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

Harvard University on 5 June 1947. Its details were negotiated in a meeting held in Paris from 12 July 1947. It was started in 1948 and ended in 1951, channelling some $13 billion (equivalent to $130 billion today) into the war-torn economies of Europe. The Marshall Plan replaced the Morgenthau Plan that had dictated postwar American foreign policy until then. The Morgenthau Plan, named after the treasury secretary of the time (1934–45), focused on putting an end to Germany’s expansionist ambition by ‘pastoralizing’ it. When combined with the Soviet Union’s desire to seize advanced German machinery, it was very effective in destroying the German economy. However, it soon became obvious that such a plan was unviable. After his visit to Germany in 1947, the former US president Herbert Hoover denounced the Morgenthau Plan as ‘illusory’, and argued that it would not work unless the German population was reduced by 25 million, from 65 million to 40 million. For an enlightening discussion on the subject, see E. Reinert (2003), ‘Increasing Poverty in a Globalised World: Marshall Plans and Morgenthau Plans as Mechanisms of Polarisation ofWorld Incomes’ in H-J. Change (ed.), Rethinking Development Economics (Anthem Press, London).

Chapter 3

1

Willem Buiter (2003), ‘If anything is rescued from Cancun, politics must take precedence over economics’, letter to the editor, Financial Times, September 16 2003.

2

Most of the Mexican diaspora are recent immigrants but some of them are the descendants of the former Mexicans who became Americans due to the annexation of large swathes of the Mexican territory – including all or parts of modern California, New Mexico, Arizona, Nevada, Utah, Colorado and Wyoming – after the US-Mexico War (1846–48) under the Treaty of Guadalupe Hidalgo (1848).

3

The numbers are from M. Weisbrot et al. (2005), ‘The Scorecard on Development: 25 Years of Diminished Progress’, Center for Economic and Policy Research (CEPR), Washington, DC, September, 2005 (http://www.cepr.net/publications/development200509.pdf), Figure 1.

4

Mexican per capita income experienced a fall in 2001 (-1.8%), 2002 (-0.8%), and 2003 (-0.1%) and grew only by 2.9% in 2004, which was barely enough to bring the income back to the 2001 level. In 2005, it grew at an estimated rate of 1.6%. This means that Mexico’s per capita income at the end of 2005 was 1.7% higher than it was in 2001, which translates into an annual growth rate of around 0.3% over the 2001–5 period. The 2001–2004 figures are from the relevant issues of the World Bank annual report, World Development Report (World Bank, Washington, DC). The 2005 income growth figure (3%) is from J. C. Moreno-Brid & I. Paunovic (2006), ‘Old Wine in New Bottles? – Economic Policymaking in Left-of-center Governments in Latin America’, Revista – Harvard Review of Latin America, Spring/Summer, 2006, p. 47, Table. The 2005 population growth rate (1.4%) is extrapolated from World Bank (2006), data for 2000–4, found in World Development Report 2006 (World Bank, Washington, DC), p. 292, Table 1.

5

Mexico’s per capita income during 1955–82 grew at over 6%, according to J. C.Moreno-Brid et al. (2005), NAFTA and ‘The Mexican Economy: A Look Back on a Ten-Year Relationship’, North Carolina International Law and Commerce Register, vol. 30. As Mexico’s population growth rate during this period was 2.9% per annum, this gives us per capita income growth rate of around 3.1%. The population growth rate is calculated from A. Maddison (2001), The World Economy – A Millennial Perspective (OECD, Paris), p. 280, Table C2-a.

6

For further details, see H-J. Chang (2005), Why Developing Countries Need Tariffs – How WTO NAMA Negotiations Could Deny Developing Countries’ Right to a Future, Oxfam, Oxford, and South Centre, Geneva (http://www.southcentre.org/publications/SouthPerspectiveSeries/WhyDevCountriesNeedTariffsNew.pdf), pp. 78– 81.

7

Tariffs account for 54.7% of government revenue for Swaziland, 53.5% for Madagascar, 50.3% for Uganda and 49.8% for Sierra Leone. See Chang (2005), pp, 16–7.

8

T. Baunsgaard & M. Keen (2005), ‘Trade Revenue and (or?) Trade Liberalisation’, IMF Working Paper WP/05/112 (The International Monetary Fund, Washington, DC).

9

In this sense, the HOS theory is highly unrealistic in one crucial respect – it assumes that the developing countries can use the same technology as those used by developed countries, but the lack of the capability to use more productive (and naturally more difficult) technologies is exactly what makes those countries poor. Indeed, infant industry protection is exactly aimed at raising such capability, known as ‘technological capability’ among economists.

10

Remarks at a White House Briefing for Trade Association Representatives on Free and Fair Trade, 17 July 1986.

11

Oxfam (2003), ‘Running into the Sand – Why Failure at Cancun Trade Talks Threatens the World’s Poorest People’, Oxfam Briefing Paper, August 2003, p. 24.

12

The tariff figures are from Oxfam (2003), pp. 25–7. The income figures are from the World Bank data set. In 2002, France and Bangladesh respectively paid around $320 million and $300 million in tariffs to the US. Total income of Bangladesh in the same year was $47 billion, whereas that of France was $1, 457 billion. In the same year, the UK paid around $420 million in US tariffs, while India paid about $440 million. UK and Indian incomes in