Studies in Economic Nationalism

3

AN ECONOMIST’S VIEWS ON INTERNATIONAL ORGANIZATION* (1950)

It is difficult not to be impressed by the fact that the quest for world organization carried out since the end of World War I was accompanied by a continuous growth of restrictions placed by governments of the various countries upon the economic intercourse between their residents and those of other countries. In consequence, the breakup of the world economy has been going pari passu with a growing concern over international cooperation in the political field. Therein lies one of the most basic contradictions of our times, a contradiction which is at the bottom of the frustrations of the past thirty years in the international sphere.

It is an elementary, but often forgotten, fact that policies of national governments have always been the principal obstacle to economic relations between people living in various countries, and that whenever these relations were free from governmental restrictions, equilibrium and balanced growth would follow by virtue of the spontaneous and anonymous mechanism of the market. Adam Smith clearly understood and brilliantly explained these relationships in The Wealth of Nations, but, of course, he did not invent them: the market is one of the oldest human institutions, and over centuries and millennia of experience one of the most successful ones. The fact that in recent years many politicians and even a number of economists lost confidence in the effectiveness of the market mechanism has not been due to the impact of new and decisive experiences. On the doctrinal side, the market mechanism has been the object of persistent attack by collectivist thinkers who prefer “rational” and “purposeful” planning by a centarl government to the “uncertainties” and “accidents” of the market place. Their faith in planning has, by the way, as little support in experience as has their distrust of the market mechanism. On the empirical side, the intricate mechanism of markets and prices has been interfered with increasingly by governments, and has therefore been less effective in the past two or three decades than it used to be previously and than it could be again. The results of these governmental interferences are not such as to encourage the belief that deliberate planning serves the cause of economic growth and prosperity better than the unplanned processes of the free market place. Indeed, to any dispassionate observer the opposite would appear as a far more likely conclusion to be drawn from recent economic history.

II

The growth of collectivism has led to a great increase in the scope and virulence of economic nationalism. There is nothing in that to surprise us. The collectivist philosophy places in the hands of a national government the powers of planning and directing the entire economic life of the country. These powers are limited to the territory over which that government is sovereign. Within that territory it can plan, it can persuade, and it can enforce; outside of that territory it has very little effective control. Is it surprising then that a collectivist government becomes impatient with the outside world and the developments which take place in it and which are beyond its own direction and control? Is it surprising that it wishes to “insulate” its territory from the rest of the world by all kind and manner of economic barriers, such as exchange controls, import quotas, and the like?

John Maynard Keynes, the great modern prophet of national self-sufficiency, expressed that philosophy of “insulation” very clearly in his essay on “National Self-sufficiency”.1

Even though Keynes himself has turned his back, toward the end of his life, upon those earlier flights of his fancy, they have remained the inspiration of the more sophisticated collectivists throughout the Western world. The Keynesians, whom, had he lived longer, he would very possibly have disowned, are promoting the notion that national planning is the mainstay of national prosperity, as well as of the security of individuals in each and every country. This all ties in with a collectivist approach to the problem of full employment, according to which, when it is stripped of its technicalities, jobs, and not goods and services, are considered the principal purpose of economic activity, and not, as in the classical liberal doctrine, the result of brisk and balanced activity of which the primary object is to satisfy human wants and needs.

In terms of internal relations in the collectivized or semi-collectivized countries, planned full employment is paid for in terms of important human liberties. 2 Nor is it at all certain that, short of going the whole way in the direction of totalitarianism, the governments inspired by collectivist doctrines will prove successful in maintaining full employment and economic stability by the means they are currently using or proposing to use. One of the reasons is that no country can fully achieve economic insulation from the rest of the world. Another reason is that people, being what they are, will not submit for any length of time to regimentation and cumbersome controls, unless they are forced to do so. It has often been said that the path of collectivism is the road to serfdom, and this seems to be confirmed by the growing empirical experience. That experience also shows that whenever collectivists have not succeeded in destroying the democratic freedom of their fellow citizens, these tend to rebel against regimentation and force extensive economic decontrols. The experience of Western European countries, including Great Britain, in 1945-1950 is very striking in that respect.

