FPIF Special Report
December 2003

Kicking Away the Ladder: The “Real” History of Free Trade

By Ha-Joon Chang
Ha-Joon Chang <hjc1001@econ.cam.ac.uk> teaches in the Faculty of Economics and is Assistant Director of Development Studies at Cambridge University. This special report from Foreign Policy in Focus (www.fpif.org) was first presented at a conference entitled “Globalization and the Myth of Free Trade” sponsored by the Center for Economic Policy Analysis at the New School University in New York City on April 18, 2003 and is scheduled to appear in a forthcoming book of the same name edited by Anwar Shaikh. This paper draws upon Dr. Chang's recent book, Kicking Away the Ladder--Development Strategy in Historical Perspective (Anthem Press, 2002). Professor Chang wishes to thank the Korea Research Foundation for its research support through its BK21 program at the Department of Economics, Korea University , where he was a visiting research professor when the first draft was written.

1. Introduction

Central to the neoliberal discourse on globalization is the conviction that free trade, more than free movements of capital or labor, is the key to global prosperity. Even many of those who are not enthusiastic about all aspects of globalization--ranging from the free-trade economist, Jagdish Bhagwati, advocating capital control to some non-governmental organizations (NGOs) accusing the developed countries for not opening up their agricultural markets--seem to agree that free trade is the most benign, or at least a less problematic, element in the progress of globalization.

Part of the conviction in free trade that the proponents of globalization possess comes from the belief that economic theory has irrefutably established the superiority of free trade, even though there are some formal models which show free trade may not be the best. However, even the builders of those models, such as Paul Krugman, argue that free trade is still the best policy because interventionist trade policies are almost certain to be politically abused. Even more powerful for the proponents of free trade, is their belief that history is on their side. After all, the defenders of free trade ask, isn't free trade how all the world's developed countries have become rich? What are some developing countries thinking, they wonder, when they refuse to adopt such a tried and tested recipe for economic development?

A closer look at the history of capitalism, however, reveals a very different story (Chang, 2002). As we shall establish in some detail in this paper, when they were developing countries themselves, virtually all of today's developed countries did not practice free trade (and laissez-faire industrial policy as its domestic counterpart). Rather, they promoted their national industries through tariffs, subsidies, and other measures. Particularly notable is the fact that the gap between “real” and “imagined” histories of trade policy is the greatest in relation to Britain and the United States , which are conventionally believed to have reached the top of the world's economic hierarchy by adopting free trade when other countries were stuck with outdated mercantilist policies. These two countries were, in fact, often the pioneers and frequently the most ardent users of interventionist trade and industrial policy measures in their early stages of development.

Debunking the myth of free trade from the historical perspective demonstrates that there is an urgent need for thoroughly re-thinking some key conventional wisdom in the debate on trade policy, and more broadly on globalization.

introduction | official history | history | comparison | lessons | references