Game, Set, and Match for Mr. Ricardo? the Surprising Comeback of Protectionism in the Era of Globalizing Free Trade
Went, Robert, Journal of Economic Issues
One of the central aspects of economic globalization is increasing free trade. Since Adam Smith  and David Ricardo  armed advocates of free trade with the theorem of comparative advantage, they have been "winning every battle in the textbooks" [Pen 1967, 104]. Today, opponents of protectionist policies and proponents of globalized free trade are claiming victory [IMF 1997; Irwin 1996; Krueger 1997]. However, public anxiety about globalization and free trade is rising [Rodrik 1997]. In an increasing number of grassroot movements and Non-Governmental Organizations [NGOs], proposals for new forms of protectionism against the social and ecological consequences of free trade and increased capital mobility are being discussed.
This paper discusses some contemporary debates about free trade and protectionism. After a very brief look at the genesis of the classical theory and major criticisms raised at the time, especially from a national [List 1841] or class conflict [Marx 1848] perspective, I take up today's criticism of the free trade paradigm. It will be argued that the case for free trade is not at all as strong in today's globalizing world as its proponents claim. In the last section, I discuss the rationale and conditions for certain types of protectionist policies in today's globalized world. The possibilities for such policies to be implemented are closely linked to the answers of new and already existing social movements to the current globalization of competition and neo-liberalism.
The First Victory of Free Trade
As every economist knows, Smith and Ricardo were the first to make the case for the principle of free trade in a coherent way. Smith challenged mercantilist doctrines and succeeded in defending free trade as being not only important for a particular industry or class, but as a general interest. The case for free trade was further strengthened by the theory of comparative costs or comparative advantage, which is generally credited to Ricardo . He introduced the idea that even countries that are superior in producing all goods in comparison with potential trading partners will benefit from trade. He basically went one step further than Smith, because he took into consideration that productivity levels between industries differ from one country to the next [Altvater and Mahnkopf 1996, 201]. By incorporating that aspect, he succeeded even more than Smith in showing that free trade is in the interest of every country, because there is always something that can be traded. Neither Smith nor Ricardo propagated free trade for general cosmopolitan or unselfish reasons, but did so because the extension of the international exchange of goods is more in each nation's interest than protectionism. In fact, they explained that there is no contradiction between the national interest and free trade [Irwin 1996; Weiss 1968, 33; Robinson 1968, 117].
Smith and Ricardo argued the case for free trade from--what today would be called--a "win-win" perspective, in which there are no losers but only winners. They consider international economic relations as "essentially harmonious" [Gilpin 1987, 188] and benevolent for all, as long as trade is allowed to take its "natural or spontaneous course" [Mill 1874, 21]. But Friedrich List and Karl Marx challenged the assumption that the world is like a "harmonious world republic." List  strongly opposed the "bottomless cosmopolitanism" of the free trade school. He argued that the state has an important role to play in coordinating and carrying through policies for industry and the economy and that unrestricted free trade, as propagated by the classical school, should be opposed. His basic argument is that nations have to protect themselves temporarily against imports from more developed countries until they have the time and means to develop to the highest possible stage of development. For Marx  the debate about free trade was neither timeless nor a discussion about principles in general. He discussed the reasons for and consequences of free trade "under the present condition of society," that is, in early capitalism. Marx opposed a principled choice for free trade or protectionism based on the illusory idea that all will benefit from the one or the other, arguing that there are different effects of free trade and protectionism for different classes. Identifying himself with the interests of the working class, Marx concluded, for the historical period in which he lived, that free trade was to be preferred over protectionism, because he expected it to bring an anti-capitalist revolution closer.
Resurgent Doubts about Free Trade in the Globalized Era
Again, the Old Paradigm
In today's dominant economic approach, both free trade and free international capital mobility are central elements, as can be seen from the increasing role played by the World Trade Organization (WTO). In December 1997 WTO Director-General Ruggiero spoke about a "golden year" for his organization. He celebrated the just concluded new agreement on international trade in financial services, a "landmark in the history of trade liberalization," following agreements to free trade in information technology products and to liberalize telecommunications services earlier that same year. But UNCTAD researcher David Felix reminds us that free trade and free international capital mobility have not always been coupled:
Is free international capital mobility compatible with free trade and stable exchange rates? The answer of the architects of the Bretton Woods system, who filtered the inter-war experience through the then burgeoning Keynesian theoretical paradigm, was a firm no. The current answer of the chief surviving Bretton Woods institution, the International Monetary Fund, and of the G-7 monetary authorities, who filter post-World War II experience through the New Classical Macroeconomics paradigm, is yes. Their efforts to stabilize the volatile international monetary system is premised on the compatibility, indeed the desirability, of combining free international capital mobility with stable exchange rates and free trade [Felix 1995, 1].
