By Free Trade
ZNet | Global Economics
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The founding myth of the
dominant nations is that they achieved their industrial and technological
superiority through free trade. Nations which are poor today are told that if
they want to follow our path to riches, they must open their economies to
foreign competition. They are being conned.
Almost every rich
nation has industrialised with the help of one of two mechanisms now prohibited
by the global trade rules. The first is "infant industry protection":
defending new industries from foreign competition until they are big enough to
compete on equal terms. The second is the theft of intellectual property.
History suggests that technological development may be impossible without one or
revolution was founded upon the textile industry. This was nurtured and promoted
by means of ruthless government intervention. As the development economist Ha
Joon Chang at the University of Cambridge has documented, from the 14th Century
onwards, the British state systematically cut out its competitors, by taxing or
banning the import of foreign manufactures and banning the export of the raw
materials (wool and unfinished cloth) to countries with competing industries.1
The state extended similar protections to the new manufactures we began to
develop in the early 18th Century.
Only when Britain
had established technological superiority in almost every aspect of
manufacturing did it suddenly discover the virtues of free trade. It was not
until the 1850s and 1860s that we opened most of our markets.
The United States,
which now insists that no nation can develop without free trade, defended its
markets just as aggressively during its key development phase. The first man
systematically to set out the case for infant industry protection was Alexander
Hamilton, the first Secretary of the US Treasury. In 1816 the tax on almost all
imported manufactures was 35%, rising to 40% in 1820 and, for some goods, 50% in
1832.2 Combined with the cost of transporting goods to the US, this
gave domestic manufacturers a formidable advantage within their home market.
arguably a more immediate cause of the American civil war than the abolition of
slavery. High tariffs helped the northern states, which were industrialising
rapidly, but hurt the southern states, which remained heavily dependant on
imports. The Republicans' victory was the victory of the protectionists over the
free traders: in 1864, before the war ended, Abraham Lincoln raised import taxes
to the highest level they had ever reached. The US remained the most heavily
protected nation on earth until 1913. Throughout this period, it was also the
The three nations
which have developed most spectacularly over the past 60 years - Japan, Taiwan
and South Korea - all did so not through free trade but through land reform, the
protection and funding of key industries and the active promotion of exports by
the state. All these nations imposed strict controls on foreign companies
seeking to establish factories.4 Their governments invested massively
in infrastructure, research and education. In South Korea and Taiwan, the state
owned all the major commercial banks, which permitted it to make the major
decisions about investment.5 In Japan, the Ministry of International
Trade and Industry exercised the same control by legal means.6 They
used tariffs and a number of clever legal ruses to shut out foreign products
which threatened the development of their new industries.7 They
granted major subsidies for exports. They did, in other words, everything that
the World Trade Organisation, the World Bank and the IMF forbid or discourage
There are two
striking exceptions to this route to development. Neither Switzerland nor the
Netherlands used infant industry protection. Instead, as the economic historian
Eric Schiff showed in Industrialisation without National Patents, published in
1971, they simply stole the technologies of other nations.8 During
their key development phases (1850-1907 in Switzerland; 1869-1912 in the
Netherlands), neither country recognised patents in most economic sectors.
industrialisation took off in 1859, when a small company based in Basel pilfered
the aniline dying process which had been developed and patented in Britain two
years before. The company was later named Ciba; more recently, after a series of
mergers, it became Novartis and then Syngenta. In the Netherlands, in the early
1870s, two enterprising firms called Jurgens and Van Den Bergh nicked a patented
French recipe and started producing something called margarine. They later
merged to form a company named Unilever. In the 1890s, one Gerard Philips stole
Thomas Edison's design for incandesent lamps, and founded Europe's most
successful electronics company.9
The nations which
are poor today are forbidden by the trade rules from following either route to
development. New industries are immediately exposed to full competition with
established companies overseas, which have capital, experience, intellectual
property rights, established marketing networks and economies of scale on their
side. "Technology transfer" is encouraged in theory, but forbidden in
practice by an ever fiercer patents regime. Unable to develop competitive
enterprises of their own, the poor nations are locked into their position as the
suppliers of cheap labour and raw materials to the rich world's companies. They
are, as a result, forbidden from advancing beyond a certain level of
development. While there is no sound argument for permitting rich nations to
protect their economies, there is a powerful case for permitting the poor ones
to follow the only routes to development which appear to work.
Monbiot's book The Age of Consent: a manifesto for a new world order is
published on June 16th by Flamingo.
Ha-Joon Chang, 2002. Kicking Away the Ladder: Development Strategy in Historical
Perspective. Anthem Press, London.
Mark Curtis, 2001. Trade for Life: Making Trade Work for Poor People. Christian
John Brohman, April 1996. Postwar Development in the Asian NICs: Does the
Neoliberal Model Fit Reality? Economic Geography, Volume 72, Issue 2.
Takatoshi Ito, 1996. Japan and the Asian Economies: a "Miracle" in
Transition. Brookings Papers on Economic Activity, Issue 2 (1996). The Brookings
Institution, Washington DC.
Graham Dunkley, 2000. The Free Trade Adventure: The WTO, the Uruguay Round and
Globalism. Zed Books, London. First published in 1997 by Melbourne University
Eric Schiff, 1971. Industrialisation Without National Patents: The Netherlands,
1869-1912; Switzerland, 1850-1907. Princeton University Press.
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