For years, the advanced economies have been lecturing poorer countries as to what they should do to develop their economies. Often called the “Washington Consensus”, we’ve been telling developing countries that they are poor because they engage in too many industrial policies such as high tariffs and subsidies. They need to liberalize, to move in a free market direction. Don’t be like Argentina, be like Singapore.
A recent article by Scott Lincicome points out that it’s now the advanced economies that are adopting these anti-growth policies:
I suppose you could argue that we’ve changed our minds about industrial policies. But we are still telling developing countries like China to reduce trade barriers and subsidies for manufacturers.
PS. This comment in The Economist caught my eye:
The Economist, using data from the Manifesto Project, a research group, examined the ratio of favourable to unfavourable discussions of free enterprise in the manifestos of political parties in 35 Western countries from 1975 to 2021, the most recent year available (see chart 1). We used a five-year-moving average and excluded parties that won less than 5% of the vote. In the 1990s deregulation, privatisation, unfettered trade and other policies that bring joy to the hearts of businessmen were praised almost twice as often as they were criticised. Now politicians are more likely to trash these ideas than celebrate them.
READER COMMENTS
Thomas L Hutcheson
Jun 27 2024 at 1:16pm
The Washington consensus was always a fraction off. It did not fully recognize externalities, especially taxation of net CO2 emissions. OTOH, it was pretty much OK with industrial policies that aimed at internationally competitive export sectors.
Developed countries would do well to follow the tweaked consensus.
vince
Jun 27 2024 at 4:00pm
It’s also hypocritical that developed countries used industrial policy while they themselves were developing. The US, for example, was protectionist until WW2. Protectionist tariffs led to the Nullification Crisis and Civil War in the 1800s. Maybe these types of assertions are why I seem to be on a terrorist list at Econlib. So much for free speech.
Scott Sumner
Jun 27 2024 at 5:52pm
No, tariffs did not lead to the Civil War. That’s an argument used by southern apologists for slavery. I’d suggest reading a wider range of historians, if you are interested in accuracy.
vince
Jun 28 2024 at 3:00am
You’re entitled to your opinion about the Civil War of course. They say victors write history. That doesn’t make it accurate. Nullification Crisis came first.
Robert EV
Jun 28 2024 at 1:55pm
Wikipedia has it’s biases, but from what I’m reading there South Carolina basically won the outcome it wanted.
The seceding states published their reasons for secession:
https://www.battlefields.org/learn/primary-sources/declaration-causes-seceding-states
Georgia explicitly mentions slavery as the issue leading to secession in paragraphs 1 and 2. It isn’t until paragraph 3 that non-slavery economic reasons are mentioned.
Mississippi *only* mentions slavery, and the actions of the northern states with respect to slavery, as the reason to secede.
South Carolina spent a great deal of time talking about the history of the original revolution, the Constitution, and the duty of all states to enforce the laws of others states. Then talks about how the northern states failed to do this with respect to slavery. No other economic reasons are mentioned.
Texas starts with the history of it joining the union, brings up slavery, and also mentions a failure of the federal government to protect them against natives. Then they go back to violation of the fugitive slave clause and actions to make the slave holding states a minority in Congress. All other grievances are ultimately spins on anti-slavery activity. And they, like Georgia, explicitly mention the givernment by the “white race” and the “inferiority” and “dependency” of the African race.
And Virginia only mentions “the oppression of the Southern Slaveholding States“.
In none of these five declarations are tariffs mentioned, and the only mention of taxes is the tax on “three-fifths of their slaves”.
vince
Jun 28 2024 at 3:23pm
Charles Dickens put it succinctly: The Northern onslaught upon slavery is no more a piece of specious humbug disguised to conceal its desire for economic control of the United States.
War is typically more about money and power than about moral issues.
Robert EV
Jun 29 2024 at 11:49am
Sure, and if the southern states hadn’t have been economically oriented around slavery (at least the richest citizens of them) there never would have been an economic reason to secede. They would have been as diverse in economic outputs as the northern states. And they wouldn’t have had the central idea of slavery binding them together to one cause.
vince
Jun 29 2024 at 2:09pm
The Nullification Crisis wasn’t about slavery. The North was highly protectionist at the expense of the South–and our Country was highly protectionist as it was developing.
The bottom line is that the reasons for the Civil War are complex, and if you had to put it to one source, it would be dispute over secession. Lincoln himself said it wasn’t about slavery, it was about saving the Union.
Jim Glass
Jun 30 2024 at 3:30am
Vince wrote:
Indeed! Slaves were worth $13 trillion to $15 trillion (2020 dollars) in 1860, 50% of the entire wealth of the South. (See https://www.measuringworth.com/slavery.php for a detailed take on a complex subject.)
