Sunday, February 24, 2008

Surowiecki and Chang on growth

James Surowiecki wrote a great book review on economic growth for a recent issue of Book Forum. The empirical evidence is not, contrary to popular belief, on the side of the free trade liberalizers:
In the twentieth century, meanwhile, most of the great economic success stories—including Japan and the so-called Asian Tigers, like Taiwan and South Korea—limited imports and foreign investment, subsidized new industries to get them off the ground, and generally violated most of the rules of neoliberalism. Yet their economies grew at enormously fast paces, turning them in just a couple of a generations from underdeveloped backwaters into prosperous, bourgeois societies. Even those countries that have failed to make much headway against poverty, including most of Latin America and Africa, generally grew faster when their governments took active roles in restricting and guiding the market. What history tells us, in other words, is that free trade and free markets are more of a bane to developing countries than a boon. And those rich countries that insist poorer ones follow neoliberal prescriptions are hypocrites, insisting on solutions they themselves did not follow.

At the same time, he concludes that Ha-Joon Chang's important, empirically-based corrective to the free-trade-growth conventional wisdom goes too far in its support of state interventionism. So what policies lift countries out of poverty? It's really hard to say, Surowiecki contends:
Chang is giving us a simple answer to the question “How do you make an economy grow?” when, at this point at least, no such answer exists. There have been innumerable studies, for instance, looking at the relationship between free trade and economic growth, and the only thing that’s clear is that neither free trade nor protectionism is a cure-all. The problem of disentangling all the factors that go into a country’s economic performance in order to isolate the ones that really count is a monumental task, and not one we have accomplished.
Chang's book is titled Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. Here's a podcast interview in which Tyler Cowen clings to his belief in free trade and tries to "hold [Chang's] feet to the fire." Here's Chang's wikipedia page.