Tom Friedman's Folly: The Lies Behind 'Free Trade'

[marmar]

from Truthdig, via AlterNet:




Tom Friedman's Folly: The Lies Behind 'Free Trade'

By Chalmers Johnson, Truthdig. Posted February 5, 2008.

A new book on disastrous trade policies makes it clear that it's time to dismantle the barriers that keep so much of the world so poor.




Ha-Joon Chang is a Cambridge economist who specializes in the abject poverty of the Third World and its people, groups, nations, and empires, and their doctrines that are responsible for this condition. He won the Gunnar Myrdal Prize for his book "Kicking Away the Ladder: Development Strategy in Historical Perspective" (2002), and he shared the 2005 Wassily Leontief Prize for his contributions to "Rethinking Development in the 21st Century." The title of his 2002 book comes from the German political economist Friedrich List, who in 1841 criticized Britain for preaching free trade to other countries while having achieved its own economic supremacy through high tariffs and extensive subsidies. He accused the British of "kicking away the ladder" that they had climbed to reach the world's top economic position. Chang's other, more technical books include "The Political Economy of Industrial Policy" (1994) and "Reclaiming Development: An Economic Policy Handbook for Activists and Policymakers" (2004).

His new book is a discursive, well-written account of what he calls the "Bad Samaritan," "people in the rich countries who preach free markets and free trade to the poor countries in order to capture larger shares of the latter's markets and preempt the emergence of possible competitors. They are saying 'do as we say, not as we did' and act as Bad Samaritans, taking advantage of others who are in trouble." Bad Samaritans is intended for a literate audience of generalists and eschews the sort of exotica that peppers most economic writing these days -- there is not a single simultaneous equation in the book and many of Chang's examples are taken from his own experiences as a South Korean born in 1963.

Ha-Joon Chang's life is conterminous with his country's advance from being one of the poorest on Earth -- with a 1961 yearly income of $82 per person, less than half the $179 per capital income in Ghana at that time -- to the manufacturing powerhouse of today, with a 2004 per capita income of $13,980. South Korea did not get there by following the advice of the Bad Samaritans. Chang's prologue contains a wonderful account of how post-Korean War trade restrictions and governmental supervision fostered such projects as POSCO (Pohang Iron and Steel Co.), which began life as a state-owned enterprise that was refused support from the World Bank in a country without any iron ore or coking coal and with a prohibition on trade with China. Now privatized, POSCO is the world's third largest steel company. This was also the period in which Samsung subsidized its infant electronics subsidiaries for over a decade with money made in textiles and sugar refining. Today Samsung dominates flat-panel TVs and cell phones in much of East Asia and the world.

Chang remembers quite clearly that as a student "We learned that it was our patriotic duty to report anyone seen smoking foreign cigarettes. The country needed to use every bit of foreign exchange earned from its exports in order to import machines and other inputs to develop better industries." He is frankly contemptuous of New York Times columnist Thomas Friedman's best-seller The Lexus and the Olive Tree (2000) and its argument that Toyota's Lexus automobile represents the rich world brought about by neoliberal economics whereas the olive tree stands for the static world of no or low economic growth. The fact is that had the Japanese government followed the free-trade economists back in the early 1960s, there would have been no Lexus. Toyota today would be, at best, a junior partner to some Western car manufacturer or, worse, have been wiped out. ......(more)

The complete piece is at: http://www.alternet.org/story/75645/

[robcon]

1. Free trade is the best hope for economic growth and peace

throughout the world. Friedman is right.

[wuushew]

5. Did you read the article?

It strongly condemns the neo-liberal trade practiced internationally since the 1970s. I don't know what you think Friedman is right about.

[Orsino]

7. Free trade ensures the growth of monopolies...

...and predation by the corporations on an ever-larger scale.

