A professor at the University of Cambridge, the South Korean economist gave two conferences at the Institute of Economics and spoke to Jornal da Unicamp
South Korean Ha-Joon Chang, a professor at the University of Cambridge, is considered one of the most prominent heterodox economists today. Known for being a critic of economic liberalism, Chang has many admirers around the world, including in Brazil. Proof of this was the interest shown by Unicamp students and teachers in the two conferences presented by him at the Institute of Economics (IE), on the 8th and 9th of May. In the first of them, the auditorium was overcrowded and part of the audience had to sit on the floor. Chang's presence at the University is part of a series of events celebrating the 50th anniversary of the creation of IE.
Between one activity and another, the Cambridge professor took a break to speak to the Unicamp Journal. In the following interview, he addresses several issues, several of them related to economic development. According to him, contrary to what many think, the economies of rich countries advanced because of the adoption of protectionist policies, and not because they were based on free trade. “Only after their economies strengthened did these nations start to defend free trade,” he says.
Jornal da Unicamp – This is your second visit to Unicamp. How would you evaluate contact with the university community in this opportunity?
Ha-Joon Chang – I am grateful for the invitation from the Unicamp Institute of Economics to speak to its students and teachers. I could not have been more pleased with the public's presence and participation in my two conferences. Participants asked high quality questions. I was also happy because some of my books were adopted for reflection in subjects at the Institute of Economics. It is a pleasure to be here to participate in this moment in which the Institute celebrates 50 years of activities.
JU – In your work, you state that rich countries, although they defend free trade, developed their economies based on protectionist policies. How did this happen?
Ha-Joon Chang – Rich countries had greater autonomy to implement these protectionist policies throughout the 1980th century. They did this through unequal trade treaties in relation to more fragile economies. In the 1995th century, after the Second World War, a new space opened up, given the geopolitical context of the Cold War. This was when developing countries also adopted protectionist policies to promote nascent industries. This scenario will be reversed from the 20s onwards with the external debt crisis faced by many developing economies. In 30, with the creation of the WTO [World Trade Organization], the free trade policy was reinforced. As a consequence, over the last XNUMX/XNUMX years, we have observed the deterioration of industry in many economies.
JU – Speaking of the deterioration of industry, you have also warned about the risk of deindustrialization in emerging economies. In the case of Brazil, what are the dangers of the country sustaining its economy on the production of commodities?
Ha-Joon Chang – This phenomenon began in the 1980s. It is a phenomenon that a Cambridge colleague, Gabriel Palma, calls “premature deindustrialization”. The term classifies the drop in industry's participation in the economy even before the industrialization process has been fully consolidated. Brazil had one of the main manufacturing economies in the world. Until the early 1980s, the industry accounted for almost 30% of Brazilian GDP. After that, an important process of deterioration occurred. Currently, this share is around 10%. Industry is of great importance in the process of economic development. Once this sector is disrupted, it is very difficult to rebuild it and make it competitive again.
JU – In the recent past, whenever the need for investment in research and development in Brazil was discussed, South Korea was cited as an example to be followed. Is this model still valid?
Ha-Joon Chang – South Korea remains an important investor in R&D. It is among the top five investors in the world in the area, along with countries such as Sweden, Finland and Israel, when we consider R&D spending in relation to GDP. An important issue is that, once industrial capacity is lost, the country also reduces the demand for investment in research and development. The industry is closely linked to the development of new technologies. So much so that in the United States and England, for example, the industry accounts for 60% to 70% of investments in R&D.
JU – You call yourself a pragmatic economist. What is it like to defend a pragmatic economy in a totally polarized world?
Ha-Joon Chang – Being pragmatic in today's times, in a polarized world as you say, is very difficult because criticism comes from all sides. It is necessary to understand that there is no single development model. We need to be more pragmatic. Sweden, which is an egalitarian country, has a family that owns half of the country's corporations. In Singapore, where the economy is highly developed, the State owns more than 90% of the land. There are different models that responded to the objectives of each society.
JU – Speaking of society, do you consider that social well-being should be a premise or consequence of development?
Ha-Joon Chang – I think that development has to encompass both dimensions. It is very important that the social foundations are laid. Issues such as health, education and social stability of workers are fundamental for society to develop. At the same time that the economy advances, individuals realize that they have new rights and new demands. At this point, I agree with the Marxist perspective that considers that the needs of the population change as society develops. Economic development can bring positive consequences in social terms.
JU – In Brazil, governments have shown obsession with controlling inflation. The figure of a dragon that needed to be defeated was even created. You, however, criticize this anti-inflationary rage, saying that as important as controlling inflation is promoting the stability of production and development. Can you explain your position better?
Ha-Joon Chang – Obviously, a very high inflation rate, in the range of 40% or 50% per year, discourages investments and compromises the decision horizon. Many economists, however, say that inflation below 20% would not have a major impact on the economy, especially if the index hovers around 10%. This obsession with combating inflation harms other sectors. Behind the interest in keeping inflation low is the financial sector, which makes gains through contracts and investments in nominal values. In other words, low inflation is synonymous with an advantage for the financial sector. Policies that guarantee low inflation negatively affect industry. In Brazil, during the governments of the Workers' Party, governments with a progressive profile, this policy continued, which favored the financial sector more than the industrial sector.
JU – Returning to the issue of protectionism, in one of your books, entitled “Kicking the Ladder – The development strategy in historical perspective”, you say that rich countries used protectionist policies to develop their economies, but then kicked the ladder to that emerging countries would not reach the same level. In the case of Brazil, do you consider it possible for this staircase to be repositioned?
Ha-Joon Chang – All countries, once they manage to reach a higher level of development, end up kicking the ladder. The United States and England did this. Today, China has also been adopting this practice. What may be up to Brazil and other developing economies is to think about how to build their own stairs. Search for other fields, especially in the context of the emergence of new technologies. Advanced economies have an advantage over more backward economies, especially in relation to existing traditional industries. However, developing economies, including Brazil, can seek opportunities in new industries, mainly in the areas of bioenergy, new materials, etc.
JU – Finally, an issue that is not directly related to the economy, but which has implications for it. As a South Korean citizen, how do you see the rapprochement movement between South Korea and North Korea?
Ha-Joon Chang – I see this movement as positive. I'm pleased to be able to witness this. The division, which has persisted for 70 years, is still the result of the Cold War. Although this rapprochement is positive, there is a path full of challenges ahead. Even if a peace treaty is signed, several factors will still need to be worked out. A possible reunification will have to face complex issues such as different economic conditions, different standards of living and the specificities of each political regime. This process will certainly require a lot of time and dialogue.
