Since the 1990s, globalization has characterized the trend of market deregulation and liberalization; the movement of factors of production such as capital; and the restructuring of production chains accelerated by growth of communication and transportation. Ever since the end of the Bretton Woods’ fixed exchange rate system in the 1970s, financial deregulation and liberalization have increased, encouraging capital to cross borders. Since the 1980s, with the fall of communism in Eastern Europe and the break-up of the Soviet Union, developing states have regarded market liberalization more favorably in order to attract foreign direct investment. Developed states, such as the UK and the US, likewise have also shifted from Keynesian economics back to free trade. The trend of transnationalisation of firms in the US, Europe and Japan intensified in the 1990s and shifted to developing states. International trade has grown. However, transnational corporations — half of which are based in the US, China and Japan — control not only global production but 50% of world trade (O’Brien & Williams, 2016, p.125). It is often argued that despite the public proclamation and support for global liberalization of markets, states create barriers to constrain the free flow of capital, trade and technology. This essay explores the apparent contradictory co-existence of free trade and protectionism in the international political economy. However, this contradiction is inherently coherent with economic liberalism and economic nationalism. The argument draws upon scholarly literature that clarifies both ideological perspectives and provides further insights through a neo-Gramscian perspective, as analyzed through several developed states.
The first part of the argument outlines the perspective of 19th century writers in relation to free trade and protectionism. In this, it is observed that despite coming from opposing ends, there is similarity in the views of economic nationalists such as Friedrich List and Alexander Hamilton and economic liberalists such as Adam Smith and John Stuart Mill in that they agree there is a place for governments to engage in protectionism in a free trade regime. Further, classical mercantilists also do not intend for mercantilism to be directed towards the restraint of imports but rather believe that state intervention is necessary to create beneficial value to society. The second part of the argument examines the claims of contemporary writers that economic nationalism has been wrongly construed as related to protectionism. Eric Helleiner argued that economic nationalism should consider national identity, national loyalty and national prosperity, whilst Sam Pryke justified a wide range of economic measures in order to protect the domestic economies from free trade in an unequally globalized economy. The third part examines the tension from a class perspective, between the transnational hegemonic class and the domestic capital class, based on neo-Gramscian authors such as Robert W. Cox.
In this first part, the definition of economic nationalism will be reflected upon. Economic nationalism began to be used widely after the 1970s and a good starting point is the description by Robert Gilpin (1987, p.31) which is as follows: “…[the] central idea is that economic activities are and should be subordinate to the goal of state-building and the interests of the state” (in Helleiner, 2002, p.309). It seems that Gilpin intended economic nationalism to be used to further the interests of states, and this has been criticized by many. There are two general trends of criticism – firstly, whether economic nationalism can be equated with mercantilism, and secondly, the focus of economic nationalism should not be on the interests of the state or ‘statism’, but rather on the nation (Helleiner, 2002, pp.309-310).
The first criticism on whether economic nationalism is synonymous with mercantilism will be discussed in this part and the criticisms on ‘statism’ will be discussed in the second part.
Some international relations scholars have credited protectionism in the late 19th century to the influence of Friedrich List and Alexander Hamilton (Harlen, 1999, p.734). Hence, this is the starting point of economic nationalism. At that time, free trade was the prevailing ideology (Pryke, 2012, p.285). List and Hamilton supported free trade. However, they did not advocate it for their economically weak or politically divided states for national security reasons and also because economically strong states retained protectionist policies (Harlen, 1999, pp.734,739,741). List, in particular, advocated protectionism as an interim measure for agricultural states with the potential to industrialize, such as Germany, to boost its infant industries (Pryke, 2012, p.285; Helleiner, 2002, p.311). At the same time, he objected to protectionism being used by states that have either not reached that level of development (at that time, the tropical states) or by industrial states that have already achieved economic development (Harlen, 1999, pp.741-742). Hamilton also criticized the protectionism of industrialized countries that hurt American agricultural products, and the US was also not in a position at that time to force other states toward free trade (Harlen 1999, p.740). It can be observed that during the 19th century when free trade was strongly supported, states such as Germany and the US faced barriers to trade, and though List and Hamilton advocated protectionism, it was merely to level the playing field for Germany and the US and was not meant for other less developed or more developed states.
