Quiz
Answer the following questions in 2-3 sentences each.
According to Chang, what is the main flaw in Ricardo's theory of comparative advantage when applied to developing countries?
What is "ladder-kicking," and how does it relate to the economic policies promoted by rich countries?
Explain Chang's critique of culture-based explanations for economic development.
How did Britain use protectionist policies to stifle economic development in its colonies, specifically referencing the Wool Act?
What are some of the potential negative consequences of rapid trade liberalization in developing countries, as outlined by Chang?
How does Chang describe the historical trade policies of Britain and the United States during their periods of economic growth?
Describe the role of state-owned enterprises (SOEs) in South Korea's economic development.
What is the "compensation principle," and why does Chang find it problematic in the context of trade liberalization?
According to Chang, what are some of the risks associated with foreign direct investment (FDI) in developing countries?
How did the Opium War and the resulting Treaty of Nanking demonstrate the use of military power to enforce free trade?
Quiz Answer Key
Chang argues that Ricardo's theory, which suggests countries should specialize in their current strengths, fails to account for developing countries that need protection to acquire more advanced technologies and develop their economies. Ricardo's theory is for those who accept the status quo, but not for those who want to change it. This protection allows them time to learn and compete internationally later.
"Ladder-kicking" refers to the practice of rich countries, having developed through protectionist policies, now advocating free-market policies for developing countries, thereby preventing them from using the same strategies. This effectively "kicks away the ladder" that allowed the rich countries to climb to economic success.
Chang criticizes culture-based explanations as being ex post facto justifications that change with the economic success of different regions. What was once attributed to Protestantism, Confucianism, or other cultural factors is redefined once other regions succeed, revealing the flaws in this kind of thinking. This makes culture-based theories unreliable as explanations for economic development.
Britain enacted policies like the Wool Act of 1699, which banned the export of woolen cloth from its colonies, destroying the Irish woolen industry and stifling woollen manufacture in America. This suppressed the growth of industries that could compete with Britain's own.
Rapid trade liberalization can lead to the collapse of domestic industries, increased unemployment, and reduced government revenue due to decreased tariffs. The revenue lost due to decreased tariffs are rarely made up in poorer countries, causing cuts in essential public programmes.
Both Britain and the United States were highly protectionist during their periods of economic growth, using tariffs and other measures to protect their infant industries. They only advocated for free trade after achieving industrial dominance.
State-owned enterprises played a crucial role in South Korea's economic development by undertaking large projects and directing credit to strategic industries. The government owned all the banks, directing the life blood of business-credit.
The "compensation principle" suggests that trade liberalization is beneficial if the winners can compensate the losers and still benefit. Chang critiques it because compensation is not automatically made, leaving some people worse off, and trade liberalization may not bring overall gains.
FDI can destroy existing national firms or pre-empt the emergence of domestic competitors, leading to a ceiling on the level of sophistication that a country can attain in the long run. Sometimes, foreign investors may even actively destroy the existing productive capabilities of the companies.
The Opium War was initiated when China tried to stop Britain's illegal opium trade, resulting in China being forced to cede Hong Kong and give up its right to set its own tariffs. This demonstrates how military force was used to impose free trade, benefiting Britain at China's expense.
Essay Questions
Critically evaluate Chang's assertion that "Bad Samaritans" in rich countries are hindering the economic development of poorer nations through the promotion of free-market policies. Consider historical examples and potential counterarguments.
Discuss the role of protectionism and subsidies in the economic development of countries like Britain, the United States, and South Korea. To what extent does their historical experience support Chang's argument against the immediate implementation of free trade in developing countries?
Analyze Chang's critique of neo-liberal economic policies and their impact on developing countries. How does he use historical evidence and contemporary examples to challenge the claims of neo-liberal economists?
Explore the relationship between corruption and economic development, as discussed by Chang. Is corruption always detrimental to economic growth, or can it sometimes have unintended benefits? Use examples to support your argument.
Compare and contrast the economic development strategies of North Korea and South Korea, as mentioned by Chang. How do their different approaches to trade and technology adoption support or refute his arguments about the role of state intervention in economic development?
Glossary of Key Terms
Bad Samaritans: Rich countries or individuals who promote free-market policies for developing countries, despite having used protectionist measures during their own development.
Infant Industry Protection: Protecting new domestic industries from international competition through tariffs, subsidies, and other measures until they are strong enough to compete globally.
Free Trade: A policy of minimal government intervention in international trade, allowing goods and services to flow freely between countries without tariffs or other barriers.
Protectionism: Government policies that restrict international trade to protect domestic industries, such as tariffs, quotas, and subsidies.
Subsidies: Financial assistance provided by the government to domestic industries to lower their costs and make them more competitive.
Neo-liberalism: An economic ideology that advocates for free markets, deregulation, privatization, and reduced government spending.
Heckscher-Ohlin-Samuelson (HOS) Theory: An economic theory stating that comparative advantage arises from international differences in the relative endowments of factors of production (capital and labour).
Comparative Advantage: The ability of a country to produce a good or service at a lower opportunity cost than another country.
State-Owned Enterprises (SOEs): Businesses owned and operated by the government.
Foreign Direct Investment (FDI): An investment made by a company or individual in one country into business interests located in another country.
Transfer Pricing: The setting of prices for goods and services sold between related entities within a multinational corporation.
Ladder-Kicking: The practice of rich countries, having developed through protectionist policies, now advocating free-market policies for developing countries, thereby preventing them from using the same strategies.
Opium War: A war between Britain and China in the 19th century, primarily caused by Britain's illegal opium trade, which resulted in China being forced to cede Hong Kong and give up its right to set its own tariffs.
Washington Consensus: A set of neo-liberal economic policies promoted by international financial institutions like the IMF and the World Bank, often imposed on developing countries as conditions for loans.
Unequal Treaties: Treaties signed between Western powers and weaker states, particularly in Asia, that granted Western powers special privileges and often deprived the weaker states of their sovereignty and economic autonomy.
Import Substitution Industrialization (ISI): A development strategy that promotes domestic production by protecting local industries from foreign competition.
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