[robcon]

9. I think you should read Paul Krugman's famous defense of free trade...

Ricardo's Difficult Idea (Comparative Advantage - the basis for free trade)

"...The first thing I need to do is to make clear how few people really do understand Ricardo's difficult idea -- since the response of many intellectuals, challenged on this point, is to insist that of course they understand the concept, but they regard it as oversimplified or invalid in the modern world. Once this point has been established, I will try to defend the following hypothesis:

(i) At the shallowest level, some intellectuals reject comparative advantage simply out of a desire to be intellectually fashionable. Free trade, they are aware, has some sort of iconic status among economists; so, in a culture that always prizes the avant-garde, attacking that icon is seen as a way to seem daring and unconventional.

(ii) At a deeper level, comparative advantage is a harder concept than it seems, because like any scientific concept it is actually part of a dense web of linked ideas. A trained economist looks at the simple Ricardian model and sees a story that can be told in a few minutes; but in fact to tell that story so quickly one must presume that one's audience understands a number of other stories involving how competitive markets work, what determines wages, how the balance of payments adds up, and so on.

(iii) At the deepest level, opposition to comparative advantage -- like opposition to the theory of evolution -- reflects the aversion of many intellectuals to an essentially mathematical way of understanding the world. Both comparative advantage and natural selection are ideas grounded, at base, in mathematical models -- simple models that can be stated without actually writing down any equations, but mathematical models all the same. The hostility that both evolutionary theorists and economists encounter from humanists arises from the fact that both fields lie on the front line of the war between C.P. Snow's two cultures: territory that humanists feel is rightfully theirs, but which has been invaded by aliens armed with equations and computers...

...What is different, according to Goldsmith, (Krugman's target for the article) is that there are all these countries out there that pay wages that are much lower than those in the West -- and that, he claims, makes Ricardo's idea invalid. That's all there is to his argument; there is no hint of any more subtle content. In short, he offers us no more than the classic "pauper labor" fallacy, the fallacy that Ricardo dealt with when he first stated the idea, and which is a staple of even first-year courses in economics. In fact, one never teaches the Ricardian model without emphasizing precisely the way that model refutes the claim that competition from low-wage countries is necessarily a bad thing, that it shows how trade can be mutually beneficial regardless of differences in wage rates. The point is not that low-wage competition never poses a problem. Rather, what is significant is that despite ostentatiously citing Ricardo, Goldsmith completely misses one of the essential lessons of his argument.

One might argue that Goldsmith is a straw man, that he is an intellectual lightweight whom nobody would take seriously as a commentator on these issues. But The Trap is structured as a discussion with Yves Messarovitch, the economics editor of Le Figaro; Mr. Messarovitch certainly took Sir James seriously (never raising any objections to his version of international trade theory), and the book became a best-seller in France. In the United States, Goldsmith did not sell as many books, but his views were featured in intellectual magazines like New Perspectives Quarterly; he was invited to speak to the US Congress; and the Clinton Administration took his views seriously enough to send its chief economist, Laura Tyson, to debate him on television. In short, while Goldsmith's failure to understand the basic idea of comparative advantage may seem stunningly obvious to any trained economist, other intellectuals -- including editors and journalists who specialize on economic matters -- regarded his views as, at the very least, a valuable addition to the debate..."

http://web.mit.edu/krugman/www/ricardo.htm

[Orsino]

10. No need. The predators' record is clear.

One has only to travel to second- and third-world countries to see the destruction wrought by the corporations empowered by so-called "free" trade.

[robcon]

11. You 'give it away' when you say "no need to read" an opposing point of view.

One only has to travel to the third world to see the impact of corruption and theft.

The only thing holding back the third world is their governments, IMO. Those who have a degree of transparency, rule of law and fairly free markets are prospering. Those whose governments deny those things are living in wretched poverty, while their rulers are ripping off the country.

Examples...

Nigeria and Congo: two fabulously rich countries, with enormous resources (oil, minerals, fertile soil, etc.) whose people are trapped in extreme poverty.

Hong Kong and South Korea: Few resources (except a good harbor in Hong Kong) - yet very well-off people.

[Orsino]

12. You're not praising free trade.

You're praising properly regulated trade, as I do.

After decades of listening to the neocons try to sell me free trade, no, I don't listen.

