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Crying wolf about protectionism

Updated: 2011-07-01 10:32

By Andrew Moody (China Daily European Weekly)

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"However, if you actually look at the data only a few countries actually raised their tariffs significantly," he says.

He very much accords with the work of the economic historian Peter Temin at The Massachusetts Institute of Technology (MIT) in this field.

"He puts forward the view the collapse of world trade after the Great Depression came about because of a slump in demand on the one hand and because trade credit dried up on the other, not because of tariffs," he says.

He says China by restricting foreign companies access to certain markets like banking and telecommunications and by using other measures will be in a better position to fully develop its economy.

"I don't have a problem with protectionism so long as it is used for the right purpose. My view is developing countries in the early stages need this space created by protectionism to create their natural productive capabilities," he says.

He argues the example to avoid is that of the Philippines that has one of the lowest standards of living of any country in the world as a result of being exploited by foreign companies.

"If you were to look at the structure of its exports you would think it was a very prosperous high-tech economy. The share of high-tech products as a proportion of its manufactured exports is second only to Singapore," he says.

"But its per capita income is not even $2,000 (1,415 euros). That is because all the things it makes are made with Japanese, Taiwanese and Korean technology. Unless host countries put more conditions on foreign investors to transfer their technologies to them these companies are not going to do it."

Chang argued in this and his previous book Bad Samaritans that Africa is the basket case when it comes to being a victim of free trade.

The widely held view, according to Chang, is that Africa is underdeveloped because it has too many natural resources and that results in its people being "corrupt" and "lazy".

He says its real problem is that it has adopted a free trade policy - opening up its markets to anyone who wants to exploit them - in exchange for foreign aid.

"You give people aid to open up their markets and they basically lose the chance to generate self-sustained growth. They become permanent recipients of aid," he says.

Chang, the son of a civil servant and who read for his first degree at Seoul National University before leaving to do a masters at Cambridge, grew up in a country that did pursue protectionist policies.

It has since emerged as an Asian tiger economy with world leading brands such as electronic goods giants Samsung and LG and carmaker Hyundai.

"When I was growing up we didn't see much at all of foreign goods. They were either smuggled illegally or in the case of rock 'n' roll records, they were pirated copies. It was a very different world to today," he says.

"The previous generation of miracle economies such as South Korea and Japan were a lot more closed off to foreign investment. Compared to the situation then, foreign companies are having a much easier time in China," he says.

Chang, whose books are translated into Chinese and available in China, says Japan, which has complained to the World Trade Organization about protectionism pursued by some countries, is forgetting how it emerged as a leading economy.

"There is a phrase, 'kicking away the ladder', which the Japanese are doing. They had the most restrictive regime for foreign investment in the non-socialist world and now they are telling developing countries they shouldn't regulate these things," he says.

Chang believes protectionism is a much more multi-dimensional issue than many suggest but the arguments between nations over it tend to remain the same.

"Americans are now telling everyone free trade is the way to go. When they were practicing protectionism in the late 19th century, it was the British who were telling them they shouldn't do it. The British, however, developed their own industries in the 18th century by protectionism. This history just keeps going on," he says.

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