Is there really no case for unilateral trade liberalization?

As the Doha Round of Trade Negociations is receding in our memories and governments keep spending more and more and finding more and more ways to adopt strange but effective trade barriers, the hopes for multilateral liberalization weakens. The common is that we cannot liberalize without other people liberalizing with us at the same time because others would exploit the breach to get a dominating share of the market.

But here is my question with the aforementionned logic, why is it that most trade liberalization in terms of importances has actually occured autonomously, meaning that trade barriers were brought unilaterally?

NOTE : Very sorry, in ommission, I forgot to mention that this was for developping countries I am sorry about this mistake

A lead-up to the Great Depression

Lee Ohanian and Harold Cole have been for the last 5 to 6 years on a crusade to debunk the rosy myth of the glorious New Deal. Monetary factors can easily explain why there was a decline between 1929 and 1932, however it cannot account for the long lenght of the recovery. Ohanian and Cole have found that the culprit was the New Deal, mostly the National Industrial Recovery Act and the National Recovery Administration (NRA).

But one of my professors, Albrecht Ritschl and his colleague Monique Ebell goes at it through a different set of lenses. He looks at the lead-up to the depression. His view is pretty simple : you had the juxtaposition of two monopolies.

Imagine that the economy is only about butter and cannons (really old and plain example don't you think?). If you end up with collective bargaining in those two industries, it will tend to mimic the effects of individual bargaining on output and employement if there is a high level of competition. However, as you move towards a more monopolized economy in the economy, output falls if you have collective bargaining and employement soars at the same time. So, you end up vindicating Karl Marx when he said that "only hired workers are served by unions" and that unions "were the worst ennemies of the socialist cause".

Before even the crash of the stock market in 1929, you had a lead up to the juxtaposition of two such monopolies. After World War I, labour regulations favourable to unions were repelled after a Supreme Court Judgment. However, during this period Secretary of Commerce Herbert Hoover was highly favorable to "cartelization" and the Sherman Act of 1896 against trusts was not pursued very thorougly. Now we consider this word to be bad nowadays and even people on the left favour the mission of such institutions like the Bureau de la Concurrence to promote competition, but at the time competition was not seen as such a panacea. It was actually perceived as bad for "efficiency" and industrial concentration allowed for economies of scale.

Combined with the policy of reducing income taxes by Secretary of the Treasury Andrew Mellon who did not agree with Hoover's approach and often criticized Hoover in front of President Coolidge, this policy allowed strong industrial concentration and monopolization. By 1929, before the crash of the stock market, the Hoover administration(Hoover finally became president in 1928) which was recently sworn in, was attempting to find ways to bring back collective bargaining policies to increase wages of industrial workers. After the crash, Hoover pursued that goal and lobbyed industries agressively so that they would not cut wages, which increased unemployement. But the new labour regulations only came about after the democratic Franklin Delano Roosevelt took power in 1933. At the same time, he also pursued

I believe that the story Ritschl and Ebell tells us is very compelling and plausible. The reason for this statement is that I add the Hawley-Smoot Act that passed early into Hoover's mandate. This very protectionnist act allowed industries in the United States to face even less competition (this time from abroad) which would have reinforced the cartelization process put forward by Hoover under Coolidge and continued during his presidency.

I think that his story proposes an ambitious research agenda about economic performance between 1920 and 1950. If we were to look at other markets and countries at the same and analyze them within this theoretical framework, much historical information could be gathered about policy history in that time which could change considerably our reading of past policies and how they affected the economy at the time.

--

Burton Fulsom. The Myth of the Robber Barons : 5th edition.

Douglass Irwin. The Smoot-Hawley Tariff: A Quantitative Assessment - The Review of Statistics and Economics.

Albrecht Ritschl and Monique Ebell. Real Origins of the Great Depression: Monopoly Power, Unions and the American Business Cycle in the 1920s. Centre for Economic Performance at the London School of Economics

Saving jobs?

I always reprimand protectionism and I find it somewhat tirying to always make the same basic case to protectionnist, so sometimes I just abandon the fight. However, I love when numbers pop out of nowhere to defend protectionism. A colleague of mine at the university believed he had to defend protectionnism for the sugar industry and said that in the United States, it was saving the jobs of thousands of Americans. He said something close to 2,000 individuals for the particular sugar industry. When I returned to the appartment, I decided to google that number and I found a piece in the Washington Times where the author quotes a research from the Institute for International Economics.

Basically, he was right, there are indeed two thousands jobs saved in the sugar industry. According to the study quoted, 2,261 jobs were saved in the 1990s thanks to quotas and tarriffs. However, since sugar is a pretty common input for several foodstuffs, the average household paid $21 more per year for sugar. Multiply that amount by the number of households in the United States and then divide it by the 2,261 jobs saved and you end up with a cost of $826 000 per job saved.

Now I hate to be a ballbuster (not really but lets pretend), if I wanted to create 2,261 jobs I could find considerably less costly ways of doing so, if those jobs were worth saving that is (a hard question to ask, and answer).

Being Green : Of protectionnism?

Recently, the idea of a carbon tarif has been floating around as an "aside dish" to the carbon tax. I am somewhat skeptical that such a "dish" would actually be beneficial in the fight against global warming.

Most of the damages done by global warming to poor countries would be because a hotter and more volatile weather would mean high adaptation costs to industries like fisheries, agriculture and certain other natural ressources upon which poor countries depend heavily for subsistence. The decline of such industries could likely lead to the bigger problem of malnutrition. Damages caused by more frequent weather events would also be considerable for these countries. Add to this the issue of increased mosquitos swamps that would increase malaria risks because of warmer temperatures. But here is the deal, most of the aforementionned damages are not caused by climate change per se but more by poverty (a lack of means as Amartya Sen would say).

The idea then is more about development than it is about climate change. Let us be honest, the damages extreme weather events can be contained through good infrastructures. After all, the Thames in London is rarely flooding because there are dykes to control water level changes. But such investments are costly at very low levels of national income. Thus, a green tarif would more likely be detrimental to the poor countries that it would be trying to help by mitigating the effects of global warming. Restraining free trade of goods and services would probably make poor countries worst off to face the effects of global warming while probably not reducing emissions so considerably.

Also importantly, free trade is good for the environment (Antweiler, Copeland and Taylor published several papers on the issue, this paper is the easiest to get). It promotes the adoption of new technologies through economies of scale. These new technologies allow poor countries to leap-frog rather than use the same long and tenuous development path that western countries used thus reducing sources of pollution.

I am willing to debate about a carbon tax, I did previously argue in The Financial Post that it would need to be pretty high to affect consumer behaviour considering the increasing inelasticity of energy (more specifically oil) consumption. However, I believe that the "carbon tarif" would probably lead to litte reductions, at a very high cost while impoverishing poor countries when they need to grow the most.