Hypocritcal Countries

                On Monday we discussed how a new economy grows according to Ha-Joon Chang. One of these is to maximize resources and raw materials. One must limit their dependence on imports. They need a consistent currency. Markets need to be developed for goods. That way they can export and be in charge of the price. A social overhead capital is important. Infrastructure is needed for growth and modernization. There is a definite need to spend money and a government that supports the long term benefit of all of this. This all is definitely not laissez faire.

                Most importantly is protection. This brought about by tariffs. They protect the industries against outside competition. Tariffs are tax on imported goods. The purpose of these are to protect domestic industry and to produce revenue. An example of this is woolens (raw sweaters, etc.) The British had a thriving textile industry before the United States even became a nation. To buy a sweater in Great Britain, it would cost $5. In America it would cost $7.25. In order to keep domestic revenue up a tariff of 50% would be placed on Great Britain’s exports now making the sweater cost $7.50…more now so that Americans will buy the American product because it is cheaper.

                At this time tariffs were one of the most political and economic influences. Henry Clay called this the “American System.” The British wanted economic imperialism. That means no tariffs so that everyone would purchase British goods because they were cheaper. An example of this is as if our class wanted to play a football game, but we only have one football player. He then would have an unfair advantage in the game. Raising the price was a politically decisive issue, but they did help in protecting what Chang calls “Infant Industries.”

                Chang poses a question…Are the developed countries hypocrites? “Do as we say, not as we do.” To understand this, we looked at Neo-Liberalism. Neo-Liberalism is a liberal tradition based upon Adam Smith, Ricardo, Marshall, and most recently Hayek. This is arguing for laissez faire, a small government with minimal economic preference. Adam Smith adds the Invisible Hand to this. The government need to stay out of economics and the market with no social engineering. Neo-Liberalism is against the “welfare state.” Austerity comes along in times of crisis (what should the governments do?). They called this “belt tightening to the extreme.” There are forced cuts in spending and slashes all across the board. They will give only what you need to survive and nothing more (no student loans, etc.) This has now become orthodox.

                A good analogy of this is student loans. One needs student loans to go to school in order to get a better job. Suddenly student loans are no longer allowed, but the person in charge of this decision got to where he is because of the help of student loans. Developed countries are doing this to underdeveloped countries. Mexico needs corn because it is a staple in their diet. America puts ethanol into its gas. This then doubles the cost of corn in Mexico. Therefore Mexicans have to pay double just to have corn. NAFTA had been put in place. Mexican farmers are being destroyed because of American subsidies. Developed countries have become developed by “kicking away the ladder” so no one else can get as developed as they are.