EL LADINO GLOBAL III

Vaya, vaya, vaya. El Kid tri-bíblico (in remembrance of that shameful episode in GDL) y su séquito pretenden entrar "pisando juerte" en la batalla ideológica con un: "History will teach us nothing". No compadritos, su fortaleza no radica ahí, tened un poco de 'dignidak' y no hagan de nuex el numerito, por favor. Dejad que los vivos resuciten a sus vivos.

America (sic) enters the fray

... "Hamilton provided the blueprint for US economic policy until the end of the Second World War. His infant industry programme created the condition for a rapid industrial development. He also set up the government bond market and promoted the development of the banking system (once again, against opposition from Thomas Jefferson and his followers). It is no hyperbole from the New York Historical Society to have called him 'The Man Who Made Modern America' in a recent exhibition. Had the US rejected Hamilton's vision and accepted that of his archrival, Thomas Jefferson, for whom the ideal society was an agrarian economy made up of self-governing yeoman farmers (although the slave-owner had to sweep the slave who supported this lifestyle under the carpet), it would never have been able to propel itself from being a minor agrarian power rebelling against its powerful colonial master to the world's greatest super-power.

Abraham Lincoln and America's bid for supremacy

... "...Historians of the period agree that his abolition of slavery in 1862 was more a strategic move to win the war than an act of moral conviction. Disagreement over trade policy, in fact, was at least as important as, and possibly more important than, slavery in bringing about the Civil War. ...

"...once elected, Lincoln raised industrial tariffs to their highest level so far in US history. The expenditure for the Civil War was given as an excuse - in the same way in which the first significant rise in US tariffs came about during the Anglo-American (1821-1816). However, after the war, tariffs stayed at the wartime levels or above. Tariffs on manufactured imports remained at 40-50% until the First World War, and were the highest of any country of the world.

... "Despite being the most protectionist country in the world throughout the 19th century and right up to the 1920s, the US was also the fastest growing economy.

... "It was only after the Second World War that the US with its industrial supremacy now unchallenged - liberalized its trade and started championing the cause of free trade... It has also been much more aggressive in using non-tariff protectionist measures when necessary. Moreover, even when it shifted to freer (if not absolutely free) trade, the US government promoted key industries by another means, namely, public funding of R&D.

Other countries, guilty secrets

... "...the two champions of free trade, Britain and the US, were not only not free trade economics, but had been the two protectionist economies among rich countries - that is, until they each became the world's dominant industrial power.

... "In the early days of their industrialization, when there were not enough private sector entrepreneurs who could take on risky, large-scale ventures, most of today's rich country governments (except the US and the British) set up state-owned enterprises. In some case, they provided so many subsidies and other help (e.g. poaching skilled workers from abroad) to some private-sector enterprises that they were effectively public-private joint ventures.

... "After the Second World War, state efforts to promote industry were intensified in most rich countries. The biggest shift was in France.

... "... After 1945, acknowledging that its conservative, hands-off policies were responsible for its relative economic decline and thus defeats in two world wars, the French state took a much more active role in the economy. It launched 'indicative' (as opposed to communism's 'compulsory') planning, took over key industries trough nationalization, and channeled investment into strategic industries through state-owned banks. To create the breathing space for new industries to grow, industrial tariffs were maintained at a relatively high level until the 1960s. The strategy worked very well. By the 1980s, France had transformed itself into a technological leader in many areas.

... "Thus practically all of today's rich countries used nationalistic policies (e.g., tariffs, subsidies, restrictions, on foreign investment) to promote their infant industries, through the exact mix of policies used, as well as their timing and duration, differed across the countries.

Learning the right lessons from history

"The Roman politician and philosopher Cicero once said: 'Not to know what has been transacted in former times is to be always a child. If no use is made of the labours of past ages, the world must remain always in the infancy of knowledge'.

