Quotes from Bad Samaritans, by Ha-Joon Chang

- ‘[South Korean] President Park launched the ambitious Heavy and Chemical Industrialization (HCI) program in 1973. The first steel mill and the first modern shipyard went into production, and the first locally designed cards (made mostly from imported parts) rolled off the production lines. New firms were set up in electronics, machinery, chemicals and other advanced industries. During this period, the country’s per capita income grew phenomenally by more than five times, in US dollar terms, between 1972 and 1979. Park’s apparently delusional goal of $1,000 per capita income by 1981 was actually achieved four years ahead of schedule. Exports grew even faster, increasing nine times, in US dollar terms, between 1972 and 1979.’ (7)

- ‘ Korea ’s progress is as if Haiti had turned into Switzerland .’ (12)

- ‘What Korea actually did during these decades was to nurture certain new industries, selected by the government in consultation with the private sector, through tariff protection, subsidies and other forms of government support (e.g., overseas marketing information services provided by the state export agency).’ (14)
- ‘Korean exports in the earlier period – things like simple garments and cheap electronics – were all means to earn hard currencies needed to pay for the advanced technologies and expensive machines that were necessary for the new, more difficult industries, which were protected through tariffs and subsidies. At the same time, tariff protection and subsides were not there to shield industries from international competition forever, but to give them the time to absorb new technologies and establish new organizational capabilities until they could compete in the world market.’ (14-15)

- ‘Practically all of today’s developed countries, including Britain and the US, the supposed homes of the free market and free trade, have become rich on the basis of policy recipes that go against the orthodoxy of neo-liberal economics.’ (15)

- ‘Bad Samaritans do not even realize that they are hurting the developing countries with their policies. The history of capitalism has been so totally re-written that many  people in the rich world do not perceive the historical double standards involved in recommending free trade and free market to developing countries.’ (16)

- ‘Free trade reduces freedom of choice for poor countries.’ (17)

- ‘Many British commentators fretted about the fate of Hong Kong’s democracy under the Chinese Communist Party, although democratic elections in Hong Kong had only been permitted as late as 1994, 152 years after the start of British rule and only three years before the planned hand-over.’ (24)

- ‘Since the 1980s, [Africa] has seen a fall in living standards. This record is a damning indictment of the neo-liberal orthodoxy, because most of the African economies have been practically run by the IMF and the World Bank over the past quarter century.’ (28)

- ‘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 Pinochet back in 1973. Since then, Chile has grown quite well – although nowhere nearly as fast as the East Asian ‘miracle’ economies.’ (30)
- ‘ 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 centers 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.’ (30)

- ‘This distortion of the historical record is peddled in order to mask the failure of neo-liberal policies.’ (31)

- ‘Following the Third World debt crisis of 1982, the roles of both the IMF and the World Bank changed dramatically. They started to exert a much stronger policy influence on developing countries through their joint operation of so-called structural adjustment programs (SAPs). These programs covered a much wider range of policies than what the Bretton Woods Institutions had originally been mandated to do. The BWIs now deeply involved in virtually all areas of economic policy in the developing world. They branced out into areas like government budgets, industrial regulation, agricultural pricing, labor market regulation, privatization and so on. In the 1990s, there was a further advance in this ‘mission creep’ as they started attaching so-called governance conditionalities to their loans. These involved intervention in hitherto unthinkable areas, like democracy, government decentralization, central bank independence and corporate governance.’ (32)

- ‘Thus the IMF now calls the Structural Adjustment Program the Poverty Reduction and Growth Facility Program, in order to show that it cares about poverty issues, though the contents of the program have hardly changed from before.’ (35)

- ‘Britain remained a highly protectionist country until the mid-19^th century. In 1820, Britain ’s average tariff rate on manufacturing imports was 45-55%, compared to 6-8% in the Low Countries, 8-12% in Germany and Switzerland and around 20% in France .’ (45)

- ‘Lincoln raised industrial tariffs to their highest level so far in US history…However, after the war, tariffs stayed at wartime levels or above. Tariffs on manufactured imports remained at 40-50% until the First World War, and were the highest of any country in the world.’ (54)

