Thursday, December 23, 2010

When it works for the West, it's free market economics

When it works for Asian countries, it's state controlled capitalism. This is just one of the scathing observations by John Cassidy written in the guise of book reviews in December 13, 2010 issue of the New Yorker.

Didn't UK and later the US rise to great economic power on the backs of free trade? Nonsense, Cassidy said. UK used gunboat diplomacy to force China to accept opium import in order for Britain to erase it's bilateral trade deficit. UK used tariffs as trade barrier to protect it's home grown industries until they were able to compete internationally.

The US economic policies followed UK. From Alexander Hamilton to Abraham Lincoln, the US used high import duties to protect domestic industries. Even today, selected American agricultural products are protected by tariffs and subsidies.

"Not one of today's economic powers practiced free trade during its developmental stage," Cassidy observed in his piece.

Some other quotations from Cassidy's piece are excerpted below:

"Compared with these naked exercises in industrial policy (by western powers), some of the Chinese infractions that have most exercised the W.T.O. seemed relatively minor."

"Part of the evidence he (referring to author Halper*) presents for China's malign influence is the fact that it helped build a hospital, an irrigation project and a vocational training center in Ghana--a multiparty democracy that, mystifyingly, is on his list of repressive African regimes."

"The heavy hand of American demostic and foreign policy in shaping economic outcomes tends to get ignored in current policy debates.."

"Western governments have used the methods of state capitalism for hundreds of years in their bid to shape the world around them....The idea that market forces alone led to the West's success is nonsense." This quote Cassidy attributes to chief economist of HSBC.

Cassidy's concluding remark: "The greatest danger that Western prosperity now faces isn't posed by any Beijing consensus; it's posed by the myth of the free market."

*Halper's book reviewed by Cassidy was "The Beijing Consensus: How China's Authoritarian Model Will Dominate the Twenty-first Century."