Not only does Felix follow Keynes when he describes "proposals to stabilize exchange rates and promote free trade without limiting international capital mobility" as "exercises in squaring the circle," but he also links up with Ricardo , who presented the immobility of capital as a necessary condition for his theorem of comparative advantage to work.  This assumption seems to be forgotten, neglected or overlooked by today's protagonists of free trade and free capital flows. The IMF, for example wrote in its May 1997 World Economic Outlook:
With open trade, domestic prices reflect world prices, thereby promoting the efficient allocation of resources. Open trade and capital account policies not only allow a country to exploit its comparative advantages in production, but they also promote the importation of lowest-cost products, often with embedded advanced technology. Trade also allows a country to employ a larger variety of intermediate goods and capital equipment that enhance the productivity of its own resources [IMF 1997, 85].
Like the IMF, Donald Johnston, secretary-general of the OECD, states without any qualification that "all trade" offers "mutual benefit" [Johnston 1996, 4]. The same type of argument is regularly presented by the British weekly The Economist, as being based on "the fundamental insight of the theory of comparative advantage [Schools brief: Trade winds, 1001, which we should consider as "one of the subtlest but most powerful deductions in economic theory" [Schools brief: The miracle of trade, 65]
Jagdish Bhagwati also argues the idea that increased internationalization and interdependence of economies in this era of globalization do not reduce the fundamental importance of the comparative advantage theory. He introduces the concept of kaleidoscopic comparative advantage to make the classical theory suitable for today's reality: "a concept that gives meaning to the notion that globalisation of the world economy has led to fierce competition: slight shifts in costs can now lead to shifting comparative advantage, which is therefore increasingly volatile" [Bhagwati 1997, 266]. Today's comparative advantage is kaleidoscopic, Bhagwati argues, because "firms are increasingly tempted to look over their foreign rivals' shoulders to see if differences in their domestic policies and institutions are giving them that fatal extra edge in competition which then amounts to unfair trade." Although the effect is that "the substantial sense of economic insecurity" is reinforced and that "the decline in real wages of t he unskilled" is likely reinforced, the same comparative advantage paradigm still holds. We therefore "need to reject the folly of including a Social Clause and eco-dumping varieties of trade and environmental agendas into the world trading regime" and unite the nations of the world behind the vision and target of "worldwide free trade" [Bhagwati 1997, 266-282].
It is not really correct, however, to state that the comparative advantage theorem is still central in dominant trade theory. As the quote by Felix in the beginning of this section shows, we should note that the principle of comparative advantage is today once again dominant. Anne Krueger, another authority among trade economists, said that "[i]deas with regard to trade policy and economic development" have "changed radically" in comparison with the 1950s and 1960s [see, among others, Dos Santos 1970, 1978; Prebisch 1959]. In those days:
there was a broad concensus that trade policy for development should be based on "import substitution." By this was meant that domestic production of import-competing goods should be started and increased to satisfy the domestic market under incentives provided through whatever level of protection against imports, or even import prohibition, was necessary to achieve it. It was thought that import substitution in manufactures would be synonymous with industrialization, which in turn was seen as key to development.
The contrast with the views today is striking. It is now widely accepted that growth prospects for developing countries are greatly enhanced through an outer-oriented trade regime and fairly uniform incentives (primarily through the exchange rate) for production across exporting and import-competing goods [Krueger 1997, 1].
For Krueger, it is still "almost incredible that such a high fraction of economists could have deviated so far from the basic principles of international trade," and she therefore tries to answer the question, "how the principle of comparative advantage could have been so blithely abandoned" [Krueger 1997, 11]. Her reply is that good theory was often misapplied; that too much research was devoted to "finding exceptions to the proposition that comparative advantage should form the basis of trade policy"; that good theory was misused because "many good theory papers are written where the authors assume that their audience will consist entirely of other theorists"; and that theorists who assert that rents might be captured from infant industries by strategic trade policy "are simply providing a carte blanche for policy makers and bureaucrats to intervene in whatever ways they like, and this will simultaneously be seized upon by special interests to bolster their causes" [Krueger 1997, 17-19]. Now that the failu re of import substitution is clear for everybody  and the principle of comparative advantage has won out again, "there is no question of 'going back' to the earlier thinking and understanding of the process" of international trade [Krueger 1997, 2].  Once again, and this time maybe with even more force, the principle of comparative advantage is promoted as generally applicable, as a general law for all times and situations. Of course, as economists, we have to be on our guard, because "no matter how careful economists are, special interest always will seize their research results in supporting their own objectives," and "there always will be politicians formulating, and non-economists administering, policies" [Krueger 1997, 19]. But free trade has won its second victory, and if we all stick to the principle of comparative advantage from now on, "hand in hand, in sacred partnership, the nations of the world" will go toward "a truly golden age with worldwide free trade" [Bhagwati 1997, 283]. Or will they?
New and Persistent Heresies
Although free trade based on the theory of comparative advantage is extremely popular among economists  and policymakers, in the real world the support for this policy is much less straightforward. Referring to a "sudden interest" in "national development policies" and List, Peter Drucker prophesied in Foreign Affairs that "the international economic policies likely to emerge over the next generation will be neither free-trade nor protectionist, but focused on investment rather than trade" [Drucker 1997, 1671. Doubts about free trade are not only persistent, but resurgent because of the consequences of globalization. To show how and why that is the case, I take a look at four criticisms of the free trade paradigm.
