Sunday, March 09, 2008

From the Good Samaritans to the Bad Samaritans

Disillusioned with the political process.... Do any of these candidates care about the most ordinary or the most vulnerable?

This epoch of globalization has become an era of media-driven insouciance - one allowing a journalist such as Thomas Friedman to retain his "expert" label while bragging that he "didn't even know what was in" a trade deal he championed. This is a time when the biggest economic deliberations are dominated by commentators berating Democrats for mentioning trade and then falling silent when Republicans praise pacts that eliminate jobs.
-- David Sirota
(Hope in the time of NAFTA)

Much has been written about the case of Obama's economic guru, Austan Goolsbee, and the Canadians, but it's worth revisiting in the context of Monstergate. In telling the Canucks to pay no attention to his boss' saber-rattling on NAFTA, Goolsbee was being candid and stating the plain truth: Nobody who knows Obama believes for a second that he is anything but a staunch free trader; they know that he has no intention of trashing the trade treaty. But Goolsbee was also being sloppy. And so was the campaign in its ludicrously transparent, transparently ludicrous efforts to mislead the press about what occurred. (The Canadians contacted Goolsbee not in his capacity as Obama's guy on economics but merely as a University of Chicago academic? As Bill Clinton might put it, Give me a break!) The whole imbroglio fairly reeked of an operation that had become accustomed — too accustomed for its own good — to a sleepy, besotted press corps.
-- John Heilemann
(Can Obama Handle the Awakened Media Beast?)

For those people who are consumed by the spectre of illegal immigrants making their way over the border from Mexico by the millions, and there appear to be a lot of such people worrying, it is important to note that "free trade" deals like NAFTA have not only been absolutely devastating to American workers, but to Mexican workers and farmers as well. NAFTA was a catastrophe for Mexico, and only served to exacerbate the problem we already had with illegal immigration. In the final Democratic presidential debate before the Ohio and Texas primaries, we saw Hillary Clinton and Barack Obama practically falling all over themselves trying to outdo each other in criticizing NAFTA and trying to disassociate themselves from it. Were either one of them being the least bit sincere about it at all? Was is sheer political opportunism and false populism on the part of both? Obama was a little late in coming to the anti-NAFTA table for my liking, and despite the Clinton administration's record on this, he wound up getting burned in particular when his University of Chicago economics adviser Austan Goolsbee visited the Canadian consulate in Chicago and basically gave the Canadians a wink and told them to cool it... telling them that Barack was just electioneering, and that he really didn't mean any of this stuff he was saying about wanting to renegotiate NAFTA (as if our problems with NAFTA , the WTO, and free trade deals had much to do with Canada anyway). The Obama campign handled the aftermath badly at first, trying to deny that Goolsbee had met with the Canadians, then trying to claim that he had been taken out of context. Really? Says Obama, "It was truthful based on what we knew at the time. Frankly, none of us were aware that Austan had gone to the Canadian consulate but what was entirely true was our characterization that no discussions — which [it] somehow was... a wink and a nod to the Canadian government — took place. It turns out yes, Goolsbee was invited over and someone naively didn't understand that what he thought were casual conversations might end up in the memo to the Prime Minister of Canada."

I'm not taking much comfort out of that. It sort of took the bloom of the rose for me, as far as Obama is concerned.

What the hell is it with these Democrats? Just who do they think they are supposed to be representing the interests of?

I'd sure hate to throw my vote away and contribute to the election of the Republican candidate by putting a vote in for Ralph Nader, but is it true that he is the only one who really cares about what is happening to working (and out-of-work) Americans, with his Seventeen Traditions?

I'm fed up with offshoring, outsourcing, privatization, the dismantling of government, and the economic gutting of this country for the benefit of a globalized elite who want to accrue everything for themselves at the top. Everyone else, they'd like to force into a race to the bottom.

