How the World Works (1993)
theatlantic.com
theatlantic.com
There has never been shortage of protectionist economies. In fact this was the norm for centuries all around the world and certainly in East Asia. What was it about post WWII that was so special that actually had impact on the economy?
[Edit] And let's not forget about North Korea. North Korea surely had the most protectionist economy in the world. It has shielded its own corporations from the hardships of global competition, and yet we never saw companies like Hyundai, Daewoo or Kia in North Korea.
The main thrust of the argument is that markets need to be protected but also forced to export. Whether this is through tight currency controls (to get foreign currency you have to export), government support, or government force (Park arrested South Korean businessmen, and released them only when they agreed to focus on export). And ruthless culling of companies that failed in the global market. You also need very disciplined land reform, to create the initial capital generated by intense land use by small farmers - many SE Asian nations failed to do this, and South Korea, Japan, and Taiwan were all quite successful [2]. China is more muddled, but they also had a strong focus on exports and government support for that.
Exports are important, as otherwise protected companies stagnate and become uncompetitive, reliant on government support. With a focus on exports, countries can use their local market as a test bed and a market to build up to exporting to richer countries.
What I'd really like is a good overview of ISI policy in the successful East Asian Countries versus Latin America which has an even longer history of ISI.
[1] http://www.amazon.com/How-Asia-Works-Joe-Studwell/dp/0802121... [2] To an extent too succesful: Japan spends a lot of money today protecting inefficient small farms created by land reform. But it's a small price in comparison.
Lots of special things in post WW2.
- Europe was bombed and smashed into oblivion.
- A whole generation of English, French, Austrian, German, and Russian workers and professionals who would have been at career peak were instead in graves under WWI battlefields of France and Eastern Europe.
- Colonial empires imploded.
- The US had unprecedented leverage over most of the world diplomatically and commercially.
In the Anglo-American view, there are two possibilities and two possibilities only: (1) unbridled laissez-faire capitalism with a minimum of regulation, and (2) Soviet-style central planning. In reality, there's a fairly smooth continuum of in-between options, where the power and dynamism of markets can be harnessed but still subordinated to broad development goals and national macroeconomic priorities.
When I read "Made in Japan" -- I saw all of these as contributors to the Japanese miracle.
It wasn't so much (to me anyway) that the Japanese economy had protection, but that the Japanese people were so darn innovative that they couldn't be stopped. The other East Asian countries share many of the Japanese traits (even if not all).
[0] https://en.wikipedia.org/wiki/James_Fallows -- see also http://www.theatlantic.com/author/james-fallows/
[1] For (several) laughs, see http://www.theatlantic.com/magazine/archive/1982/07/living-w...
It also helps to know that thirty years ago the fear of Japan's economic growth had the US press shitting bricks, and probably not just because that was good for circulation ...
With the empirical foregone conclusion that Japan was better than the USA, many people including this author seemed keen to find reasons. Many people ultimately traced it back to the fundamental values of the US.
Yet looking 23 years forward in the future, the US GDP per capita is now about 50% greater than Japan's. In fact, Japan has barely moved in these 23 years, and it's interesting to note everything the author citing above as Japan's philosophical advantage being recast by more recent commentators as weaknesses. To wit, here are the following praised ideas, and the most recent critique of them in light of some developments in the last 23 years:
- "Nation/group above the individual" -- Japanese stagnation has been strongly blamed on a culture where companies have less ability to hire young but very talented employees because that would upset the age-competence hierarchy, and other such rigid structure.
- "Deliberate development needed for growth" -- Witness the Chinese high-speed rails to nowhere, the failure of the US federal forway into being a solor company VC.
- Close association of banks/conglomerates -- Theories abound of Japanese zombie banks and companies with negative value being propped up by bad loans.
And sorry for bashing on Japan -- I have nothing against them personally. They just happen to be a stand in for a star of the alternate non-Anglo economic theory in the essay above.
(These cycles of being anti-US-value when another system is dominate has been surprisingly common. Communism was championed most strongly within the US itself exactly at times when the US was in a recession but the USSR was doing well. For example the early 1930s or early 1980s.)
nothing to do with China
Look at how powerful/influential Samsung is. We don't have an equivalent in the US. You can argue that the banking sector is as powerful (or more-so), but that's more than 1 corporation.
Can someone summarize? Is he just saying that free trade isn't the only way to maximize national wealth? That perhaps Beggar Thy Neighbor can help ones own country if others don't follow suit? It was too drawn out for me to read the whole thing and rebut.
I imagine OP posted this because it's at the core of the current US presidential debate. Interestingly, it's a debate happening within the parties, not just between them.
For example, I thought the point about inequality was very well articulated:
"In the real world happiness depends on more than how much money you take home. If the people around you are also comfortable (though, ideally, not as comfortable as you), you are happier and safer than if they are desperate."
Edit: phrasing.