Friday, August 09, 2013


Well, here we go again. Sorry for delaying our last "interesting" (I hope) post, but this particular one is extremely urgent, I reckon. So let's go straight to the point then.

Perdón, ya regué las paletas otra vez. Sí es necesaria una pequeña (painless) introducción, after all.

"Everybody's changing, and I don't feel the same..." insisten los oil (energy is far too much for them, for God's sake) "lobbyists" once again. "Con dinero baila el perro", dice el viejo adagio, pero hay muchos más cadáveres en ese clóset (como el de La Paquita, por ejemplo), I am afraid; condición ésta última que refuerza mi primigenia hipótesis (que en estos momentos es "promocionada" a nivel de tesis) de entonces: sí son apátridas, greedy como ellos solos, y probablemente adictos a vaya asté a saber qué, pero por sobre todo eso, los primos los tienen bien agarra'os de aquellitos, sin que ellos puedan respingar. ¿Qué los otros no tienen uno que otro secretito por ahí? By the way, inútil es replicar a dos tipos de dizque rivales: el primero porque carece de nivel, y medio bravucón ese grupo es; y el segundo porque aunque se vista de filigrana retórica, poca sustancia y concreción al final ha de llevar. No tarda en comunicarse con nosotros a monosílabos, I bet.

"We need to make a bookshop stop babe, please", le aviso a mi mujer. Ella sabe muy bien que con un paperback puede domarme por un rato mientras se divierte en sus escapadas departamentales, así que su protesta apenas audible es. Sólo uno planeaba mercar, pero es mi esposa quien agita frente a mis narices, un ejemplar del más reciente (creo) de uno de sus más brillantes (que no de los más apreciados) paisanos.

_ Where did you find that one, darling? -le inquiero.

_ Over there -she told me as she's pointing to a nearby pile in the foreign books (meaning all in english, of course) section of the store.

No entiende mi angustia, hasta que encontramos aquel que me recomendaron en Norwich hace casi un lustro, por lo que mi arsenal bibliográfico pa' las próximas semanas termina en un par. Y así llegamos al verdadero propósito de este post, i.e., el apurado y apretado extracto de Bad Samaritans de Chang Han-Joon (2007). El título debió haber correspondido, por supuesto, pero no quiero "clashearme" en cuestión de derechos reservados con el autor. Anyway, Welcome aboard this free tuition tour, folks!

How to scape poverty

"Korea, one of the poorest places in the world, was the sorry country I was born into on October 7 1963. Today I am a citizen of one of the wealthier, if not wealthiest, countries in the world. During my lifetime, 'per capita' income in Korea has grown something like 14 times in purchasing power terms. It took the UK over two centuries (between the late 18th century and today) and the US around one and half centuries (the 1860s to the present day) to achieve the same result. The material progress I have seen in my 40-odd years is as though I had started life as a British pensioner born when George III was on the throne or as an American grandfather born while Abraham Lincoln was president. 

The house I was born and lived until I was six was in what was then the north-western edge of Seoul, Korea's capital city. It was one of the small (two-bedroom) but modern homes that government built with foreign aid in a programme to upgrade the country's dilapidated housing stock. It was made with cement bricks and was poorly heated, so it was rather cold in winter - the temperature in Korea's winter can sink to 15 or even 20 degrees below zero. There was no flushing toilet, of course: that was only for the very rich. 

Yet my family had some great luxuries that many others lacked, thanks to my father, an elite civil service in the Finance Ministry who had diligently saved his scholarship money while studying at Harvard for a year. We owned a black-and-white TV set, which exerted a magnetic pull on our neighbours. One family friend, and up-and-coming young dentist at St Mary's, one of the biggest hospitals in the country, somehow used to find the time to visit us whenever there was a big sports match on TV -ostensibly for reasons unrelated to the match. In today's Korea, he would be contemplating upgrading the second family TV in the bedroom to a plasma screen. A cousin of mine who has just move from my father's native city of Kwangju to Seoul came to visit on one occasion and quizzed my mother about the strange white cabinet in the living room. It was our refrigerator (the kitchen too small to accommodate it). My wife, Hee-Jeong, born in Kwangju in 1966, tells me that her neighbours would regularly 'deposit'their precious meat in the refrigerator of her mother, the wife of a prosperous doctor, as if she was the manager of an exclusive Swiss private bank. 

