States and MarketsStates and Markets

Nationalist Political EconomyNationalist Political Economy

Friederich List, 1789-1846

The National System of Political Economy, 1841

In this lectureIn this lectureA recap on the conception of mercantilism

List’s national political economy

critique of Adam Smith

conception of the role of the state in promoting development

historical context – Germany, England and France

List’s policy prescriptions

state and economy

power balancing alliances

the German Zollverein

From Theory to Practice

the US, Bismarck and Japan

Contemporary relevance

an antidote to free market capitalism?

Mercantilism RevisitedMercantilism RevisitedKey role for the state in controlling the economy

Self-sufficiency the ultimate goal of economic policy

National pride built on military force

National wealth assessed by the amount of gold possessed – the concept of “bullionism”

the need for trade surplus to ensure national prosperitytariff policy should protect domestic producersdomestic sea force to control foreign markets

Agriculture the basis of national food security (and the base of the fiscal system)

Importance of colonies as suppliers of cheap raw materials and markets for finished goods

Adam Smith’s critique of mercantilism and the new orthodoxy

Classical Political Economy

List as a proponent of a return to mercantilism

sort of, but not quite

Preface to The National System Of Political Economy

"I have been accused by the popular school, of merely seeking to revive the (so-called) 'mercantile' system. But those who read my book will see that I have adopted in my theory merely the valuable parts of that much-decried system, whilst I have rejected what is false in it; that I have advocated those valuable parts on totally different grounds from those urged by the (so-called) mercantile school, namely, on the grounds of history and of nature"

The Philosophical Context - List on The Philosophical Context - List on SmithSmith

Although largely critical, List acknowledged Smith’s contribution

Smith as the first person to undertake a comprehensive study of this kind

Smith as the originator of the science of political economy

Smith’s work should be built on and taken further, not simply rejected

Smith and the Depoliticisation of Smith and the Depoliticisation of Political EconomyPolitical Economy

mathematical theory requires simplicity

but the real world of economics is complicated

Smith’s Comopoliticalism

the theoretical economythe world as a single entity

List’s Political Economy

the real world of rival nations

Smith’s conception of nations as a relic of the past that would simply disappear in an age of enlightenment – Smith as a liberal utopian?

BUT

“It is a dictate of the law of self-preservation [for a nation] to make its particular advancement in power and strength the first principles of its policy”

Economies are national, not individual

government’s must decide what is best for the nation

and what is best for the nation might not be what is best for individuals

eg: building canals goes against interests of waggoners

Governments must intervene in economy

but not too much – over-regulation is a problem

Economies are national, not Economies are national, not individual – hence “national political individual – hence “national political

economy”economy”

Smith Paid Too Much Attention to Smith Paid Too Much Attention to Exchange, and Not Enough to Exchange, and Not Enough to

ProductionProduction

natural capital – land, sea, rivers and mineral resources

material capital – machines, tools etc used in the production process

mental capital - skills, training, industry, enterprise, armies, naval power and government

Smith ignored mental capital – “productive” members of society doesn’t include professors and teachers!

need to consider what will create wealth in the future

not justnot just scientific discoveries, advances in technology, improvements in transport, the provision of

educational facilities

but alsobut also the maintenance of law and order

All things being equal, developing

mental capital should be the most effective in the long term in developing

the nation

Britain, Germany and FranceBritain, Germany and France

UK laissez faire policy only promoted when it suited the UK

eg: promotion of free trade with British colonies because the terms of trade benefited Britain

elsewhere, if laissez faire policies didn’t help the national interest, it was simply ignored

eg: high tariffs on imports

English as “bullies” and “good-for-nothing”

For List, it was always England not the UK

Apart from Prussia

“all the rest of Germany had for centuries been under the influence of free trade... that is to say, the whole world was free to export manufactured products into Germany, while no one consented to admit German manufactured goods into other countries.”

