Tom Friedman has economic development all wrong

Chalmers Johnson offers a good review on an interesting book called Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang, a Cambridge Economist and historian who considers Thomas Friedman's book "The Lexus and the Olive Tree" quite laughable. Here is a sample from Johnson's review:

In Chang’s conception, there are two kinds of Bad Samaritans. There are the genuine, powerful “ladder-kickers” working in the “unholy trinity” of the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO). Then there are the “ideologues—those who believe in Bad Samaritan policies because they think those policies are ‘right,’ not because they personally benefit from them much, if at all.” Both groups adhere to a doctrine they call “neoliberalism.” It became the dominant economic model of the English-speaking world in the 1970s and prevails at the present time. Neoliberalism (sometimes called the “Washington Consensus") is a rerun of what economists suffering from “historical amnesia” believe were the key characteristics of the international economy in the golden age of liberalism (1870-1913).

Thomas Friedman calls this complex of policies the “Golden Straitjacket,” the wearing of which, no matter how uncomfortable, is allegedly the only route to economic success. The complex includes privatizing state-owned enterprises, maintaining low inflation, shrinking the size of the state bureaucracy, balancing the national budget, liberalizing trade, deregulating foreign investment, making the currency freely convertible, reducing corruption, and privatizing pensions. It is called neoliberalism because of its acceptance of rich-country monopolies over intellectual property rights (patents, copyrights, etc.), the granting to a country’s central bank of a monopoly to issue bank notes, and its assertion that political democracy is conducive to economic growth, none of which were parts of classical liberalism. The Golden Straitjacket is what the unholy trinity tries to force on poor countries. It is the doctrinal orthodoxy taught in all mainstream academic economics departments and for which numerous Nobel prizes in economics have been awarded.

In addition to being an economist, Ha-Joon Chang is a historian and an empiricist (as distinct from a deductive theorist working from what are stipulated to be laws of economic behavior). He notes that the histories of today’s rich countries contradict virtually all the Golden Straitjacket dicta, many of which are logically a result rather than a cause of economic growth (for example, trade liberalization). His basic conclusion: “Practically all of today’s developed countries, including Britain and the US, the supposed homes of the free market and free trade, have become rich on the basis of policy recipes that go against neo-liberal economics.” All of today’s rich countries used protection and subsidies to encourage their manufacturing industries, and they discriminated powerfully against foreign investors. All such policies are anathema in today’s economic orthodoxy and are now severely restricted by multilateral treaties, like the WTO agreements, and proscribed by aid donors and international financial organizations, particularly the IMF and the World Bank.

This is a very different way of looking at economic development, and has a lot of historical support.