Free Trade: Mythology versus History

“Since the end of the Cold War,” The Wall Street Journal wrote recently, “the world’s powers have generally agreed on the wisdom of letting market competition – more than government planning – shape economic outcomes. China’s national economic strategy is challenging this consensus.”

Indeed it does. It has confounded the world by the success of its combination of capitalism and authoritarian one-party rule and has shattered Francis Fukuyama’s reassuring illusion, conveyed in The End of History after the Berlin Wall came down, that liberal democracy is the only system compatible with modernity.

The fact is that the free-market model that Russia, China and other fast-growing nations are supposedly supplanting has never actually existed. The closer you look at how England and the U.S. became prosperous, the less you see of laissez-faire and the more you see of government intervention, beginning with Edward III in the fourteenth century banning the import of woolen cloths from Belgium and continuing through the half century after Lincoln’s presidency when the business-backed Republicans were in power most of the time, with tariffs at forty to fifty percent, the highest levels anywhere. Even after Woodrow Wilson elevated free trade in his Fourteen Points to a goal of U.S. policy, hefty tariffs remained in place. The fact is that none of today’s economic powers practised free trade during its developmental stage.

Today, in the U.S., the Pentagon, by paying for many research and development projects that private enterprise would be reluctant to fund, has helped to create three of the biggest export industries: commercial aircraft, military aircraft and computers. And everybody knows about the role of the state bailing out troubled components of the financial sector in the U.S. and elsewhere.

To quote Stephen D. King, the chief economist of HSBC: “Western governments have used the methods of state capitalism for hundreds of years in a bid to shape the world around them…. The idea that market forces alone led to the West’s success is nonsense.”

Source: John Cassidy in The New Yorker, December 13

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7 responses to “Free Trade: Mythology versus History

  1. David Schatzky

    It’s wishful thinking to believe that any one ideological approach can adequately address real life challenges. Belief systems aren’t very effective in dealing with reality. An ongoing dialectic between pragmatism and ideology may best address the ever-changing state of the economy, just as it may be the best way to address other societal changes and even personal change. And, in any case, we can only know after the fact, whether we took the “right” approach. All ideology does is provide a comforting re-assuring framework, an emotional security blanket, but it is illusory.

  2. The Free Market isn’t a belief system. It is the natural way of doing things. Busybodies, whether kings or guilds, mess things up.

  3. Elisabeth Ecker

    As far as I am concerned the invisible hand is all thumbs.

  4. David Schatzky

    Fred, the “natural” way of doing things takes us back to cave-man days!
    The powerful club the weak and take the spoils.
    It is survival of the fittest, or meanest, or greediest.
    Some regulation is needed to bring some fairness into the system, but sometimes even the regulators need a watchdog over them to make sure they’re doing their job and are not being influenced by the powerful.

  5. However laudatory the Free Market may be, it is no more the “natural” way of doing things than the barter system or, for that matter, hunting and gathering.

  6. Is there not a pretty substantial convergence between ideology and pragmatism? The absolute basics “do unto others…” and “love thy neighbour…” are wonderfully useful in a largely secular and pragmatic system of living together. It may be argued that they form the foundations for our systems of contract and tort law, respectively.
    Many seem to believe that their adoption for such worldly purposes was ordained by an “invisible hand” of some description. Others may prefer to think that it’s the evolved and refined result of thousands of years of common sense — the modern version of “the natural way of doing things”. I’m not sure it matters, unless one can’t keep warm without what David described as the illusory emotional security blanket.

  7. Elisabeth, you mean like invisible butchers’ thumbs on the scales?