Reclaiming Development: An Alternative Economic Policy Manual

247 Pages·2004·6.07 MB·English

by  Ha-Joon Chang

About this Book
There is no alternative1 — to neoliberal economics, the Americanization
of the world’s economies, and globalization. This remains the driving
assumption within the international development policy establishment. In
this book, two economists, Ha-Joon Chang and Uene Grabel, cogently
explain this dominant school’s main assertions about how economies
develop and the policies that all countries ought to pursue. The authors
then combine data and a devastating economic logic with an analysis of
the historical experiences of leading Western and East Asian economies
during their development, in order to question the validity of the neo­
liberal development model.
Turning to policy, the authors set out concrete, practical alternatives
to neoliberalism across the key economic areas: trade and industrial
policy; privatization; intellectual property rights; external borrowing,
portfolio and foreign direct investment; domestic financial regulation;
and management of exchange rates, central banking and monetary policy,
and government revenue and expenditure. In doing so, they advocate
the most useful proposals that have emerged around the world along
with some innovative measures of their own.
This empowering and accessible book seeks to be of practical useful­
ness to students of development and to those, in government and beyond,
looking for concrete policy ideas. The hope is that it will stimulate
discussion of the ways in which development policies can be reclaimed
by those seeking to promote rapid economic growth that is equitable,
stable and sustainable.
Critical Praise for this Book
This unusually well-written, direct and succinct book describes neo­
liberal positions fairly; offers theoretically rigorous and empirically
accurate critiques; and describes feasible, practical alternative policies
that take realistic account of political, economic and financial con­
straints. Discussion of financial, monetary, fiscal, trade and industry
policy and intellectual property rights is especially strong and con­
structive and makes important, innovative contributions. It is a fine,
carefully analytical achievement which would contribute to hastening
both efficient and socially just development wherever the insights are
appropriately used.
John Langmore, Representative of the ILO to the UN
Chang and Grabel demolish the ‘myths1 (or fabrications) underlying
neoliberal views about economic development and provide succinct,
constructive suggestions for policies regarding trade and industry,
privatization and intellectual property rights, private capital move­
ments, financial regulation, and macroeconomics. Reclaiming Development
is a manifesto that should be on the shelves of policymakers,
academics, and students worldwide,
Lance Taylor, Arnhold Professor, New School University,
author of Reconstructing Macroeconomics
A growing number of developing countries are taking back control
over economic policy from the IMF and the World Bank. The wide
range of policy suggestions contained in this book provides a rich
mine of concrete and practicable alternatives from which to choose
in taking advantage of whatever room globalization still allows
developing countries and reshaping economic policy in their own
interests.
Martin Khor, Director, Third World Network
This book is not only a superb antidote to the numbing myths of
neoliberalism but also a cogent and stimulating presentation of the
many possibilities for alternatives to neoliberal economic policy
that both theory and history provide policymakers and students of
development.
Thandika Mkandawire, Director, United Nations
Research Institute for Social Development (UNRISD)
The dominant neoliberal economic doctrine asserts that there is no
alternative to its policy prescriptions which provide the foundations
for success in an age of globalization. This book questions and re­
futes the belief system implicit in the assertion.
Its real achievement is that it goes beyond a mere critique of
neoliberal policies. The authors are to be commended for providing
a range of concrete and feasible alternatives in critical policy areas
based not only on successful real world examples but also on the lat­
est economic theories.
The book is a rich mixture of theory, history and reality. The out­
come is a reader-friendly text that is both accessible and lively. It will
enhance and broaden our understanding of current debates, on eco­
nomic policies in the wider context of globalization and development.
