ECONOMIC NATIONALISM AND INTERNATIONAL TRADE.
A contrast between economic nationalism and the free trade system is carried out. This includes a discussion of mercantilism, an early form of economic nationalism. The rise of the age of Enlightenment underscored the merit of free trade and many nations have since then abandoned mercantilism. The economic crises that have taken place in the U.S. and other major countries have given rise to a crude form of economic philosophy: economic nationalism. Two types of economic nationalism are identified and debated. It is argued that economic nationalism is part of the past and represents a setback to global economic integration, to the progress of humanity, and to the aspiration of people for a better world.
Keywords: Economic nationalism, Mercantilism, Free trade, Global integration.
Certain civilizations across history have witnessed and experienced growth in trade and economic development. Chinese, Roman and Arab empires, among others, once enriched civilizations and energized trade between their territories and other societies. The openness of these civilizations enabled them to flourish economically and to improve the welfare of their citizens. Trade and commerce were associated with the capacity of each civilization to revitalize and grow. Ibn Khaldun, a Medieval Arab sociologist, noted (2006, p. 318) "Crafts can improve if there is a need and demand for them. If a country becomes weak or in decline, where cultural and modern contributions decrease and the size of its inhabitants dwindle, luxury diminishes and its people restrict themselves to necessities." Moreover, Ibn Khaldun argued that when goods are imported from one country to another, they become valuable and merchants get rich. He also underscored the fact that engaging in crafts requires thinking and persistence in improving knowledge.
As ancient empires vanished and the center of power gradually shifted to Europe, a new era of reason began. This was labeled as the age of Enlightenment and was accompanied by a strong belief that free trade was an essential factor in ensuring prosperity and avoiding economic nationalism. At the time, countries in Europe were on the verge of economic expansion and growth. They needed raw materials and markets to absorb rising industrial production. Enlightened thinkers, such as Adam Smith, Thomas Hobbes, Francois Quesnay, among others, set the stage for rationalistic thinking and many were major advocates of the premise that the interest of the society is intertwined with economic prosperity. The latter was thought to be achieved through competition, private property, hard work, and innovation.
Adam Smith, in particular, criticized a form of economic nationalism or mercantilism. This is because mercantilism, in spirt and practice, is the exact opposite to free trade. Indeed, mercantilism conveys that a country must accumulate wealth by limiting imports and increasing exports. In addition, mercantilism implies the colonialization of other countries so that raw materials are obtained cheaply and manufactured items are exported to colonies at high prices. Mercantilists, indeed, had a dark view of international trade and were driven by raw nationalism.
FORMS OF ECONOMIC NATIONALISM
Today's mercantilism is promulgated as a type of economic nationalism. Its advocates have projected it as a panacea for national deficit and ensuring national greatness. Sir Norman Angell (1911, 1933) argued that economic nationalism and obsession with national interests hinder the growth of trade and obstruct the goals of free trade. Angell, in addressing economic nationalism and protectionism, stated that "we entangled the world in difficulties which threatened civilization. No one desired the consequent chaos, universal misery and ruin. But we persist in the pursuit of policies which inevitably produce these results."
Economic nationalism takes two forms. Both forms often overlap and are not exclusive, as their advocates normally act according to emerging priorities. The first form is managed economic nationalism, which calls for protectionism, limiting imports while increasing exports, restricting immigration, and underscoring the ills of globalization and its threat to national security and economic revivalism. In his inauguration speech President Trump (2017) stated, "We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection will lead to great prosperity and strength." His chief strategist, Stephen Bannon, articulated economic nationalism when he argued, "[What] I refer to as economic nationalism, and that is. . . rethinking how we're gonna reconstruct the--our trade arrangements around the world.. . . But I think we--the center core of what we believe, that we're a nation with an economy, not an economy just in some global marketplace with open borders, but we are a nation with a culture and a--and a reason for being" (quoted in Blake, 2017).
The second form is aggressive economic nationalism. This type incorporates the elements of the first form, but aggressively projects military power and views greatness in terms of raw military and economic power. It promotes militarization and expanding military activities across the globe. According to Angell, war and militarization eventually weaken the economic stance of any nation pursuing them. This is because "military and political power give[s] a nation no commercial advantage; that it is an economic impossibility for one nation to seize or destroy the wealth of another, or for one nation to enrich itself by subjecting another."