[robcon]

21. Neocons like Krugman? I think your unwillingness to listen is a very studied response.

You're afraid you've been wrong all these years, IMO.

[wuushew]

20. That is a very old Krugman article (1996)

Krugman appears to be changing his tune..

All this is textbook international economics: contrary to what people sometimes assert, economic theory says that free trade normally makes a country richer, but it doesn’t say that it’s normally good for everyone. Still, when the effects of third-world exports on U.S. wages first became an issue in the 1990s, a number of economists — myself included — looked at the data and concluded that any negative effects on U.S. wages were modest.

The trouble now is that these effects may no longer be as modest as they were, because imports of manufactured goods from the third world have grown dramatically — from just 2.5 percent of G.D.P. in 1990 to 6 percent in 2006..........


It’s often claimed that limits on trade benefit only a small number of Americans, while hurting the vast majority. That’s still true of things like the import quota on sugar. But when it comes to manufactured goods, it’s at least arguable that the reverse is true. The highly educated workers who clearly benefit from growing trade with third-world economies are a minority, greatly outnumbered by those who probably lose.

As I said, I’m not a protectionist. For the sake of the world as a whole, I hope that we respond to the trouble with trade not by shutting trade down, but by doing things like strengthening the social safety net. But those who are worried about trade have a point, and deserve some respect.

http://www.nytimes.com/2007/12/28/opinion/28krugman.html


Here is some more recent stuff

http://www.pkarchive.org/.com">Unoffical Paul Krugman Article Archive


Also please stop hammering people with your Richardoian non-sense, I would like to think that with numerous undergraduate and graduate level business classes under my belt I know the definition of compariative advantage when I see it. The site I link to even includes Krugman's standard college text on international trade.

Trading with Asia is nothing like buying timber from Canada or sugar from the tropics. There is no inherrent speical factor which makes the production of goods easier per unit of input. Cheap labor in itself is not a comparitive advantage and trading on the basis of it will equalize world wealth more than creating a net gain in wealth through specialization. Also thanks to the gangbuster speed at which the rest of the world is now industrializing we have atmospheric C02 levels equal to the Permian period. Thanks for killing us all. If you damn free traders would have only waited 100-200 years viable widespred green technolgy in Western countries could have been exchanged with those countries lacking it.

[Hawkowl]

15. You sir are an idiot.

You obviously didn't read the article. The free trade paradigm is complete B.S. It made no practical sense in either and undergraduate sense or when I was pursuing my Masters in Economics.

Free trade is not free.

[Greyhound]

2. Doing the same thing repeatedly,expecting different results, is insanity.

I believe it was Einstein that said that and it is still true. These brainwashed followers of the "Chicago School" con-men, are a blight on humanity and the sooner we accept that their hypothesis has never once achieved the results it promised and never will, the better off we will all be. If there were any justice in the world, every one of them would be stripped of all assets and forced to live in the slave nations they have created.

[Marblehead]

3. Friedman is a fraud

Fair trade not free trade

[Jim__]

4. I think we (American working class) are seeing the other side of this.

Free trade allows multi-nationals to export our jobs overseas to cheap labor companies.

The author's perspective is extremely informative. I always thought there was a trade-off between our loss of jobs and the increased wealth and prosperity of the third world nations we lost those jobs to. Without having read his book, his argument seems to be that these "free trade" policies keep these nations poor - they don't develop their own industry. Now, I'm seeing a different story. Yes, the people gain low-paying jobs that help them somewhat. But the industry that is built sees the first world as their market, so there is no need to develop a market in the new factory nation. This is a lose/lose situation for the workers in both the market nations and the new manufacturing nations.

Of course, the system has to eventually fail. As the working class is pauperized in the market nations, they cease to be much of a market.But, by the time that happens, we're all third-world workers.

This is an interesting perspective that I haven't really thought about before. I'll have to buy and read his book.

It's not news that Friedman is wrong, but it is news about exactly how wrong he is.

