“Laissez-faire,” French President Nicolas Sarkozy recently declared, “is finished.”
Perhaps, but should we really be satisfied if he is right? If laissez-faire has run its course, what will possibly replace it as the foundation of an open, global society?
Now, more than ever, it is worth remembering that the last great financial crash not only inspired the New Deal in the US, but also plunged the world into a new dark age of economic nationalism and imperialism. Free trade is far from perfect, but the alternatives are worse. Protectionism is bad for wealth, bad for democracy and bad for peace.
Yet a new wave of protectionism is a genuine danger. US president-elect Barack Obama, appealing to swelling protectionist sentiment among Americans, threatened during his presidential campaign to unilaterally rewrite the North American Free Trade Agreement. In July, the WTO’s Doha trade round fell to pieces — partly because the US refused to lower its agricultural subsidies.
The world is on a slippery slope toward nationalism and exclusion. If a government can step in to bail out failing banks, then why not to protect its failing businesses or farmers as well?
We need a new deal for trade. There is now widespread talk of a “Bretton Woods II” that would restructure global finance, promote sustainability and offer developing countries “aid for trade.” But to be effective, any new deal to promote trade must involve more than a new set of international institutions. It requires democratic reform from the bottom up.
In fact, this requirement is rooted in history. We have become so accustomed to thinking of free trade as a specialist matter for liberal economists and trade negotiators in dark suits that we forget how, a century ago, free trade was a core belief for many democrats, radicals, women activists and, indeed, organized labor.
Back then, Britain was in a position not unlike that of the US today: a superpower in relative decline, facing new competitors and a backlash against globalization. In the late 19th century, all powers raised their trade barriers — except Britain.
Britain’s stance holds lessons for today. Most economists stress the superiority of the free-trade model and point to the power of lobbies and interest groups to explain its unpopularity in practice. As US Federal Reserve Chairman Ben Bernanke has argued, trade expansion inevitably creates some losers whose protests distract attention from the benefits of globalization.
This is true, but it is only half the story, for it ignores how, at crucial moments in history, free trade has mustered the support of the many winners.
A century ago, during an earlier crisis of globalization, the demand for free trade in Britain inspired a genuine mass movement. It was not just a cause dear to bankers, merchants or the young John Maynard Keynes. It mobilized millions of people. For women, who remained disenfranchised, free trade was a kind of substitute citizenship: Parliament safeguarded their interests as consumers by keeping the door open for cheap imports. For many democrats, it was a force for peace and social justice, minimizing the power of special interests and teaching citizens about fairness and international understanding.
We should not romanticize this earlier era of free trade. Poverty did not vanish. Many British people believed in a “Free Trade Empire.” Others fanned the flames of Anglo-German antagonism, caricaturing protectionist Germany as a barbarian society surviving on horse sausages and dog meat; Lloyd George, the future British prime minister, told audiences that he was more afraid of the German sausage than he was of the German navy.
One reason that free trade defeated protectionism in Britain a century ago was that its supporters appealed to people’s emotions and identities, not just their rational interest in more wealth and cheap food. Liberals and radicals organized traveling shows, color posters and political entertainment. In towns, displays in shop windows illustrated the costs of tariffs to ordinary consumers. In the countryside, people watched political slide shows late into the night. Meetings in seaside resorts reached almost a million people in 1910. When was the last time you went to the beach and found yourself pulled into a debate about tariffs?
World War I and the 1920s shattered any naive belief in pure free trade. Like today, consumers discovered that markets could leave them helpless, leading to calls for regulation. Internationalists had to come to terms with the simple fact that, on its own, trade did not automatically enable peace. Economic globalization had outpaced politics, creating new tensions over oil and other strategic resources. Political institutions needed to catch up.
Bretton Woods and the General Agreement on Tariffs and Trade (GATT) created a new order after World War II. In economic terms, they have had considerable success. Tariffs have fallen, although non-tariff barriers and preferential agreements have been on the rise. But in terms of democratic culture, GATT also led to a further separation of trade from everyday politics. This is why free trade has been left so defenseless in the face of anti-globalization protests.
The good news is that people have not stopped caring about the ethics of trade. On the contrary, they have switched to other movements like fair trade and trade justice. To be fair, the WTO under Pascal Lamy has tried to reach out to such groups. Still, there is a long way to go to reconnect freer trade with citizenship and global solidarity. History shows that doing so is both possible and necessary.
Frank Trentmann is a professor of history at Birkbeck College, University of London
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