Messrs Smoot and Hawley in 1929: don't blame us for the crisis!
Ha-Joon Chang has been described by Martin Wolf—the FT commentator—as the world’s most effective critic of globalisation. The South Korean economist writes a short, provocative piece in the new issue about how we have misunderstood the protectionism of the 1930s and how we should not be afraid of some open, limited protectionist measures now. His point is that it is happening anyway because political pressures insist on giving priority to national interests when recession strikes—the important thing is to distinguish between what is acceptable protectionism and what is unacceptable protectionism. Surely it is legitimate for the British government to insist that, when it invests in a bank, the bank gives priority to lending to companies and households in Britain. Similarly there will be a tendency for public procurement to favour local employment. Such measures do not require 1930s-style trade tarriffs and could surely be made compatible with the EU single market, at least for a limited period. Ha-Joon Chang’s views are, however, regarded as extremely dangerous by many mainstream economists: let us hear from some of them.
Share
Comments
Print
Add Comment
I agree if Ha-Joon is saying that what we need now is protectionism, but then I have never accepted that it is wrong as a principle anyway.
What really worries me is the opinion that protectionism caused what is known as “the 1930s”.
As Paul Reitz blogged on HJ’s 2007 article.
“However, in his [Friedman's] book the monetary history of the United States, he nowhere mentions tariffs as a cause, rather than the restrictive
monetary policy of the United States.”
There was a restrictive economic policy in the US, Germany and Britain after 1918. Here particularly with the Geddes’ Axe of 1922, but that “only” sent up unemployment to 10%. It was the Wall Street Crash that preceeded the horrendous levels of the early thirties, which were only relieved coincident with 2% Bank Rate and the abandonment of the Gold Standard.
Bank Rate in those days was related to the price at which money was lent to industry and to individuals, a thing that no longer happens. Just like the official figures for unemployment and inflation, they are not the same as they were.
I think it could be argued that without Geddes, economic growth instead of decline may have brought Britain back to the exchange rate that had posed no problem for France until she revalued in effect, in 1931.
Whether the exchange rate or monetary restriction was the cause of high unemployment, I have yet to see any argument, rather than assertion, that protectionism was a problem.
>>>>”Indeed, evidence after the 1970s oil shocks shows that countries like Japan and Sweden that had specific and time-bound protectionism bounced back more quickly than others”
But at a time when others were not protectionist, I.E. protectionists behaved selfishly and prospered at the expense of others. Is it a composition fallacy to believe it would work if all did it? If I steal from others I can do well. If we all do it we shall all (at least almost all of us) be worse off.
i’m sorry rob slack, but most of the first-world countries are protectionist, and not at eachother’s expense really, but at the expense of the poorer countries. the US is actually very protectionist against japanese and european manufactures, yet continues to get its butt kicked. the reason is that the protectionism doesn’t come along with needed changes to bring about innovation. you’re right, protectionism doesn’t always work – it needs to come with other policies. sorry sir, but korea, japan, taiwan, singapore, and now china all developed through basically protectionist, infantile industry policies – and so did the US, britain, and germany, to name a few of the western countries.
Would the US (for example) be better off if every state followed protectionist policies against other states?
If so, would a state be better off if every county within it followed protectionist policies against other counties?
If not, why should you expect the world to be better off if every country followed protectionist policies against other countries?
Or do you think that if your own country choose to follow such policies, no one would counter-attack?
And which industries would be protected? The industries whose protection would help the country as a whole, or the industries with the most lobbying power?
Andrew, speaking here from the rust belt in the USA, if we are so protectionist, why is it entire categories of goods are 90% made elsewhere, China in particular?
I enjoyed Ha-Joon Chang’s article and will bookmark him for future reference. It is the first fresh thinking I have seen since this whole meltdown gathered steam (which by the way those of us of modest means saw coming for years. About 5 years ago I posed the question “how can the world economy depend on Americans buying things we don’t need with money we don’t have that are not even made here?” Sadly, we have an answer and it isn’t “indefinitely.”).