- ‘Between the 1950s and the mid-1990s, US federal government funding accounted for 50-70% of the country’s total R&D funding, which is far above the figure of around 20%, found in such ‘government-led’ countries as Japan and Korea. Without federal government funding for R&D, the US would not have been able to maintain its technological lead over the rest of the world in key industries like computers, semiconductors, life sciences, the internet and aerospace.’ (55-56)

- ‘None of the other countries among today’s wealthy nations were ever as protectionist as Britain or the US , with the brief exception of Spain in the 1930s.’ (56)

- ‘The average industrial tariff rates in Britain and the US were 50-55% at their heights.’ (56)

- ‘Even more prevalent and important than ‘ladder-kicking’, however, is historical amnesia. In the Prologue, I explained the gradual and subtle process in which history is re-written to fit a country’s present self-image. As a result, many rich country people recommended free-trade, free-market policies in the honest belief that these are policies that their own ancestors used in order to make their countries rich. When the poor countries protest that those policies hurt, those protests are dismissed at being intellectually misguided or as serving the interests of their corrupt leaders.’ (61-62)

- ‘During the ‘bad old days’ of protectionist import substitution industrialization (ISI), developing countries used to grow, on average, at double the rate that they are doing today under free trade. Free trade simply isn’t working for developing countries.’ (69)

- ‘This assumption means that capital and labor released from any one activity can immediately and without cost be absorbed by other activities. With this assumption = known as the assumption of ‘perfect factor mobility’ among economists – adjustments to changing trade patters pose no problem.’ (71)

- ‘[Structural unemployment] is a more serious problem in developing countries, where the compensation mechanism is weak, if not non-existent.’ (72)

- ‘Even though the rich countries have low average protection, they tend to disproportionately [sic] protect products that poor countries export, especially garments and textiles.’ (75)

- ‘The rich nations give out an estimated $100 billion worth of agricultural subsidies every year; these include the $4 billion given to 25,000 American peanut farmers and EU subsidies that allow Finland to produce sugar (from beets).’ (77)

- ‘This ‘industry-agriculture swap’ is basically seen as the way forward by many people, even including some traditional critics of the WTO.’ (79)

- ‘The main beneficiaries of the opening up of agricultural markets in the rich world will be those rich countries with strong agriculture – the US , Canada , Australia and New Zealand . Developed countries do not protect many agricultural products exported by poor countries (e.g., coffee, tea, cocoa) for the simple reason that they do not have any domestic producer to protect. So, where protection and subsidies are going to come down is mainly in ‘temperate zone’ agricultural products like wheat, beef and dairy. Only two developing countries, Brazil and Argentina , are major exporters of these products. Moreover, some (although obviously not all) of the prospective ‘losers’ from agricultural trade liberalization within rich countries will be the least well-off people by their national standards (e.g., hard-pressed farmers in Norway, Japan or Switzerland), while some of the beneficiaries in developing countries are already rich even by international standards (e.g., agricultural capitalists in Brazil or Argentina). In this sense, the popular image that agricultural liberalization in rich countries is helping poor peasant farmers in developing countries is misleading.’ (79)

- ‘Today, South Korea is one of the world’s industrial powerhouses, while North Korea languishes in poverty. Much of this is thanks to the fact that South Korea aggressively traded with the outside world and actively absorbed foreign technologies while North Korea pursued its doctrine of self-sufficiency.’ (81)

- ‘Economic development is about acquiring and mastering advanced technologies. In theory, a country can develop such technologies on its own, but such a strategy of technological self-sufficiency quickly hits the wall, as seen in the North Korean case. This is why all successful cases of economic development have involved serious attempts to get hold of and master advanced foreign countries.’ (81)

- ‘It is no coincidence that developing countries have experienced more frequent financial crises since many of them opened their capital markets at the urge of the Bad Samaritans in the 1980s and 1990s.’ (87)

- ‘A Christian Aid report documents cases of underpriced exports like TV antennas from China at $0.40 apiece, rocket launchers from Bolivia at $40 and US bulldozers at $528, and overpriced imports such as German hacksaw blades at $5,485 each, Japanese tweezers at $4,896, and French wrenches at $1,089. This is a classic problem with TNCs, but today the problem has become more severe because of the proliferation of tax havens that have no or minimal corporate income taxes. Companies can vastly reduce their tax obligations by shifting most of their profits to a paper company registered in a tax haven.’ (89)