III

Cumbersome at home, collectivism is disruptive in the international field. During the past twenty years, depression and war helping, it has succeeded in destroying the delicate network of world markets and international prices, disrupted the stability of international monetary relations, broken up the economic integration the world had achieved to such a large extent prior to World War I and which it had regained, albeit very imperfectly so, in the mid-twenties. Human relations across boundary lines have become increasingly difficult. Cultural intercourse has been restricted by the effects of exchange control, and so has been one of the important human freedoms, the right to move from place to place, whenever national boundaries are involved. What an environment in which to seek world organization!

Having done a great deal to make international relations between individuals more difficult and less frequent, governments have set out to promote international cooperation among themselves. That the results have been disappointing, we well know and, again, there is little ground for surprise. Intergovernmental cooperation is acceptable to those concerned only if it infringes in no way upon their sovereignty. So limited, it becomes a mere bandying about of words and phrases. International conferences, whenever the hurdle of sovereignty appears, work on texts — not on policies — and agree on ambiguous phrases which can be all things to all men. No better example of this process could be given than the extraordinary document produced, as a result of three long international conferences, to serve as a charter for the proposed International Trade Organization. The purpose of that effort, it will be recalled, was to set out the “rules of the game” in the field of world trade, in view of promoting freer and more abundant commercial relations among nations. But whenever any government felt that one or another of its nationalistic policies might have to be discontinued or changed in view of the “rules of the game,” it insisted on appropriate amendments, qualifications, or exceptions to be made with regard to the rules themselves. The result was a document which codified every evisting economic malpractice in the name of “realism.”

What actually happened was that no government wished to commit itself to changing its policies or accepting limitations on its future freedom of action. It would have been far more candid had the ITO conferees rejected as impracticable the whole idea of drawing up a world trade charter. Instead they decided to pay lip service to the very principles which the detailed charter provisions violate in every practical application. The Havana Conference turned into a very illuminating and enlightening seminar in present day nationalism, and highlighted the role of collectivism as an obstacle to reaching meaningful international economic agreements.

IV

If national collectivisms and semi-collectivisms do not and could not add up to world organization, can it not be argued that the collectivist policies should be applied in a world politically united through federation or otherwise? This is a line of thought which is not infrequently encountered, one which puts political organization ahead of economic organization and assumes that the latter will take care of itself — presumably under the regime of centralized planning — once political unity has been achieved. If anybody has any doubt as to what such an international collectivism might produce in practice, he need only cast a glance behind the Iron Curtain and he will see what extremes of oppression and enslavement unbridled collectivism leads to, when it is backed by the power of a strong totalitarian nation. World organization based on economic collectivism, were it at all susceptible of achievement, would become the worst tyranny the world has ever known. When we speak of world organization, we surely do not regard that as an aim in itself, but merely as a means to safeguard the peace of free individuals. Peace at the expense of freedom would be the kind of peace that exists in a prison or in a concentration camp, and this, surely, is not what we are aiming at.

It world collectivism is to be discarded, and if economic nationalism is to be recognized as being a source of international division and friction, what then is the pat hleading to world organization as it may appear to a student of economics?

If international organization is ever to be successfully achieved under conditions safeguarding the freedom and the opportunities of the human individual, the importance of national boundaries, in terms of the everyday life of people living on either side of them, must be radically and drastically reduced. If national boundaries become mere administrative demarcation lines, if national governments have only limited powers over their populations, then one may hope to achieve international arrangements that are really meaningful and helpful. The first step then would appear to lie in a progressive but rapid suppression of economic barriers. This may sound like a reversion to free trade. It is, within reason. It may be considered as an attempt to revive the “dodo bird”; it may be branded as unrealistic or utopian. But is it not more unrealistic and more utopian to expect world order and individual freedom to be preserved under a regime of economic nationalism and collectivism? Is it not folly to expect governments which do all in their power to restrict, hamper, and frustrate international economic relations between individuals (and individual concerns), to advance, in conference with other such governments, the cause of a well knit and “integrated” world economy?

One of the most persuasive arguments used by collectivists relates to the pursuit of full employment. Because the world economy has been so broken up by restrictions and barriers, it becomes possible, superficially at least, to regard a country’s economic prosperity or depression as a national matter. The business cycle of the world economy, with its many regional manifestations, has been broken up into a number of national business cycles. Collectivists believe that they can maintain a high level of economic activity and of employment at home by means of centralized planning, provided they can keep out disturbing influences coming from abroad. National prosperity thus becomes the fruit of the national government’s wisdom, while depression comes to be regarded as an imported evil. Such an approach stands in sharp contradiction both with economic thought (which regards prosperity and depression as two organic, connected phases of the business cycle) and with experience, which shows how intricately economic developments which occur in one area of the world are linked with economic developments occurring somewhere else.

