efforts are all the more needed now, in the context of the WTO’s Doha work programme; and towards this end, the Internet now provides a tool which was not available in the past.

Without these efforts, the field will be left open for battle between those promoting the neo-mercantilist interests of a few rich countries, and opponents who have decided that the only way to deal with it is not through reasoned arguments but by bringing down the WTO system. (SUNS5165)                     

From Third World Economics No. 285 (16-31 July 2002)