Free Trade Reimagined: The World Division of Labor and the Method of Economics
by Roberto Mangabeiram Unger, Princeton University Press (2007), 240 pp.
Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism
by Ha-Joon Chang, Bloomsbury (2008), 276 pp.
How Rich Countries Got Rich… and Why Poor Countries Stay Poor
By Erik S. ReinertPublicAffairs (2007), 365 pp.With their outrageous proportions, the global food crisis and the implosion of the world’s financial system are the latest indictments of twenty-first century capitalism. In November 2007, the head of the World Food Program said that the hungry were being “priced out of the food market.” Almost a year later, you could say the same for some of the world’s biggest banks. The financial crisis, too, has had morbid overtones. In the UK, the Daily Mail reports the pileup of hundreds of corpses, as families can’t come up with the cash to bury their loved ones.
But if today’s headlines have displaced slower-moving ecological catastrophes, like shrinking freshwater supplies and runaway climate change, we need to remember how tightly our environmental, economic, and social crises are connected. Our global eco-nomic system, which balances market fundamentalism for most with corporate welfare for the few, is threatening human life on a massive scale.
Among a number of the US’s foremost economists, the recent situation has prompted a change of heart. “Mainstream economists’ disenchantment with the old near-certainties has continued to build, and at a gathering rate,” bemoaned The Atlantic, among them the latest Nobel laureate in economics and author of the infamous essay “In Praise of Cheap Labour,” Paul Krugman; former World Bank chief economist Lawrence Summers; and this October in the Wall Street Journal, calling for coordinated government intervention to save the financial markets, Paul Volcker himself, the former Federal Reserve chairman who in the 1970s and 1980s was free market funda-mentalism’s first great champion.
Yet for all these ironic twists, when you listen carefully to talk of the economy during this Canadian and US election season, whether it’s Stéphane Dion, Jack Layton, or Stephen Harper, Barack Obama or John McCain, the scope of reforms being proposed is incredibly narrow. Partial nationalization, credit injections, an orgy of tax credits: though dazzling in their variety and technical complexity, their goal is to save, not transform, the fundamental economic structures we already have — the very system that continues to exacerbate climate change, water wars, and hunger, while stymying our capacity to adapt when we need it most.
Beyond North America, progressive thinkers are reinterpreting how economies work in greater depth while moving toward a vision that neither surrenders to markets nor pretends to avoid them. These thinkers insist that we can imagine organizing our economy in ways that are fair for everyone. Just as important, in the face of a web of global crises, they show how dramatically different public policies can foster a climate of innovation. Still, while they’re grounded in a solid reassessment of history, the authors’ prescriptions remain largely speculative.
In What Should the Left Propose? Roberto Mangabeira Unger, one of the most imaginative and real-world powerful of the group, writes: “The world suffers under a dictatorship of no alternatives. Although ideas all by themselves are powerless to overthrow this dictatorship, we cannot overthrow it without ideas.”
Since 2007, Unger has served as Brazil’s minister for strategic affairs. His life has followed a long road of switchback turns through the moun-tains of philosophy and politics. Until middle age, the Brazilian American theorist lived almost like a monk, buried in books at Harvard, where he was granted tenure at age twenty-nine. His dense theoretical projects culminated in a trilogy titled Politics: A Work in Constructive Social Theory, which found a small but devoted audience. The late American philosopher Richard Rorty wrote of Unger, “He does not make moves in any game we know how to play . . . His book may someday make possible a new national romance.”
In the 1990s, Unger stepped up his flirtation with traditional politics, especially in Latin America, looking for a way to harness market forces to democratic ends. He has been, briefly, a mayoral candidate in São Paolo and a presidential candidate for all of Brazil, as well as the adviser to a strange mix of politicians, including former Mexican president Vicente Fox. Unger now works for Brazilian president Luiz Inácio Lula da Silva.
Though it’s still too early to tell whether his thinking will bear fruit in Brazil, his fresh ideas demand attention. His argument that we can at once deepen democracy, enhance social security, and foster economic innovation and growth is developed across a trio of books, Democracy Realized: The Progressive Alternative, What Should the Left Propose? and Free Trade Reimagined. The scale and scope of the proposals are breathtaking, encompassing the entirety of human society, from the individual to global institutions. He claims his basic ideas are as valid for the rich world as for the poor, with minor adjustments.