Deepak Nayyar, Vice-Chancellor, University of Delhi
Reclaiming Development
An Alternative Economic Policy Manual
Ha-Jo on Chang and llene Grabel
University Press
Dhaka
White Lotus
Bangkok
Fernwood Publishing
Nova Scotia
Books for Change
Bangalore
World Book Publishing
Beirut
SÏRD
Kuala Lumpur
TWN
Penang
David Philip
Cape Tonm
ZED BOOKS :
London & New York .
Reclaiming Development was first published in 2004 by V Qt)^
In Bangladesh: The University Press Ltd,
Red Crescent Building, 114 Modjheel C/A, PO Box 2611, Dhaka 1000
In Burma, Cambodia, Laos, Thailand and Vietnam:
White Lotus Co, Ltd, GPO Box 1141, Bangkok 10301, Thailand
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Copyright © Ha-Joon Chang and Ilene Grabel 2004
The right of Ha-Joon Chang and Ilene Grabel to be identified as the authors
of this work has been asserted by them in accordance with
the Copyright, Designs and Patents Act, 1988
Designed and typeset in Monotype Garamond by Illuminati, Grosmont
Cover designed by Andrew Corbett . *
Printed and bound in EU by Cox Sc. Wyman, Reading
Distributed in the usa exclusively by Palgrave Macmillan, a division of
St Martin’s Press, llc, 173 Fifth Avenue, New York, ivy iooio
All tights reserved
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data available
Canadian CIP data available from the National library of Canada
Canada 1 5 3266 138 3 Pb
India 81 87380 97 7 Pb
Lebanon 9953 14 032 9 Pb a METU LIBRARY
Malaysia (SIRD) 983 2535 30 1 Pb
Malaysia (TWN) 983 2729 27 o Pb
South Africa o 86486 638 5 Pb
Zed i 84277 200 7 (Hb)
*005037437
Zed i 84277 201 3 (Pb)
Contents
List of Abbreviations vifi
Acknowledgements x
Introduction Reclaiming Development I
Part I Myths and Realities about Development 5
1 Myth I ‘Today's wealthy countries achieved success
through a steadfast commitment to the free market’ 7
1.1 The Myth 7
1.2 The Myth Explored 7
1.3 The Myth Rejected 10
2 Myth 2 ‘Neoliberalism works' Í4
2.1 The Myth 14
2.2 The Myth Explored 14
2.3 The Myth Rejected 16
3 Myth 3 ‘ Neoliberal globalization cannot and
should not be stopped’ 25
3.1 The Myth 25
3.2 The Myth Explored 25
3.3 The Myth Rejected 27
4 Myth 4 The neoliberal American model of
capitalism represents the ideal that all developing
countries should seek to replicate’ 3 Í
4.1 The Myth 31
4.2 The Myth Explored 31
4.3 The Myth Rejected 33
5 Myth 5 The East Asian model is idiosyncratic;
the Anglo-American model is universal’ 38
5.J The Myth 38
5.2 The Myth Explored 38
5.3 The Myth Rejected 40
6 Myth 6 ‘Developing countries need the* discipline
provided by international institutions and by
politically independent domestic policymaking
institutions’ 46
6.1 The Myth 46
6.2 The Myth Explored 46
6.3 The Myth Rejected 48
Part 11 Economic Policy Alternatives 53
7 Policy Alternatives I Trade and Industry 55
7.1 Trade Policy 55
7.2 Industrial Policy 70
8 Policy Alternatives 2 Privatization and
Inteliectual Property Rights 82
8.1 Privatization 82
8.2 Intellectual Property Rights 92
9 Policy Alternatives 3 International Private
Capital Flows 106
9.1 General Analysis 106
9.2 Foreign Bank Borrowing 115
9.3 Portfolio Investment 124
9.4 Foreign Direct Investment 135
10 Policy Alternatives 4 Domestic Financial
Regulation 150
11 Policy Alternatives 5 Macroeconomic Policies
and Institutions 164
11.1 Exchange Rate and Currency Policies 164
11.2 Central Banking and Monetary Policy 180
11.3 Fiscal Policy 188
Conclusion Obstacles and Opportunities for
Reclaiming Development „ 202
References 206
Recommended Further Reading 213
Index 217
List of Abbreviations
CEO Chief executive officer
ECLAC Economic Commission for Latin America and the
Caribbean
ERP Economic Report of the [US] President
EPZs Export processing zones
FTAA Free trade area of the Americas
FTZs Free trade zones
FDI Foreign direct investment
GATT General Agreement on Tariffs and Trade
HDR Human Development Report
IS! Import-substituting industrialization
ÏPRs Intellectual property rights
IMF International Monetary Fund
ILO International Labour Organization
LTCM Long-Term Capital Management
MNCs Multinational corporations
NIH National Institute of Health
NICs Newly industrializing countries
NGO Nongovernmental organization
NAFTA North American Free Trade Agreement
OECD Organization for Economic Cooperation and
Development
PI Portfolio investment
R&D Research and development
SOEs State-owned enterprises
SAPs Structural adjustment programmes
TRIPS Trade-related aspects of intellectual property rights
TNCs Transnational corporations
UN United Nations
UNDP United Nations Development Programme
VAT Value-added tax
WTO World Trade Organization