Thirteen months after reviewing Paul Collier’s The Bottom Billion
Once again, Easterly largely ignores Collier’s analysis of trade, aid, and governance, focusing on his arguments for military/security interventions. This new column merely fleshes out the objections he raised previously.
HT: Blattman
Ha-Joon Chang is now not only urging developing countries to use trade barriers to promote development but also arguing that the US needs to adopt “forward-looking protectionism.”
Between the 1830s and the 1940s, against superior European competition, the US developed its industries behind literally the highest tariff wall in the world, with the average industrial tariff rate ranging between 35% and 55%… Moreover, the theory that justified such protectionism, namely, the ‘infant industry’ argument, had been first developed by none other than the first Treasury Secretary of the US – Alexander Hamilton.
I’ll leave criticism of Chang’s history of American and European development to Doug Irwin, who notes that:
[T]he United States started out as a very wealth country with a high literacy rate, widely distributed land ownership, stable government and competitive political institutions that largely guaranteed the security of private property, a large internal market with free trade in goods and free labor mobility across regions, etc. Given these overwhelmingly favorable conditions, even very inefficient trade policies could not have prevented economic advances from taking place… [C]orrelation is not causation. Chang produces no evidence that protectionism was responsible for the growth.
Chang then turns to why the US should be protectionist in the present day:
[W]ell-designed and time-bound protection of mature industries can facilitate, rather than hindered, trade adjustment and industrial upgrading… Mr Obama should use protectionism in a similarly forward-looking way. Industries that can be revived through re-tooling of its factories and re-training of its workers should be given protection, but only if they fulfill certain conditions regarding investment and training. Industries that have no future should be given strictly temporary protection to ease phasing-out through orderly liquidation and redundancy.
First, how does a government credibly commit to temporary protection while encouraging the industry to phase out its excess or obsolete capacities? The cases of steel and automobiles are far from encouraging in this respect.
Second, tariffs protect products and industries, not firms. How would the government make protection conditional on investment and training, which do not occur at the industry level?
Third, won’t protection of developed countries’ dying industries in many cases hurt developing countries? Chang’s measures would deter Indian steel and Chinese textile exports.
Fourth, if both growing industries and dying industries should receive protection, then what industry will not? It seems that openness would be the exception rather than the rule in Chang’s preferred trading regime.
A well-designed welfare state with good unemployment insurance and re-training programme can facilitate structural changes by reducing the resistance of the workers to more open trade that exposes them to greater risks… Stronger welfare state is why the demand for protectionism is much weaker in the European economies than in the US, despite the greater acceptance of active role of the government in the former.
Does anyone have quantitative measures to support this claim? We know that the CAP is much worse than US farm subsidies. In what areas is Europe less protectionist?
Ha-Joon Chang has a long way to go before he convinces me of the merits of forward-looking protectionism for the United States.
This briefing on international trade by CSU-Northridge’s Robert Krol looks like a good introduction to estimates of trade’s costs and benefits for political science classes discussing the global economy. It briefly summarizes in plain language the results of Baier & Bergstrand (2001), Bernhofen & Brown (2005), Frankel & Romer (1999), Wacziarg & Welch (2008), Broda & Weinstein (2006), and Robert Lawerence’s Blue-Collar Blues.
For an economics class, I’d recommend that students actually read (some) of those papers.
I’m the lone economics blogger amongst the twenty finalists competing for the 2008 Blogging Scholarship. Please show your support for Trade Diversion [and the rest of the economics blogosphere ;-)] by voting for me. Thanks!
Barack Obama’s chief of staff will be Congressman Rahm Emanuel. Emanuel’s only votes against trade agreements seem reasonable. He opposed the US-Australia deal because it was “tainted by provisions designed to protect a captive market for the prescription drug industry.” He opposed CAFTA due to its lack of labor and environmental standards. I wasn’t very excited about CAFTA either, though for different reasons.
Emanuel has said: “I am a free trader. I supported NAFTA. I supported GATT. I voted in favor of the Singapore agreement. I voted in favor of the Chile agreement. I believe in free trade.” He’s also called out the Bush administration on its silly Cuban embargo.
How much say does the chief of staff have on trade policy? I have no idea.
Felix Salmon notes that econobloggers are better publicists than reviewers:
even as papers get a lot of play in the blogosphere, economists are generally still reluctant to make substantive criticisms on public blogs rather than in private seminars. (This doesn’t apply to policy debates, of course: they’re a different kettle of fish entirely.) The result is that economic papers get much more pre-publication attention than ever before, with most of it being very uncritical. By the time the paper’s gone through peer review, public attention has moved elsewhere.
Of course, every author loves his/her publicist, while critics are rarely thanked. And unless the criticism is particularly entertaining (such as Dan Davies’ four-part Freakonomics take-down), it is unlikely to be widely read. So the incentives are clear.
Goldberg, Khandelwal, Pavcnik & Topalova: “Our findings suggest that an important consequence of [India’s] input tariff liberalization was to relax technological constraints through firms’ access to new imported inputs that were unavailable prior to the liberalization.”
It’s obvious that Paul Krugman became a Nobel laureate for his economics, not polemics, and I was annoyed by the political, idiotic reactions to the award that obscured the value of his technical work. I don’t think there is any reason at this point to believe that the timing of the award was political, but I am obligated to note that David Warsh, an astute observer of the economics scene, disagrees:
But the fact that the Swedish prize authorities moved Krugman’s contribution to trade theory to the top of their list, ahead of several other skeins of earlier work in other fields that are awaiting recognition, coupled with their decision to give it to him alone, rather than also recognizing Helpman, of Harvard University, his co-author in two influential monographs, was a clear indication that the Swedes wanted to send a message along with the stardust: that they enjoy reading the penetrating and acerbic commentary that he writes in his second career as a twice-a-week newspaper columnist.
Though other economists have noted that awarding Krugman the prize as the Bush administration came to a close generated (unfortunate) political chatter, Warsh is the first I have seen suggest that that was intentional.
Paul Collier’s next book is titled Wars, Guns and Votes: Democracy in Dangerous Places
Oil has fallen to close to $60 per barrel, but Marc Levinson, author of The Box, says that transportation costs are likely to slow globalization. He cites:
But how should we interpret Levinson’s concluding paragraph, where he writes that “in retrospect, globalization will likely appear not as an inexorable trend but as a temporary stage in economic development” while also conceding that “slower, costlier, and less certain transportation will not put an end to the growth of international trade”?
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