- ‘Most large internationalized firms produce less than one-third of their output abroad.’ (97)

- ‘If firms have become so mobile as to make national regulation powerless, why are the Bad Samaritan rich countries so keen on making developing countries sign up to all those international agreements that restrict their ability to regulate foreign investment?’ (98)

- ‘I believe that the only thing that is worse than being exploited by capital is not being exploited by capital. Foreign investment, especially foreign direct investment, can be a very useful tool for economic development. But how useful it is depends on the kinds of investment made and how the host country government regulates it.’ (100)

- ‘Communism failed as an economic system. But it is a huge leap of logic to go from that conclusion to the proposition that state-owned enterprises (SOEs), or public enterprises, do not work.’ (104)

- ‘All Chinese industrial enterprises had been owned by the state under Maoist communism. Now China ’s SOE sector only accounts for around 40% of industrial output. Over the past 30 years of economic reform, some smaller state-owned enterprises have been privatized under the slogan of…grabbing the big, letting go of the small.’ (110)

- ‘If there are so many successful public enterprises, why do we rarely hear about them? It is partly because of the nature of reporting, whether journalistic or academic. Newspapers tend to report bad things – wars, natural disasters, epidemics, famines, crime, bankruptcy, etc.’ (111)

- ‘Economic theory shows that there are circumstances under which public enterprises are superior to private-sector firms. One such circumstance is where private-sector investors refuse to finance a venture despite its long-term viability because they think it is too risky.’ (112)

- ‘State-owned enterprises can also be ideal where there exists ‘natural monopoly’. This refers to the situation where technological conditions dictate that having only supplier is the most efficient way to serve the market. Electricity, water, gas, railways and (landline) telephones are examples of natural monopoly. In these industries, the main cost of production is the building of the distribution network and, therefore, the unit cost of provision will go down if the number of customers that use the network serves is increased.’ (113)

- ‘The third reason for the government to set up state-owned enterprises is equity among citizens. For example, if left to private-sector firms, people living in remote areas may be denied access to vital services such as post, water or transport.’ (114)

- ‘As I pointed out, all the alleged key causes of SOE inefficiency – the principal-agent problem, the free-rider problem and the soft budget constraint – are, while real, not unique to state-owned enterprises.’ (116)

- ‘It should also be added that privatization will not necessarily reduce corruption, for private-sector firms can be corrupt too.’ (118)

- ‘Enterprises in industries that are natural monopolies, industries that involve large investment and high risk and enterprises that provide essential services should be kept as SOEs, unless the government has very high tax-raising and/or regulatory capabilities. Other things being equal, there is a greater need for SOEs in the developing countries than in the developed countries, as they have underdeveloped capital markets and weak regulatory and taxation capabilities. Privatizing politically important enterprises on the basis of dispersed share sales is unlikely to resolve the underlying problems of poor SOE performance, because the newly privatized firm will have more or less the same problems as when it was under state ownership. When privatizing, care must be taken to sell the right enterprise at the right price to the right buyer, and to subject the enterprise to the right regulatory regime thereafter – if this is not done, privatization is not likely to work, even in industries that do not naturally favor state ownership.’ (119-120)

- ‘It is not as if we always have to ‘bribe’ clever people into inventing new things. Material incentives, while important, are not the only things that motivate people to invest in producing new ideas.’ (124)

- ‘The historical picture is clear. Counterfeiting was not invented in modern Asia. When they were backward themselves in terms of knowledge, all of today’s rich countries blithely violated other people’s patents, trademarks and copyrights. The Swiss ‘borrowed’ German chemical inventions, while the Germans ‘borrowed’ English trademarks and the Americans ‘borrowed’ British copyrighted materials – all without paying what would today be considered ‘just compensation.’ (134)

- ‘I know of no economic theory that says that 20 years is better than 13 or 16 years as the term of patent protection from social point of view, but it is obvious that the longer it is, the better it is for the patent-holders.’ (135)

- ‘Costs may be justified if the term extension produces more knowledge (by strengthening the incentive for innovation), but there is no evidence that this has been happening – at least not enough to compensate for the increased costs of production. Given this, we need to carefully [sic] examine whether the current terms of IPS protection are appropriate and shorten them if necessary.’ (135-136)

