[R-G] [BillTottenWeblog] Enslaved by Free Trade

[Bill Totten]

The West became rich by ignoring patent rules and protecting its
industries. Poor countries should be allowed to do the same.

by George Monbiot

Published in New Scientist (May 31 2003)


The founding myth of the dominant nations is that they achieved their
industrial and technological superiority through free trade. Nations
which are poor today are told that if they want to follow our path to
riches, they must open their economies to foreign competition. They are
being conned.

Almost every rich nation has industrialised with the help of one of two
mechanisms now prohibited by the global trade rules. The first is
"infant industry protection": defending new industries from foreign
competition until they are big enough to compete on equal terms. The
second is the theft of intellectual property. History suggests that
technological development may be impossible without one or both.

Britain's industrial revolution was founded upon the textile industry.
This was nurtured and promoted by means of ruthless government
intervention. As the development economist Ha Joon Chang at the
University of Cambridge has documented, from the 14th Century onwards,
the British state systematically cut out its competitors, by taxing or
banning the import of foreign manufactures and banning the export of the
raw materials (wool and unfinished cloth) to countries with competing
industries. {1} The state extended similar protections to the new
manufactures we began to develop in the early 18th Century.

Only when Britain had established technological superiority in almost
every aspect of manufacturing did it suddenly discover the virtues of
free trade. It was not until the 1850s and 1860s that we opened most of
our markets.

The United States, which now insists that no nation can develop without
free trade, defended its markets just as aggressively during its key
development phase. The first man systematically to set out the case for
infant industry protection was Alexander Hamilton, the first Secretary
of the US Treasury. In 1816 the tax on almost all imported manufactures
was 35%, rising to forty percent in 1820 and, for some goods, fifty
percent in 1832 {2}. Combined with the cost of transporting goods to the
US, this gave domestic manufacturers a formidable advantage within their
home market.

Protectionism was arguably a more immediate cause of the American civil
war than the abolition of slavery. High tariffs helped the northern
states, which were industrialising rapidly, but hurt the southern
states, which remained heavily dependant on imports. The Republicans'
victory was the victory of the protectionists over the free traders: in
1864, before the war ended, Abraham Lincoln raised import taxes to the
highest level they had ever reached. The US remained the most heavily
protected nation on earth until 1913. Throughout this period, it was
also the fastest-growing. {3}

The three nations which have developed most spectacularly over the past
sixty years - Japan, Taiwan and South Korea - all did so not through
free trade but through land reform, the protection and funding of key
industries and the active promotion of exports by the state. All these
nations imposed strict controls on foreign companies seeking to
establish factories {4}. Their governments invested massively in
infrastructure, research and education. In South Korea and Taiwan, the
state owned all the major commercial banks, which permitted it to make
the major decisions about investment {5}. In Japan, the Ministry of
International Trade and Industry exercised the same control by legal
means {6}. They used tariffs and a number of clever legal ruses to shut
out foreign products which threatened the development of their new
industries {7}. They granted major subsidies for exports. They did, in
other words, everything that the World Trade Organisation, the World
Bank and the IMF forbid or discourage today.

There are two striking exceptions to this route to development. Neither
Switzerland nor the Netherlands used infant industry protection.
Instead, as the economic historian Eric Schiff showed in
Industrialisation without National Patents (Princeton University Press),
published in 1971, they simply stole the technologies of other nations
{8}. During their key development phases (1850-1907 in Switzerland;
1869-1912 in the Netherlands), neither country recognised patents in
most economic sectors.

Switzerland's industrialisation took off in 1859, when a small company
based in Basel pilfered the aniline dying process which had been
developed and patented in Britain two years before. The company was
later named Ciba; more recently, after a series of mergers, it became
Novartis and then Syngenta. In the Netherlands, in the early 1870s, two
enterprising firms called Jurgens and Van Den Bergh nicked a patented
French recipe and started producing something called margarine. They
later merged to form a company named Unilever. In the 1890s, one Gerard
Philips stole Thomas Edison's design for incandesent lamps, and founded
Europe's most successful electronics company {9}.

The nations which are poor today are forbidden by the trade rules from
following either route to development. New industries are immediately
exposed to full competition with established companies overseas, which
have capital, experience, intellectual property rights, established
marketing networks and economies of scale on their side. "Technology
transfer" is encouraged in theory, but forbidden in practice by an ever
fiercer patents regime. Unable to develop competitive enterprises of
their own, the poor nations are locked into their position as the
suppliers of cheap labour and raw materials to the rich world's
companies. They are, as a result, forbidden from advancing beyond a
certain level of development. While there is no sound argument for
permitting rich nations to protect their economies, there is a powerful
case for permitting the poor ones to follow the only routes to
development which appear to work.

_____

George Monbiot's book The Age of Consent: a manifesto for a new world
order is published on June 16th by Flamingo.

References:

1. Ha-Joon Chang, 2002. Kicking Away the Ladder: Development Strategy in
Historical Perspective. Anthem Press, London.

2. ibid

3. ibid

4. Mark Curtis, 2001. Trade for Life: Making Trade Work for Poor People.
Christian Aid, London.

5. John Brohman, April 1996. Postwar Development in the Asian NICs: Does
the Neoliberal Model Fit Reality? Economic Geography, Volume 72, Issue 2.

6. Takatoshi Ito, 1996. Japan and the Asian Economies: a Miracle in
Transition. Brookings Papers on Economic Activity, Issue 2 (1996). The
Brookings Institution, Washington DC.

7. Graham Dunkley, 2000. The Free Trade Adventure: The WTO, the Uruguay
Round and Globalism. Zed Books, London. First published in 1997 by
Melbourne University Press.

8. Eric Schiff, 1971. Industrialisation Without National Patents: The
Netherlands, 1869-1912; Switzerland, 1850-1907. Princeton University Press.

9. ibid

Copyright © 2006 Monbiot.com

http://www.monbiot.com/archives/2003/05/31/enslaved-by-free-trade/


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