The Return of Economic Nationalism

8/8/2019 The Return of Economic Nationalism

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Article 1: THE RETURN OF ECONOMICNATIONALISM

A spectre is rising. To bury it again, Barack Obama needs to take thelead.

MANAGING a crisis as complex as this one has so far called for nuanceand pragmatism rather than stridency and principle. Shouldgovernments prop up credit markets by offering guarantees orcreating bad banks? Probably both. What package of fiscal stimuluswould be most effective? It varies from one country to the next. Shouldbanks be nationalized? Yes, in some circumstances. Only the foolishand the partisan haverejected (or embraced) any solutions categorically.

But the re-emergence of a spectre from the darkest period of modernhistory argues for a different, indeed strident, response. Economicnationalism--the urge to keep jobs and capital at home--is both turningthe economic crisis into a political one and threatening the world withdepression. If it is not buried again forthwith, the consequences willbe dire.

DEVIL TAKE THE HINDMOST

Trade encourages specialization, which brings prosperity;global capital markets, for all their problems, allocate moneymore efficiently than local ones; economic co-operation

encourages confidence and enhances security. Yet despite itsobvious benefits, the globalized economy is under threat.

Congress is arguing about a clause in the $800 billion-plus stimuluspackage that in its most extreme form would press for the use of American materials in public works . Earlier, Tim Geithner, the newtreasury secretary, accused China of "manipulating" its currency,prompting snarls from Beijing. Around the world, carmakers havelobbiedfor support (see article[1]), and some have got it. A host of industries,in countries from India to Ecuador, want help from their governments.

The grip of nationalism is tightest in banking (see article [2]). In Franceand Britain, politicians pouring taxpayers' money into ailing banks aredemanding that the cash be lent at home. Since banks are reducingoverall lending, that means repatriating cash. Regulators are thinkingnationally too. Switzerland now favours domestic loans byignoring them in one measure of the capital its banks need to hold;foreign loans count in full.

Governments protect goods and capital largely in order to protect jobs.

Around the world, workers are demanding help from the state withincreasing panic. British strikers, quoting Gordon Brown's ill-chosen

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words back at him, are demanding that he provide "British jobs forBritish workers" (see article[3]). In France more than 1m people stayedaway from work on January 29th, marching for jobs and wages. InGreece police used tear gas to control farmers calling for even moresubsidies.

Three arguments are raised in defense of economicnationalism: that it is justified commercially; that it is justifiedpolitically; and that it won't get very far.

On the first point, some damaged banks may feel safer retreating totheir home markets, where they understand the risks and benefit fromscale; but that is a trend which governments should seek tocounteract, not to encourage. On the second point, it is reasonable forpoliticians to want to spend taxpayers' money at home--so long as thecosts of doing so are not unacceptably high.

In this case, however, the costs could be enormous. For the thirdargument--that protectionism will not get very far--is dangerouslycomplacent. True, everybody sensible scoffs at Reed Smoot and WillisHawley, the lawmakers who in 1930 exacerbated the Depression byraising American tariffs. But reasonable people opposed them at thetime, and failed to stop them: 1,028 economists petitioned againsttheir bill. Certainly, global supply-chains are more complex and harderto pick apart than in those days. But when nationalism is on the march,even commercial logic gets trampled underfoot.

The links that bind countries' economies together are under strain.World trade may well shrink this year for the first time since 1982. Netprivate-sector capital flows to the emerging markets are likely to fall to$165 billion, from a peak of $929 billion in 2007. Even if there were nopolicies to undermine it, globalization is suffering its biggest reversal inthe modern era.

Politicians know that, with support for open markets low and falling,they must be seen to do something; and policies designed to putsomething right at home can inadvertently eat away at the globalsystem. An attempt to prop up Ireland's banks last year sucked

deposits out of Britain's. American plans to monitor domestic banklending month by month will encourage lending at home rather thanabroad. As countries try to save themselves they endanger each other.

The big question is what America will do. At some moments in thiscrisis it has shown the way--by agreeing to supply dollars to countriesthat needed them, and by guaranteeing the contracts of Europeanbanks when it rescued a big insurer. But the "Buy American" provisionsin the stimulus bill are alarmingly nationalistic. They would not evenboost American employment in the short run, because--just as withSmoot-Hawley--the inevitable retaliation would destroy more jobs atexporting firms. And the political consequences would be far worsethan the economic ones. They would send a disastrous signal to the

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Article 2: ANATOMY OF AN IDEA

Barack Obama shuns the L-word. But his speeches brim with liberalideas and ideals. What is it about the doctrine that dare not speak itsname?