- ‘In 2000, a group of scientists led by Ingo Potrykus (Swiss) and Peter Beyer (German) announced a new technology to genetically engineer rice with extra beta carotene (which turns into Vitamin A when designed). Because of the natural color of beta carotene, the rice has a golden hue, which gives it is name. The rice is also considered ‘golden’ by some because it can potentially bring important nutritional benefits to millions of poor people in countries where rice is the basic staple. Rice is nutritionally very effective, able to sustain more people than wheat, given the same area of land. But it lacks one critical nutrient – Vitamin A. Poor people in rice-eating countries tend to eat little else other than rice and therefore suffer from Vitamin A deficiency (VAD). At the beginning of the 21^st century, it is estimated that 124 million people in 118 countries in Africa and Asia are affected by VAD. VAD is thought to be responsible for one or two million deaths, half a million case of irreversible blindness and millions of cases of the debilitating eye-disease, xerophthalmia, every year.’ (139)

- ‘The biggest problem is, to put it bluntly, that the new IPR system has made economic development more difficult. When 97% of all patents and the vast majority of copyrights and trademarks are held by rich countries, the strengthening of the rights of IPR-holders means that acquiring knowledge has become more expensive for developing countries. The World Bank estimates that, following the TRIPS agreement, the increase in technology license payments alone will cost developing countries an extra $45 billion a year, which is nearly half of total foreign aid given by rich countries ($93 billion a year in 2004-5). Although it is hard to quantify the impact, strengthening of copyright has made education, especially higher education that uses specialized and advanced foreign books, more costly.’ (141)

- ‘The wretched thing is that developing countries are going to get hardly anything in return for paying increased licensing fees and incurring additional expenditures to implement the new IPR system.’ (141)

- ‘I am not arguing that we should abolish patents, copyrights or trademarks. They do serve useful purposes. But the fact that some protection of intellectual property rights is beneficial, or even necessary, does not mean that more of it is always better.’ (142)

- ‘The international IPR system should be reformed in a way that helps developing countries become more productive by allowing them to acquire new technical knowledge at reasonable costs.’ (143)

- ‘We should not only make technology acquisition easier for developing countries but also help them develop the capabilities to use and develop more productive technologies. For this purpose, we could institute an international tax on patent royalties and use it to provide technological support to developing countries.’ (144)

- ‘Access to academic books is crucial in enhancing the productive capabilities of developing countries….Rich country publishers should be encouraged to allow cheap reproduction of academic books in developing countries – they are not going to lose much by this, because their books are too expensive for developing country consumers anyway. We could also set up a special international fund to subsidize the purchase of academic books be developing country libraries, academics and students.’ (144)

- ‘There is a big logical jump between acknowledging the destructive nature of hyperinflation and arguing that the lower rate of inflation, the better. As the examples of Brazil and Korea show, the inflation rate does not have to be in the 1-3% range, as Stanley Fischer and most neo-liberals want, for an economy to do well. Indeed, even many neo-liberal economists admit that, below 10%, inflation does not seem to have any adverse effect on economic growth.’ (150)

- ‘In order really to ‘grow up’, it is not enough for developing countries to use policies that suit ‘grown-up’ countries. What they need to do is invest in their future. In order to do that, they should be allowed to pursue macroeconomic policies that are more pro-investment and pro-growth than the ones used by the rich countries, and that are a lot more aggressive than those they are allowed to pursue today by the Bad Samaritans.’ (159)

- ‘Corruption is a big problem in many developing countries. But the Bad Samaritans are using it as a convenient justification for the reduction in their aid commitments, despite the fact that cutting aid will hurt the poor more than it will a country’ dishonest leaders, especially in the poorest countries…Moreover, they are increasingly using corruption as an ‘explanation’ for the failures of the neo-liberal policies that they have promoted over the past two and half decades. Those policies have failed because they were wrong, not because they have been overwhelmed by local anti-developmental factors, like corruption or ‘wrong’ culture.’ (161)

- ‘Most of today’s rich countries successfully industrialized despite the fact that their public life was spectacularly corrupt.’ (162)

- ‘Not a single US federal bureaucrat was appointed through an open, competitive process until the 1883 Pendleton Act.’ (163)

