Ha-Joon Chang, now Reader in the Political Economy of Development at Cambridge University, explores alternatives to neoliberalism, which has, as we can all now see, failed, producing not growth but recession.
Part 1 looks at the debate on the roles of the state and at state interventions in the process of change, and criticises neoliberal theories of the market, pointing out that markets are no more `natural' than any other human institution. Why are all states, but no giant companies, doomed to fail because of information costs and uncertainty? Why are all selfish entrepreneurs, but no public servants, supposed to be good for society?
Part 2 examines industrial policy, regulation and privatisation. Part 3 explores the issues of state intervention and economic development in the context of globalisation, policy towards foreign direct investment, intellectual property rights, and selective trade and industrial policies.
Chang studies the industrial policy states of East Asia and France and the social corporatist states of Scandinavia. These states have successfully practised entrepreneurship and managed social conflicts.
Trade and industrial policies need supporting by a good civil service, effective control over financial resources, and the provision of some state-owned enterprises. Korea, Japan, China, France, Austria, Sweden, Norway and Finland all have state control over their financial systems. Their systems are bank-led, unlike the Anglo-American model of capital-market-based financial systems. In bank-led systems, banks and other financial firms have lower profitability, but do a far better job of channelling money into the most productive firms.
Chang sums up, "Even if many developing countries have relatively little bargaining power vis-à-vis TNCs [transnational corporations], and even if such power is diminishing with globalisation, they need not give up what little bargaining power they still have, since what national governments do still matters greatly for the determination of the costs and benefits of FDI [foreign direct investment]. ... Although the constraint imposed by TNCs on national industrial policy may be growing, it is nowhere near the point where a strategic industrial policy is impossible. The current literature tends to regard the process of globalisation and the rise of TNCs as an unstoppable process that no one can control and in which nations, especially developing nations, are passive agents that will have to fully embrace this process or perish. However, such a view is misleading, since there is a lot of room for manoeuvre for national governments and since such room may even be increasing for some countries in some industries, especially with the recent aggressive expansion of some TNCs from East Asia. It would be a big mistake for a developing country to voluntarily give up all such room for manoeuvre by adopting a universally liberal FDI policy across all sectors. What is needed is a more differentiated and strategic approach to TNCs, which will allow host countries to intelligently `use' TNCs for their long-term developmental purposes."
Selective trade and industrial policies are good not just for developing countries but also for any country that wants to survive the present crisis.