Shaped advantage. The one criticism of free trade that even has influence in a bigger group of economists and among policymakers has emerged in the work of Paul Krugman, who is one of the world's best known neoclassical economists. This "new view on trade challenges the traditional theory and states "that the extreme pro-free-trade position--that markets work so well that they cannot be improved on--has become untenable" [Krugman 1986, 15]. In this new view, arbitrariness and history are added to the standard and more developed comparative advantage stones:
Why are aircraft manufactured in Seattle? It is hard to argue that there is some unique attribute of the city's location that fully explains this. . . . In many of the new models of trade, the actual location of trade is to some degree indeterminate. Yet what the example of Seattle suggests, and what is explicit in some of the models, is a critical role for history: Because Seattle (or Detroit or Silicon Valley) was where an industry initially got established, increasing returns keep the industry there [Krugman; quoted in Kuttner 1992, 120].
But if we accept that "God-given natural phenomena such as climate" do not determine comparative advantage, because "with the growing importance of science and technology, the capacity to shape human capital, and the increasingly systematic relation between expenditure on research and development, and commercial results, comparative advantage has become something created and manipulated," interventions by government "in the form of export subsidies or import restrictions can play the role of cost-reducing technological innovations by the firm and give it the initial advantage required to establish its 'comparative advantage' in the chosen field. Such interventions can also determine the thrust of scientific and technical innovations and with them the whole culture" [Streeten 1996, 358]. The case for shaped advantage that flows from this analysis "can be bolstered once the general equilibrium model of individual agent market exchanges is let go, and alliances of competing states and firms are explicitly allow ed to shape the 'path-dependency' of economic outcomes" [Albo 1997, 15-7]. Gregory Albo discusses several competing and to a certain extent complementary positions that "avoid the neo-liberal illusions that free trade and deregulation of labour markets will resolve trade and employment balances."
Although the new view "has blown a big hole in the traditional theory of comparative advantage," the advocates of the theory are very hesitant to advocate industrial policies. A "typical New View scholarly article, especially when written by economists wishing to keep their neoclassical union cards, takes care to include the disclaimer that even if profit shifting or other benign interventions are possible in theory, they are often implausible in practice" [Kuttner 1992, 121].  The two reasons given for such inactivity are that it is difficult to decide which industries governments should select to subsidize, and that there will be pressures on political decisionmakers by industries that want to be recognized as strategically important. The fact that therefore "under real-world political pressures, the allure of strategic trade policy fades quickly" [Schools brief: Trade winds, 100], does not diminish the pertinence of this critique.
Not convergence but more inequality. An influential myth about globalization is the often-repeated idea that the increased internationalization of the world economy will lead to a convergence between rich and poor countries. However, no less an authority than Lant Pritchett , senior economist at the World Bank, wrote recently that convergence "just hasn't happened, isn't happening, and isn't going to happen without serious changes in economic policies in developing countries." His conclusion is based on extensive research, which shows:
Divergence in relative productivity levels and living standards is the dominant feature of modern economic history. In the last century, incomes in the "less developed" (or euphemistically, the "developing") countries have fallen far behind those in the "developed" countries, both proportionately and absolutely. I estimate that from 1870 to 1990 the ratio of per capita incomes between the richest and the poorest countries increased by roughly a factor of five and that the difference in income between the richest country and all others has increased by an order of magnitude [Pritchett 1997, 3].
After a survey of studies about the supposed convergence of productivity and living standards Robert Boyer [1996, 57] reaches a similar conclusion:
Statistical evidence does not confirm any general and secular trend toward economic convergence in productivity levels and standards of living. Such convergence is restricted to the small club of nations that have been able to invest sufficiently in productive investment, infrastructure, and education. The poorest countries (for example, in Africa) have been left out of the process of economic development.
The least I can say is that the promise that more free trade in the globalized economy will lead to more equality and to convergence between rich and poor countries has until now not been met. On the contrary, income differences are increasing. In its Human Development Report 1999 the United Nations Development Programme [UNDP 1999, 38] calculates "that the distance between the richest and poorest country was about 3 to 1 in 1820, 11 to 1 in 1913, 35 to 1 in 1950, 44 to 1 in 1973 and 72 to 1 in 1992."
The reasons for this blatant failure of the convergence hypothesis are not difficult to see. Enabled by new technologies and as a result of the liberalization of trade and financial flows, multinationals, financial traders, and speculators have more and more opportunities to shop around the world for the best bargain, a cheaper work force, or the highest return on investment. With more than 700 million unemployed or underemployed in the world [ILO 1996] and many heavily indebted Third World countries [see, for example, Toussaint and Drucker 1995], the possibilities are seemingly without limits.
Not only among countries, but also within countries are social differences increasing. Although this is a general phenomenon, the extent to which inequality is increasing differs from one country to the other, with the United States coming out as the country in which the disparity of income and wealth has increased the most:
Between 1947 and the mid-seventies the ratio of the income of the top 5 percent of families to the lower 20 percent dropped from a ratio of 14-1 to 11-1. Since then the ratio has risen to 19-1. Newly released census data also show that incomes fell on average for the bottom 60 percent of households over the past seven years.
In 1947, the average C.E.O. of a major company was paid thirty-four times the earnings of the average worker. Today he is making about 180 times the worker's pay. More significant is the steady shift of income from labor to capital. Labor's share of income in the private economy rose during the postwar period but began to fall during the eighties and has continued to drop [Faux 1997, 20].