... "... history tell us that, in the early stage of their development, virtually all successful countries used some mixture of protection, subsidies and regulation in order to develop their economies.

"Unfortunately, another lesson of history is that rich countries have 'kicked away the ladder' by forcing free-market, free-trade policies on poor countries. Already established countries do not want more competitor emerging through the nationalistic policies they themselves successfully used in the past.

"Fortunately, history also shows that it is not inevitable that successful countries act as Bad Samaritans and, more importantly, that it is in their enlightened self-interest not to act as one. The most recent and important episode of this kind occurred between the launch of the Marshall Plan in 1947 and the rise of neo-liberalism in the 1980s.

... "The result of this enlightened strategy was spectacular. The rich countries experienced the so-called 'Golden Age of Capitalism'(1950-1973). 'Per capita' income growth rate shot up from 1.3% in the liberal golden age (1870-1913) to 4.1% in Europe. It rose from 1.8% to 2.5% in the US, while it skyrocketed from 1.5% to 8.1% in Japan. These spectacular growth performances were combined with low inequality and economic stability. More importantly, developing countries also performed very well during this period..., during the 1960s and the 1970s, when they used nationalistic policies under the 'permissive'international system, they grew at 3% in 'per capita' terms. This is the way above what they had achieved under old liberal policies during the 'first globalization' (1870-1913) and twice the rate they have recorded since the 1980s under neo-liberal policies."

EL LADINO GLOBAL II

Realmente no sé si existen más, pero yo he identificado dos clases de terquedad. Frecuentemente he encontrado que "las divas académicas" ardientemente creen que lo que piensan es la neta del planeta, sin "testear" (por autocomplacencia, incapacidad, o simple conveniencia, got no idea about that to be sincere with you) tales devaneos con la cruda realidad. Tenemos después al grupo de los "make it happen" (though, they paradoxically have the strong support of those being absolutely sure to make it not, ever in this life and beyond) by all means; no estoy muy seguro (y no tengo el tiempo ni la voluntad de averiguarlo) si están convencidos de sus decretos o ladinamente los hacen aprobar, no matter if to make it real, they need to prostitute not only the language but their own souls. Having said that, in the meantime they oil mongers are taking the main stage (don't worry we are gonna be landing just on time to change the tide, I promise), we continue with the second extract of our interesting book.

The Lexus and the olive tree revisited

"... half the world seemed to be ... intent on building a better Lexus, dedicated to modernizing, streamlining and privatizing their economies in order to thrive in the system of globalization. And half of the world -sometimes half the same country, sometimes half the same person- was still caught in the fight over who owns which olive tree."

"According to (Thomas) Friedman, unless they fit themselves into a particular set of economic policies that he calls Golden Straitjacket, countries in the olive-tree world will not be able to join the Lexus world. In describing the Golden Straitjacket, he pretty much sums up today's neo-liberal economic orthodoxy: in order to fit into it, a country needs to privatize state-owned enterprises, maintain low inflation, reduce the size of the government bureaucracy, balance the budget (if not running a surplus), liberalize trade, deregulate foreign investment, deregulate capital markets, make the currency convertible, reduce corruption and privatize pensions. According to him, this is the only path to success in the new global economy. His Straitjacket is the only gear suitable for the harsh but exhilarating game of globalization. Friedman is categorical: 'Unfortunately, this Golden Straitjacket is pretty much "one-size fits all" ... Its not always pretty or gentle or comfortable. But it's the only model on the rack this historical season'.

The real history of globalization

"... When a Chinese official seized an illicit cargo of opium in 1841, the British Government used it as an excuse to fix the problem once and for all by declaring war. China was heavily defeated in the war and forced to sign the Treaty of Nanking which made China 'lease' Hong Kong to Britain and give up its right to set its own tariffs.

"So there it was -the self-proclaimed leader of the 'liberal' world declaring war on another country because the latter was getting in the way of its illegal trade in narcotics. The truth is that the free movement of goods, people, and money that developed under British hegemony between 1870 and 1913 - the first episode of globalization - was made possible, in large part, by military might, rather than market forces.