The public is led to believe that its economic condition can be made prosperous and secure by centralized planning, and is led to regard with suspicion foreign economic developments. Economic insulation, to which reference has already been made, thus becomes the politically accepted pattern of national economic life. The importance of the internaitonal division of labor, in terms of economic progress and of rising living standards everywhere, is being underplayed or brushed aside. Yet, this is the price which the “beneficiaries” of centralized planning have to pay for insulation.

Nor is it possible for any length of time to ignore the physical structure of the planet. Facts of life have a way of coming back with a vengeance. Those “undesirable” outside foreign disturbances, about which collectivists complain, are the inevitable result of the country’s being a part of the planet. Attempts are made at present to brand countries that experience economic depressions or setbacks as bad neighbors and a source of difficulties for all. Outside of international friction such an approach can bring no other results. In United Nations circles pressure is being put upon countries which have so far resisted collectivism, such as the United States, to adopt, in turn, the road to planning. Should this ever occur the results will be more than regrettable for those very countries which, like Great Britain, are able today to engage in collectivist planning, because they are recipients of foreign aid — aid which the United States is able to extend, because the dynamism of its economic life has not been crippled by centralized governmental planning. It is because the United States, Canada, and several other countries have resisted the collectivist drive, and because elsewhere — as in continental Western Europe — collectivism is receding, that the world economy is not in a worse condition than that in which it finds itself — and which, even so, is very precarious. Should the doctrine of centralized economic planning in the name of, say, full employment be accepted by each and every country, including the United States, the disintegration of the world economy will be completed, with a great aggravation of international frictions.

V

In terms of present day conditoins, it may be “unrealistic” to talk about a reversion from collectivism to liberalism. But it may be well to remember that it is the “realists” of today —and their elder brothers — who have brought the world economy into a condition of greater disruption and chaos than it has ever known. How far can one trust them then as advisers and counselors regarding the future?

To the present writer at least, it appears as quite certain tbat unless the power of governments to restrict international economic relations is curtailed, indeed unless the notion of centralized national economic planning is abandoned, we shall never achieve an integrated well functioning world economy, and the political organization of the world will lack its economic foundations. Experience would seem to indicate that these excessive powers of government cannot be effectively restricted by international conferences and conventions. The necessary conditions for a return to economic liberalism on an international scale can be achieved within the various nations only through internal political developments. Public opinion must be made to understand better that in the longer run growing standards of living depend upon the dynamic qualities of private business enterprise, upon the international division of labor, upon foreign investments and an expanding volume of international trade. Public opinion must also come to realize that high and sustained employment is the necessary outgrowth of high levels of economic activity; whenever it is regarded as an aim in itself, it has to be paid for in terms of both freedom and prosperity, whereas no such price need be paid when it results spontaneously from the free and smooth functioning of economic forces throughout the world.

In the past two decades far too much emphasis has been placed on institutional arrangements, and far too little emphasis on the actual policies pursued by those who participate in these arrangements. Too much has been expected from international conferences and international bodies and too little attention has been paid to the national policies of the participating countries. Yet, it is upon these policies that the success of the international arrangements — or their failure — ultimately depends. If the quest for world organization has been so frustrating so far, it is because outward professions of the wish to cooperate were rarely, if ever, matched by appropriate policies of the various national governments.

In the economic sphere it is government policies which have erected the greatest barriers on the path of international relations between (human) individuals. It is the market mechanism which creates world unity out of a multitude of business transactions. Let this market mechanism be revived, let economic forces regain the freedom to function, and a decisive step will have been made toward world organization, economic and otherwise. To say this, does not imply the acceptance of an extreme laissez-faire position either internally or internationally. Internally there are many functions that the government has to perfarm even in a liberal non-collectivist society.3 In the international field there will also be scope for a great many arrangements made jointly by the various national governments for the purpose of making the operation of world markets easier and smoother and the framework within which they operate more resilient and stable. But these are tasks for the future: the first task before those who wish to endow world organization with solid economic foundations consists in joining in a struggle against collectivism and economic nationalism in its various forms. In that struggle the first and foremost battlefield is that represented by the public opinions of the various countries of the democratic world.

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