Most economists deny that globalization is an important explanation for the increased social unevenness, and the consensus opinion is that globalization only explains a minor part of the aggravated income differences [Slaughter and Swagel 19971. A recent study by a researcher at the Institute for International Economics in Washington points out that even within the narrow models and assumptions of orthodox neoclassical economics it can be shown that increased trade in the globalized economy has labor market consequences, does often exert pressure toward arbitrage in national norms and social institutions,  undermines the post-war social bargain between workers and employers, reduces the ability of governments to spend resources on social programs, and makes it more difficult to tax capital [Rodrik 1997].
The ecological price. Environmentalists, Jeffrey Dunoff explains, point to a number of free trade problems:
First, they argue that liberalized trade may cause environmental harm by promoting economic growth that can result in unsustainable consumption of natural resources and increased waste production. Second, trade liberalization agreements contain market access provisions that can be used to override environmental regulations. Third, nations with lax environmental regulations are said to enjoy a competitive advantage in a global marketplace; this creates political pressure in nations with high environmental standards to reduce their level of environmental protection. Finally, environmentalists seek the ability to use trade measures as tools in global environmental protection efforts [Dunoff 1996/97, 768-9].
One concrete problem of free trade is that it leads to more transportation of goods, because as a result of decreasing limitations on cross-border trade, companies and traders can shop all over the world for parts, labor to produce products, economies of scale, and bigger markets. So "by making supplies of resources and absorption capacities anywhere available to demands everywhere, free trade will tend to increase throughput growth and with it the rate of environmental degradation. It will greatly reduce the control local communities have over their local environments as well as their livelihoods" [Daly 1995, 325]. David Morris provides a good example of what this logic leads to:
A few years ago, I was eating at a restaurant in Saint Paul, Minnesota. After lunch I picked up a toothpick wrapped in plastic. On the plastic was the word 'Japan'. Now Japan has little wood and no oil. Yet in our global economy, it is deemed efficient to send little pieces of wood and some barrels of oil to Japan, wrap the one in the other and send them back to Minnesota. This toothpick may embody 50,000 miles of travel. Meanwhile, in 1987, a Minnesota factory began producing millions of disposable chopsticks a year for sale in Japan. In my mind's eye, I see two ships passing one another in the northern Pacific. One carries little pieces of Minnesota wood bound for Japan; the other carries little pieces of wood from Japan bound for Minnesota. Such is the logic of free trade [Morris 1996, 222].
Not only does free trade lead to more transportation and therefore pollution [Lang and Hines 1993, 62], but a world market for toxic waste has also come into existence. Between 1989 and 1994, there were more than 500 attempts to send more than 200 million tons of waste from the 24 richest countries in the OECD to 122 other countries. Many of these countries hardly have a choice when they can get money in exchange for accepting such waste. The government of Guinea-Bissau, for example, accepted the dumping of 15 million tons of toxic waste in exchange for $600 million, which is four times the national income. "We need the money" was the explanation of the minister of trade and tourism [Bellamy Foster 1994]. This example shows that the logic of free trade based on the principle of comparative advantage hinders the development of real solutions for waste problems by promoting static efficiency:
In other words, free trade in toxic wastes promotes static efficiency by allowing the disposal of wastes, wherever it costs less, according to today's prices and technologies. A more dynamic efficiency would be served by outlawing the export of toxins. That step would internalize the disposal costs of toxins to their place of origin--to both the firm that generated them and the nation under whose laws the firm operated. This policy creates an incentive to find technically superior ways of dealing with toxins or of redesigning processes to avoid their production in the first place [Daly 1996, 238].
According to theory, free trade will lead to upward harmonization of standards, and falling wages or unsustainable environmental norms are only temporary phenomena. Multinationals, for example, are expected to implement the higher norms in their more regulated mother countries in the rest of the world as well and therewith to play a "civilizing" role in the developing world. But the problem with these theories is that the world is not a harmonious republic: conflicting interests exist, wealth and power are very unevenly divided, and, in a world of free trade and free capital flows, absolute advantage governs. When absolute advantage governs, there is no guarantee that both countries will benefit from trade, although specialization will increase total world product: "Once capital is mobile internationally and follows absolute advantage, as is certainly the case today, then all the comforting assurances of comparative advantage about each nation benefiting are irrelevant" [Daly 1995, 318].
The collapse of a development model. The crisis in Southeast Asia must have come as a very unwelcome shock to the protagonists of free trade and financial liberalization, because the development of these Asian economies has been presented by them as the ultimate proof that their policies work. In Krueger's explanation as to how it is possible that today import substitution strategies are down and out and comparative advantage is once again the leading principle among trade economists and policymakers, the Asian experience is very important:
At the same time as evidence of the high costs of import-substitution regimes was accumulating, another important development occurred. Starting first in Taiwan, several East Asian economies began growing rapidly under policies diametrically opposite those prevalent under import substitution. . . . The East Asian experiences demonstrated, as nothing else could have, the feasibility and viability of alternative trade policies. . . . They also showed that rates of growth well above those realized even in the most rapidly growing import-substitution countries such as Brazil and Turkey could be realized [Krueger 1997].
