Understanding International Relations, Third Edition

parties. This is very much in contrast to the eighteenth-century belief – present,
for example, in Rousseau and even in Kant, as well as, of course, in the
work of the mercantilists – that trade was necessarily an activity which
generated winners and losers. After Ricardo, economic liberals were able to
argue that the removal of restrictions on trade would be to the benefit of
all, because the general welfare would be maximized by the lowering of
barriers between regions and countries. Each country, by specializing in the
products in which it has a comparative advantage and engaging in trade, is
contributing to the general good as well as to its own welfare. This belief is
still at the heart of the ‘embedded liberalism’ of the modern trade system.
Ricardo provided liberals with a powerful argument, but he did not
silence all opponents. The key issue for opponents was (and, in a different
form, still is) the pattern of specialization established by free trade. If one
country has a comparative advantage in the production of industrial goods,
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and another in the production of agricultural goods, then the welfare of the
system as a whole is maximized if specialization takes place – but might
there not be other considerations involved here? One issue which features
largely in structuralist accounts of international relations, to be discussed
shortly, is the terms of trade at which products are exchanged, and whether
or not there is a trend moving against primary products. More important
for the moment is the power-political objection to the view that any pattern
of specialization is, in principle, as good as any other.
This argument was articulated by the American statesman Alexander
Hamilton in the 1790s in his ‘Report on Manufactures’ to the US Congress,
but the central figure here is the German political economist and liberal
nationalist Friedrich List, whose 1841 work The National System of
Political Economy (republished in 1966) is the most impressive attack on
liberal international political economy to be mounted in the nineteenth cen-
tury. List’s basic position was that in the conditions of the 1840s free trade
was a policy that would set in concrete Britain’s industrial pre-eminence as
the workshop of the world, leaving the German states – and others – in a
subordinate position as the hewers of wood and drawers of water for the
more sophisticated producers across the Channel. Because Britain was first
in the field it would have a comparative advantage in heavy industry. It
would therefore be cheaper for a country such as Germany to buy machine
tools and other advanced technology from the British – but the dependence
that this would create would turn the German states into second-rate
powers. Moreover, the British had not achieved their predominance by
following the precepts of free trade. On the contrary, British economic
strength was fostered behind many protective devices: the Navigation Acts
which obliged British trade to be carried in British ships; the Corn Laws
which protected the profitability of British agriculture; and so on. The
British, remarked List in an illuminating metaphor, were kicking away the
ladder up which they had climbed to their present position, denying others
the advantages which they had exploited.
His solution was to develop German industry behind a protective wall of
tariffs: the so-called ‘infant industry’ argument that the early stages of
industrial development can only take place if local industries are protected
from international competition. Perhaps when these industries grow up
they will no longer need protection – although List, along with many later
neomercantilists, envisaged a continuation of protection even after matu-
rity, because the industries in question would remain central to German
power and could not be exposed to the risks of competition. List’s wider
point here is that free trade and economic liberalism are generally promoted
as in the common interest by those who are satisfied with the existing
pattern of specialization. Those who, for one reason or another, are not so
satisfied will be sceptical.
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List’s argument assumes that patterns of specialization will not shift
rapidly. However, another objection to economic liberalism is based on the
opposite assumption, namely that open markets will lead to very rapid
change. This seemed plausible in the late twentieth century, where competi-
tion from the ‘newly industrializing countries’ very quickly undermined
many sectors of the old industrialized world. Liberal economic relations
rely on a willingness to adapt to change whatever the cost – but sometimes
the cost in terms of social dislocation can be very high. Consider, for exam-
ple, the run-down of the coal industry in Britain from the 1980s, with
over 200,000 jobs lost to foreign competition in under 20 years – similar
patterns could be observed throughout the developed industrial world. The
social dislocation this has caused has been very high, and it is by no means
clear that measures to slow down the rate of change ought not to have been
taken. Allowing the market to determine results on the basis of an abstract
calculation of the general welfare presents major political and social diffi-
culties. Modern ‘protectionists’ are not necessarily motivated by a desire to
preserve the nation’s power; they may, instead, desire to protect social and
community values – although it should be said that any kind of protection-
ism, including this social democratic variant, throws the costs of adaptation
on others and therefore cannot be innocent of nationalist implications. This
is one of the reasons why, until comparatively recently, Marxist writers have
been very suspicious of positions which were not based on free trade.
Karl Marx himself appears not to have contested the basic logic of
Ricardo’s argument. His point was to stress the extent to which liberal
economic relations were a recent construction and not part of the ‘natural’
way of doing things. He is bitterly critical of the ‘Robinson Crusoe’ style of
argument in which liberal economic relations are assumed to emerge natu-
rally on the basis of simple common sense – they are, instead, the product of
a particular way of life, a mode of production, which emerged out of class
struggle and the victory of the bourgeoisie over feudalism. However, once this
is acknowledged, Marx seems to be quite willing to recognize the achieve-
ments of the political economists, and held Ricardo in particularly high
esteem. That there were gains from trade was not contested by him, although
these gains were seen as accruing to the dominant class and not to the general
welfare of all. Moreover, Marxist political economists of the early twentieth
century observed that trade was very clearly no longer conducted on liberal
terms. ‘Finance capital’ dominated the state, and had a clear foreign policy
based on the use of tariffs to extend the national economic territory and
thereby allow national conglomerates to make monopoly profits. One of the
reasons why socialists should oppose this policy was because it went against
the requirements of internationalism, which included free trade.
In the second half of the twentieth century the commitment to free trade
remained firm amongst most of the small Trotskyite groups that survived in
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the West, but most other Marxists (and social democrats more generally)
made their peace with nationalism. In the Northern industrial world
‘labour’ and ‘social democratic’ parties found that a precondition for
survival was to advocate the adoption of political measures to put some
limits on freedom of trade. The basic political point here is that the gains
from protectionism are always concentrated, while the gains from free trade
are dispersed; conversely, the costs of protectionism are dispersed among
the general population, whereas the costs of free trade bear heavily on
vulnerable groups rather than the population at large. Other things being
equal – which, of course, much of the time they are not – protectionism will
be more politically popular than free trade. In the Third World, in particu-
lar, neo-Marxist theories of dependency or ‘structuralism’ were explicitly
and unapologetically anti-liberal in trade matters. These ideas are of suffi-
cient political importance that they need to be discussed at greater length.