On the other extreme, economic liberalists generally supported the creation of wealth through specialization of labor without state distortion in order to promote a peaceful world (Harlen, 1999, p.735). However, Adam Smith and John Stuart Mill supported protectionism under certain circumstances. Like List and Hamilton, Smith supported protectionist measures where they are carried out to promote national security, and in that frame, he supported the UK’s Navigation Acts (Harlen, 1999, p.737). The Navigation Acts, which reflected mercantilism, were aimed at restricting trade of the colonies to within the Empire and to minimize the outflow of payment to foreigners as a measure to revive the catastrophic English trade (Wikipedia). In addition, Smith and Mill also opined that retaliatory tariffs are justified for protection and they also supported governments’ role in assisting the industry. Smith restricted the government’s support to those that would be the least harmful to others and believed that only a temporary monopoly should be granted, whilst Mill limited the support to a young and rising nation, on a temporary basis, to give time for fair trial as its people would not have yet acquired the skills and experience (Harlen, 1999, p.738). It can be seen that Smith recognized that national security could legitimize the use of protectionism whilst Mill also acknowledged that different levels of state development could be a valid reason for governments to promote industry. It does not seem that their views are too far off from those of List and Hamilton.
Thus far in this essay, mercantilism has been understood to refer to protectionism and erection of tariff barriers. Nonetheless, the term mercantilism has been misunderstood. According to Graz (2004, pp.600-601), classical mercantilism is in favor of state intervention for the pursuit of trade surplus in order to generate a socially useful potential. The objective, therefore, is not to restrain imports. In fact, restraint on the import of luxury goods would encourage domestic growth as follows: investment in the education of skilled labor; access to cheap primary goods; growth of manufacturers; and export of manufactured goods. It was thus argued that mercantilism is not intended to restrain imports of competitors and to promote exports in favor of the interest of the chartered company.
In this first part, it can be concluded that mercantilism has been misconstrued to merely refer to restraint of imports for monopolistic reasons. Nevertheless, even assuming this misunderstood meaning of mercantilism is applied, economic nationalists and economic liberalists would agree that protectionism could be acceptable in a free trade environment under certain circumstances. Despite this latitude allowed, there have been criticisms that economic nationalism should not be restricted to protectionism, and other possible measures that can be expended by governments under the heading of national interests will be considered in the second part.
In this second part, the criticism of the lack of ‘national’ in Gilpin’s definition of economic nationalism will be examined beginning with the arguments of Eric Helleiner and followed by those of Sam Pryke.
Helleiner based his argument on the fact that the nationalist aspect is missing from economic nationalism, and when that aspect is reinstated, this will enlarge the measures that states can take to further national interests. In fact, he pointed out that there were other 19th century economic nationalists who were largely ignored. For instance, Thomas Attwood supported macroeconomic activism and the use of an inconvertible currency to ensure the support of financial and manufacturing interests in domestic markets. For Attwood, this was important to cultivate national loyalty. Johann Fichte, on the other hand, encouraged national economic self-sufficiency to buttress against foreign trade fluctuations as he believed that this would serve the economic needs of the citizens (Helleiner, 2002, pp.314-319).
Finally, liberal economic policies themselves could also be considered to strengthen national identity or to bring about prosperity. Helleiner quoted the study by Trentmann (1998), which it showed that the British did not support free trade in the 19th century because of the liberal trade theory. Rather, the domestic groups supported free trade that was associated with values such as “liberty, free exchange, and national progress which they associated with British national identity” (in Helleiner, 2002, p.320). As further support, he also cited List, who commented that free trade gave Britain a world manufacturing monopoly which boosted its prosperity. Other nations also favored free trade for nationalistic reasons. For instance, nationalist leaders during the period of Latin American independence in the early 19th century associated trade restrictions with the oppressive Spanish colonial rule and thus automatically supported free trade (Helleiner, 2002, pp.319-320). Another example where national identity can be furthered through liberal economic policies is provided by Helleiner and Pickel (2005) in their example of nationalists in Quebec. On the one hand, in order to rely less on the rest of Canada and to maintain independence, nationalists chose the path of free trade and to establish a closer economic relationship with the US. On the other hand, they did not pursue national currency, which is normally the path chosen by nationalists (in Winters, 2006, p.239).
