23 Things they Don't Tell You About CapitalismBy: Chang Ha-Joon
Major Topic: Economics
Minor Topic: Politics
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Thing 7: Free-Market Policies Rarely Make Poor Countries Rich
We are told that poor developing countries are still poor today because they adopted socialism and other non-free-market policies that have hindered their growth. Fortunately, now they have adopted free-market policies and they have shown some better growth. This is what they should have done since the beginning.
The truth is the exact opposite. Most poor countries did in fact grow more under their government socialist policies than under their free-market policies. More importantly is the fact that the richest countries have grown rich by not having free-market policies. Free-market policies have almost never made a country rich.
The author gives two examples of two countries that are engaged in a long list of the worst anti-free-market policies imaginable. And then, he points out that the two countries are China today which is the fastest growing country, and the USA in 1880 which today has grown into the richest and most powerful country in the world.
Some objections suggest that the USA is a special case because it is blessed with large amounts of natural resources, hard working immigrants and a large internal market. However many rich countries have succeed with socialist economic policies and virtually no internal market such as Finland and Denmark. Many rich countries have succeed without any natural resources such as Korea and Switzerland. Finally Germany and Taiwan have succeeded with anti-free-market polices and in spite of losing many of their smartest and most talented people to the USA.
How is it that bad economic policy can lead to growth? What we many modern economists consider bad economic policy is only really bad for the USA today. But it is good policy for developing countries. Once a country becomes rich it may be a good idea to adopt neo-liberal economic policies and a bad policy to adopt protectionism and other non-free-market polices. However for developing countries the good and bad policies are reversed.
For a developing country, policies such as protectionism, subsidies, regulation and state ownership are good policies because 1) infant industries (just like real infants) need protection before they can compete in the adult world; 2) young and small markets do not work as well as advanced markets just as young children do not work as well as seasoned professionals; 3) small businesses cannot do all the things that big businesses and government can so (just as children may need their parents help) young businesses need the protection of the government.
Added on: 2012-10-05 12:07:39
Text Crawl by: James McLaren
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