It is, of course, worrying that the IMF did not foresee the current crisis in Asia. Less then three months before the crisis in South Korea broke out, the IMF wrote in its annual report: "Directors welcomed Korea's continued impressive macroeconomic performance (and) praised the authorities for their enviable fiscal record." At the moment when Thailand was on the verge of a financial collapse, the IMF also wrote: "Directors strongly praised Thailand's remarkable economic performance and the authorities' consistent record of sound macroeconomic policies" [quoted in Sachs 1997]. The same indestructible confidence in the free trade and financial liberalization policies and prescriptions that the IMF promotes for all countries in all situations was expressed in the demands of the negotiators of the Fund on countries that need financial support. The IMF generally asked Asian countries in crisis to do more of the same, that is, to attempt to export more, to reduce remaining import restrictions, and to get rid of a ll restrictions on in- and outgoing financial flows.
The recent Asian experiences demand a fundamental reconsideration of the dominant development model. Mexico, Thailand, Korea, and other countries show the unsustainability of the strategy of export-led growth and financial liberalization. More crises will be the result of the current economic paradigm, and--as we saw in Mexico and can also see today in SouthEast Asia--the price populations pay for the policies followed by their governments is high. Although the IMF advises everyone to do so at all costs, not all countries in the world can export more and keep wages low at the same time, while it has become more and more clear that the internal development of countries and the needs of their populations suffer from an orientation toward the expansion of exports and imports. At the same time, the increased weight and volatility of the liberalized international financial markets are forcing all countries into a financial straightjacket and are reducing a nations' abilities to decide about their own priorities.
Perspectives: What Are the Questions?
Globalization: Myths and Reality
Many myths exist about globalization [Went 1996, 2000]. First of all, we should rather talk about regionalization than about globalization if we look at the development of the world economy. The lion's share of production, capital flows, and international trade takes place in the triad, that is in and among the countries of the European Union, NAFTA (United States, Canada, and Mexico) and the trade bloc around Japan. Another myth, discussed earlier in this paper, is the idea propagated by many globalization ideologues that the so-called emerging markets will see such a dynamic economic development that within the foreseeable future we will see a convergence between rich and poor countries in the world. A third myth is the often-repeated story that employers can just take their capital and leave to invest and move activities to low- wage countries: very few multinationals in the world are really "footloose" [Hirst and Thompson 1996; Pauly and Reich 1997; Ruigrok and van Tulder 1995]. A fourth popular myth is that nation-states have no room left to maneuver in the globalized economy for deviant choices and policies and are, in fact, superfluous and therefore doomed to disappear. As we will see later in this section, in reality states are not becoming less important, but important changes in their role are taking place, leading, among other things, to less social policy and more investments and (de)regulation to make countries attractive for capital. Finally, the often-repeated deterministic myth that globalization is the automatic--and therefore unstoppable--consequence of the emergence of new technologies has to be laid to rest. Such a claim cannot even be maintained for the most globalized markets, the financial markets: institutional changes and political decisions are necessary to allow enabling technologies to be used and developed [Helleiner 1994; Krugman 1995].
Those who think that globalization "does not exist" because of these relativizations underestimate the important changes that have happened in the world economy over the last 20 years. Many ideologues, employers, and politicians exaggerate the extent and consequences of globalization and policy decisions are often justified with simplistic accounts of globalization tendencies that are like phenomena of nature, and to which we can therefore only adapt ourselves. Neither fact should make us close our eyes to the real qualitative changes in the functioning and organization of the world economy. Some of these developments have in themselves no major consequences or are not totally new if we look at previous periods in history, but in combination they change the way the world economy is functioning. Five elements are especially important:
1. An increase in the number of really integrated global markets for production and trade and especially for finance.
2. Without going along with the overstatement that big companies are now footloose, there is no denying the growing weight of multinationals in the global economy:  companies try to plan and organize the conception, production, and distribution of their products and services preferably not only regionally or bi-regionally, but globally, with important consequences for their structures. 
3. An increase in problems of governance and regulation on a global level as a consequence of the fact that nation-states are becoming--and making themselves--less effective: supranational organizations (G7, IMF, WTO, BIS, OECD, etc.) and regional organizations (EU, NAFTA, MERCOSUR, etc.) get a bigger role to play.
4. A globalization of macroeconomic policies: since the counterrevolution that took place in economics at the end of the 1970s, the monetarist and neoclassical paradigms are almost unchallenged by international institutions and by the political mainstream. Variants of the same recipes (export-oriented growth, less social policies and less public sector, free trade and free capital flows, deregulation, privatization, and priority to price stability) are followed or forced-through (with the help of international organizations and financial markets) everywhere in the world.
5. These developments are facilitated--and at the same time strengthened further--by the combination of free trade and free capital flows. This international regime, which is similar to the one of the pre-World War I decades, limits the possibilities for domestic policy choices, since deregulated global financial markets increase the volatility and unpre
Dictability of financial flows and impose strict financial demands on companies and governments.
