Academic journal article The Cato Journal

The Threat to Economic Liberty from International Organizations

Academic journal article The Cato Journal

The Threat to Economic Liberty from International Organizations

Article excerpt

It is one of the abiding ironies at the beginning of the new millennium that various international organizations set up after the Second World War to create a new Liberal International Economic Order (LIEO) are now the major purveyors of" global illiberalism. How has this come to pass? Is there any need for these international organizations? These are the questions I address in this article.

Liberal International Economic Order

After the Second World War the United States sought to create a new LIEO. That effort was partly in response to its own isolationist behavior in the interwar years, which had contributed to global economic disorder and the destruction of the first LIEO built by the British in the 19th century. However, there were important differentes in the instruments used by these two imperial powers in creating their LIEOs.

The 19th century LIEO was built on five pillars: free trade, laissez faire, the gold standard and free mobility of capital, free labor mobility, and international property rights. In the interwar years this LIEO unraveled. The imposition of the Smoot-Hawley tariff by the United States marked the end of free trade. The "Blue Sky" laws, which banned U.S. banks from lending to foreign governments, and the collapse of the gold standard into a whole host of dirigiste interventions in the payments regime (like exchange controls) ended the free mobility of capital. The rise of welfare states ended free labor mobility, and immigration controls became ubiquitous as welfare states created property rights in "citizenship"--with a "citizen" having the right to pick the pockets of his fellow citizens. The international legal order, painstakingly put together by a series of treaties in the 19th century, disintegrated with the rise of the Bolsheviks in Russia and Kemal Attaturk in Turkey, who repudiated any international property rights in the name of national sovereignty. Laissez faire became a victim to the growing dirigisme in Europe at the turn of the 19th century and in the United States with Roosevelt's New Deal.

After the Second World War, at Bretton Woods, the United States tried to resurrect three of the pillars on which the 19th century LIEO had been built: free trade, the gold standard, and free capital mobility. But, whereas the British Empire had fostered these by example, treaties, and direct and indirect imperialism, the United States instead created transnational institutions: the General Agreement on Tariffs and Trade (GATT) followed by the World Trade Organization (WTO), the International Monetary Fund (IMF), and the World Bank. But, there was no hope of resurrecting free mobility of labor with the spread of welfare states in all the industrialized countries, or of restoring laissez faire with the ensuing expansion of the state. Likewise, with the explosion of economic nationalism in the Third World, aided and abetted by the U.S. Wilsonian anti-imperialist moralism that scuttled the ill-fated Suez adventure of the British and the French in 1956 to prevent Nasser's nationalization of the Suez canal, there was no way in which the new nation states could be thwarted in the assertion of their national sovereignty against any purported international property rights. Indeed, there was no bulwark against this disintegration of the international legal order.

GATT, the WTO, and Free Trade

Rather than follow the correct British policy of adopting unilateral free trade and then allowing its hegemony to spread the norm, the United States chose the extremely acrimonious route of multilateral and more recently bilateral negotiations to reduce trade barriers. Unlike the British, who had correctly seen free trade as a positive-sum game and since the repeal of the Corn Laws adhered to it and its close cousin laissez faire throughout the 19th century (despite various attempts by politicians like Joseph Chamberlain to stir the pot by demanding protection in the name of "fair trade"), the Americans have never accepted the classical liberal case for free trade. …

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