Cambridge Economist Ha-Joon Chang has a new book out called Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. It's not a condemnation of capitalism. It is a historical survey on how successful economies have been built around policies that protect national industries, and not on the myth of free trade. From this Business Week review:

Imagine a country where regulation of foreign investment is so strict that noncitizens can't own voting shares of financial institutions. Overseas banks are barred from opening branches. Foreigners can't own the most desirable land. Mining and logging are largely restricted to citizens. Foreign companies are taxed more heavily than domestic ones, and in some jurisdictions they're stripped of all legal protection. China? Some despotic state in Africa? Nope, says Cambridge University economist Ha-Joon Chang, it was the U.S.—in the late 19th and early 20th century.

Those are just the kinds of policies that drive advocates of free trade batty. But in Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, Chang argues that the policy recommendations of the "unholy trinity" of the World Bank, International Monetary Fund, and World Trade Organization would have been unacceptable to the U.S., Britain, Japan, and the European powers when they were industrializing. Instead of helping emerging economies, the free traders—Chang's "Bad Samaritans"—actually do more harm than good.

Chang challenges virtually every tenet free traders hold dear: Patent and copyright protection, privatization, and balanced budgets aren't unalloyed positives, he writes. Tariff barriers, restrictions on foreign investment, inflation, deficit spending, and even corruption, meanwhile, aren't necessarily evil. The material isn't exactly light, and at times Chang gets bogged down in details. But the book presents a well-researched and readable case against free-trade orthodoxy....

...Chang doesn't oppose free trade altogether. He acknowledges that it has plenty of benefits for countries and companies that are ready for global competition. But he argues that not every country should follow the prescriptions of the free traders. Nurturing industries in development (which may take decades), running a deficit to spur investment, and tolerating a measure of inflation to fuel growth, he insists, all have their place—even in a world committed to free trade.

Here, from Thomas Hartmann on Buzzflash:

The fundamental myth of the Milton/Thomas Friedman neoliberal cons is that in a "flat world" everybody is not only able to compete with everybody else freely, but should be required to. It sounds nice. America trades with - and competes with trade with and for - the European Union. France against Germany. England against Australia.

But wait a minute. In such a "free" trade competition, who will win when the match-up is Canada versus the Solomon Islands? Germany versus Bulgaria? Zimbabwe versus Italy?

There are two glaringly obvious flaws in the so-called "free trade" theories expounded by neoliberal philosophers like Friedrich Von Hayek and Milton Friedman, and promoted relentlessly in the popular press by (very wealthy) hucksters like Thomas Friedman.

First, "infant" economies - countries that are only beginning to get on their feet - cannot "compete" with "mature" economies. They really only have two choices - lose to their more mature competitors and stand on the hungry and cold outside of the world of trade (as we see with much of Africa), or be colonized and exploited by the dominant corporate forces within the mature economies (as we see with Shell Oil and Nigeria, or historically with the "banana republics" of Central and South America and Asia and, literally, the banana corporations).

Second, the way "infant" economies become "mature" economies is not via free trade. It never has been and never will be. Whether it be the mature economies of Britain (which began to seriously grow in the early 1600s), America (late 1700s), Japan (1800s), or Brazil (1900s), in every single case, worldwide, without exception, the economic strength and maturity of a nation came about as a result not of governments "standing aside" or "getting out of the way" but instead of direct government participation in and protection of the "infant" industries and economy....

....To illustrate how infant industries must be nurtured by government until they're ready to compete in global marketplaces, Chang points to the example of his own son, Jin-Gyu. At the age of six, the young boy is legally able to work and produce an income in many countries of the world. He's an "asset" that could be "producing income" right now. But Chang, being a good parent, intends to deny his son the short-term "opportunity" to learn a skill like street-sweeping or picking pockets or shining shoes (typical "trades" for six year olds in many countries) so he may grow up instead to become an engineer or physician - or fully reach whatever other potential his temperament, abilities, and inclination dictate.

Somehow this is lost on Thomas Friedman and the whole "free trade" bunch. As Chang writes, "[E]ven from a purely materialistic viewpoint, I would be wiser to invest in my son's education than gloat over the money I save by not sending him to school. After all, if I were right [in sending him out to work at age six], Oliver Twist would have been better off pick-pocketing for Fagin, rather than being rescued by the misguided Good Samaritan Mr. Brownlow, who deprived the boy of his chance to remain competitive in the labor market.