AUTHORS who defend liberalism must often struggle just to get theword out without facing incomprehension or abuse--even today. To theleft, particularly in Europe, liberalism means the free-market dogma of clever simpletons who created the present financial mess. TheAmerican right's complaint is quite different. Forget that Hamilton,

Jefferson and Madison fathered liberalism in the United States. For nighon 30 years conservative Republicans persuaded American voters thatliberals were godless, amoral, tax-happy hypocrites.

Intellectually, little of either charge makes sense. Twinned with"democracy", as in what the West stood up for during the cold war,"liberal" was a term of pride. Since communism failed, the case forliberal democracy has only strengthened. Think of outstandingalternatives: illiberal Russia, undemocratic China, populist Venezuela,and theocratic Iran.

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Odder still, put this question to people who live, or would like to live,in a liberal democracy: "Which of the following values do you espouse--personal freedom, rule of law, active but accountable government, freebut responsible markets, mutual toleration and equal concern for all?"It is a fair bet that people will tick most or all items on this list. Ask

them if they are liberals, on the other hand, and many will turncontemptuously away.

That 20th-century connoisseur of doublespeak, George Orwell, wouldnot have been surprised. Political language, it seems, has taken leaveof political facts. Alan Wolfe, a professor of politics at Boston College,thinks it time to reunite them. His welcome and readable essay laysout what he thinks liberalism really amounts to and why it demandssupport.

Liberal politics, on his account, is rooted in a view of what matters in ahuman life. A gifted guide, he opens with a brisk Grand Tour of theliberal tradition. Glimpses of leading thinkers and the human valuesthey argued for include Immanuel Kant (moral and intellectualautonomy), Benjamin Constant (protection from arbitrary power) and

John Stuart Mill (promotion of human individuality).

The link with politics is that those three values all involvefreedom. Whatever else it is, liberalism is about nourishinghuman liberty. Where liberals disagree is how that fits with asecond powerful ideal, equality.

Right-wing liberals contrast "classical", small-government liberalismand the modern, active-government kind. The one, so they claim,leaves people free while the other wrongly infringes freedom on behalf of equality. That story became popular in the 1970s, both as a historyof liberalism and as a view of government's limits.

Mr. Wolfe, like other left-wing liberals, finds the contrast historicallyinept and conceptually confused. Making enemies of freedom andequality ignores, in his view, the democratic presumption that any oneperson's liberty matters as much as the next person's. It is deaf also to

the fact that modern citizens' freedoms are often limited bybig social forces beyond their control. If all citizens are to be free inany effective sense, they require help from countervailing forces.Government is one such force.

If, the argument goes on, you take concern for everyone's libertyseriously; you will treat the proper scale of government as a matter of circumstance, not principle. At times, government is overweening andought to be cut back. At others, active government is required tosteady markets, help the needy or serve the public good. Putabstractly, government may be called on to foster or restore equalliberty. Pragmatic, socially minded liberalism of that kind underpinnedAmerican and British government, from the New Deal until Ronald

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Reagan, from Clement Attlee to Margaret Thatcher. It seems, fromnecessity, to be with us again.

Mr. Wolfe touches many topics. He defends liberals against the chargethat they seek, illiberally, to keep religion and morals out of public life.In his most policy-minded section, he traces how liberal commitment to

openness plays out with regard to free speech, immigration andtransparent government. He notes the illiberal undertow of what henicely calls "self-incapacitation books", or popular-science writing inbehavioural economics and evolutionary psychology claiming to showwhat little part reason and responsibility play in how we behave. Herebuffs the frequent charge that liberals are wobblers or dreamers. Thetrue liberal temper, he tells us, is realistic, ironic and disabused.

Through no fault of Mr. Wolfe's, this fine defense of liberal values risksseeming to lag behind the news. He completed his book before WallStreet imploded, the American economy slumped and Barack Obamawon the White House. Whether or not they buy the reasoning behind it,many readers will think Mr.. Wolfe's call for active government is nowmerely pushing at an open door.

Faster than anyone expected, the argument among liberals hasshifted. It is no more about active versus limited government, butabout what active government should be doing. On that Mr. Wolfecould have said more. No one with an open mind, however, can comeaway from "The Future of Liberalism" treating "liberal" as a term of abuse. Before long, who knows, even Mr. Obama may drop his reserveand embrace the word withpride.

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The Return of Economic Nationalism