- ‘If the impact of corruption on economic development is ambiguous, how about the latter’s impact on the former? My answer is that economic development makes it easier to reduce corruption, but that there is no automatic relationship. Quite a lot depends on the conscious efforts made to reduce corruption.’ (166)

- ‘Low government revenue makes it difficult to pay decent salaries to public officials, which makes them vulnerable to bribery.’ (167)

- ‘A limited government budget leads to a weak (or even absent) welfare state. So the poor have to rely on patronage from politicians who give out loyalty-based welfare benefits in return for votes.’ (167)

- ‘A limited government budget makes it difficult for the government to spend resources on fighting corruption.’ (167)

- ‘The Bad Samaritans have implemented measures based on the so-called New Public Management (NPM), which tries to increase administrative efficiency and reduce corruption by introducing more market forces into the government itself – more frequent contracting out, a more active use of performance-related pay and short-term contracts and a more active exchange of personnel between the public and private sectors. Unfortunately, NPM-inspired reforms are often increased, rather than reduced, corruption.’ (169)

- ‘Democracy and markets are both fundamental building blocks for a decent society. But they clash at a fundamental level. We need to balance them. When we add the fact that free markets are not good at promoting economic development (as I have shown throughout the book), it is difficult to say that there is a virtuous circle linking democracy, the free market and economic development, contrary to what the Bad Samaritans argue.’ (174)
- ‘Neo-liberals believe deep down that giving political power to those who ‘do not have a stake’ in the existing economic system will inevitably result in an ‘irrational’ modification of the status quo in terms of distribution of property (and other economic) rights. However, unlike their intellectual predecessors, neo-liberals live in an era when they cannot openly oppose democracy, so they try to do it by discrediting politics in general.’ (176)

- ‘Given the fundamental tension between democracy and market, it is unlikely that democracy will promote economic development through promoting the free market.’ (177)

- ‘When I give food to the poor, they call me a saint. When I ask why the poor have no food, they call me a communist.’ Brazilian archbishop (188)

- ‘The same cultural element can be interpreted as having positive or negative implications, depending on the result you seek. The best example is loyalty. As I mentioned above, some people think that the emphasis on loyalty is what makes the Japanese variety of Confucianism more suited to economic development than other varieties. Other people judge the emphasis on loyalty to be exactly what is wrong with Confucianism, since it stifles independent thinking and thus innovation.’ (191-192)

- ‘Culture changes with economic development. That is why the Japanese and the German cultures of today are so different from those of their ancestors. Culture is the result, as well as the cause, of economic development. It would be far more accurate to say that countries become ‘hardworking’ and ‘disciplined’ (and acquire other ‘good’ cultural traits) because of economic development, rather than the other way around.’ (197)

- ‘Countries need to make short-term sacrifices if they are to build up their long-term productive capabilities.’ (211)

- ‘Having accepted that increasing capabilities is important, where exactly should a country invest in order to increase them? Industry – or, more precisely, manufacturing industry – is my answer.’ (213)

- ‘History has repeatedly shown that the single most important thing that distinguishes rich countries from poor ones is basically their higher capabilities in manufacturing, where productivity is generally higher, and, more importantly, where productivity tends to (although does not always) grow faster than in agriculture or services.’ (213)

- ‘How is it that we think a boxing match between people with more than a couple of kilos’ difference in weights is unfair, and yet we accept that the US and Honduras should compete on equal terms?’ (219)

- ‘Once accused of inconsistency, John Maynard Keynes famously responded: ‘When the facts change, I change my mind – what do you do, sir?’ ’ (221)

- ‘What should give us real hope is that the majority of Bad Samaritans are neither greedy nor bigoted. Most of us, including myself, do bad things not because we derive great material benefit from them or strongly believe in them, but because they are the easiest thing to do.’ (221)

- ‘There was a period, between the Marshall Plan…and the rise of neo-liberalism in the 1970s, when the rich countries, led by the US, did not behave as Bad Samaritans…The fact that rich countries did not behave as Bad Samaritans on at least one occasion in the past gives us hope. The fact that that historical episode produced an excellent outcome economically – for the developing world has never done better, either before or since – gives us the moral duty to learn from that experience.’ (221-222)