Friday, 27 April 2012

This made me angry

In the Telegraph yesterday, Colin Hines wrote a blog defending his "progressive protectionism" idea from what he called the "extreme Right", by which he means Tim Worstall. Well, Tim has some strange ideas, but I wouldn't call him "extreme right". But that's not what made me angry. 
Colin describes his idea of "protective protectionism" thus 
" protectionism rejects the incessant mantras of more open markets and the need to be internationally competitive. Acceptance of these edicts as inevitable invariably results in politicians being forced to drive down tax rates, constrain social and environmental improvements and preside over the eradication of countless local jobs and small business opportunities.... protectionism would not involve a return to the oxymoronic protectionism of the 30s. Then the goal was often for each protected industry or country to increase its economic strength by limiting imports, and then hoping to compete and export globally at the expense of others. Unsurprisingly, the more countries did this, the less trade there was between them. Today’s example of a self-defeating economic approach is the ludicrous fantasies of export fetishists. They whistle in the dark trying to keep up the nation’s economic spirits by promising hi-tech export-led growth. In an era of rising Asian dominance, this has to rate as the last colonial delusion. 
The alternative to this is a progressive protectionism which will allow countries to wean themselves off of present levels of export dependence. It would enable the rebuilding and re-diversification of domestic economies by limiting what goods states let in and what funds they allow to enter or leave the country. Having regained control of their economic future, countries can then set the levels of taxes and agree the regulations needed to fund and facilitate this transition. National competition laws would ensure that monopolies didn’t develop behind protective barriers. Finally, there is an internationally supportive approach to trade with poorer countries, ensuring that the gains from the remaining international trade would be targeted to help fund the move towards a localised economy that benefits the poor majority. In essence, this approach will make space for domestic funding and business to meet most of the needs of society worldwide."
Now, I agree this is not easy to understand. For example, what is the difference between "limiting imports" and "limiting what goods states let in?" So let me interpret this convoluted piece of writing as I see it. If you disagree with my interpretation, please do give your alternative in the comments.
Colin's objections to the current system of international trade - "globalisation", as he calls it - are the following:
1. Free markets are bad.
2. Low taxes are bad.
3. International trade is bad. 
4. Small domestic businesses are good.
So Colin's progressive protectionism basically involves ending most international trade. He doesn't say what international trade would be "allowed" to continue, but he implies that there wouldn't be very much. To achieve this he proposes that countries should:
- "wean themselves off export dependence" 
- "limit what goods they let in AND what funds they allow to enter or leave the country" (my emphasis)
Translation: Countries should have import controls, capital controls and export barriers. Now if you have neither imports nor exports, and you have capital controls, you have a closed economy. I should point out that Colin castigates the import controls of the 1930s because they weren't coupled with capital controls and export restriction, so resulted in global competition for exports, not because he thinks import controls are a bad thing. 
Colin's idea seems to be that if you create a closed economy you can "set the levels of taxes and agree the regulations needed.....". Yes, absolutely you can do what you like, because you have no relationship with the outside world. It seems he would like North Korea replicated worldwide - a global system of autarkic states. 
But if your economy is so closed that you control all trade and financial transactions, and you have seriously restricted imports, how are you going to create an "internationally supportive approach to trade with poorer countries"? For poorer countries to get richer they have to export to richer ones - that way they get the income they need to develop their domestic economies. Domestic economies don't get richer all by themselves: a closed economy may create the ILLUSION of prosperity, but real prosperity comes from the redistribution of global resources that arises from good international trade. I would be the first to castigate the practices that keep poor countries poor - trade tariffs imposed by richer countries to protect their domestic businesses from competition from lower-cost businesses in poorer countries, international investors that remove capital from the country at the drop of a hat, strings attached to international aid, protection of international lenders at the expense of the people of the country (now where are we seeing that at the moment?), corruption in domestic governments, and above all, war.....But Colin's solution to all of those is not to address the issue, but to close the doors . And this is what made me angry.
You see, Colin doesn't actually want poorer countries to trade with richer ones. He wants them to develop "a localised economy that benefits the poor majority".  But a localised economy in a poor country can only be poor people trading with each other in local markets - subsistence farmers, one-boat fishermen, small craftsmen. What a lovely romantic image! What a truly charming picture! As Splinter Sunrise put it on Twitter last night: 
"there's a lot of this stuff going around about how we should help Tanzanians to remain poor subsistence farmers". 
What right have people like Colin Hines - rich people in the rich developed world - got to deny people in poorer countries  the opportunity to become richer and have a better life through exporting to richer countries? And to do this in the name of environmental protection and "improving social conditions", as well. Oh yes, it will improve the environment in poorer countries because they won't be able to develop their natural resources - their countries will stay pristine and undeveloped, like a Constable painting. And it will improve social conditions - in the richer developed countries which are losing business to poorer countries. 
I am trying not to swear (though I'm afraid I did, on my comment on the Telegraph article!), but I have seldom read anything that made me so angry. Global inequality, set in stone. Let the poor remain poor so the rich can remain rich. Absolutely appalling.


  1. Hi Frances, I'm afraid I'm having trouble working out how you make the step from having import controls, export controls and capital controls means a closed economy. Surely the import/export controls would imply tariffs on a limited selection of key goods. Capital controls also have a degree of flexibility on how they are applied.