"Yet this absurd line of argument is in essence how free-trade economists justify rapid, large-scale trade liberalization in developing countries. They claim that developing country producers need to be exposed to as much competition as possible right now, so that they have the incentive to raise their productivity in order to survive. Protection, by contrast, only creates complacency and sloth. The earlier the exposure, the argument goes, the better it is for economic development."

But history proves the free-traders wrong. Every time, without exception, a developing nation is forced (usually by the IMF, WTO, and/or World Bank) to unilaterally throw open all their doors to "free trade," the result is a disaster. Local industries, still in their developmental stages, are either wiped out or bought out and shut down by foreign behemoths. Wages collapse. The "Middle Class" becomes the working poor. And in the process the largest corporations and wealthiest individuals in the world become larger, stronger, and more wealthy. It's "Monopoly" (the game) on steroids.

Even worse, opening a country up to "free trade" weakens its democratic institutions. Because the role of government is diminished - and in a democratic republic "government" is another word for "the will of the people" - the voice of citizens in the nation's present and future economy is gagged, replaced by the bullhorn of transnational corporations and think-tanks funded by grants from mind-bogglingly wealthy families. One-man-one-vote is replaced with one-dollar-one-vote. Governments are corrupted, often beyond immediate recovery, and democracy is replaced by a form of oligarchy that is most rightly described as a corporate plutocratic kleptocracy.

When this corporate oligarchy reaches out to take over and merge itself with the powers and institutions of government, it becomes the very definition of Mussolini's "fascism": the merger of corporate and state interests. As China has proven, capitalism can do very well, thank you, in the absence of democracy. (You'd think we would have figured that out after having watch Germany in the 1930s.) And as so many of the Northern European countries show so clearly, capitalism can flourish and generate great wealth and a high standard of living within the constraints of intense regulation by a democratic republic answerable entirely to its citizens.

Corporate globalization cheerleader and WTO shill Tom Friedman, wearing the Moustache of Understanding

More from David Sirota:

Reporters, pundits and lobbyists are insulated from the job and wage cuts that rigged policies such as NAFTA encourage. To them, the profit-making status quo is swell, and so the news they manufacture avoids upsetting those who did the rigging. Consequently, the trade debate is portrayed as a battle between Saint Commerce and evil "protectionists" - a fallacious depiction burying significant questions.

For instance, America became an economic force in the early 20th century thanks, in part, to tariffs sheltering our industries. Considering that, why are all tariffs now billed as inherently bad for the economy and "free" trade billed as inherently good?

Speaking of that word "free" - why does it describe protectionism for corporate profits? "Free" trade deals wrapped in the rhetoric of Sally Struthers ads include no human rights protections. But they include patent protections that inflate pharmaceutical prices. Why does "free" trade refer only to pacts being free of protections for people?

Similarly, why have Washington's "free" traders passed laws blocking Americans from importing lower-priced, FDA-approved prescription drugs from other countries? What is "free" about letting corporations import lead-slathered toys, but barring citizens from importing life-saving medicine?

Trade fundamentalists like Newsweek's Fareed Zakaria say "struggling farmers" abroad want more NAFTA-style agreements. Why then are Mexican and Peruvian farmers now staging mass protests against our "free" trade deals? Could they know our trade policy promotes market-skewing subsidies helping corporate agribusiness put "struggling farmers" out of business?

Finally, what is "free" about trade rules letting international tribunals invalidate domestic laws? As the watchdog group Public Citizen discovered, Democrats' climate and health care proposals could face such challenges at the World Trade Organization.


Liam said...

Excellent post, Jeff. "'Free' Trade is good" is one of those things we're all supposed to agree with without questioning, along with "the market is always right" and "government is always bad." The strangest thing is that people like Friedman expect the people who are victims of things like NAFTA to just suck it up and support it anyway. We also expected Latin America to live with IMF policies that though solving inflation and raising the GNP also resulted in greater poverty for the majority of the population. Then we wonder why someone like Chavez gets popular support.

