Tilt the playing field of the world economy

Despite this history, since the 1980s the “Bad Samaritan” rich countries have imposed upon developing countries policies that are almost the exact opposite of what they used in the past. But by condemning tariffs, subsidies, public enterprises, regulation of foreign investment and permissive intellectual property rights it is like these countries “kicking away the ladder” they used to climb to the top - often against the advice of the then richer countries.

The rich countries argue that they are merely trying to ensure fair play by “levelling the playing field”. But a level playing field leads to unfair competition when the players are unequal. When one team in a football game is, say, the Brazilian national team and the other team is made up of my 11-year-old daughter Yuna’s friends, it is only fair that the girls attack downhill. Indeed, in most sports, unequal players are simply not allowed to compete against each other - through gender division, age groups, and weight classes. In a world of highly unequal productive capabilities, there is nothing unfair about “asymmetric protection”.

But, the reader may wonder, didn’t the developing countries already try protectionism and miserably fail? That is a common myth, but the truth of the matter is that these countries have grown significantly more slowly in the “brave new world” of neo-liberal policies, compared to the “bad old days” of protectionism and regulation in the 1960s and the 1970s (see table). And that’s despite the dramatic growth acceleration in the two giants, China and India, which have partially liberalised their economies but refuse to fully embrace neo-liberalism.

Annual per capita GDP growth rates

Source: World Bank, United Nations

Growth has failed particularly badly in Latin America and Sub-Saharan Africa, where neo-liberal reforms have been implemented most thoroughly. In the “bad old days”, per capita income in Latin America grew at an impressive 3.1 per cent per year. In the “brave new world”, it has been growing at a paltry 0.5 per cent. In Sub-Saharan Africa, per capita income grew at 1.6 per cent a year during 1960-80, but since then the region has seen a fall in living standards (by 0.3 per cent a year).

Both the history of rich countries and the recent records of developing countries point to the same conclusion. Economic development requires tariffs, regulation of foreign investment, permissive intellectual property laws, and other policies that help their producers accumulate productive capabilities. Given this, the international economic playing field should be tilted in favour of the poorer countries by giving them greater freedom to use these policies.

Tilting the playing field is not just a matter of fairness. It is about helping the developing countries grow faster. Because faster growth in developing countries means more trade and investment opportunities, it is also in the self-interest of the rich countries.