    Another point here is that the best examples of countries lifting themselves out of poverty have done so using protectionist policies. Japan and South Korea being prime examples of this, both heavily protected their domestic markets in industries that their governments were hoping to develop only opening them up once those industries were ready to compete.

    At the heart of this kind of political thinking are two big problems, the first is that globalisation has certain distributional consequences that are undesirable. Freeing up trade may make eveyone on aggregate richer, but there are losers and in the UK it seems like the losers are unemployed young people living in old industrial areas (what Tim Worstall calls the "thick Northern lads problem"). The second problem is the trade imbalance problem, the UK has run a trade deficit for most of my life and this seems like a problem.

    Looking these two problems an industrial policy that makes use of a few protectionist policy tools presents what looks like a neat solution.

  2. There is one way you can get more capital into an autarky - conquest. What a wonderful world it would be where you have to go to war to make your nation richer.

    1. Only if you win. If you lose you end up destitute, enslaved or dead.

  3. Andreas

    You've made some huge assumptions there which can't really be deduced from what Hines has written. Where does he suggest that trade barriers would only apply to certain products and services and capital controls would be "flexible"? I've read his Comment is Free piece too. His ideas seem to be far more extreme than say quotas for certain products and services.

    In fact the rich world generally is already pretty protectionist: both the US and Europe have significant barriers to trade. I personally would like to see those dismantled, because I think it is absolutely disgraceful that for example the US limits imports of orange juice from poorer countries to protect its Florida orange growers. The World Bank and IMF have systematically skewed trade to benefit the US and Europe by insisting that poorer countries must open their markets to richer ones while failing to ensure that the richer ones do likewise. You think that even more protectionism is the answer to this?

    What do you think will happen to the thick northern lads in India if the UK puts up barriers to trade to benefit the thick northern lads in the UK? What right do we have to prefer "ours" over "theirs", especially as "theirs" are so much poorer than "ours"?

    Our trade deficit is someone else's surplus, and if that someone else is poorer countries that benefit from the fact that we import more from them than we export to them, then I for one am happy to run a trade deficit. I want to see living standards rise in poorer countries, and if that means that the UK gives up some of its wealth (which was at least partly accumulated through exploitation of those poorer countries, was it not?) then I am happy to accept that. I admit this is a personal view and many people will not agree with me on this. But the idea that the rich developed world should be even more protectionist than it already is I find simply revolting.

  4. Frances

    I was initially surprised that Hines published his piece in the Telegraph as it is suggesting policy quite contrary to the present Coalition of the Incompetents aka Dave and the Toffettes. But perhaps it is covert support for UKIP ....

    I am not really sure what side I come down on in this argument, although I do see the illogicalities that you have pointed out. Free trade is a powerful redistributor of wealth. The problem is, as you point out, that it is free to the rich as long as it doesn't upset their electorates or vested interests. In which case it becomes very much not free.

    At the moment - and for the foreseeable future - it is China that is playing that game as it is distinctly not free both in trade and currency.

    The rich world also runs the IMF and World Bank. When they jump in to 'rescue' a (probably) poor and undeveloped economy, the first thing they insist on is to dismantle trade barriers. Is this any better than gunboats?

    If we in some way were to enact a genuine free trade where the market waved some equations and established proper exchanges for all goods, the poor would get richer and the rich too, as Brandt/Heath's North-South suggested so long ago.

    But to have that would need World Government - and guess who would end up running it! (You may care to look at Maria's post on transnational corporations.)

  5. John,

    I made many of the same points as you in my answer to Andreas Paterson, above.

    I'm not convinced that dismantling the rich world's barriers to trade necessarily needs world government as such, though it would need much better cooperation among nations.

    But we certainly don't have free trade or anything close to it at the moment. My gripe with Hines is with his idea that the RICH world should increase its level of protectionism - he is clearly talking about developed nations imposing trade barriers and capital controls, since he then goes on to talk about supporting poorer nations to develop localised economies.

    I totally agree with Maria's comments on banking regulation. I opposed the Vickers ring-fence from the start because I do not think it will work and because it does not begin to address the real problems. My considered view for a long time now is that we need to move from regulating institutions to regulating and supervising the banking SYSTEM end-to-end. But that would require there to be a genuinely independent international regulator, which may be a pipe dream.

  6. Frances

    Agreed - and I had realised Hines was talking about the rich nations although it was none too clear. I also posted my comments on Vickers at TMP which I think will prove to prolong the recession we have now re-entered for a long time. (I will ask Maria to update the post on transnational corporations because the paper has been published now I think).

    An international regulator would be a good idea but unlikely to be agreed by all (any of?) the current national regulators. Of course the banking industry would point to Basel but that is just one set of chums patting another set of chums on the back, a bit like HMG. Or they may become stand-ups and have us all falling off our chairs by pointing to the World Bank/IMF...!

    We can only deal with our own currency (at least we have one) so my answer would be to regulate all banks that hold accounts at the BoE. I would also regulate the people not the banks as I posted recently.

    We can't stop other banks holding pound notes (nor would we want to as that is an interest free loan to us) and don't want to cause an exodus of financial expertise which is actually an asset to the UK apart from a few bad men.