Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism

the late 1960s. Pakistan was then a ‘star pupil’ of the World Bank, while the Philippines was the second-richest country in Asia after Japan. Years ago, as a graduate student, I had a chance to compare the early economic planning documents of Korea and India. The early Indian plans were cutting-edge stuff for their time. They were based on a sophisticated economic model developed by the world-famous statistician Prasanta Chandra Mahalanobis. The Korean ones, I am embarrassed to say, were definitely written by Professor Winters’s ‘usual complement of third- and fourth-raters’. But the Korean economy did far better than the Indian one. Perhaps we don’t need ‘first-best economists’ to run good economic policy.

Indeed, Professor Winters’s first-best economists are one thing that the East Asian economies did not have. Japanese economic officials may have been ‘first-best’, but they were certainly not economists – they were mostly lawyers by training. Until the 1980s, what little economics they knew were mostly of the ‘wrong’ kind – the economies of Karl Marx and Friedrich List, rather than of Adam Smith and Milton Friedman. In Taiwan, most key economic bureaucrats were engineers and scientists, rather than economists, as is the case in China today.[7] Korea also had a high proportion of lawyers in its economic bureaucracy until the 1970s.[8] The brains behind President Park’s Heavy and Chemical Industrialisation (HCI) programme in the 1970s, Oh Won-Chul, was an engineer by training.

It is entirely reasonable to say that we need smart people to run good economic policy. But those ‘smart people’ do not have to be Professor Winters’s ‘first-best economists’. Actually, the ‘first best economists’ may not be very good for economic development, if they are trained in neo-liberal economics.Moreover, the quality of the bureaucracy can be improved as we go along. Such improvement, of course, requires investment in bureaucratic capabilities. But it also needs some experiments with ‘difficult’policies. If the bureaucrats stick to (allegedly) ‘easy’ policies, like free trade, they will never develop the abilities to run ‘difficult’ policies. You need some ‘trying at home’, if you aspire to become good enough to appear on TV with your own stunt act.

Tilting the playing field

Knowing what policies are right for your particular circumstances is not enough. A country must be able to implement them. Over the past quarter of a century, the Bad Samaritans have made it increasingly difficult for developing countries to pursue the ‘right’ policies for their development. They have used the Unholy Trinity of the IMF, the World Bank and the WTO, the regional multilateral financial institutions, their aid budgets and bilateral and regional free-trade or investment agreements in order to block them from doing so. They argue that nationalist policies (like trade protection and discrimination against foreign investors) should be banned, or severely curtailed, not only because they are supposed to be bad for the practising countries themselves but also because they lead to ‘unfair’ competition. In arguing this, the Bad Samaritans constantly invoke the notion of the ‘level playing field’.

The Bad Samaritans demand that developing countries should not be allowed to use extra policy tools for protection, subsidies and regulation, as these constitute unfair competition. If they were allowed to do so, developing countries would be like a football team, the Bad Samaritans argue, attacking from uphill, while the other team (the rich countries) are struggling to climb the un-level playing field. Get rid of all protective barriers and make everyone compete on an equal footing; after all, the benefits of the market can only be reaped when the underlying competition is fair.[9] Who can disagree with such a reasonable-sounding notion as ‘the level playing field’?

I do – when it comes to competition between unequal players. And we all should – if we are to build an international system that promotes economic development. A level playing field leads to unfair competition when the players are unequal.When one team in a football game is, say, the Brazilian national team and the other team is made up of my 11-year-old daughter Yuna’s friends, it is only fair that the girls are allowed to attack downhill. In this case, a tilted, rather than a level, playing field is the way to ensure fair competition.

We don’t see this kind of tilted playing field only because the Brazilian national team is never going to be allowed to compete with a team of 11-year-old girls, and not because the idea of a tilted playing field is wrong in itself. In fact, in most sports, unequal players are not simply allowed to compete against each other – tilted playing field or not – for the obvious reason that it would be unfair.

Football and most other sports have age groups and gender separation, while boxing, wrestling, weightlifting and many other sports have weight classes – the heavyweight, Muhammad Ali, was simply not allowed to box Roberto Duran, the legendary Panamanian with four titles in lighter weight classes. And the classes are divided really finely. For example, in boxing, the lighter weight classes are literally within two-or-three-pound (1– 1.5-kilo) bands. How is it that we think a boxing match between people with more than a couple of kilos’ difference in weights is unfair, and yet we accept that the US and Honduras should compete on equal terms? In golf, to take another example, we even have an explicit system of ‘handicaps’ that give players advantages in inverse proportion to their playing skills.

Global economic competition is a game of unequal players. It pits against each other countries that range from, as we development economists like to say, Switzerland to Swaziland. 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. Rich countries can further help by transferring their technologies on favourable terms; this will have the added benefit of making economic growth in poor countries more compatible with the need to fight global warming, as rich country technologies tend to be far more energy efficient.[10]

The Bad Samaritan rich countries may protest that all this is ‘special treatment’ for developing countries.But to call something special treatment is to say that the person receiving it is also obtaining an unfair advantage.Yet we wouldn’t call stair-lifts for wheelchair users or Braille text for the blind ‘special treatment’. In the same way, we should not call the higher tariffs and other means of protection additionally made available for the developing countries ‘special treatment’. They are just differential – and fair – treatment for countries with differential capabilities and needs.

Last but not least, tilting the playing field in favour of developing nations is not just a matter of fair treatment now. It is also about providing the economically less advanced countries with the tools to acquire new capabilities by sacrificing short-term gains. Indeed, allowing the poor countries to raise their capabilities more easily brings forward the day when the gap between the players is small and thus it becomes no longer necessary to tilt the playing field.

What is right and what is easy

Suppose I am right and that the playing field should be tilted in favour of the developing countries. The reader can still ask: what is the chance of the Bad Samaritans accepting my proposal and changing their ways?

It may seem pointless to try to convert those Bad Samaritans who are acting out of self-interest. But we can still appeal to their enlightened self-interest. Since neo-liberal policies are making developing countries grow more slowly than they would otherwise do, the Bad Samaritans themselves might be better off in the long run if they allowed alternative policies that would let developing countries grow faster. If per capita income grows at only 1% a year, as it has in Latin America over the past two decades of neo- liberalism, it will take seven decades to double the income. But if it grows at 3%, as it did in Latin America during the period of import substitution industrialization, income would increase by eight times during the same period of time, providing the Bad Samaritan rich countries with a vastly bigger market to exploit. So it is actually in the long- term interest of even the most selfish Bad Samaritan countries to accept those ‘heretical’ policies that would generate faster growth in developing countries.

The people who are much harder to persuade are the ideologues – those who believe in Bad Samaritan policies because they think those policies are ‘right’, not because they personally benefit from them much, if at all. As I said earlier, self-righteousness is often more stubborn than self-interest. But even here there is hope. Once accused of inconsistency, John Maynard Keynes famously responded: ‘When the facts change, I change my mind – what do you do, sir?’Many, although, unfortunately, not all, of these ideologues are like Keynes. They can change, and have changed, their minds, if they are confronted with new turns in real world events and new arguments, provided that these are compelling enough to make them overcome their previous convictions. The Harvard economist Martin Feldstein is a good example. He was once the brains behind Reagan’s neo-liberal policies, but