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Monday, March 22, 2004
Written by: AnonymousMost of the context for how free trade helps or hurts a particular country is determined in the pre-free-trade-era, according to the successes and/or failure of the particular industrial policy pursued by that country. History tells us that both Britain and the United States reached unparalleled world economic power through the implementation of extremely protectionist industrial policies -- Britain through its mercantilist system and the United States through Alexander Hamilton's policies as furthered by Henry Clay's American System. I think these success stories developed in this manner for two reasons -- (1) a focus on the concept of relative economic power/advantage as discussed in my "Pieces of the Pie" post below, and (2) a focus on creating the conditions for exercising comparative advantage in certain fields once the free trade "game" began in earnest after World War II. Free traders often distort history by claiming that Britain and the United States achieved the economic power they achieved through free trade. That's simply a lie. Regardless of the merits of any economic theory, the rise of Britain and the United States occurred when both countries were pursuing protectionist industrial policies. One can argue that the rises would have been stronger or quicker had they pursued free trade, but the facts are the facts. It makes sense that a country's position in the free trade pecking order is determined by the conditions existing at the time the trading begins. Mercantilism and Hamiltonianism and the American System allowed Britain and the United States to build up certain industries in which they later enjoyed a comparative advantage they would not have enjoyed absent the protectionist buildup. If free trade had been the regime of the day in the late 1700s and Americans had played by those rules, it is quite possible we would have simply developed into the granary of Europe and nothing more. Incidentally, Britain's relative economic decline can be traced back to her embrace of a free trade ideology that allowed and encouraged competition in certain industries where she had previously enjoyed an artificial advantage. There may be no causal relationship, but the temporal one is simply undeniable, and questions must be asked. Britain has become much richer absolutely in the days since she embraced free trade dogma, but she has also become a second-rate power.
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