Those Who Do Not Know the Past
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Should developing countries embrace free trade or shelter their nascent industries behind protectionist walls? This debate has been going on for two centuries since Adam Smith faced off against the mercantilists. Ha-Joon Chang’s “Bad Samaritans” (Bloomsbury, 288 pages, $26.95) is a lively addition to the protectionist side of the debate. Readers who believe in free trade will not find much in Mr. Chang that challenges that belief, but the book is well written and far more serious than most anti-globalization gibberish.
Mr. Chang’s main charge is that free trade advocates from wealthy countries are hypocrites, because the history of America and the United Kingdom is full of protectionism. Mr. Chang alleges, with scant evidence, that the two nations grew great because of these tariff barriers. First world economists have reaped the benefits of protection, he suggests, but are now trying to deprive the world’s poor of the wonders of tariffs.
Mr. Chang also takes aim at other free market policies such as privatization and fiscal prudence. Again he argues that since rich countries have public ownership and deficits, it is rank hypocrisy for us to try to forbid them to the poor. An alternative view is that economists shouldn’t be required to endorse the worst policies of their own countries.
While it is easy to quibble with some of Mr. Chang’s more bizarre statements about American political history, such as his claim that “slavery was not as divisive an issue in antebellum politics as most of today believe it to have been,” he is certainly correct that America was quite protectionist during the 19th and early 20th centuries. First Alexander Hamilton, then the Whigs, and finally the G.O.P. all fought for tariffs. While Abraham Lincoln did much to make men free, his support for tariffs made him less of an advocate of free markets.
The most curious thing about Mr. Chang’s retelling of American history is his suggestion that there is anything secret about this history of American protectionism. The Tariff of Abominations and the Smoot-Hawley Tariff are both mainstays of high school history classes; Honest Abe’s affinity for tariffs even appears in popular movies about the Great Emancipator.
The book would have made a more serious contribution if it shed more light on whether American or English protectionism helped or harmed these countries. Post hoc does not imply propter hoc. Nineteenth-century America was protectionist, but that doesn’t mean that protectionism played a positive role in our nation’s growth. Did American protectionism really give us the textile mills of Lowell and the steel mills of Pittsburgh? Did English tariffs really foster the spinning jenny and the steam engine? The high physical costs of crossing the Atlantic in the age of sail made it natural, with or without tariffs, for the Lowells to want to weave cotton on this side of the pond. Mr. Chang is going to have to do better than just point out that Americans and Englishmen had tariffs to make the case that tariffs produced growth.
There is a substantial empirical literature that looks at the relationship between trade openness and economic development over the last 40 years. An early wave of research, associated with Jeffrey Sachs among others, claimed that trade openness increased growth. A second wave of research, led by Francisco Rodriguez and Dani Rodrik (a Harvard colleague), suggested that there was little robust connection across countries between trade and growth. My own research in this area found that openness had little impact on middle income places, but is particularly valuable for the poorest places. Certainly, there is no empirical consensus that openness is either good or bad for growth.
The lack of consensus on the connection between growth and openness does not imply that Mr. Chang’s protectionism is equally attractive as the open borders urged by the Washington consensus. Adam Smith and David Ricardo didn’t urge free trade because trade begets growth, but because trade makes goods cheaper for ordinary people. Smith’s argument is still the strongest case for open borders. Even if protectionism does encourage industrial growth, it only does so by hurting ordinary people, who have to pay more to buy the goods of inefficient domestic producers.
Mr. Chang’s protectionist brief suggests that the costs that tariffs impose on ordinary consumers are worth paying since the government can use tariffs to promote the right industries. Smith would have been skeptical about putting such faith in the government, and today’s developing countries certainly deserve no more trust than the government of George III. Even if an incredibly wise tariff policy could protect future economic dynamos, the history of tariffs suggests that they are used more often to protect less than dynamic cronies.
The best thing to come out of this book is its challenge to the advocates of free markets to explain why England and America did so well despite embracing policies that were not always that free. Mr. Chang has not made the case that those policies were helpful, but free marketers have an obligation to help us understand why those policies did not do more harm.
Mr. Glaeser is the Glimp professor of economics at Harvard, director of the Taubman Center for State and Local Government, and a senior fellow at the Manhattan Institute.