Both forms may encounter strong resentment abroad, and even at home, and eventually contradict the achievements that mankind has made in the last few decades in technological advancement, foreign direct investments, and international trade. In fact, it is impossible to assume that knowledge and technological development can be contained within national borders and that national sovereignty and protectionism lead to greatness. Both forms may constitute a regression to earlier stages where raw nationalism led not only to economic disasters, but also to a waste of cherished resources. More likely, either form of today's mercantilism is destined to failure and, in spite of how rich a country might be, will be costly. The cost should not be treated solely as an economic one, but should primarily consider the effect on consumer wellbeing in general.
Economic nationalism severely restricts consumer rights to choose by limiting imports and imposing high tariffs on commodities that are in high demand in the domestic market but are imported. Furthermore, by limiting immigration or worker permits, especially in agriculture and high-tech, consumers could be left with few options and more likely with higher prices. Likewise, by limiting immigration, there is the high possibility of impeding innovation and economic growth and preventing a country and its MNCs from having access to needed talent.
In addition, advocates of economic nationalism assume that growth and economic prosperity of other nations take place only at the expense of their own countries. They view international trade as a zero-sum game and that the size of the world's wealth is limited. That is, the economic progress in other countries is achieved at the expense of their own nations. This is a dark view and ignores the advancement that human beings have made on their journey to a better future.
Other devastating premises that today's economic nationalism assumes are other societies or nations are passive or submissive actors; MNCs, being domestic or foreign based, are just tools for global power; and free trade is a burden rather than an opportunity and a means for revitalizing and energizing the world economy. From geopolitical perspectives, today's progress, from Iran to China and from Brazil to Australia, takes place as people feel proud of their achievements and are inspired to seize opportunities in the global marketplace. Many countries have benefited from engaging in the global economy and in contributing to building a global trade regime that is inclusive and breaches barriers to free trade. Indeed, the establishment of the World Trade Organization and many agencies within the UN, attest to the popularity of free trade and to the willingness of many countries to promote and be part of a globally connected economy.
Cobden's remarks of 1860 seem as applicable today as when he wrote them (see Morley, p. 343): Nobody has fully grasped the bearings of Free Trade, who does not realize what the international aspect of every commercial transaction amounts to; how the conditions of production and exchange in any one country affect, both actually and potentially, the corresponding conditions in every other country. It is not Free Trade between any two countries that is the true aim; but to remove obstacles in the way of the stream of freely exchanging commodities, that ought, like the Oceanus of primitive geography, to encircle the whole habitable world. In this circulating system every tariff is an obstruction, and the free circulation of commodities is in the long run as much impeded by an obstruction at one frontier as at another.
While it is important to keep in mind that tariffs are obstacles for optimizing societal welfare, especially for the developed world, economic nationalism in the final analysis is an ethnocentric approach to solving business issues in an interdependent and connected world. In a marketplace where connectivity is a fact of life, any action that might harm others instantaneously becomes public knowledge. Furthermore, economic nationalism does not create an environment for genuine economic revitalization where competition and sovereign consumers are instrumental in motivating companies to improve the quality of their products and to be innovative. In such an environment, complacency can take root and companies suffer from inefficiency. That is, economic nationalism represents a regression into the past, while free trade is a natural evolution of a trade system that coincides, at the present time, with the aspirations of people for economic prosperity.
MAKING THE CASE FOR FREE TRADE
Since the eighteenth century, the debate on free trade has been dominated by those who underscore the vitality of the free market economy and those who are either nationalists or socialists who are dissatisfied with the free trade system. After the collapse of the Soviet Union, advocates of the free market economy celebrated the collapse of communism as a system and felt that this event was a turning point in history, validating their arguments and the principles behind them. The fact remains, however, that there are positive and negative consequences for any economic regime. Without certain guidelines and the sensitivity of the industrial world to emerging challenges and questionable practices by MNCs, free trade movement may result in unintended outcomes. In this particular case, the free market economy enables trade to move across nations, but, due to various forces that dominate the market, some segments in a society can be hurt socially/economically or be left behind.
In developing countries where most industries are at the infant stage and the agricultural sector is dominated by families farming their lands, commodities that are produced in industrial societies by large MNCs and are exported to these nations eventually push manufacturers and farmers out of business. In agriculture, farmers in these societies often are not familiar, for example, with the consequences of using genetically modified (GMO) seeds and thus may lose traditional seed crops that have been utilized for centuries. Farmers thus become dependent on GM seeds provided by MNCs. Though, in Europe, governments and the people are aware of the health hazards of GMO foods, in most developing nations neither governments nor the people have adequate knowledge of the consequences.
