Apr 16, 2009

Battle in Seattle

I just saw the movie. It makes you think. As Stolper and Samuleson would tell us, the demonstrators were right to protest, they were the losers of globalization. That protests end in burnin’ and lootin’ and violent clashes with the police is nothing new, or so I learned by reading “A splendid exchange” which traces back the anti-globalization episodes of the last 2000 years. You cannot blame the violence on the misunderstanding of free trade…even economists are still confused about it…As Bernstein, the author of the book, writes in the final chapter,
"the history of the 19th century casts doubt on the notion that trade is an engine of growth. Were free trade the path to national wealth, then the US, which for most of its history had sky-high tariffs, would never have prospered. The “golden era” of tariff reduction in Europe, from 1860-1880, should have been a time of much higher growth than between 1880 and 1900, a period of protectionism; in fact growth was higher during the later period. Also, after 1880, the economy of protectionist northern Europe grew faster than that of free trading England."
As Krugman, Rodrik and even Samuelson recently challenged the economic benefits of free trade (the Sachs and Warner results), advocates of free trade fall back on the peace theory argument, whereas trade reduces the probability of conflict (the EU being the best example)…and so does Bernstein himself who, after almost 400 pages of facts and informed stories on how trade has led to prosperity, writes a confused chapter on the recent economic papers on the trade and growth link!?! That came as a surprise.

At some point he writes, “The Danish experience remains to this day a powerful, though nearly forgotten, lesson on the appropriate government reaction to the challenge of global competition: support and fund, but do not protect”, talking about how the Danish government encouraged pork coops in the 1880s. But what does this mean in terms of today’s agricultural subsidies in the US and EU? Are they support or protection?

So what have I learned from this book? Trade has shaped the world we live in. I’ve learned about the mysteries of early refrigerated shipping, the Caribbean sugar trade, the corn laws debates, Vasco Da Gama’s violence, the silk routes, the historic importance of the straits of Hormuz and Malacca, the slave trade, the Boston Tea Party, the Opium trade, the Greek trade diasporas, the East-India company, the quest for the Spice Islands etc… All in all, fascinating.

Free trade is the worst system, except all the others that have been tried from time to time…And it will be challenged constantly over the next decades as "History does not repeat itself, but it does rhyme

1 comment:

yose said...

Question on how trade liberalization affects growth remains a mistery as studies gives different answers. I don't know whether it's because of the methodology or inherent in the problem itself. But micro question regarding trade shows more obvious pattern. Productivity at firm or sectoral level, for example. I am not aware of "good" studies showing negative impact of liberalization on productivity. Maybe we should look at micro level, instead of cross-country observations, to evaluate the effect of trade. It could be there are too many unobserved factors at the macro level.