A word in defense of Obama -- the whole Canadian thing seems like pretty tenuous grounds for calling him on hypocrisy. That said, Obama probably won't go as far as we'd like on trade questions. Still, I don't know if he could be described as a "staunch free trader" the way Bill Clinton was.

crystal said...

Jeff, they photo of that one book makes me think iof a valkyrie's brassier :-)

Steve Bogner said...

Interesting post; I don't really agree but still find it interesting. I favor free(r) trade and fewer tariffs and so on.

Years ago I read a book 'The Competitive Advantage of Nations' by Michael Porter, and found his reasoning compelling. Nations and their economies are unique, they have their own strengths & weaknesses, and they are in different developmental stages. The flow of capital and jobs among economies, to me, seems inevitable. How we handle that natural flow makes a world of difference; and I think we haven't handled it all that well at times. I'm thinking with regard to retraining, investment in infrastructure, education and so on - those things can help people & communities retool and adapt to economic changes.

Wish I could write more but I gotta go and finish an RFP response. What fun!

Jeff said...

Hi Liam,

Yeah, good points about the IMF "medicine" that was imposed in Latin America too.
As far as the Canadian thing goes, maybe it is just an example of an academic with scant political experience shooting his mouth off while he thought he was talking off-the-record. I had already figured that Obama's position on free trade was "nuanced", and not as populist as John Edwards' was. Just the same, it's troubling to hear someone acknowledge the pandering in such an up-front way.

Speaking of up-front..


Ha! Geez, even I didn't think of that. Brunhilde! Well, I suppose none of us are built quite perfect, are we?

Jeff said...

Hi Steve,

Ever the businessman! :-) I hear you. I've got an RFP or two to work on myself.

The David Ricardo theory of Competitive Advantage? I suppose there's a lot to it. I think some of the commentators I cited such as Chang and Hartmann concede that there are times and places for it...

...Chang doesn't oppose free trade altogether. He acknowledges that it has plenty of benefits for countries and companies that are ready for global competition. But he argues that not every country should follow the prescriptions of the free traders. Nurturing industries in development (which may take decades), running a deficit to spur investment, and tolerating a measure of inflation to fuel growth, he insists, all have their place—even in a world committed to free trade...

America trades with - and competes with trade with and for - the European Union. France against Germany. England against Australia....

That's all very well and good, but as you point out, there are problems in the way we are dealing with developing nations.

What also alarms me is that with the huge disparity in wages and with the increasing lack of opportunities for productive work (as opposed to services), we are discouraging people in this country from entering fields that would help us to be more competitive in the future, such as I/T, science, and engineering. Already, we are seeing the outsourcing of even the defense industry.

Steve Bogner said...

Jeff - I don't know how much Porter relied on Ricardo; I'm relying more on Porter's 5-forces model - threat of substitutes, threat of new entry, competition, power of customers, and the power of suppliers. Those five things are present in every economy, regardless of what stage of development they are at.

I've spent considerable time in Costa Rica the past few years; I'd say they have gained from open markets - it has allowed capital to flow in from the US high-tech and consumer-product companies. It has created a lot of jobs there. Have they been damaged by NAFTA? It's not a perfect economy, but they are growing and prospering. And a lot of that has to do with, in my opinion, good governance. Free/freer trade without good governance can be traumatic; but then, bad governance is traumatic in itself.

A friend of mine works in a second-tier automotive supply chain firm; they are moving all their production to Mexico because it is less expensive there. Eventually he will be without a job. His company (German-based, not US-based) is giving him good severance for sticking around, and they are offering retraining and other incentives to their workforce. The transition won't be seamless, but it strikes me as a fair deal.

My hunch is that NAFTA and free-trade zones tend to shine a bright light on labor inefficiencies, and on companies that are not competitive anyway. Often, in my experience from consulting all types of companies, those who treat their employees well are more competitive than those who don't. So in my opinion (yet another disclaimer!), it's not so much free-trade to blame as it is irresponsible and incompetent business management/leadership and corrupt/ineffective governance.

Just my opinion...

Marcus Aurelius said...

