Ha-Joon Chang, a prolific South Korean economist at the University of Cambridge, is known for his popular books on economics, which take a light approach to explaining boring theories and concepts as well as unsolved controversies in the subject.
One of the points Chang raises in his books is that the world’s advanced economies are all pragmatic: no policymaker will merely go by the textbook and formulate measures regardless of economic reality.
The truth is that economic theories are for reference only. Whether to adopt a theory and the precise timing of policy largely depend on whether productivity can be boosted.
Western countries, for instance, are quick to preach about the virtues of free trade and free markets, but it took Britain more than a hundred years to open its market, especially its textile industry, after Adam Smith pointed out in his magnum opus, The Wealth of Nations, in 1776 that free markets are fundamental to capitalism.
Why? Because Britons back then needed to protect their own textile industry, which was still in its primitive stages.
Thus they put up barriers, including heavy tariffs on imported textile products. In his books, Chang calls Britain “the pioneer of protectionism”.
Indeed, it was the usual practice for western countries not to open their markets until their own manufacturing and tertiary industries had acquired dominant market shares.
The United States is another shining example, as for a great part of the 19th century, the country barred foreign investment in banking, shipbuilding, mining and several other sectors with stringent measures and legislation. Chang notes that the US was at that time “the champion of protectionism”.
Even today, when the free market has long been hailed as the cornerstone of a competitive modern economy, Japan and many European countries are still subsidizing their domestic enterprises in the form of direct funding or tax incentives.
Singapore, a role model for free ports, relies on state-owned enterprises like Singapore Airlines and SingTel for one-fifth of its economic output.
From a historical perspective, Chang has revealed that — counter to the assertions of mainstream economic theories — protectionism has its role in forging growth and it’s plain that different countries need to deploy suitable and realistic strategies.
Free trade and free markets can never be a one-size-fits-all solution that all countries must apply indiscriminately.
There is no eternal truth in economics that can explain and cope with rapidly changing reality. In the real world, timing and flexibility are usually the determinants of what a policy can deliver.
That explains why a successful economist may not be qualified to head a central bank or a finance ministry, as he can only be an expert in a specific field and can seldom think out of the box and formulate a well-balanced policy.
This article appeared in the Hong Kong Economic Journal on Dec. 30.
Translated by Frank Chen
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