How do you say "free trade hypocrisy"?

Lessons from Taiwan that the rest of the world isn't allowed to learn.

Published June 6, 2006 10:52PM (EDT)

For one hot, humid summer during my mid-'80s stint as an English teacher in Taiwan, I taught a Saturday morning class to a select group of employees at a small trading company. The boss of the trading company lived in the apartment above mine; it's possible he thought he might get the rowdy foreigners below to be a little quieter on Friday nights if he forced one of them to get up before noon on Saturday and teach. (But if that was the plan, it didn't work. In fact, the opposite happened. My Friday night employment as a disco DJ ended up forcing me to quit the Saturday morning gig.)

The boss had very specific ideas of what kind of English he wanted me to teach: He gave me a slim textbook full of jargon associated with international trade -- "letters of credit" and so on. It was all Greek to me, a 23-year-old stuffed with history and political science and a smattering of the Chinese language. I spent more time figuring out what the textbook examples meant than actually teaching them.

In retrospect, I realize now that I was right in the belly of the beast. Taiwan's "miracle" of economic growth was built on the back of thousands of small trading companies just like the one where I worked. While my expatriate colleagues were sleeping off hangovers, the hustling Taiwanese were studying up.

And I admired them for it. Attentive readers of this blog know that while I am no fan of "Washington Consensus"-style globalization, with its one-size-fits-all prescription to remove "distortions" from national economies by abolishing tariffs, removing controls on international capital flows and deregulating everything but the kitchen sink, I am a supporter of the principle that increased trade is a stepping stone to prosperity. That's because, during my four years in Taiwan, I saw it happen. I was lucky enough to watch an entire nation bootstrap itself upward, thanks to the possibilities of trade.

One of the challenges of this blog has been articulating that very point: how I can support the essence of "free trade" while at the same time documenting how what currently passes for "free trade" is in effect a rigged system that locks in the advantages of those already at the top of the heap, at the expense, not only of the developing world, but of blue-collar and middle-class workers in the developed world. In the early stages of How the World Works, I expressed myself clumsily on this topic, leading some of my readers to consider me nothing more than just another neoliberal propagandist. Which I dispute!

Clarity on this point coalesced this week, while I worked my way through the new(ish) introduction to Robert Wade's classic "Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization." Originally published in 1989, the revised version, published in 2003, brings readers up to date on Wade's interpretation of the Asian financial crisis of 1997, and the ascendance of the Washington Consensus.

In his introduction, Wade shows how the agreements hammered out in the Uruguay round of the General Agreement on Trade and Tariffs (which ended up creating the World Trade Organization) have essentially made it impossible for developing nations to repeat the examples of Taiwan and South Korea (and earlier, Japan) in strategically guiding their economies forward. The Trade-Related Intellectual Property agreement (TRIPS), the Trade-Related Investment Measures agreement (TRIMS) and the General Agreement on Trade in Services (GATS) "together greatly restrict the right of a government to pursue most of the industrial policies successfully implemented in East Asia. The sanction is market access: a country that attempts to implement East Asian industrial policies can now be legally handicapped in its firms' access to developed country markets. This represents a dramatic change in the dynamic of trade and investment negotiations."

Joseph Stiglitz and Dani Rodrik do an excellent job of explaining how the one-size-fits-all "structural adjustments" pushed by the IMF and the World Bank often fail to take into account local conditions and can end up doing more harm than good. But Wade roots his argument in the historical facts of East Asian economic development. And in doing so, he details a travesty. We should be learning the lessons of Taiwan and applying them elsewhere. Instead, we've got a system where following those lessons is against the rules.

Sadly, there's nothing new in this picture. Wade quotes a devastating passage from Friedrich List, the 19th century German economist: "It is a very clever common device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him ... Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth."

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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