Hi Jeff,

I lost your email address. Wanted to let you know that the fiarly famous Whispers in the Logia blogger Rocco Palma will be in Boston today, well in Quincy anyway, at the Bad Abbot pub.


Jeff said...

Hey, Winnipeg B!

Well, how about that? What's going on, man? Has the Reform Catholic been reborn as the great stoic philosopher?

Rocco's holding court down at the Bad Abbot, eh? Tell him that Jeff at Aún Estamos Vivos is holding court at his kitchen table tonight (after he loads the dishwasher and sweeps the floor), making sure everyone gets their homework done. ;-D

Jeff said...

Hi Steve,

You know that I always have respect for your opinions, and I'll readily concede that you've got more cred than me on this by virtue of the fact that you've been down to Latin America, and may have even done some business there, and I haven't.

What concerns me, locally speaking, is that our education system not only underperforms other comparable 1st world nations in science and mathematics, but also trails emerging giants like India and China. They're cranking out engineers by the hundreds of thousands. Why would anyone born here want to bust their hump (and take on decades of loans to pay off) in college earning an engineering degree, for example, when someone can be hired overseas with equal qualifications at a fraction of the cost? In a strange bit of logic, Bill Gates was just whining today about how he's forced to outsource and offshore becuase he can't get as many H1-B visas granted to him as he'd like. It's no surprise to me that kids are studying sports medicine and massage therapy instead... Where are we headed with all that? If technology is all going to be done elsewhere, and our eductation system is underperforming, where is our comparitive advantage going to come from? We can only continue to rest on our laurels with our claim to "better creativity and initiative" for so long...

Furthermore, where does it leave the most vulnerable here? No matter how good our education system eventually gets in the most optimistic of scenarios, there will always be people who don't get math, science, and technology. What happens to them? IMO, you should still be able to make a living wage in this country if you have a strong back and a willingness to work. Nobody can survive on a McJob.

As far as developing countries go...

In Latin America, in countries like Argentina, Bolivia, Peru, and a few others, we've seen a resurgence of leftism as a result of the panics and financial meltdowns that occured when they were forced to follow the IMF prescriptions of lowering tariffs, removing restrictions on foreign investment, abolishing state subsidies, deregulation, curtailing labor rights, and relaxing environmental standards. There was wealth created, sure, but most of it wound up going to foreign investors. The small (white) political class became cozy with international bankers, creating corruption, further widening the gap between the rich and the poor. How is a private enterprise in a poor nation supposed to compete with multinational corporations, especially when interest rates are high because of the IMF-imposed austerity plans? Many of the tax-free manufacturing zones were eventually abandoned for better deals in China, after communities had already been wrecked by dislocation (people leaving their farming communities to go work in these specialized manufacturing zones). We also have to wonder what happens to the fledgling democratic institutions in a country when the IMF, the World Bank, and the WTO are making so many of the decisions. Does anyone even really know who these people are? What we are seeing is the most dangerous, tedious, unsafe and environmentally hazardous work being sent to the most vulnerable countries strictly on the basis of cost.

Interestingly, we didn't build our economy this way, and neither did the Asian Tigers who have been the most successful, and who did the best job of weathering the storms of the financial crises of the late 90s. They didn't lift their capital controls, they imposed local content-laws, and put high tariffs around their new industries. China is actually doing a lot of these things too, while at the same time running a dictatorship that prohibits independent labor unions. I fear sometimes that too often we tend to equate commercial freedom with other real freedoms, like freedom of speech, press, religion, political association, etc...

Marcus Aurelius said...

I went to a globalization presentation hosted by the Boston Leadership Forum/Opus Dei the other day. A lot of good points were raised. The church is not silent on globalization. A key point is Commonality and remembering to care for and retrain the 'losers' of globilization.

But I think it should go deeper than that. Would the Soviet empire have collapsed under this free trade politic? Should we trade with such regimes?

