Free trade and protection: not alternatives, but always complementary

January 27, 2017 by Keith Hart

Sir James Steuart was a Jacobite exile who brought the term ‘political economy’ from Continental Europe to Britain. Almost a decade before The Wealth of Nations he published Principles of Political Economy in 1767. For advocating a free Scottish home market with initial protection from foreign predators, including England (this was 50 years after the Union!), he was soon labelled a ‘mercantilist’. But his strategy has some relevance now, especially for regions like Africa that are politically fragmented, economically backward and subject to financial and other kinds of imperialism. Rather than being seen as alternatives, free trade and protection are a dialectical feature of all economies, swnging variably between the extremes.

He rejected the idea that Edinburgh and Glasgow should be cleansed of ‘riffraff’ (a term for the informal economy popular among the elite then) by sending them back to the countryside. What the world needs least, said Sir James, are more farmers. By leaving home, migrants reduce the number of farmers. As long as people who seem to have no
jobs survive in the city, they generate demand for food supplied by the remaining farmers. With the money from commercial agriculture, farmers buy more manufactures and services, thereby letting the city economy grow, making migration from the countryside more attractive and accelerating the rural-urban division of labour.

As demand rises, so does labour productivity, but it starts from a very low level. The main threat to this benevolent spiral that we call ‘development’ is cheap foreign imports undercutting infant industries and commercial agriculture. The home market must be protected at first by high tariffs. But as local enterprises become more competitive, with some firms driving out weaker (as they would have been if exposed to the cold winds of the world market too early), the government can begin selectively reducing tariffs in strong home sectors while promoting exports. In this way the national economy will gradually join the world economy as an equal.

The system of national economy was developed by Alexander Hamilton and further by Friedrich List who famously told Germans, splintered as they were between scores of states, that they were condemned to be ‘hewers of wood and drawers of water’ for the British forever, unless they got their act together soon. Like the European Common Market/Union later, this took the form of building up the home market piecemeal for 50 years through a customs union and then forming a federal state based on an alliance between the Prussian army and Rhineland capitalists. The spur to all this was keeping the Austrians out, as well as the British global free traders (the first neo-liberals?).

Last year I contributed to a multilingual set of publications organized around the question, ‘Is there an emancipatory politics for the 21^st century?’ I wrote a chapter on Africa’s prospects called ‘Waiting for emancipation’ – https://www.opendemocracy.net/keith-hart/waiting-for-emancipation-prospects-for-liberal-revolution-in-africa – I argued for regional trade federations as a step towards a politically stronger Africa. This is not to be achieved by heads of government signing a piece of paper at Addis Ababa, but through decades of conflict over political forms and freedom of movement between classes and leagues of nation-states, Africans and foreign powers, including wars with insiders and
outsiders, against a shifting patchwork of alliances.

The editors told me they liked the piece a lot, but could I explain how you can have free trade and protection at the same time. Today’s Left has been brainwashed by the neo-liberals, so that they reproduce the dominant paradigm when opposing them. Sir James could have put them right. The political and economic scenarios change when old industries, including agriculture, are in decline and being undercut by cheap labour or more efficient machine production elsewhere. Then the majority of national consumers benefit from cheaper commodities and ideally displaced labour would find employment in newer and more efficient industries, as they have with capitalist expansion over the last two centuries. Transitions of this sort, however, are not without pain for capitalists, workers and the places where they live. The temporary solution is to emigrate, but many consider that to be rather drastic and prefer to stay at home, unless forced to leave by necessity.