The most important issues that developing countries face are brain drain, cultural changes, and building sound institutions. MNCs are instrumental in reducing barriers to trade and minimizing tariffs. In operating in developing countries, they attract skilled and knowledgeable employees. Many of these employees eventually move overseas for better business opportunities. These countries have, therefore, a shortage of their most significant development factor, i.e., a talented workforce. Likewise, in opening their markets to the global marketplace and to MNCs, developing nations are destined to experience an erosion of some of their cultural traditions. In merging their economies in the global market, developing nations risk diverting resources that are essential for building institutions that meet the regulations and restrictions that are needed to participate in the global economy. Rodrik (2001, p. 54) asserted, "By focusing on international integration, governments in poor nations divert human resources, administrative capabilities, and political capital away from more urgent developments such as education, public health, industrial capacity, and social cohesion." He further argued that "Global Integration has become, for all practical purposes, a substitute for a development strategy."
In a developed world, MNCs search for opportunities for expansion across the globe. While it may be to their advantage to close out factories in their own countries and establish factories overseas where regulations do not exist or are at a minimum and labor cost is low, workers in the home countries face the loss of jobs or much lower wages than what they once had. This particular development has produced in certain industrial nations not only a backlash against global economic integration, but also dangerous social trends where citizens publically voice their prejudice against minorities and immigrants and occasionally target immigrants.
The above negative consequences, however, should not ignore the fact that free trade has contributed to economic growth and development in many countries. Its benefits have reached population segments in various quarters of the globe whose voices and aspirations have never been counted. It has lifted some segments from poverty and has improved their economic welfare. As such, in highlighting the benefits of free trade, one should not focus primarily on the economic gains. There are social, political, and technological benefits that are correlated with the free trade system.
Socially, societies which interact with each other become familiar with the cultural priorities, nuances, and traditions of their counterparts. Such familiarity deepens friendship and further eases communication and interactions. In East Asia, this interaction has enabled business people to forge alliances and made it possible for ordinary citizens to enjoy the benefits of social and cultural dealings. Furthermore, politically, the intensity and flourishing of trade among countries can make the risk of war a far reality. Indeed, as countries intensify their economic interactions, it is more likely the emphasis will be on improving the wellbeing of citizens.
Likewise, free trade makes knowledge transfer and dissemination less difficult, intensifies curiosity, and speeds up the rate of innovation and discoveries. That is because, as Wilkins (2005) argues, moving internationally, through MNCs, are business culture, practices, perspectives, and information. She argued (p. 65) that MNCs that are vehicles of international trade disseminate a "framework of new practices that might be called education in innovation, education in management, and education in processes and procedures."
Current political developments and tragic events that have taken place recently demonstrate that free trade is, at this time, the best hope for human beings to realize their aspirations without fear of violence and retribution. Indeed, in an open trade regime where civility and trust are sanctioned and appreciated, societies flourish economically and socially. It is free trade rather than mercantilism that is sure to optimize the economic welfare of citizens across the globe. Events in the last and our current century strongly demonstrate that human beings are better off when trade is conducted openly and nationalistic tendencies are kept in check.
Blake, A. (2017). Stephen Bannon's nationalist call to arms, annotated. Washington Post. Retrieved from https://www.washingtonpost.com/news/the-fix/wp/2017/02/23/stephen-bannons-nationalist-call-to-arms-annotated/
Morley, J. (19881). Life of Richard Cobden. London: Chapman and Hall.
Rodrik, D. (2001, March-April) Trading in illusions. Foreign Policy, 123, 54-62.
Trump, D. (2017). The inaugural address. The White House. Retrieved March 2, 2017 from https://www.whitehouse.gov/inaugural-address.
Wilkins, M. (2005). Multinational enterprise to 1930: Discontinuities and continuities. In A. D. Chandler & B. Mazlish, (Eds.), Leviathans: Multinational corporations and the new global history. Cambridge: Cambridge University Press, 45-79.
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|Author:||Ali, Abbas J.|
|Publication:||Journal of Competitiveness Studies|
|Date:||Mar 22, 2017|
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