Still Alive: States and Classes
According to the dominant discourse about globalization, we are "at the dawn of a new age.., in which the Westphalian order of sovereign states guided by power politics is withering away and being replaced by a unified global economy and cosmopolitan institutions of government (or, to use the down-beat fashionable phrase, governance')" [Gowan 1997, 51. If we combine this perspective with the expectation and promise of globalization ideologues that the increased internationalization of economies will lead to convergence of incomes, living standards, and productivity levels, one could easily conclude that we are finally entering the harmonious world republic that was already assumed in classical trade theory. Free trade based on the principle of comparative advantage would, in such an ideal world, bring gains for all; the peoples of the world would be united behind the vision and target of worldwide free trade, and victims of injustice and exploitation would indeed be lucky.
As we have seen, the reality is quite different, and for various reasons doubts about free trade are not only persistent, but resurgent in the globalized era. The ultimate reason for this is that, far from promoting a harmonious world republic, globalization is "a system of social-relations, rooted in the specifically capitalist form of social power, which is concentrated in private capital and the nation-state" [Albo 1997, 271. At the end of the twentieth century, List and Marx are still very much alive because the current processes of globalization have important negative consequences for much of the world population: less access to capital unless the demands of "the market" are met; increasing social differences as the consequence of a double process of polarization--within countries and, on a world level, among countries; a growth of migration as a consequence of poverty and lack of perspective, and because the internationalization of production leads to changed relations between the industrialized count ries and countries in the Third World; "leveling down" of wages, conditions of work, and social security; at least 700 million unemployed or underemployed in the world [ILO 1996] and no policies to reach full employment;  more ecological destruction and waste; and an ongoing attack on democracy, as "uncontrollable" opaque international organizations are acquiring more powers and new forms of imperialist domination are developing [Gill 1992; Gowan 1997; Living stone 1997]. Contrary to what globalization ideologues suggest, the trends toward globalization will therefore lead in the future to more conflicts and contradictions.
Robert Wade reminds us that this is not the first time in history that the nationstate has been declared through as an economic unit. And like before, skepticism is necessary:
The world economy is more international than global. In the bigger national economies, more than 80 percent of production is for domestic consumption and more than 80 percent of investment by domestic investors. Companies are rooted in national home bases with national regulatory regimes. Populations are much less mobile across borders than are goods, finance, or ideas. These points suggest more scope for government actions to boost the productivity of firms operating within their territory than is commonly thought and than is implied in the statement that "governments today should do (a propos direct support to industry) what they find most difficult to do: nothing!" [Wade 1996, 61; see also Bayer and Drache 1996; Hirst and Thompson 1996; Livingstone 1997].
To the extent that states lose influence to international organizations, in regional trade blocs like the EU (Went 2000) or NAFTA and to independent central banks, they hand such powers over themselves. As Albo [1997, 27] argues, "the limits on state policy are to a significant extent self-imposed" and politicians and governments play an active role in globalization processes:
The strategic spaces where many global processes take place are often national; the mechanisms through which the new legal forms necessary for globalization are implemented are often part of state institutions; the infrastructure that makes possible the hypermobility of financial capital at the global scale is situated in various national territories. The condition of the nation-state, in my view, cannot be reduced to one of declining significance. The shrinking capacity of the state to regulate many of its industries cannot be explained simply by the fact that firms now operate in a global rather than in a national economy. The state itself has been a key agent in the implementation of global processes, and it has emerged quite altered by this participation [Sassen 1996, 27-81].
Because technological developments are crucial for the development of economies, the extent to which technology is globalized is of special interest in light of the earlier cited evidence that comparative advantages can be shaped. After having analyzed the global exploitation of technology, global technological collaboration and the global generation of technology--three different aspects of "techno-globalism"--Daniele Archibugi and Jonathan Michie conclude:
The results obtained for each of the three catagories above suggest that the role of national innovation policy is not necessarily becoming less important because of globalization. The exploitation of innovations requires national governments to settle the regime according to which new technologies can be exploited within their borders. International collaborations rely on the nature of the national technological capabilities associated with the prospective partner. As for the generation of innovation, this is still largely organized within the boundaries of the nation-state. These results--suggesting that the role of nations in the organisation of innovative activities remains crucial--are consistent with the new body of literature emphasising the role of national systems in organising and promoting innovation [Archibugi and Michie 1997b, 188; see also Patel 1997].
As other studies come up with similar conclusions [Amable, Barre and Boyer 1997;  Freeman 1997; Gertler 1997; Ruigrok and van Tulder 1995; Wade 1996] we can conclude that technology essentially is still being developed and applied in national or regional spaces, and that possibilities also exist for interventionist policies by governments.
Which Protectionism Against Globalization?
So far we have discussed the deficiencies and consequences of free trade based on an ideology of comparative advantage. Other options are needed, and the fight for alternatives starts on an ideological level by challenging the terms that are now used for the different policy options. "Free trade" sounds good and liberal, as opposed to "protectionism." It has to be pointed out that in the real world free trade is often the protectionism of the rich and that so-called free trade leads to imperialism, exploitation, and subordination [Sideri 1970, 6]. Conversely, we have to destigmatize "protectionism," which is today generally seen as negative and inward-looking. That changes when we ask the question, who would object to the idea that we have to protect the environment, our health, or the poor [Lang and Hines 1993, 7]? The question to answer is therefore the one that Marx already raised: what or who has to be protected against what [Husson 1996: 240]? This question is all the more pertinent when we realize that often "one (international) argument from fairness says that it is precisely against poor countries that one should not use protectionist weapons; the other (domestic) argument for fairness says that in order to avoid an unfair distribution of the costs, it is precisely against the poor countries that one should discriminate' [Dore 1996, 374].