The seceding states, one after another, explicitly stated their dedication to protecting that wealth and expanding it into territories to the south and west, over the obstruction of the North. That gave them plenty of $$$ motivation to secede. As clearly stated in the famous “Cornerstone speech” of the Confederacy’s Vice President, Alexander Stephens…
So you are correct. The South’s secession over slavery was all $$$, zero morality.
vince
Jul 1 2024 at 3:15pm
Jim: It was not all $$$. It was about power and control of a growing Federal government. The main article is about hypocrisy and industrial policy. At the expense of the South, the North got a taste of protective tariffs and manufacturing subsidies from the War of 1812 and wouldn’t let go of them. A battle over political power followed, including the Missouri Compromise, Tariff of Abominations, and the Nullification Crisis, the Compromise of 1850. Next came the Kansas Nebraska Act of 1854, which let each state decide the issue. That Act threatened Northern political power. They wouldn’t accept it and made made slavery a rallying cry.
If slavery were the real issue, then why did the Emancipation Proclamation free slaves in the rebelling states but not in the other slaveholding states?
You mention the cornerstone speech. Stephens also said this: The question of building up class interests, or fostering one branch of industry to the prejudice of another under the exercise of the revenue power, which gave us so much trouble under the old constitution, is put at rest forever under the new. … This old thorn of the tariff, which was the cause of so much irritation in the old body politic, is removed forever from the new.
The North won and wrote the history books. Of course they would claim it was a great moral victory. That sounds so much better than a victory of political power, tariffs, and protectionism. Have a nice day.
Matthias
Jun 30 2024 at 7:34am
Just because the now developed countries made some mistakes in the past, like protectionism, doesn’t mean that it’s a good idea to repeat those mistakes.
The US also had slaves in the past, and almost nowhere allowed women to vote. That doesn’t mean these policies were good ideas nor that they are necessary nor optimal for industrialising.
vince
Jul 1 2024 at 5:08pm
The correlation between protectionism and development remains.
David Seltzer
Jun 27 2024 at 6:34pm
I suspect a vigorous, independent judicial system would countervail crony capitalism and regulatory capture. That said, it still exists and, from the graph, is rising. Subsidies. Collective bargaining and other special interests are forms of political favoritism that stunt free market exchange.
Laurentian
Jun 27 2024 at 8:35pm
Who are these judges that will oppose crony capitalism and regulatory capture and who will appoint them?
David Seltzer
Jun 27 2024 at 8:54pm
Laurentian: Fair question. I just don’t know the answer.
Jon Murphy
Jun 28 2024 at 7:59am
Your point about the judiciary is important, but one should note the US remains one of the best, fairest judiciaries in the world. Institutions matter.
I also think the ruling the other day in SEC v Jarkesy will help by weakening the power of administrative courts.
All that said, I too have concerns. Especially in international trade law, we see legislation manipulated to crush competition and promote rent seeking.
Robert EV
Jun 28 2024 at 2:18pm
How would one get rid of collective bargaining? In a large company, individual managers usually aren’t allowed the power to individually bargain with their subordinates and new hires, but have to use a collective, top-down process for salaries.
Matthias
Jun 30 2024 at 7:54am
Some companies give their managers more freedom to negotiate pay for their team, some less.
It’s fine for people to voluntarily join companies as managers where they give up those freedoms.
Similarly, it’s fine for people to voluntarily join labour unions that ask you to give up the freedom to negotiate pay for yourself.
What’s not good are legal barriers or threats of violence that force people to abide by agreements others have made.
For example, it’s quite common that labour unions at least implicitly threaten violence against so called ‘strike breakers’.
Similarly, if a company threatens legal action or violence against someone who doesn’t want to play by their rules, that’s also bad.
Also companies should be allowed to fire employees that refuse to work (ie workers on strike) and workers should be allowed to quit companies they don’t like for any reason. Unless the parties have contractually given up those rights, of course.
Robert EV
Jun 30 2024 at 10:54am
As long as the goose and gander are sauced the same, I’m mostly fine.
I’d like society to be able to agree on what’s allowable to take from either party. For instance it would be nice if an employee is free to take any and all proprietary information to their next job. I mean they can be contractually compelled to sign over any inventions or other discoveries for nothing more than the salary they were already going to get paid, so there should be some give here as well.
Laurentian
Jun 27 2024 at 8:33pm
Yes, politicians are hypocrites who only care about political expediency, nothing new. Not sure how the end of Communism was supposed to end that.
Matthias
Jun 30 2024 at 7:55am
Alas, even the paragon Singapore had plenty of industrial policies and barriers to entry, eg in the finance sector. But you are right that they were and are better than most.
(That’s why I voted with my feet for Singapore.)
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