To prepare his case, Unger attempts to shatter conventional wisdom. First, he asks us to reject, as a “false necessity,” the notion that the institutions of democracies, markets, and civil societies must resemble those of Europe or North America to be successful. Rather, he argues, the more we experiment with different kinds of institutions, the better. Second, he throws out the distinction between reform and revolution, or partial versus systemic change. Instead, by making a series of thoughtful revisions, we can achieve revolutionary change step by step, knowing only in outline where we’ll end up. He calls this a “direction, not a blueprint.” While the right and left continue to fight over how much we should entrust to the market and how much the state should regulate and plan, Unger asks us to step back and ask, What kind of market? What kind of state?
The starting point is his view of today’s global economy, starkly divided between a small, interconnected international vanguard of highly productive, innovative firms that drive most economic growth, and a rearguard: everybody else. (These vanguard firms are generally of the high-tech variety, though Unger suggests that the best commando units and the best symphonies work similarly.) This presents the obvious problem that too much wealth and power is being concentrated in the hands of too few. But for Unger it also presents a deeper problem — and as such an opportunity.
What these vanguard practices come down to, he argues, is a profoundly liberating environment with little hierarchy and plenty of overlap between making and implementing decisions, a fertile blend of co-operation and competition, and permanent trial and error. For the privileged few who work in this way, the reward isn’t just money; it’s also the chance to explore one’s creativity and freedom with little restraint. The point of these proposals is to transcend the debate over how much the government should regulate the market. Unger believes the vanguard is too small and vital to bear the burden of sufficient taxation and welfare spending to reduce inequality substantially. The key, therefore, is to expand the vanguard practices.
Spreading vanguard practices throughout the economy isn’t just a method for increasing productivity. Equally important is empowering people “to live a big life, transfigured by ambition, surprise and struggle . . . to make better use of everyone’s dormant energies and to establish in the mind of the ordinary man and woman the idea and the experience of their own power.” The idea is that expanding social solidarity and accelerating technological innovation aren’t opposing values that need to be balanced, but rather two mutually reinforcing goals that form a virtuous circle. Thus, he argues in Free Trade Reimagined, such a “factory of innovation” actually “provides in microcosm a model for the remaking of all society.”
This can’t happen, Unger argues, without deepening democracy by “raising the temperature before quickening the tempo” of politics. One simple step, he suggests, is to give both political parties and social movements equal free time on television to explain their ideas. He also emphasizes the need to develop strategies for mixing participatory and representative democracy to make decisions more quickly, decentralize power, and experiment with different legal regimes. Strengthening and deepening democratic accountability is also crucial if governments are to foster factories of innovation. This allows citizens to rein in the nepotism or incompetence of public servants charged with democratizing the market.
To increase investment and spread vanguard practices, Unger suggests the state set up a series of organizations to do the work of venture capitalists, investing in and providing guidance to small, innovative firms while inventing new legal structures that would allow them to co-operate and compete with one another at the same time. The stock market was never any good at providing funds for fledgling, creative firms; now, as it skids and crashes, it’s even easier to appreciate Unger’s proposal.
More generally, Unger advocates an overhaul of our vision of free trade. Today it focuses on the free movement of things (goods, services, money) no matter what, while the movement of labour is tightly restricted by immigration laws, and the movement of ideas restricted by aggressive intellectual property treaties. Unger calls for reversing the priorities, freeing the movement of people and ideas — the twin cores of innovation, as well as what we value most outside the economy — while moving things only to the extent that they help democratic societies transform themselves and prosper as they choose.
Unger’s proposals are long and complex, and his texts virtually devoid of references. It’s hard to compare his views to anyone else’s, or to try to figure out if they have any solid grounding. Yet many of his ideas resonate in the more concrete commentaries provided by two recent books that attack our econ-omy’s foundations and assumptions.
The first is Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, by a rising star raised in South Korea who now works in Cambridge’s faculty of economics. In his lifetime, Ha-Joon Chang’s native country has grown fourteen times richer, a feat that took the United States over 150 years. Though South Korea is sometimes cited as a neo-liberal success story, its policies have veered far from orthodox economic advice. Inspired by his own country’s success, Chang has made his name as a leading heterodox economist by doing something unusual within the economic profession: looking past the theory to the historical record.
