Ha-Joon Chang

The wage gaps between rich and poor countries exist not mainly because of differences in individual productivity but mainly because of immigration control. If there were free migration, most workers in rich countries could be, and would be, replaced by workers from poor countries.

Finally, a word of warning to the rich of the rich countries, lest they become smug, hearing that their own poor are paid well only because of immigration control and their own high productivity.
Even in sectors where rich country individuals are genuinely more productive than their counterparts in poor countries, their productivity is in great part due to the system, rather than the individuals themselves. It is not simply, or even mainly, because they are cleverer and better educated that some people in rich countries are hundreds of times more productive than their counterparts in poor countries. They achieve this because they live in economies that have better technologies, better organized firms, better institutions and better physical infrastructure – all things that are in large part products of collective actions taken over generations

Who cares if people think wrongly that the internet has had more important impacts than telegraphy or the washing machine? Why does it matter that people are more impressed by the most recent changes?
It would not matter if this distortion of perspectives was just a matter of people’s opinions. However, these distorted perspectives have real impacts, as they result in misguided use of scarce resources.
The fascination with the ICT (Information and Communication Technology) revolution, represented by the internet, has made some rich countries – especially the US and Britain – wrongly conclude that making things is so ‘yesterday’ that they should try to live on ideas. And as I explain in Thing 9, this belief in ‘post-industrial society’ has led those countries to unduly neglect their manufacturing sector, with adverse consequences for their economies.
Even more worryingly, the fascination with the internet by people in rich countries has moved the international community to worry about the ‘digital divide’ between the rich countries and the poor countries. This has led companies, charitable foundations and individuals to donate money to developing countries to buy computer equipment and internet facilities. The question, however, is whether this is what the developing countries need the most. Perhaps giving money for those less fashionable things such as digging wells, extending electricity grids and making more affordable washing machines would have improved people’s lives more than giving every child a laptop computer or setting up internet centres in rural villages. I am not saying that those things are necessarily more important, but many donors have rushed into fancy programmes without carefully assessing the relative long-term costs and benefits of alternative uses of their money.

Now, the coexistence of price stability (that is, low inflation) and the increase in non-price forms of economic instability, such as more frequent banking crises and greater job insecurity, is not a coincidence. All of them are the results of the same free-market policy package.

However, the world economy has grown much more slowly during the post-1980s low-inflation era, compared to the high-inflation period of the 1960s and 70s, not least because investment has fallen in most countries

Contrary to what is commonly believed, the performance of developing countries in the period of state-led development was superior to what they have achieved during the subsequent period of market-oriented reform. There were some spectacular failures of state intervention, but most of these countries grew much faster, with more equitable income distribution and far fewer financial crises, during the ‘bad old days’ than they have done in the period of market-oriented reforms. Moreover, it is also not true that almost all rich countries have become rich through free-market policies. The truth is more or less the opposite. With only a few exceptions, all of today’s rich countries, including Britain and the US – the supposed homes of free trade and free market – have become rich through the combinations of protectionism, subsidies and other policies that today they advise the developing countries not to adopt. Free-market policies have made few countries rich so far and will make few rich in the future.

On the $50 bill, we have Ulysses Grant, the Civil War hero-turned president. In defiance of the British pressure on the USA to adopt free trade, he once remarked that ‘within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade’.

Virtually all of today’s rich countries used protectionism and subsidies to promote their infant industries. Many of them (especially Japan, Finland and Korea) also severely restricted foreign investment.

Singapore, which is famous for its free-trade policies and welcoming attitudes towards foreign investors, produces over 20 per cent of its output through state-owned enterprises, when the international average is around 10 per cent.

Despite their own history, the rich countries make developing countries open their borders and expose their economies to the full forces of global competition, using the conditions attached to their bilateral foreign aid and to the loans from international financial institutions that they control (such as the IMF and the World Bank) as well as the ideological influence that they exercise through intellectual dominance. In promoting policies that they did not use when they were developing countries themselves, they are saying to the developing countries, ‘Do as I say, not as I did.’