The Bondage of Liberal Economics

THE BONDAGE OF ____ LIBERAL ECONOMICS Susan Strange here are a number of puzzling features about the course of international trade in the 1980s that call into question the value of learning economics as an aid to understanding international political economy. That is to say, certain developments in the flow and pattern of world trade in recent years would be puzzling if one were to take seriously the theoretical concepts of liberal economics. I myself do not find them puzzling. But then I do not take too seriously the pretensions— or most of the conclusions—of liberal economic doctrine. On the contrary, I am beginning to think that some of these concepts and ideas actually impede understanding and mislead people in their perception of the main problems confronting the world today; and that it would be better if students of international political economy were to devote more of their time to reading economic history and less to learning how to decipher the algebraic equations so beloved by the economists. Read Braudel, I would advise, rather than Samuelson or any of the more recent and still denser textbooks. And read Carlo Cipolla, Al Hirschman, Perry Anderson, Alan Milward, and Alfred Chandler before trying to come to grips with the political issues of our contemporary world economy. Granted, one may have to learn some economics to understand the arguments put forward by economists with whom one disagrees, since they are often couched in jargon impenetrable to laymen. Or it may be Susan Strange is Montague Burton Professor of International Relations at the London School of Economics. She is the author of Sterling and British Policy, International Monetary Relations, and the forthcoming Casino Capitalism. 25 26 SAIS REVIEW salutary to do it as an intellectual exercise, as one might learn ancient Greek or irregular Latin verbs. But that does not mean one must believe too seriously that it offers either an explanation of what is happening in the world or a prescription for practical policymakers, whether in business or in government. The most important recent development in international trade is that despite a world depression in which—just as in the 1930s—millions of people are unemployed and scores of countries are in deep financial troubles with their creditors, world trade has hardly faltered in its upward path and is now greater than ever before. There was a small drop in the volume of trade in 1982-83 from the previous year. But that was soon made good in 1983-84, the last full year for which figures from the General Agreement on Tariffs and Trade (gatt) are available. Trade volume rose despite the oil glut and the weak market for minerals and despite the restrictions that many debtor countries (in Eastern Europe as well as in the Third World) were obliged to put on their imports. In the first nine months of 1984 the gatt Secretariat reported that world trade was increasing at the rate of 9 percent a year, or nearly double the rate ofincrease in world production. In volume terms, trade in manufactures was increasing in 1983 at the same rate—41A percent a year—as the average annual increase over the decade 1973—83. How do economists explain this remarkable resilience to recession? The answer is that most of them do not. The great majority have been behaving as though there hadbeen a great decline in trade comparable to the fall of nearly 30 percent experienced in the early 1930s. The blame for the (nonexistent) slump in trade is put on protectionism, not only by President Reagan but by many others who should know better. We have been positively deluged with reports written by economists working for international organizations, saying that if something is not done to stop the wave of protectionism, trade will never recover and the world will never get out ofthe great slump ofthe 1980s. For example, the Commonwealth Secretariat in London only last April declared that the "central problem" was "the increase in protectionist pressures and measures . . . over the last decade."1 The gatt Secretariat, commenting in their annual report on outstanding policy problems, wrote as follows: The present state of trade policy does indeed...