The Secret History of Capitalism

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Ha-Joon Chang introduced by Sanjeev Sanyal

 

Apekshita Varshney, Official ZEE Jaipur Literature Festival Blogger

 

It’s a strange world we are living in. The Chinese Premier is talking about globalisation and the new President of the United States is speaking of protectionism. President Trump is the talk of the season, and everyone wants to weigh in. This was a highly insightful session between economist Ha-Joon Chang and Sanjeev Sanyal, historian, economist, and author of Ocean Of Churn. Sanyal introduced Chang in relation to himself: ‘I’m often accused of having insane views on history and economics; (therefore) I’m comfortable having Ha-Joon who has even more insane views.’

Chang, who teaches economics at the University of Cambridge and is the author of 23 Things They Don’t Tell You About Capitalism, brushed away suggestions that Trump will follow through with his high tariff promises, saying, ‘Higher tariffs mean expensive products and America will be up in arms against that.’

In 1950s Japan, Chang related, ‘they manufactured ashtray cars and tried to sell them in America.’ It was ‘a total flop’ and the cars had to be withdrawn. He explained that the free-market theory of comparative advantage would argue that Japan should have exported labour-intensive products, so then why were they trying to sell cars? Chang argued that Japan has not become rich through free-market practices but through protectionism. In the example of the car industry, the government didn’t let foreign companies enter the market, protected local companies through tariffs, and even bailed out Japan’s largest car making company. As a result, ‘Japan has cars that feel like fine wine’. This logic would confuse most free-market philosophers, but according to Chang, if a country is lower in the pyramid of progress, it must not ignore protectionism and regulation.

Chang believes that a lot is left out from traditional discussions on the history of capitalism. He took it upon himself to lay an elaborate carpet and trample over myths surrounding capitalism. Many believe that Britain invented free trade, but Chang observed that they invented protectionism as well. ‘The beginning of British industrialisation was with the government giving tariff protections and banning the entry of superior textile companies,’ he said. ‘At the end of the 19th century, Britain had the highest tariffs in the world.’ Similarly, many believe that America has always been a haven for the free market, but Chang pointed out, ‘The US theorised protectionism and had a closed economy up until the 1950s.’ ‘You’re never told that state-owned corporations contribute 22% to Singapore’s GDP and 95% housing is provided by the government,’ Chang added. Even the US government interferes by ‘running an extensive military research programme.’

What sets Chang apart is that he finds merit in the idea of infant industry protection and believes that if an economy is opened too soon, there is a chance of local producers being wiped out. He illustrated this by pointing out various countries that have used protectionist methods in the past, whilst imposing the exact opposite on the rest of the world. ’Developing countries are under constant pressure from the IMF and others to liberalise their trade, no matter what state their economy is in,’ he said. As such, Chang proposed ‘a system of checks and balances, vigilance, and a strong democracy.’

Even though Chang’s arguments cited historical data and busted some prevalent myths around capitalism, they also left a lot unanswered. What about the performance of state-protected companies in protected environments? What about the flaws of democracy and politicians’ abilities to create power-centres and use vote-bank politics? And who is it who will ensure transparency and checks and balances? Can we rely on governments? Why did a country like India, which used massive protectionist powers, regulated industry, and didn’t have free-trade, almost go bankrupt before it liberalised? The debate continues.

 

Photo Credit: Rajendra Kapoor

 

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