[HughBeaumont]

6. This is what I've been saying all along.

It isn't in the interests of the owners to lift workers from either nation beyond J.O.B. (Just Over Broke) status when they offshore jobs. Our workers become either stagnant, or more often the case, poorer; their workers become less poor but still remain poor nonetheless. The wealthy from both nations end up prospering and get even wealthier than before, pocketing the savings and not reinvesting into these supposed "better jobs that result from offshoring" the Free-Traders rah-rah so much about.

And all the while, neo-lib rich boys (yes, RICH. Tommy Friedman married into a giant fortune ) like Tommy praise offshoring and free trade for how world-changing it is without a care that only a scant few really benefit from this practice.

[Lydia Leftcoast]

8. I'd never thought of it this way before:

"people in the rich countries who preach free markets and free trade to the poor countries in order to capture larger shares of the latter's markets and preempt the emergence of possible competitors.

And it's not just poor countries. Remember how Japan was booming and being help up as an example of how to run an economy during the 1980s?

They were in a real estate bubble even bigger than ours, and their banks were keeping two sets of books with the help of bought-off government regulators, but what really wrecked the Japanese economy on the employment and consumer level was the adoption, under strong pressure from the Reagan and Bush Sr. administrations, of "open" markets and "international" (i.e. cutthroat, "lean and mean,"short-term thinking) ways of doing business.

Suddenly companies were firing long-time employees and outsourcing manufacturing to Southeast Asia. Unemployment, historically hovering around 2%, soared to U.S. levels. American big box stores and convenience stores came in and wiped out the mom-and-pop stores that were such a part of the social fabric in Japan. Even Starbucks came in, with it and its imitators crushing the highly individualistic and friendly sole proprietors who made coffee drinking into an esthetic experience.

The country began to see ¥100 shops, the equivalent of dollar stores, which sold cheap goods from China. They were great for budget tourists who needed to buy forgotten items or newly arrived English teachers trying to outfit their kitchens, but the merchandise represented things that were no longer being made in Japan.

When I first went to Japan thirty years ago, I was struck by how economically egalitarian it was. There were a few street people, mostly obvious late-stage alcoholics, and a few super-rich, but everyone else seemed to fall within a narrow range of modest comfort.

Now every major Japanese city has homeless people camping along the riverbanks or in parks, and crime is rising, although it's still below U.S. levels. A new word came into the Japanese vocabulary in the 1990s: "freeter," a young person who has been unable to find steady employment and works at a series of low-paying service jobs.

Some of the right-wingers I know in the translation community tell me that the current situation is wonderful because women now have job opportunities that they never had before and companies have "flexibility."

Anyway, I have to assume that urging "open markets" and "modern business practices" on Japan was a U.S. tactic for declawing a competitor.

[JosephSchmo]

13. Imagine you could only buy goods and services produced in your city or county

And you could not do any work that was sold beyond your city or county. You would be so much poorer. Same goes for developing countries.

[Hydra]

14. Free trade is and was always code for "opening" a new market for megacorp predators

I swear the free traders have a religion going, and to question their sacred cows is blasphemy.

"Free trade" HAS NEVER WORKED. Shortsighted greed is highlighted in the story of "The goose that laid the golden egg"- The free traders kill the goose to get the gold, and then wonder what happened to their steady supply of eggs.

You CANNOT have growth and luxury spending(that would be all non-necessities) unless you PAY YOUR WORKERS.

Geez, these people are worse than the ones that think of Jesus as a get out of jail free card.

[Radical Activist]

16. This is one of the top reasons I can't vote for another Clinton.

Bill is part of promoting this system. The fact that Hillary does too is why she receives so much support from the corporate establishment. Her job is to make people feel like they have an advocate for the average person in the White House while she continues to push through these kind of trade policies.

[fascisthunter]

18. Same Reason for Me

I can't believe how many democrats, who ordinarily dislike what Free Trade has done to their country, are supporting her.

[fascisthunter]

17. Free Trade is for Suckas and Pirates

There is nothing free about it and it's the most expensive thing to do to one's own country. It only enriches a few.... the biggest scheme of the century!

[wuushew]

19. kick

:kick: