“THE CREATION, TRANSFORMATION AND MANAGEMENT OF MARKETS: THE INTERACTION OF GOVERNMENTS AND THE PRIVATE SECTOR – FROM ANTIQUITY TO ARTIFICIAL INTELLIGENCE”: A CENSUS OF THE BOOK “WORLD HISTORY OF PROTECTIONISM” BY ALI LAIDI, PASSES COMPOSES, SEPTEMBER 2022 (English Version to Appear Soon)
When I started my studies in international trade, the courses offered (at the universities of London and Chicago) were full of theoretical analyses whose aim was to convince students who were taking the courses of the superiority of “free trade” and to demonstrate how the policies that harmed this “free trade” were harmful and detrimental to well-being of countries and their people. At the basis of the theoretical analyses were copious references to the works of an Englishman, David Ricardo, supported by comments on episodes where, apparently, one could see the damage perpetrated by policies that limited trade, for example during the decade of 1930.
But, there was a small problem. Where was the serious examination of economic history (and the history of the policies that accompanied and formed that history)? And, since international trade can hardly be explained without reference to the markets within the borders between States, who were the actors responsible for the morphologies of the markets? Since the agents, public and private, who participate directly and indirectly in the creation, transformation and management of markets do not generally respond to the famous characterization of an “invisible hand” defined by Adam Smith, but, on the contrary, are very often entities quite other than “faceless”, why was in-depth research not carried out? What about the motivations and interests (economic or otherwise) of these agents and their choice of instruments to be used to achieve their objectives (economic or not)?
Professor Laidi’s magnificent book offers us answers to these important questions. And the answers are of a richness and contemporary relevance that deserve deep reflection, especially at this time when the world is at crossroads of political, economic, strategic challenges, including even the survival of the planet and its inhabitants. To guide us, and also to ensure thorough analysis, the author organizes his material into five main parts preceded by a brief but extremely important introduction.
THE STRUCTURE OF THE BOOK
The Introduction invites us to consider the issues of protection and protectionism; to take into account the fact, so often forgotten, that there is “no economy without politics”; that protectionism can be framed in a defensive as well as offensive way ; and that one can protect oneself in a violent way.
The first part establishes the premises, the framework and the contemporary setting. Its five chapters cross the historical terrain that starts from antiquity, passes through mercantilism, proceeds to the first industrial revolution, looks at the period after 1945 marked by economic liberalism and the resistance it generates, and ends with the present situation, marked by COVID and its consequences plus major geopolitical tensions. This approach makes it possible to highlight several messages at once. First, the means used to create and manage markets always depend on the objectives set by the governments and firms in question. Second, interactions between public and private actors can be of a cooperative character, a conflictive character, or even both at the same time, and are certainly capable of changing, or even reversing themselves entirely, depending on the circumstances. Third, since Antiquity, societies have tried to promulgate laws and regulations, at the national and other levels, to codify markets and their operations. The author does not fail to raise the many obstacles that the implementation of these legal frameworks has had to face to impose itself (and quite often not to succeed).
The second part addresses the eternal question of humanity – how to feed oneself? Each of the three chapters in this part takes a key product: cereals, salt, and rice. The mere fact of naming these three plunges us into a myriad of situations and paradoxes that have been both for our ancestors and for ourselves at the root of terrible conflicts, often of incredible violence.
Part III defines “the first globalization” through the prism of three agricultural products, sugar, coffee and cocoa, and the manufactured product par excellence, i.e. textiles. Once again, the social consequences of the development of these international markets, from slavery to the destruction of jobs and the impoverishment of large sections of the population in various continents, are at the heart of the analyses. Efforts to create institutional and legal regimes to counterbalance the many interests are handled with precision and insight.
Part IV focuses on the industrialization of the world and the corresponding trade and political needs generated by this process. Now we are in the fields of metals, the railway industry, chemicals, petroleum, and automobiles. Each of these sectors has witnessed dramatic reversals in the relative power of countries, and thus the use of fairly new instruments to manage markets.
The fifth and final part of the book leads us to what the author calls “the new protectionisms”, analysed through aeronautics, electronics and computers, and market services, particularly audiovisual and culture (defined in a broad way). It goes without saying that the content of the last part is precisely all the problems that we see constantly mentioned in the daily news and that constitute the agenda of regional and international meetings that seem to follow one another with extraordinary frequency.
TOPICS LEFT FOR A FUTURE BOOK
Despite the richness of this structure, it must be recognized that the book cannot address all the dimensions of the steps, nor all the steps. In particular, the enormous role played today by the financial markets is not analysed. These are, paradoxically, the freest markets as far as cross-border flows are concerned. These flows can create dramatic changes in exchange rates (and an accusation often directed at countries that manage to rapidly increase their exports of products and projects is that they have manipulated the exchange rate of their currencies). In itself, the fact that the movements of these markets are interpreted as strong indicators of the degree of “confidence” that financial agents may have in the economic management of a country, has a very significant influence on the trade policies of the country in question.
Some aspects of legal regimes are mentioned, but cannot be dealt with exhaustively within the limits imposed by a single book. Today, high percentages of international trade in many sectors take place within a single transnational enterprise (and its subsidiaries around the world) and within “corporate alliances” formed to ensure the production and distribution of particular products. The trade created by such structures is conducted at prices and under conditions determined by decisions taken outside the framework of a market in its traditional sense.
The benefits conferred by intellectual property laws, particularly patents, often play a crucial role in this kind of trade. A patent gives several monopolies at once, including the possibility of not producing in the overwhelming majority of countries where the patent is registered (let us not forget that the Paris Convention, the legal instrument that constitutes the cornerstone of the patent protection system, has been signed and ratified by most of the countries of the world and that the Convention facilitates the rapid registration of a patent submitted and approved in one member country in all member countries). Since the normal strategy for a company that carries out a rich activity in research and development is to create a series of patents around a key patent (patent clustering), the protection obtained is far from negligible.
More generally, the close link between foreign investment and trade implies that bilateral, regional and international investment treaties become elements that exert considerable weight on governments’ freedom of manoeuvre in relation to trade policies. One need only look at the polemics sparked by the inclusion of clauses relating to some of these agreements in drafts proposed by the EU and the US for the never approved trade and investment deal in 2016 to be convinced of the importance of this issue. It goes to the heart of the debate “who governs a country?” The public or the private sector?. In reality, as we know, the answer has nearly always been “both”. The real debate is about the details, in short “who governs what?”
Finally, the book makes only a few references to the international trade in banned products. Even if, by definition, it is impossible to give exact figures to the magnitude of this trade, it is probably a significant percentage of total international trade. Given that the oft-cited numbers consider that 30 to 35% of the gross global product is composed of products and activities prohibited by internationally recognized laws, one can imagine that illegal international trade is anything but negligible. Since this type of trade is frequently linked to normal international trade (for example, the transport of drugs by means of putting them in deliveries of licit goods), the problem becomes even less susceptible to accurate analyses. Having said all that, Professor Laidi draws our attention to the fact that questions frequently raised today were raised a very long time ago. Counterfeiting of textiles and clothing has always been a problem (“fake Indian calicos”). The practices of changing (decreasing) the quality of products (e.g. beverages) before exporting them are centuries old. There is no shortage of examples.
I refer to these points simply to emphasize, as does the author of the book, that many themes remain to be treated. But having said that, let’s take a good look at the richness of the arguments and practices analyzed in the book. I will try to do so by highlighting several points that I consider to be of paramount importance and to associate them with hot issues in today’s debates. Certainly the list I propose could be expanded, since the material collected by the author is vast. But I hope that the points mentioned below serve to demonstrate that protectionism should be seen in a context that goes well beyond the parameters often put as the necessary framework for a discussion.
SOME KEY LESSONS
- The objectives of a Company and its policies.
Athens sought to create a relatively democratic and peaceful society. Economic growth, in the modern sense, was far from being a major concern for those who governed. To ensure the pursuit of these goals, it was vital that the population be well nourished. But the food consisted mainly of cereals whose production was not easily realized in Athens itself. So, several policies were put into operation.
First, the state itself took control of the market. It set prices, accumulated stocks as protection against bad harvests, and established agreements with suppliers abroad. This range of measures was designed above all to avoid social revolts, the cause of which could be the lack of food. Was this approach enough? Of course not. Even in periods when Athens did not seek to pursue an expansionist foreign policy, it might have conflicts with grain suppliers. There was a need for sufficient military, not just diplomatic, capacity to ensure that critical imports would not be interrupted. And in periods of expansion? On the one hand, successful expeditions could, depending on the circumstances, improve the food situation. But the results may also be less acceptable.
The state thus lived with commercial policies aimed at the importation of key food, which generally tried to maintain supply through peaceful agreements and methods, and which organized internal markets according to state activity directed towards price controls. In more modern terminology, Athens can be defined as an entity that tried to manage the (quite considerable) risks of social problems through a combination of trade policy, internal market control, and military force to be used when necessary.
Curiously, Rome had the same dependence on cereals and it too was not a great producer. For this market, it put the State as a primary actor and practiced storage, price control, measures against the activities of private traders, and the rest. Nevertheless, since Rome was decidedly expansionist, was relatively open about the possibility of becoming a citizen, and the city kept had a growing population, crises were more numerous and difficult to manage. Laidi recounts how, in a particularly complicated period, Cicero was governor of Sicily, possessed large stocks of grain, sent them to Rome, and thus succeeded in strengthening his own political position.
It was Emperor Augustus who created a special institution, the Annone (the forerunner of an enormous number of similar institutions created at all public levels throughout history), to fulfill all the tasks related to food security not only in the city of Rome but throughout the empire: in other words, the Annone had its subsidiaries in every corner of the empire. In summary: “The Roman Annone policy represents a complex attempt to manage the problem of subsistence according to the moral principles elaborated by a long tradition of thought. The effort – and the calculated risk – is that of subjecting the exchange, on which the lifeblood of the city depends, to the social logic that organizes the community” (p.164).
- Fear of Foreign Dependence
It is a theme that is repeated everywhere and always, and that takes quite varied forms. It is present also in relation to food. Take the case of salt. Perhaps less important today, it had a critical role in the past. On the one hand the product was very important in itself, for direct consumption and health. But its use in the preparation of other culinary products, as well as its function in the preservation of food (e.g. fish), ensured that salt would be at the heart of the steps. The activities of Venice are particularly instructive in this respect.
In history there have been few cities to compete with the importance (and for such a long duration) of Venice. Trade, especially outside its borders and mainly in the Mediterranean, defined the economic and political life of the domain of the Doges. Being very small, even taking into account the Veneto region, the city needed to protect its own resources and sources of supply. Without a very large maritime force, both for the bellicose clashes and for the transport of products, the city was dead. Salt thus become a key issue in this context. It happens that the region around Venice was relatively well supplied with places for the production of salt. At first, while using institutional and legal instruments (called the Gabelle) similar to those of the Athenians and Romans, the city supplied itself with its own resources. But soon the decision was made to conserve its resources and look for salt elsewhere. The risks of this dependence , however, had to be minimized, especially because Venice’s sworn enemy, Genoa, had the same goals. How could these risks be managed? Certainly maritime power played a key role. It served to ensure that foreign suppliers respected signed contracts, to protect transport from piracy, and to prevent private actors from making efforts to break the monopoly exercised by the city state.
Over time, the panoply of measures operated by the Gabelle succeeded in producing great financial benefits. In other words: geopolitical power gave economic and administrative measures a freedom of maneuver which, in turn, allowed the system to flourish. The supply of salt was assured, the control of the market supported by force generated great profits, and the Venetians allowed themselves to create a remarkable empire. Of course, slowly the changing conditions destroyed this power and the city lost its place in the economy of the world. But the example illustrates how a small place that made a fortune from trade was able to protect itself against the risks posed by dependence on trade, using policies constructed to bias that trade in the direction that suited the city.
3. Violence and Trade
Unfortunately, there are many cases where trade, including the geographical direction of exports and imports, has been the result of violence perpetrated with the main aim of creating trade. Spaniards in Latin America (an example scandalously forgotten and even twisted by a Spaniard even last week when Josep Borrell gave his opening speech at the College of Europe in Bruges); the history of the British East India Company (masterfully told by William Dalrymple in his book “The Anarchy”); slavery; the desperately unfair trade agreements imposed by foreigners on Japan and China during the 19th century; and endless examples during the 20th century and more recently.
In addition to direct violence, latent violence (i.e. threats) has often been used to “encourage” the signing and ratification of written agreements designed to suit the needs of one of the signatories without offering equivalent benefits to the other. This often happens with agreements called “voluntary export restraints” (“VER”). This fine example of diplomacy through terminology was invented to protect internal markets and jobs, especially in OECD countries and in manufacturing sectors where new competitors have proved to be more competitive than traditional producers. Never mind that these VER agreements are totally contrary to the “principles” set out in international agreements. When brutal reality hits the markets, the needs demand that the markets be controlled. There is no need to comment further on this point. Laidi reinforces the principle that economics is very often decided by politics.
4.Contradictions are the rule
It is useless for a country or private interests to proclaim dogmas like “free trade”. Policies adopted at a particular time are always the result of existing circumstances. It is not surprising, therefore, to see that the United States, which preached the great liberalization of international trade after 1945, even then practiced many restrictions on this trade, at the same time as it maintained all kinds of limitations on the functioning of the internal market. The same goes for the EU. The Union has presented itself as a strong agent in favour of the liberalisation of international trade, but has never ceased to promote the interests of these members when negotiating agreements with third countries. Let me be very clear: it seems to me quite logical and reasonable for an individual or entity to protect its own interests (I am indeed a disciple of Adam Smith in this sense – and also in many others). But do me the favor of not being hypocritical and pretending that this behavior is to the advantage of all affected entities. The possibilities of “collateral damage” are always present. A great economist, Vilfredo Pareto, rightly drew our attention to the importance that those who are damaged can be compensated for their losses. The sad reality, however, is that this possibility, as Shakepeare said, “has been more honoured in the breach than in the observance.”
5. Lobbying Counts
The famous campaign of the 1830s in England in favour of the abolition of the Corn Laws, (illustrated by the poster of the time shown at the top of this article), was accompanied by one of the most remarkable lobbying efforts in history. Richard Cobden, coming from the manufacturing city of Manchester and acutely aware that the factories needed workers who could be cheaply fed (hence the imperative of allowing cheap food to be imported), was not only a tremendously successful lobbyist in his own country. Realizing that “it takes two to tango”, he understood that foreign countries too would need to liberalize. So he and his acolytes spent several years travelling around Europe seeking to convert governments and producers to the new theology. His efforts were not always successful, but they did largely kill off mercantilism and introduced a new and highly potent idea into policy making. Little did it matter that the long economic recession in Europe (lasting roughly from 1870 to 1890) pushed the fresh faith into the background as people ran for cover – the clarion call of “free trade” would reverberate ever after.
In more recent times, the lobbying by the pharmaceutical industry in the period when the WTO was being created constitutes one of the major efforts by an industry to ensure that its own specific needs are met during international trade negotiations. Since then, manifold similar initiatives have been taken. Now, indeed, it is often difficult to know where lie the frontiers (if any) between individual and global goals. These pressures, which within obvious limits, are entirely legitimate, make trade negotiations today a daily fact of life. Protectionism is always on the agenda.
AFRICA IN THE MAELSTROM
Today the continent is the one place in the world where a huge effort is taking place to encourage cross border trade, at one and the same time as new kinds of markets are being created and nearly all countries are seeking to adapt laws and institutions to cope with today’s realities and tomorrow’s opportunities and threats. So, what should we take away from the foregoing remarks? My view is that the message is simple. Look first at our own situations, and calmly focus on our priorities. Then arrange relations among ourselves to ensure the best advantages and the least damage. There will undoubtedly be ongoing and very intense external pressures, as parts of the world which are closing to each other seek to gain the most in more open African economic space. Building confidence in each other is crucial to effective development in the continent. In the final analysis, in trade as in all dealings, trust is that intangible but irreplaceable glue which holds things together.
All that has been said, by Professor Laidi and in these comments, does not deny the manifest benefits that international trade can bring to the well-being of peoples and countries. On the contrary, there are a great many exes who speak in favour of liberal policies. What is important to emphasize is the reality that, especially in a highly conflictive world, and at all levels, there is no single principle or approach that should represent the standard for which everyone must agree. Everyone can have their perspective – and that perspective will have its own dynamic. In his speech to the Communist Party Congress of China this week, President Xi Jinping elaborated the vision of the future that seems to direct the actions of this great country. In the same way, other countries and organizations display their aspirations and objectives. The challenge, as Professor Ali Laidi explains so well in his work, is to ensure that the policies chosen look after the interests of all.