The policies the most affluent countries are now pushing on the poor, he found, are the exact opposite of those that enriched them in the first place. Citing a nineteenth-century German economist named Friedrich List, he calls this “kicking away the ladder” — the nurture of infant industries — they used to climb to their position of dominance. For instance, the US and the UK, the world’s leading advocates of free trade, have had the highest import tariffs of any country in the past 200 years.
Countries don’t get rich by opening their economies and letting international markets work their magic, Chang shows. Trade is good, he argues, when properly timed and with the right rules, which are different for each country. Markets on their own are more likely to lock you in place than propel you upward. Samsung subsidized its infant electronics division with proceeds from its textile production and sugar refining; Nokia’s light manufacturing section subsidized the company’s money-losing electronics division for seventeen years. Now both are world leaders in high-tech products. To grow, poor countries, like businesses, will have to defy the market. “In the end,” Chang writes, “economic development is about acquiring and mastering advanced technologies.”
It’s a message shared by Erik S. Reinert, a Norwegian economist whose ambitious How Rich Countries Got Rich . . . and Why Poor Countries Stay Poor attempts to revive an “other cannon” of Continental and nineteenth-century US economic thinking focused on the emulation and assimilation of knowledge as the motor of economic growth, rather than on the interplay of abstract market forces.
In between his graduate studies and his recent return to academia, Reinert, who also has an mba from Harvard Business School, had consulted the presidents of Peru and Ireland, officials of the European Union, and Norway’s indigenous Saami. In his book, he repeatedly contrasts Harvard’s use of case studies illustrating the creation of wealth with mainstream economists’ use of models focused on the efficiency of exchange.
For Reinert, everything starts with innovation and production, and it happens in historical time. Prosperity isn’t caused by the accident of market forces, he writes. Rather, it springs from the technological advances created by human creativity when there are synergies between diverse types of manufacture and craft. These advances mean that a dynamic economy doesn’t settle into the equilibria economists like to talk about. Instead, it’s the chain of imbalances forged by innovation that’s the best way to think about growth.
Like Chang and Unger, Reinert believes that rich countries are now denying poor ones the very tools they used to enrich themselves. And he believes you address poverty not just by treating its symptoms, but primarily from “the inside,” by improving societies’ systems of production and expanding those that work best.
In their arguments that societies need the freedom to improvise their own approaches to economic development, Chang and Reinert leave behind the conventional debate over how much the state should intervene in the econ-omy, breaking open what Reinert calls the “black box” that is “the complex, heterogeneous and chaotic world of the real economy.” Unger goes furthest in suggesting ways to reimagine our economics and politics, insisting that placing ingenuity at the economy’s core means overhauling our politics.
Throughout its thirty-year history, the champions of neo-liberal economic doctrine — usually summarized as liberalization, deregulation, and privatization — have fought to marginalize politics, insisting their model was the only game in town. Margaret Thatcher declared, “There is no alternative.” American economists later devised the Orwellian term “Washington Consensus.” But with his signature wit, Thomas Friedman put it best, equat-ing market fundamentalism with a “golden straitjacket”: “It is not always pretty or gentle or comfortable,” Friedman wrote. “But it’s here and it’s the only model on the rack this historical season.” Even the most extreme proposals aired by mainstream politicians and economists at the time of writing — like a partial and temporary nationalization of banks — amount to little more than readjusting the strait-jacket’s straps.
At a time when American and Canadian infrastructures are collapsing, poverty is growing, the world financial system has melted down, huge regions are running out of fresh water, and one country is selling and the other is buying oil from tar sands that are destroying our climate, the conventional wisdom that mere tinkering will close what Thomas Homer-Dixon has called the “ingenuity gap” seems bankrupt. Is it any surprise that for fresh thinking we might have to turn to a Norwegian, a South Korean, and a Brazilian?
In their specifics, Unger, Chang, and Reinert may well be wrong. But in their ideas’ bold ambition and reorientation, we can at least imagine changes profound enough to help us reconcile democracy, economic innovation, and survival, and to address the dangerous and growing web of crises that has thus far defined the twenty-first century.