Heterodox view on free trade

Thanks to Vasiliki to pointing out work of Professor Ha-Joon Chang.

http://www.prospectmagazine.co.uk/magazine/ha-joon-chang-23-things-capitalism-review/#.UzTd6GfNtLM: He points out that Britain, the first country to industrialise, as well as the US, Germany and Japan, all became leading industrial powers by various forms of protectionism—only to adopt and preach free trade when they were confident that their carefully nurtured industries could prevail over foreign competition. “Most of the rich countries did not use such policies when they were developing countries themselves, while these policies have slowed down growth and increased income inequality in the developing countries in the last three decades. Few countries have become rich through free-trade, free-market policies and few ever will.”... The idea that small entrepreneurs are the source of modern economic growth is another neoliberal myth of the 1990s that Chang rebuts. Poor countries have far more self-employed people than rich ones. “The collective ability to build and manage effective organizations and institutions is now far more important than the drives or even the talents of a nation’s individual members in determining its prosperity.”.... Chang hopes to return a field dominated until recently by the narrow schools of New Classicism and New -Keynesianism to its origins in historically informed and context-sensitive “political economy.” But that may be too much to hope for. The great depression of the 1930s was far more severe than the great recession of the present is likely to be, and yet the pre-Keynesian economics that failed both to anticipate and to ameliorate that depression not only survived the 1930s but -triumphed in the universities and policies of the last quarter of the 20th century. While the guild of academic economists may continue to ignore maverick economic thinkers like Chang, the future of the world economy may depend on whether the rest of us pay attention....

http://www.prospectmagazine.co.uk/magazine/ha-joon-chang-protectionism-free-trade/#.UzTd4WfNtLM: Moreover, the “1930s: never again” story assumes that protectionism is always bad. But this is not true either. Unlike in finance, where things can be speedily re-arranged, the real economy takes time to adjust. Producers must build new factories, and invest in new technologies. Workers must acquire new skills and find new jobs. When big adjustments are needed, temporary protectionism helps to create the breathing space for companies and workers to reinvent themselves.... There are other good reasons to consider limited measures to protect domestic economies. Textbook trade theory says that making countries more and more specialised is an unquestionable good. But this isn’t always true. Britain, for instance, probably over-specialised in finance over the last few decades, while neglecting manufacturing. The international division of labour should be balanced against the need for a broadly based economy, capable of protecting countries and their people against shocks to a particular industry. Voters in advanced countries, meanwhile, might well be willing to swap a little more job stability for slightly more expensive goods in their shops..... Such mild protectionism can be explicitly time limited. Indeed, evidence after the 1970s oil shocks shows that countries like Japan and Sweden that had specific and time-bound protectionism bounced back more quickly than others, like the US, where measures were hidden but more pervasive. The danger today is that we will pretend to believe in free trade, while practising protectionism by other names—just recall Peter Mandelson’s £2.5bn auto industry rescue: “not a bailout,” he said, but a “greening” initiative.... The reality is that free trade has never worked very well, especially for developing countries, but it is going to malfunction even more in the coming years. Rather than trying to nurse this ailing sacred cow back to health, we should slaughter it—and concentrate our energy on designing a new system of international trade that pragmatically mixes free trade and protectionism....