"Despite their key role in promoting 'free' trade in the late 19th and early 20th centuries, colonialism and unequal treaties hardly get any mention in the hordes of pro-globalization books. Even when they are explicitly discussed, their role is seen as positive on the whole. For example, in his acclaimed book, 'Empire', the British historian Niall Ferguson honestly notes many of the misdeeds of the British empire, including the Opium War, but contends that the British empire was a good thing overall - it was arguably the cheapest way to guarantee free trade, which benefits everyone. However, the countries under colonial rule and unequal treaties did very poorly. Between 1870 and 1913, 'per capita income' in Asia (excluding Japan) grew at 0.4% per year. The corresponding figures were 1.3% for Western Europe and 1.8% per year for the USA. It is particularly interesting to note that the Latin American countries, which by that time have regained tariff autonomy and were boasting some of the highest tariffs in the world, grew as fast as the US did during this period.

"While they were imposing free trade on weaker nations through colonialism and unequal treaties, rich countries maintained rather high tariffs, especially industrial tariffs, for themselves, as we will see in greater detail in the next chapter. To begin with, Britain, the supposed home of free trade, was one of the most protectionist countries until it converted to free trade in the mid-19th century. There was a brief period during the 1860s and the 1870s when something approaching free trade did exist in Europe, especially with zero tariffs in Britain. However, this proved short-lived. From the 1880s, most European countries raised protective barriers again, partly to protect their farmers from cheap food imported from the New World and partly to promote the newly emerging 'heavy and chemical' industries, such as steel, chemical and machinery. Finally even Britain, as I have noted, the chief architect of the first wave of globalization, abandoned free trade and re-introduced tariffs in 1932. The official history describes this even as Britain 'succumbing to the temptation' of protectionism. But it typically fails to mention that this was due to the decline in British economic supremacy, which in turn was the result of the success of protectionism on the part of competitor countries, especially the USA, in developing their own new industries.

The real history of globalization

Neo-liberals vs neo-idiotics?

"... the 'bad old days' in the developing countries weren't so bad at all. During the 1960s and the 1970s, when they were pursuing the 'wrong' policies of protectionism and state intervention 'per capita income' in the developing countries grew by 3.0% annually... Since the 1980s, after they implemented neo-liberal policies, they grew at only about half the speed seen in the 1960s and the 1970s (1.7%). Growth slowed down in the rich countries too, but the slowdown was less marked (from 3.2% to 2.1%), not least because they did not introduce neo-liberal policies to the same extent as the developing countries did. The average growth rate of developing countries in this period would be even lower if we exclude China and India. These two countries which accounted for 12% of the total developing country income in 1980 and 30% in 2000, have so far refused tu put on Thomas Friedman's Golden Straitjacket.

Growth failure has been particularly noticeable in Latin America and Africa, where neo-liberal programmes were implemented more than in Asia. In the 1960s and the 1970s, 'per capita income' in Latin America was growing at 3.1% per year, slightly faster than the developing country average. Brazil, especially, was growing almost as far as the East Asian 'miracle' economies. Since the 1980s, however, when the continent embraced neo-liberalism, Latin America has been growing at less than one third of the 'bad old days'. Even if we discount the 1980s as a decade of adjustment and take it out of the equation, 'per capita income' in the region during the 1990s grew at basically half the rate of the 'bad old days' (3.1% vs 1.7%). Between 2000 and 2005, the region has done even worse; it virtually stood still with 'per capita income' growing at only 0.6% per year.

"... neo-liberal globalization has failed to deliver on all fronts of economic life -growth, equality and stability. Despite this, we are constantly told how neo-liberal globalization has brought unprecendent benefits.