In Helleiner’s perspective, a state may, in its national interest, engage in macroeconomic policies, economic autarchy or liberal policies. At their core, these measures are intended to defend national loyalty, national identity or prosperity of its citizens.
Similar to Helleiner, Pryke considered economic nationalism as broader than merely protectionism. He defined economic nationalism as “a set of economic processes designed to create, bolster and protect national economies in the context of world markets” (Pryke, 2012, p.285). In this, he opined that governments should be allowed to step in and not allow their states to be controlled by the ambivalent market place. As examples of measures to be taken, governments should be able: to impose controls on imports in favor of their national champions; to fix currency rates; to direct investment to priority sectors; to engage in nationalization to establish state-owned companies; to prevent repatriation of foreign capital in the interest of the domestic economy; or to nationalize foreign companies. Pryke supported his view with a historical perspective where the actions of states were explicable by a form of economic nationalism. He perceived that, in the 1920s, there was no general departure from liberalism, though there were piecemeal price hikes. In that period, there were high barriers erected to protect national economies which continued to 1939. During the period leading to WWII, states either turned to fascism or, if they continued with free trade, they had measures in place to deal with its drawbacks. Immediately after WWII, states relied on Keynesian economics, which drew from aspects of economic nationalism. Notably, he also highlighted that South Korea, Mexico and Brazil developed their economies based on export promotion and import substitution policies, i.e. free trade and protectionism were pursued simultaneously Pryke, 2012, pp.285-288). In his view, economic globalization is uneven and at different periods or at different stages of development, as illustrated above, states will resort to economic nationalism measures.
In the second part, economic nationalism measures taken by states (or governments) have been extended beyond protectionism in order to defend national identity, national loyalty or national prosperity or to protect domestic markets from the ravages of the free market. Based on Helleiner’s reconceptualization of economic nationalism, there may not be a tension between economic liberalism and economic nationalism, as the latter could include the former. Pryke also provided historical arguments that both have co-existed, and the fact that economic globalization is uneven, this co-existence would continue. The third part picks up on Pryke’s argument that globalization is unevenly spread, and considers the class struggles from the neo-Gramscian perspective.
In this third part, rather than looking at the tension from the state’s perspective, the focus is turned on those governed in developed states, in an effort to analyze whether this provides any further insight of the co-existence of economic liberalism and economic nationalism in an unevenly globalized economy.
It is important to recognize that states do not govern or make decisions even pertaining to the international environment in vacuum. They are subject to lobbies and the struggles of different social forces within the state (Gale, 1998, p.277). Hence, there is a need to consider the advice of Robert Cox (1986) to apply “critical theory [which] stands apart from the prevailing order of the world and asks how that order came about … [and which] does not take institutions and social power-relations for granted but calls them into question…” (in Gale, 1998, p.269). For Cox, there is a need to understand how the structures of inequality — such as those of economic activity, markets and states — came into existence and are being transformed (Waylen, 2006, p.146).
In that, the neo-Gramscian perspective by Cox put forth that the production framework of the state gives rise to classes, bound by a common identity and with a capacity to common action. He identified a dominant class as a transnational managerial class that consists of a capitalist class, with the support of public officials in national and international organisations such as the Organization for Economic Co-operation and Development, the International Monetary Fund and the World Bank, which benefit from the maintenance of the interdependent system. Interestingly, Cox also identified a second class consisting of national and local capital. Those that have cast their sights on the global market will join the transnational class, leaving behind those whose fortunes are tied to the domestic economy and are dependent on state protectionist measures (Cox, 1987, pp.359-361).