The question what or who is to be protected against what is essential, because the social consequences of globalization provoke protectionist answers from different sides of the political spectrum. Right-wing politicians in imperialist countries like France (Le Pen) and the United States (Buchanan or Perot) call for national protectionism against the rest of the world, often in disgusting (semi-)racist terms. But apart from the fact that companies and shareholders in these countries, rather than the unemployed, workers, and middle classes are the most likely winners from such protection, this kind of neo-Listian protectionism can only succeed at the expense of the majority of peoples in the world. Such reactionary protectionism is in reality even worse than free trade, because it would take away the few possibilities that poor countries have today to export to the rich world.
Although coming from a very different background and supporting a progressive agenda, proposals by some socialdemocrats and ecologists for European protectionism to defend the welfare state and social rights have the same problem. Even if such protectionism would actually preserve jobs and the living standards for the small part of the world population living in the EU, which is not at all certain, the perspective that such a defense would imply the exclusion of the rest of the world is not at all attractive and, because of its consequences in the Third World, immoral.
Rather than excluding big parts of the world population, an alternative to the current dominant economic logic should aim at "the development of democratic capacities for control of the transformation of economic structures towards egalitarian ecologically-sustainable reproduction" [Albo 1997, 27] for the whole world population. Because of the way in which the global economy functions today, the margins for alternative choices are almost nil, unless ways can be found to counter the discipline of free trade and of the financial markets. The question is therefore not being for or against international trade, but whether such trade strengthens or erodes a democratic and egalitarian project: World trade in its present form is massively imbalanced, unstable and coercive in its regulatory impact on national economies; the consequence is increased social polarisation of income and work. At stake, then, is a wider principle: the active pursuit of alternative development paths for full employment requires that the op en sector not restrict domestic priorities, and that the international system support rather than undermine these options....Of course, if the use of tariffs and quotas in support of employment, or to resolve payments imbalances, is to be minimised a degree of international coordination and planning of trade is required [Albo 1997, 31].
If trade policy has to support a global progressive agenda, we have to take into account the immense unevenness in development of the different components of the global economy. Ronald Dore therefore proposes to make it legitimate for countries to impose Investment Inviting Import Quantity Restrictions (Triple IQRs), which "should only be applied to technologically superior competitors. It should not be available for protection against Mexican textile producers, Mauritian sugar producers, Chinese automobile firms, and so on whose competitive advantage lies in the cheap wages of their workers." Frontiers or import restrictions "may only be used when the cost from diminishing trade would be borne by producers in richer or equally rich countries, not by producers in poor countries. The reason? Because trade is the only way poor countries can get richer; those who have arrived should not pull up the ladder" [Dore 1996, 373].
The approach proposed by Husson goes in the same direction, because he takes as his starting point: In no circumstances can we apply similar reasoning to underdeveloped countries and to countries at an equivalent level of development. We must therefore conceive of a completely asymmetrical protectionism, which aims at different objectives in the two different cases. Then we have to ask ourselves just what is supposed to be protected. In dealing with the Third World, rules of conduct must be imposed to keep a downward spiral from being set in motion [Husson 1996, 241].
For countries at the same level of development, Husson proposes to use protectionism as a transitional measure to support and extend social transformations: This is the essential difference between ... two different kinds of protectionism. The kind usually thought of is either an exceptional or an exclusionary protectionism. Since this involves one country taking aim at the others, this type of protectionism is logically bound to be deepened and generalized into a process of economic warfare, which is all too likely to degenerate into literal warfare. The protectionism we are proposing is by contrast an extensive protectionism, which is meant to protect temporarily, to the exact extent that neighboring countries have not yet taken the same road. The objective is thus for everyone to get out of this situation together. What is then being protected is for example the 35-hour week, against countries that could adopt the same kind of measure. But this kind of protection is meant to disappear when (the policy ado pted) is extended [Husson 1996, 242].
Obviously, the approach sketched in this section has to be further developed in theory and practice. However, it goes without saying that such policy changes do imply a break with the current dominant economic logic and with the prevalent free trade paradigm. Because such a fundamental change of priorities would mean a break with vested interests, it can only be the outcome of a change in the social and political relationship of forces. For such a project to succeed, it is essential that social movements counterposing globalization from below (and not nationalism) to today's globalization of competition and neoliberalism be strengthened.
Summary and Conclusion
The ideology of free trade based on the principle of comparative advantage is once again dominant. For protagonists of the dominant paradigm, this second victory of the principle of comparative advantage is the final one. Although free trade based on the theory of comparative advantage is extremely popular among economists, in the non-academic world, doubts about free trade are not only persistent, but resurgent because of the consequences of globalization. Four contemporary critiques of the free trade paradigm were discussed.