A small cement-brick house with black-and-white TV and a refrigerator may not sound much, but it was a dream come true for my parent's generation, who had lived through the most turbulent and deprived times: Japanese colonial rules (1910-45), the Second World War, the division of the country into North and South Korea (1948) and the Korean War. Whenever I and my sister, Yonhee, and brother, Hasok, complained about food, my mother would tell us how spoilt we were. She would remind us that, when they were our age, people of her generation would count themselves lucky if they had an egg. Many families could not afford them; even those who could reserved them for fathers and working older brothers. She used to recall her heartbreak when her little brother, starving during the Korean War at the age of five, said that he would feel better if he could only hold a rice of bowls in his hand, even if it was empty. For his part, my father, a man with a healthy appetite who loves his beef, had to survive as a secondary school student during the Korean War on little more than rice, black market margarine from the US army, soy sauce and chilli paste. At the age of ten, he had to watch helplessly as his seven-year-old younger brother died of dysentery, a killer disease then that is all but unknown in Korea today.

Years later, in 2003, when I was on leave from Cambridge and staying in Korea, I was showing my friend and mentor, Joseph Stiglitz, the Nobel Laurate economist, around the National Museum in Seoul. We came across an exhibition of beautiful black-and-white photographs showing people about their business in Seoul's middle-class neighbourhoods during the late 1950s and the early 1960s. It was exactly how I remembered my childhood. Standing behind me and Joe were two young women in their early twenties. One screamed, 'How can that be Korea? It looks like Vietnam!' There was less than 20 years' age gap between us, but scenes that were familiar to me were totally alien to her. I turned to Joe and told him how 'privileged' I was as a development economist to have lived through such a change. I felt like an historian of mediaeval England who was actually witnessed the Battle of Hastings or an astronomer who has voyaged back in time to the Big Bang.

... After he had come to power in a military coup in 1961, General Park (Chung-Hee) turned 'civilian' and won three successive elections. His electoral victories were propelled by his success in launching the country's economic 'miracle' through his Five Year Plans for Economic Development. But the victories were also ensured by election rigging and political dirty tricks. His third and supposedly final term as a president was due to end in 1974, but Park just could not let go. Halfway through his third term, he staged what Latin Americans call an 'auto-coup'. This involved dissolving the parliament and establishing a rigged electoral system to guarantee him the presidency for life. His excuse was that the country could ill afford the chaos of democracy. It had to defend itself against North Korea communism, the people were told, and accelerate its economic development. His proclaimed goal of raising the country's 'per capita' income to 1,000 US dollars by 1981 was considered overly ambitious, bordering on delusional.

... Korea's economic 'miracle' was not, of course, without its dark sides. Many girls from poor families in the countryside were forced to find a job as soon as they left primary school at the age of 12 - to 'get rid of an extra mouth 'and to earn money so that at least one brother could receive higher education. Many ended up as housemaids in urban middle-class families, working for room and board and, if they were lucky, a tiny amount of pocket money. The other girls, and the less fortunate boys, were exploited in factories where conditions were reminiscent of 19th century 'dark satanic mills' or today's sweatshops in China. In the textile and garment industries, which were the main export industries, workers often worked 12 hours or more in very hazardous and unhealthy conditions for low pay. Some factories refused to serve soup in the canteen, lest the workers should require an extra toilet break that might wipe out their wafer-thin profit margins. Conditions were better in the newly emerging heavy industries -cars, steel, chemicals, machinery and so on- but overall, Korean workers, with their average 53-4 hour working week, put in longer hours than just about anyone else in the world at the time.

... In October 1979, when I was still a secondary school student, President Park was unexpectedly assassinated by the chief of his own Intelligence Service, amid mounting popular discontent with his dictatorship and the economic turmoil following the Second Oil Shock. A brief 'Spring of Seoul' followed, with hopes of democracy welling up. But it was brutally ended by the next military government of General Chun Doo-Hwan, which seized power after the two-week armed popular uprising that was crushed in the Kwangju Massacre of May 1980.

... Since the financial crisis, the country has not been doing as well by its own high standards, mainly because it has over-enthusiastically embraced the 'free market rules' model...

Whatever its recent problems have been, Korea's economic growth and the resulting social transformation over the last four and a half decades have been truly spectacular.

... For most economists, the answer is a very simple one. Korea has succeeded because it has followed the dictates of the free market. It has embraced the principles of sound money (low inflation), small government, private enterprise, free trade and friendliness towards foreign investment. The view is known as neo-liberal economics.

Neo-liberal economics is an updated version of the liberal economics of the 18th-century economist Adam Smith and his followers. It first emerged in the 1960s and has been the dominant economic view since the 1980s. Liberal economists of the 18th and the 19th centuries believed that unlimited competition in the free market was the best way to organise an economy, because it forces everyone to perform with maximum efficiency.

