Kristian Niemietz Blog

published on the Institute of Economic Affairs (IEA) blog, April 2009

I sometimes wonder whether anti-globalisation activists have some kind of automatic text generator, which works more or less like this: you enter an idea which you disapprove of, say “free trade”, and the programme then generates sentences embedded with words like “dogmatic”, “absolutist”, “blind faith”, “sacrosanct”, “totemic” and “evangelical”.

After that, you enter an idea which you do approve of, say “protectionism”, and the programme combines it with words like “flexibility”, “nuanced”, “intellectual honesty”, “challenging” and “questioning”.

Whilst I am sure that the latest piece by Noreena Hertz, “Is protectionism really all that bad?“, was not written by a machine, it certainly contains the kind of anti-free-market rhetoric one would expect from the author of The Silent Takeover: Global Capitalism and the Death of Democracy.

Ms Hertz’s suggestion for the developed world: “[P]rotectionism can be the lifeline a struggling country needs to survive. It can provide the breathing space an economy needs to retrench and retool its industries and workers”. And for the developing world: “[B]eing granted a period to nurture and tend to some of their industries may allow them to develop sectors with the requisite resilience to then withstand the rough and tumble of the global marketplace.”

And what about Smoot-Hawley tariffs and the collapse of world trade in the 1930s? According to Ms Hertz, in the 1930s global trade shrank simply because global demand shrank.

But if tariffs have no independent effect, then why does Ms Hertz want to enact them in the first place? I thought the whole point of tariffs was to hamper trade flows?

Ms Hertz also stresses that her championing of “temporary” protectionism for nascent or crisis-torn industries was not a plea for creating sealed-off economies. But her proposal suffers from the same problems as conventional protectionism; successful industries cannot be grown in an incubator.

A closed economy is not a testing ground for the world market; it is a very differently structured economy. Ms Hertz assumes that while an economy is still closed, the government already knows which sectors will prosper once the borders are open, when in fact the only way of finding this out is opening them up.

Judging from her use of vocabulary, Ms Hertz appears to think of government as a nurturing and mothering institution. But once we depart from this assumption and allow for self-interested actors in the political sphere, the case against protectionism becomes overwhelming. It can pay off for policy-makers to buy support by granting protection selectively, and it can pay for businesses to campaign and lobby for favours.

If we want to get out of the crisis and back on a stable growth path, it is essential that entrepreneurial effort goes into innovation and other productivity-raising activities, not into rent-seeking. Embracing either the old-style nationalistic protectionism, or the trendy international socialism promoted by Noreena Hertz and her followers could therefore be disastrous.