We next discussed the rationale and conditions for new protectionist policies, starting off from the myths and realities of globalization. Globalization ideologues suggest that we are entering the harmonious world republic that was assumed in classical trade theory, but the reality is quite different because the current processes of globalization have important negative consequences for big parts of the world's population. Because of the way in which the global economy functions, the margins for alternative choices are very limited, unless the discipline of free trade and of financial markets can be countered.
The first question to answer in discussing alternatives is what or who has to be protected against what? The question is not whether we are for or against international trade, but whether such trade strengthens or erodes a democratic and egalitarian project? Policies that support a global progressive agenda have to take into account the immense unevenness in development of the different components of the global economy. Proposals for Investment Inviting Import Quantity Restrictions and for asymmetrical protectionism to extend social transformations take that into account and can therefore be of use for social movements opposing today's globalization of competition and neoliberalism: not from a nationalist perspective, but with alternative projects for globalization from below.
The author is a researcher at the economics department of the University of Amsterdwn and at The Netherlands Court of Audit. Many thanks to Anne Mayhew, Mary Morgan, Geert Reuten, and an anonymous reviewer for useful suggestions and comments.
(1.) If capital were to be mobile, Ricardo makes clear, the theory of comparative costs would not hold, because international specialization would then be determined by absolute costs, like specialization in one country.
It would undoubtedly be advantageous to the capitalists of England, and to the consumers in both countries, that under such circumstances, the wine and the cloth should both be made in Portugal, and therefore that the capital and labour of England employed in making cloth, should be removed to Portugal for that purpose. In that case, the relative value of these commodities would be regulated by the same principle, as if one were the produce of Yorkshire, and the other of London; and in every other case, if capital freely flowed towards those countries where it could be most profitably employed, there could be no difference in the rate of profit, and no other difference in the real or labour price of commodities, than the additional quantity of labor required to convey them to the various markets where they were to be sold [Ricardo 1817, 136].
As this would erase exactly Ricardo's brilliant contribution to free trade theory, it is only logical that he expresses the conviction--and hope--that this will not happen:
Experience, however, shows, that the fancied or real insecurity of capital, when not under the immediate control of its owner, together with the natural disinclination which every man has to quit the country of his birth and connexions [sic], and intrust himself with all his habits fixed, to a strange government and new laws, check the emigration of capital. These feelings, which I should be sorry to see weakened, induce most men of property to be satisfied with a low rate of profits in their own country, rather than seek a more advantageous employment of their wealth in foreign nations [Ricardo 1817, 136--71.
(2.) Not everyone agrees. For a more nuanced balance sheet, see, for example, Coutrot and Husson  and Rodrik .
(3.) The same type of euphoric conclusion can be found in a recent widely acclaimed intellectual history of free trade: "The case for free trade has endured ... because the fundamental proposition that substantial benefits arise from the free exchange of goods between countries has not been overshadowed by the limited scope of various qualifications and exceptions. Free trade thus remains as sound as any proposition in economic theory which purports to have implications for economic policy is ever likely to be" [Irwin 1996, 8].
(4.) "One survey reports that 95 percent of economists questioned in the United States (and 88 percent of economists surveyed in the United States, Austria, France, Germany, and Switzerland) support or support with qualification the proposition that 'tariffs and import quotas reduce general economic welfare'" [Irwin 1996, 3].
(5.) Kuttner [1992, 121] quotes Krugman as follows: "To abandon the free trade principle in pursuit of the gains from sophisticated intervention could open the door to adverse political consequences that would outweigh the potential gains. It is possible, then, both to believe that comparative advantage is an incomplete model of trade and to believe that free trade is the right policy."
(6.) Daly [1995, 317] also notes that "competition can reduce costs in two ways: by increasing efficiency, or by lowering standards.... Free trade encourages standards-lowering competition, and shifts production to the countries with the lowest standards of cost internationalization, leading to a less efficient global allocation of resources."
(7.) Since millions of jobs will disappear during the coming months in Asia, it is no wonder that demonstrating Korean workers asked if IMF stands for "I'M Fired."
(8.) UNCTAD estimates that the world counts at least 53,000 transnational companies (TNCs) and at least--in all likelihood it is more--448,000 foreign affiliates. "In 1996, 85 of the top 100 TNCs were headquartered in the Triad, compared to 86 in 1990. The United States, Japan, the United Kingdom, France and Germany alone accounted for three-quarters of the entries in both years. Their dominance has remained roughly unchanged since 1990, regardless of whether one considers number of firms, foreign assets, foreign sales or foreign employment."
(9.) On the consequences for employees of companies, see Coutrot .
(10.) As Walter Russell Mead of the World Policy Institute notes: Today we expect that if we can get to full employment at all, it will follow from freer trade. Apart from low interest rates, this is essentially the only program for job creation around. In the view of the people who originally designed the postwar system, this is putting the cart before the horse. They believed that free trade was actually a consequence of full employment rather than a cause of it [Mishel and Schmitt 1995, 85].
(11.) "The nation, or in some cases the region, continues to be a space whose specificites do not necessarily erode as a multiform internationalization deepens. This is why systems of innovation and production often take shape on a national basis" [Amable, Barre, and Boyer 1997, 236].
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