"The one country that seems to have succeeded in the postwar globalization period by using the neo-liberal strategy is Chile. Indeed, Chile adopted the strategy before anyone else, including the US and Britain, following the 'coup d'etat' by General Augusto Pinocht back in 1973. Since then, Chile has grown quite well -although nowhere nearly fast as the East Asian 'miracle' economies. And the country has been constantly cited as a neo-liberal success story. Its good growth performance is undeniable. But even Chile's story is more complex tran orthodoxy suggests.

"Chile's early experiment with neo-liberalism, led by the so-called Chicago Boys (a group of Chilean economists trained at the University of Chicago, one of the centres of neo-liberal economics), was a disaster. It ended in a terrible financial crash in 1982, which had to be resolved by the nationalization of the whole banking sector. Thanks to this crash, the country recovered the pre-Pinochet level of income only in the late 1980s. It was only when Chile's neo-liberalism got more pragmatic after the crash that the country started doing well. For example, the government provided exporters with a lot of help in overseas marketing and R&D. It also used capital controls to successfully reduce the inflow of short-term speculative funds althought its recent free trade agreement with the US has forced it to promise never to use them again. More importantly, there is a lot of doubt the sustainability of Chile's development. Over the past three decades, the country has lost a lot of manufacturing industries and become excessively dependent on natural-resources-based exports. Not having the technological capabilities to move into higher-productivity activities, Chile faces a clear limit to the level of prosperity it can attain in the long run.

"To sum up, the truth of post-1945 globalization is almost the polar opposite of the official history. During the period of controlled globalization underpinned by nationalistic policies between the 1950s and the 1970s, the world economy, especially in the developing world, was growing faster, was more stable and have more equitable income distribution than in the past two and a half decades of rapid and uncontrolled neo-liberal globalization. Nevertheless, this period is portrayed in the official history as one of the unmitigated disaster of nationalistic policies, especially in developing countries. This distortion of the historical record is peddled in order to mask the failure of neo-liberal policies.

Who's running the world economy?

"...the rich countries...account for 80% of world output, conduct 70% of international trade and make 70-90% (depending on the year) of all foreign direct investments. This means that their national policies can strongly influence the world economy.

"But more important than their sheer weight is the rich countries' willingness to throw that very weight about in shaping the rules of the global economy... in shaping options for developing countries are, however, what I call the 'Unholy Trinity' of multilateral organizations namely the IMF, the World Bank and the WTO (World Trade Organization). Though they are not puppets of the rich countries, the Unholy Trinity are largely controlled by the rich countries, so they devise and implement Bad Samaritans policies that those countries want.

"...there is no area of our life in which the BWIs (Bretton Woods Institutions) cannot intervene. Everything that goes on in a country has implications for its economic performance. By this logic, the IMF and the World Bank should be able to impose conditionalities on everything from fertility decisions, ethnic integration and gender equality, to cultural values.

... "The IMF-World Bank mission creep, combined with the abuse of conditionalities by the Bad Samaritans nations, is particularly unacceptable when the policies of the BWI have produced slower growth, more unequal income distribution and greater economic instability in most developing countries.

... "...there have been some genuine efforts to open dialogues with a wider constituency, especially the World Bank's engagement with NGOs (non-governmental organizations). But the impacts of such consultations are at best marginal. Moreover, when increasing numbers of NGOs in developing countries are indirectly funded by the World Bank, the value of such an exercise is becoming more doubtful

"...Many developing countries lack the intellectual resources to argue against powerful international organizations with an army of highly trained economists and a lot of financial clout behind them. Moreover, the World Bank and the IMF have taken what I called the 'Henry Ford approach to diversity' (he famously said that costumers could have a car painted 'any colour so long as it's black). The range of local variation in policies that they find acceptable is very narrow. Also, with the increasing tendency for developing countries to elect or appoint ex-World Bank or ex-IMF officials to key economic posts, 'local' solutions are increasingly resembling the solutions provided by the BWIs.