Cox supported his view by an analysis of the economic crisis after 1973 in the US, where national capital lobbied for protectionist demands that contradicted the liberal world economy supported by the international sector of the US economy. This also explains the ambivalence in US trade policy; the executive branch of government would continue to make international commitments whilst there would be the ad hoc protectionist measures enacted by Congress (Cox, 1987, p.362). In other developed states, such as Germany, France and Japan, government and finance have been more closely linked to the development of post-war national industries. European states sought to focus on both export promotion and by forming the European Common Market (EEC), in order to provide scale for their national industries. The EEC was also a source of cleavage between transnational capital and local capital, the latter was concerned with their adaptability in the transnational restructuring of production within Europe (Cox, 1987, p.363; Morton, 2003, p.135).
Cox’s view of a transnational society has been refuted on several grounds, and for the purpose of the argument in this essay, only two relevant criticisms will be considered. Firstly, it was argued that a transnational structure does not exist in the international political economy and states are the only political authority to make decisions. Secondly, neo-Gramscians have been criticized for not considering the struggles between the dominant and subaltern classes in respect of material and ideological struggles that are capable of changing the nature of the contested territory (Germain & Kenny, 1998, pp.15-16,18). In response to the critiques, the nature of the dispute between transnational or international capital and local capital takes place in the state, and a clear example can be seen from the analysis provided by Cox of the state of affairs of US trade policy between the continuing struggle by the executive branch and Congress, which clearly changes the terrain and produces a solution that is neither fully liberal nor protectionist.
Further, there have been others who considered whether a counter-hegemon to the transnational class can be constructed. This would be based on common sense that is consistent with the popular belief, unites the subordinate classes and is ideologically coherent (Stephen, 2011, pp.216-217). In this, the ‘alter-globalization movement’ in cities such as Seattle was analyzed on whether it constituted a challenger. The survey results of the Pew Research Center show that there was no support for the alter-globalization protesters (Stephen, 2011, p.222). However, the same survey results (Stephen, 2011, pp.222-223) revealed a split view between citizens of developed and developing countries on transnational corporations depending on whether they are gainers or losers of globalization. This is coherent also with the results of a survey by Baughn and Yaprak (1996, pp.772-773) that shows the benefits of globalization are not equally spread throughout society, and economic nationalism could be considered as a valid response in light of stagnating wages and diminishing job security.
In this third part, it has been shown that the analysis of Cox’s neo-Gramscian view reveals a tension between a transnational capital class and a local capital class at a national level. Though there is no subaltern class that arises to counter the transnational capital on a global basis — as the ‘alter-globalization movement’ failed to gain support of the masses — it can be seen that there are those who are pro and anti-globalization. Hence, the contestation will most likely be observed at the national level, rather than on an international level.
In conclusion, economic liberalisation and economic nationalism continue to co-exist amid tension. For governments, the policy decision is not as clear cut as supporting free trade or intervening in the market. For earlier economic nationalist thinkers, such as List and Hamilton, free trade is an ideal state to achieve. However, they still support tariffs and protectionist measures in the interim to ensure national security. Even for liberalists such as Smith and Mill, they also accept the shortcomings of free trade. Helleiner argues that economic nationalism is important to defend national identity, national loyalty or national prosperity. Pryke emphasizes that governments should have economic measures on hand to protect their domestic economies from free trade, and that this is necessary as economic globalization is unevenly spread. Finally, in consideration of neo-Gramscians’ view of the global political economy, the transnational managerial class also co-exists amid tension with local capital. This can be observed in developed states such as the US and in Europe. Though there does not appear to be a counter-hegemon alternative to the transnational capital on a global basis, the tension between free trade and protectionism is likely to continue to be played out in the national terrain, especially in times of economic crises.
Karen Woo, B.Com., LL.B, PgDip and LL.M, is currently pursuing MA International Policy and Diplomacy with Staffordshire University, UK on a part-time basis. She is working in Malaysia with the telecommunications regulator on ways to promote competition. Previously, she worked on systems integration and subsequently, she was a consultant with KPMG. Her areas of interests include international issues relating to international relations, Internet governance, Intellectual Property and multilateral trade.
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