The new attack on free trade

It is by Erik Reinert, How Rich Countries Got Rich, and Why Poor Countries Stay Poor; here is a home page for the book.  The title is misleading and sounds too monocausal.  Reinert’s well-written book in fact revives the arguments of Friedrich List, Henry Carey, and the 19th century protectionists.  In his view many forms of manufacturing are increasing returns to scale activities and help support civil society in the longer run.  Agriculture and the sale of raw materials are "Malthusian" sectors with diminishing returns and they are unable to create a stable middle class.  The solution of course is to stop pushing free trade upon the third world and thus allow it to develop.  Reinert claims Tudor England, 19th century America (though see Doug Irwin’s revisionist work), Bismarckian Germany, and pre-reform Latin America as data points on his side.  Unlike many critics of free trade, he does fully understand Ricardian and other theories of comparative advantage.

I don’t think his main claims are crazy and they are by no means theoretically impossible.  I wish however he had devoted more attention to the following:

1. Many other preconditions — most of all educational potential and some decent institutions — must be in place for tariffs to spur economic development in this manner.  Not all regions can create sustainable increasing returns to scale industries in manufacturing, tariffs or not.

2. Reinert cites many historical examples but doesn’t establish that they all apply, or apply with the force he suggests.  The book is a polemic, as might be written by an advocate of free trade.

3. On average the free-trading poor nations have had higher growth rates than the protectionists; see the work of Anne Krueger.  India is one obvious case of a miscalculated protectionism.

4. More often than not, tariffs and trade protection are abused for purposes of corruption and special interests. 

5. Reinert himself stresses that the proper growth path requires a later move to free trade.  This development is by no means automatic, given that protectionism creates its own special interests.

I’m still not sure why Dani Rodrik thinks that invoking 4 and 5 amounts to playing politics, or guessing at politics, at the expense of substantive economics.  I think of it as citing a downward-sloping demand curve in the time-honored tradition of political economy and public choice.  Like so much of modern economic thought, it comes from Adam Smith. 

No economist says "I favor a philosopher-King and here is what he should do.  I can’t tell you what he will do, that is politics."  Sub in "protectionist trade policy" for "a philosopher-King" and decide whether this sentence makes any more sense.


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