British Dominance and German British Dominance and German Development Development

Napoleonic Continental SystemNapoleonic Continental System

Napoleon’s economic war against Britain

1806 Berlin Decrees prevented any ship from Britain from landing in French controlled Europe

1807 extended to Russia via Treaty of Tilsit and extended to any ship from a neutral country (effectively America) transiting

through Britain

Impact of Continental SystemImpact of Continental SystemNegative impact on Britain – deemed as a good thing by List

Reduction in exports

Reduction in corn imports – c.33 % rise in prices 1807-8

Reduction in wages and employment

Depreciation of Sterling and increased inflation

Ultimately negative impact on France

Reduction in gold inflows to France

Reduction in French custom’s revenue needed to maintain Napoleonic armies

Reduction or elimination of imported goods from British colonies particularly new

“luxury” goods - coffee, sugar, tobacco, cocoa, and cotton textiles

But beneficial to German states

growth of domestic industries where British imports had previously flourished

growth of domestic industries to service the large internal continental market

contrary to “free trade theory”, protectionism helped German development and bolstered the “national” economy

“national” cause Germany not a nation state yet

End of the Continental System, 1812/13

supremacy of British naval power

growth of German nationalism

renewed flood of cheap British imports into Germany

List’s Policy PrescriptionsList’s Policy Prescriptions

A recognition of power in the global system and the importance of power balancing

List as Realist ??

Initial conception of England as the problemcalls for an alliance of nations to counter England

Subsequent conception of the emergence of Russia and the USA as the new global powers

need to ally against them to stop them becoming hegemonic

call for an Anglo-German alliance

Delink from free trade until you are strong enough to compete

“any nation which owing to misfortunes is behind others in industry, commerce, and navigation... must first of all strengthen her own individual powers, in order to fit herself to enter into free competition with more advanced nations.”

State should protect and nurture the productive powers

not just about bullion, but developing industries, transport and infrastructure, education, laws etc

more than just traditional mercantilism

State Led DevelopmentState Led Development

Towards a United GermanyTowards a United Germany

History had shown the importance of a large market protected from unfair competition from the predatory trade policies of more developed states (ie: England)

German confederation of 1815 – 39 sovereign states

each too small to compete in the international economy

The ZollvereinThe Zollverein

The American National EconomyThe American National Economy

Exiled to the US for political views, 1825(and later returned to Germany as US consul)

Impressed by John Quincy Adams and Henry Clay's “American System”

active government promotion of agriculture, industry and science

continental integration through government funded infrastructure developmentsFunded by high public land prices and external tariffs…

“Abominable Tariff” of 1828

… which also protected domestic producers

Importance of state control of banks to direct lending in support of government identified strategic objectives

Alexander Hamilton and the First National Bank of the United States

strong state to fund national economic integration and development (and to fight wars!)

(List supported Hamilton despite his policy of tariff reductions)

Listian Ideas Post-ListListian Ideas Post-List

1844 “The Politics” (fourth book of “the national system”

Calls for establishment of German State with single currency and flag, strong navy, single government, strong state led development, new national system of roads, railways and canals

1846 Dies in supposed suicide

Otto Von Bismarck – First Chancellor of Germany, 1871-1890

establishment of German State with single currency and flag, strong navy, single government, strong state led development, new national system of roads, railways and canals

Japanese IndustrialisationJapanese Industrialisation

Toshimichi Okubo and learning from Germany

the origins of Japanese industrialisation in the early 20th Century

The Ministry of International Trade and Industry

the origins of the post-War Japanese economic miracle

Listian Political Economy TodayListian Political Economy Today

Dominance of neo-liberalism as a development discourse

and negative examples of autarkic economies

eg: Burma and North Korea

(but neither are “Listian” in any real way)

A critique of rational choice theory?

theory only works if the messy complexity of real life is assumed away

the reality of real political economy is messy and complicated

The disjuncture between theory and practice

free trade only promoted when it serves national interests

agricultural protectionism in the USA, the EU and Japan

but …..but …..

An alternative model of development

Notwithstanding the current orthodoxy, development in the USA, Germany, Japan and the “late” industrialising East Asian NICS all originally occurred under Listian conditions rather than under free market capitalism

Han Deqiang and China’s “New Left”

critique of the impact of Chinese integration into the global economy

explicitly refers to the works of List

http://www.multiworld.org/m_versity/articles/deqiang.htm

ReadingReadingThe National System of Political Economy

http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/list/national.html