by Mike Doyle

In Defense of Rich Countries

We have heard a lot about how the rich countries have hurt the poor. Indeed, many of their actions over the years have done damage. However, I can think of no other time in human history when there has been so much genuine effort by so many powerful countries to assist and empower less powerful ones. In the past, more powerful nations just used to conquer or colonize weaker states. In contrast, there has been over a trillion dollars transferred to the developing world in the last 50 years. To be sure, that money came with strings but in most cases it was given out of a genuine desire to help the downtrodden of the world.

Another often-voiced criticism is that rich countries almost entirely control the World Bank and the IMF. This is true, but it should be remembered that is because the World Bank and the IMF are almost entirely funded by rich countries. It is rich country money, why should we be surprised if they attempt to control how it is spent. After all, most rich countries have voters to answer to. These voters have a justifiable interest that their tax dollars are being well used.

Additionally, these organizations are maintained mostly for the benefit of poor countries. I am not sure how much rich countries actually gain through the IMF and the World Bank. I doubt that the IMF has the resources to bailout a large economy such as Japan, the US, or the UK. It is not as if rich countries aren’t fully capable of making bi-lateral loans and using their own development agencies. To be sure, most wealthy countries do engage in this type of activity. However, if rich countries exclusively spent development dollars this way, they would have far more control and flexibility than they do when they spend indirectly through the IFIs. To think that the IFIs are a major tool of rich country power is laughable. It is much easier for them to go it alone. I think wealthy states use the IFIs because it gives an aura of multi-lateral legitimacy and because wealthy countries realize that development is a long-term project and cannot be compromised by the election cycles of wealthy nations.

More worryingly, there seems to be a common perception that the people who staff the IFIs are rich-country infiltrators who want to sabotage up and coming poor nations. To be sure, I have not encountered this in academic work, but some conspiracy theorists types seem to imply this in the pop literature. I find this very sad because although the staff of the IFIs may be wrong or misguided, it is hard to believe that they are diabolical. In fact, I looked into working for the World Bank until I saw what a PhD economist made there. Although the World Bank is able to recruit some of the best young economists in the world, their pay is a half to a third of what a top-level economist would make on Wall Street. These men and women chose to work at the World Bank because they are genuinely interested in helping the world’s poor. Stiglitz, who worked at the World Bank and has since been a critic of the IFIs, has acknowledged this as well. It is important that critics distinguish between bad policy and bad people. Ad hominem attacks do little to move the debate forward..

Another fact, not often acknowledged, is that some residents of wealthy countries have lost a lot to developing countries. The West pumped billions of dollars into non-communist East Asia, provided a blanket of security protection, permitted the transmission of technology, and maintained a position of asymmetric trade favoring these countries. This, often unrecognized, part of the East Asian miracle was done in order to strengthen these countries against communism.

Unfortunately, while the West supported the East Asian Miracle, the rise of developing countries deeply hurt some Western workers. My region of the United States, the Midwest, was particularly devastated by the rise of East Asia. My town used to be populated by steel mills and auto factories. Since the rise of low cost foreign competition, however, most of these factories have been shut leaving many without jobs. My state’s population is shrinking fast and some commentators have talked about the “dying” Midwest for the past 20 years. The American Midwest has not been the only place hurt because of the rise of East Asia. Northern England and other regions of Europe have seen their manufacturing jobs disappear as well.

Development specialists should remember this when they lambast wealthy countries for protecting intellectual property and for not pursuing more asymmetric trade. In the past, many rich country residents have been hit hard by the West’s efforts to help poor nations. Even though the West as a whole has benefited from the rise of poor countries, the many who have been hurt have become politically active and justifiably so.

In Defense of Free traders

A lot of criticism has been heaped on free traders some of it justified, much of it not. In fact, many criticisms of free trade are really criticisms against protectionists who have either been labeled free traders or have adopted its guise.

There is a historical criticism of free trade that essentially says that European nations forced free trade on their colonies leading to these countries de-industrialization. This is a disputable point. What the Europeans often did was force mercantilism on their colonies. They often made laws prohibiting the production and manufacture of certain products under the guise of “comparative advantage.” However, if the colonizers were really interested in comparative advantage they would not have needed to institute such regulations in the first place. Unfortunately, the colonizers true motive was not free-market at all; it was to protect home country manufacturing interests who did not want to deal with competitors in the colonies. If the colonizers really wanted to uphold the principles of free trade and free markets they would have permitted their colonies to develop their own industries and tradecrafts.

Another criticism that seems to implicate free traders is the criticism against rich country tariffs and subsidies. The fact that free traders continue to get implicated in these policies continues to confound me. In defense of academics, I normally encounter this type of argument in the popular media, not journal articles. I assume I don’t need to explain in any great detail that rich country agricultural subsidies and tariffs against manufactured goods are the antithesis of free trade. The fact that rich countries continue to pursue these policies is not because they are neoliberal, but because they are not neoliberal enough.

In Defense of Democracy

We have had many discussions about one of the central tenet s of liberalism: democracy. We have debated whether it causes or is the cause of development. We talked about how efficient it is and whether it adequately addresses the needs of the very poor. However, I think we have glossed over one of the chief strengths of democracy: its ability to create a marketplace of ideas. In a democracy, new ideas have the ability to come into being, propagate, and put into practice. Just as evolution works to select the best traits to suit a given environment, so does the market place of ideas allow the best ideas to come to the fore. To be sure, this is a slow process full of trial and error, but it does allow societies to adapt effectively to an ever-changing environment. At the beginning of the paper, I talked about the dangers of an ossifying ideology. This danger takes on new heights in an intellectual environment where criticisms and views cannot be freely expressed. I believe the USSR collapsed precisely because there was not a fair exchange of ideas, it was not able to adapt until it was far to late. The following vignette is an example of what can happen when there is no marketplace for ideas:

After the reality of the devastation brought about by the Great Leap Forward came to Chairman Mao’s attention, he issued a very interesting statement. To paraphrase, he said that the great Chinese famine would have never occurred in a democracy because the devastation caused by the agricultural reform would have been brought to attention much earlier. Because there was no free press and tolerance of criticism was low, Chinese bureaucrats were able to keep publishing inflated numbers about rice production even though production had been falling. The Chinese government continued to believe these inflated projections until the truth could no longer be ignored. Unfortunately, 20 million people died before this happened. What is more unfortunate is that Mao did not continue his brief flirtation with democracy.

Conclusion

I want to reiterate that I don’t necessarily believe in all of the counter criticisms that I have just written about. In fact, the more I learn the less certain I am about anything. There have been many occasions when I have discovered that a purported fact is really a hotly debated topic in some obscure academic circle. Yet, we often talk about the world as if we know for certain much of anything in the social sciences.

Even so, I think it is important to take into account the views of the other side as they often have good points to make. I have witnessed far too many people isolate themselves into an ideological bubble where the only way to view the other side is as evil. As a consequence they cut themselves off from viewpoints that really are useful.

If you made it this far, thank you for taking my time to read this essay.

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