In the presentation, the silk road to china and the advent of bridges replacing ferrymen were used as examples to illustrate the unstoppable nature of progress. I am not sure I agree with those examples. In the case of offshoring we are not importing spices and silk that can only be grown in a specific climate or area, we are importing cheap unprotected labor from what can be viewed as an over-size gulag. Those of us who question globilization are also not opposing a technological advance, as the ferrymen may have in medieval europe when bridges became more common place, or in the 70s when we though automation was going to replace all human work. Nope - in this case those of us questioning globilization are really questioning the use of a fly-by-night exploitive organization that sets up a tent in India, until rates go up, then to Bangalore, then to Vietnam. Speaking for myself, I don't mind competing with India or anything that resembles a federal democratic republic with a bill of rights of some kind and a reasonable human rights record. And prior to Nixon allowing trade and the Clintons letting the Chinese sleep in the Lincoln bedroom I think we used to have a few controls. We used to realize that we can't free trade with gulags. Now we think that if we build a McDonald's in China it will cease to be a coal burning, smog emitting, human rights abusing gulag. Who do we believe?

Wait till Hillary releases her tax returns and you'll find ol' Bill getting crazy money from the Chinese.

There is no Lou Dobbs-esque protectionist candidate. I suspect Obama or McCain are probably better choices than Clinton when it comes to trade.

Jeff said...


The Boston Leadership Forum... Are those the guys who sponsor the Catholic Men's Conference every year? Did they really co-sponsor this event with Opus Dei?

Well said, B. Very nicely put. Some form of globalization is obviously necessary if we are going to lift most of the world out of poverty, but those of us who are concerned about how that globalization is actually being carried out can't be so easily dismissed with the old ferrymen and "buggy whip manufacturing" arguments. Good post.

As for the Dobbs and Buchanans of the world... I've got some pretty big problems with them, significant problems, but as far as what corporations have been up to for the last few decades, I think they are pretty much on the money.

Steve Bogner said...

Jeff -

I've worked with plenty of people here on H1-B visas and can safely say, from my perspective, there are plenty of US citizens just as qualified for those jobs. Oh, the stories I could tell about all that... there's so much wrong about how that visa *actually* works... but anyway - what H1-B advocates don't like to admit is that the most attractive aspects of that employment relationship are the cost savings and the control over employment (if the employer sponsors the visa, there's a good deal of control right there). It's all about money, not really about gaining access to the most qualified labor.

This is getting to be quite an economics discussion :) My perspective is based on the premise that the US economy is changing - like every other economy - and it *has* to change; it's natural to change. What makes a huge difference is how we support people affected by that change; we don't always do much about that at all.

Marcus Aurelius said...


I am not aware that the leadership forum sponsors the Mens or Women's conference but they are openly associated with Opus Dei.


Jeff said...

Hi Steve,

I've worked with plenty of people here on H1-B visas and can safely say, from my perspective, there are plenty of US citizens just as qualified for those jobs.

That's a natural fact. At least for the time being, but as you say, it's all about the money.

Hi B,

Grupo Santander... The Merrill Lynch Offices. ;-D

Yeah, Arnold Hall in Pembroke. That's Opus all right.

cowboyangel said...


Interesting post. Sorry I came so late to the party. Como siempre.

I've already been down this road. Mid-1990s. Zapatistas, anti-neoliberlaism, etc.

My father does major work on the Texas border fighting for the folks who suddenly find themselves without work. For most of the 20th century, El Paso was a major hub for producing blue jeans, boots and other garments. Complete with 20th-century sweatshops. I've seen them myself. Now, there's nothing. Levis, Lee, Tony Lama, etc. - they're all gone. They were gone within a few years. So now you have all these 50-60 year-old Mexican-American women who are suddenly supposed to work at . . . what? This is what they've done their entire lives. The money provided for retraining by the Feds and the state was ridiculous. After years of litigation, the Feds finally coughed up a little more, but it's really nothing. And they only gave more because a few people fought them, which exhausted a lot of good people.

There may be some kind of free trade that would work better. I'm not against exploring those options. But no one in the U.S. is going to investigate a better way. The politicians certainly aren't. The people who will force change are those directly affected by it. That was - and is - the case with the poor farmers in Mexico, with the indigenous in Ecuador, etc.

Jeff said...


You should do a post on that sometime. I'd love to read about what your father has done, and what you've seen down there near the border... No country for old men, eh?