Neo-liberal economists support certain things that the old liberals did not -most notably certain forms of monopoly (such as patents or the central bank's monopoly over the issue of the bank notes) and political democracy. But in general they share the old liberal's enthusiasm for the free market.

... In relation to the developing countries, the neo-liberal agenda has been pushed by an alliance of rich country governments led by the US and mediated by the 'Unholy Trinity' of international economic organizations that they largely control - the International Monetary Fund (IMF), the World Bank and the World Trade Organisation (WTO). The rich governments use their aid budgets and access to their home markets as carrots to induce the developing countries to adopt neo-liberal policies.

... governments and international organisations are supported by an army of ideologues. Some of these people are highly trained academics who should know the limits of their free-market economics but tend to ignore them when it comes to giving policy advice (as happened especially when they advised the former communist economies in the 1990s).

This neo-liberal establishment would have us believe that, during its miracle years between the 1960s and the 1980s, Korea pursued a neo-liberal economic development strategy. The reality, however, was very different indeed. What Korea actually did during these decades was to nurture certain new industries, selected by the government in consultation with the private sector, through tariff protection, subsidies and other forms of government support (e.g., overseas marketing information services provided by the state export agency) until they 'grew up' enough to withstand international competition. The government owned all the banks, so it could direct the life blood of business - credit. Some big projects were undertaken directly by state-owned enterprises -the steel maker, POSCO, being the best example- although the country had a pragmatic, rather than ideological, attitude to the issue of state ownership. If private enterprises worked well, that was fine; if they did not invest in important areas, the government had no qualms about setting up state-owned enterprises (SOEs); and if some private enterprises were mismanaged, the government often took them over, restructured them, and usually (but not always) sold them off again.

The Korean government also had absolute control over scarce foreign exchange (violation of foreign exchange controls could be punished with the death penalty). When combined with a carefully designed list of priorities in the use of foreign exchange, it ensured that hard-earned foreign currencies were used for importing vital machinery and industrial inputs. The Korean government heavily controlled foreign investment as well, welcoming it with open arms in certain sectors while shutting it out completely in others, according to the evolving national development plan. It also had a lax attitude towards foreign patents, encouraging 'reverse engineering' and over-looking 'pirating' of patented products.

... The Korean economic miracle was the result of a clever and pragmatic mixture of market and state direction. The Korean government did not vanquish the market as the communist states did. However, it did not have blind faith in the free market either. While it took markets seriously, the Korean strategy recognized that they often need to be corrected through policy intervention.

... Today's rich countries used protection and subsidies, while discriminating against foreign investors - all anathema to today's economic orthodoxy and now severely restricted by multilateral treaties, like the WTO agreements, and proscribed by aid donors and international financial organizations (notably the IMF and the World Bank)... The records of today's rich countries on policies regarding foreign investment, state-owned enterprises, macroeconomic management and political institutions also show significant deviations from today's orthodoxy regarding these matters.

... In 1841, a German economist, Friedrich List, critized Britain for preaching free trade to other countries, while having achieved its economic supremacy through high tariffs and extensive subsidies. He accused the British of 'kicking away the ladder' that they had climbed to reach the world's top economic position: 'it is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprived others of the means of climbing up after him'.

Today, there are certainly some people in the rich countries who preach the free market and free trade to the poor countries in order to capture larger shares of the latter's markets and to pre-empt the emergence of possible competitors. They are saying 'do as we say, not as we did' and act as 'Bad Samaritans', taking advantage of others who are in trouble*. But what is more worrying is that many of today's Bad Samaritans do not even realize that they are hurting the developing countries with their policies. The history of capitalism has been so totally re-written that many people in the rich world do not perceive the historical double standards involved in recommending free trade and free market to developing countries.

* The original story is that the 'Good Samaritan'from the Bible. In that parable, a man who was robbed by the highwaymen was helped by a 'Good Samaritan, despite the fact that the Samaritans were stereotyped as being callous and not above taking advantage of the others in trouble.

... Britain and the US are not the homes of free trade; in fact, for a long time they were the most protectionist countries of the world. Not all countries have succeeded through protection and subsidies, but few without them. For developing countries, free trade has rarely been a matter of choice; it was often an imposition from outside, sometimes even through military power. Most of them did very poorly under free trade; they did much better when they used protection and subsidies. The best-performing economies have been those that opened up their economies selectively and gradually. Neo-liberal free-trade free-market policy claims to sacrifice equity for growth, but in fact it achieves neither; growth has slowed down in the past two and a half decades when markets were freed and borders opened.

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