Kicking away the protectionist myths


Douglas Irwin has an interesting review up on of Ha-Joon Chang's Kicking away the ladder: Development strategy in historical perspective. Chang's thesis is that successful countries like the UK and the USA grew rich in the nineteenth century under 'infant industry'-protecting tariffs and only then became free trade advocates, undermining the 'Washington Consensus' that developing countries should lower trade barriers. But Irwin says that Chang is guilty of some basic errors in his analysis:

Just because certain trade and industrial policies were pursued and the economic outcome turned out to be good does not mean that the outcome can be attributed to those specific policies. Yet Chang does not advance our understanding beyond this "correlation therefore attribution" approach. Perhaps the success of developed countries came despite the distortions and inefficiencies created by their earlier policies because the broader institutional context was conducive to growth.

For example, the United States started out as a very wealth country with a high literacy rate, widely distributed land ownership, stable government and competitive political institutions that largely guaranteed the security of private property, a large internal market with free trade in goods and free labor mobility across regions, etc. Given these overwhelmingly favorable conditions, even very inefficient trade policies could not have prevented economic advances from taking place. (As Adam Smith once commented, the effort of individuals to improve their condition "is frequently powerful enough to maintain the natural progress of things towards improvement, in spite ... of the greatest errors of administration.")

And yet, in Chang's story, these other things get no credit for America's economic success; rather, it all comes down to infant industry promotion. 

Chang's work has been embraced by protectionists. It relies heavily on his historical analysis which Irwin shows to be amateurish and ignorant of the existing historiographical material on this topic. The whole review is worth a read.