Public policies and globalization: classic liberalism, economic nationalism or embedded liberalism?

Résumé du document

The last World Trade Organization summit illustrated the inability of governments to reach complete free trade agreements. The increasing number of cases of conflict presented to the Dispute Settlement Body of the WTO, shows that there is still a lot to do in the field of cooperation, and a number of agreements to make. These conflicts (mainly between developed countries, especially the USA and the European Union, or between developed countries and emergent countries) arise in many different sectors such as agriculture, aircraft subsidies, textile, etc. Each conflict was proof that even if there is an official consensus on the benefits of economic liberalism, most countries don't accept free trade. The decision makers have to take into account many factors and interests that determine their policy and it is interesting to analyze the differences between the way the authorities justify their action through economic theories and how economists understand these policies and determine which economic paradigm backs them up.

Extraits

[...] The solution: a real embedded liberalism As a result it seems clear that the governments, in the European Union as well as in the United States, have been implementing (and continue to do so) policies inspired by the economic nationalism. The official speech is one that supports liberalism and free trade, but the reality is different: subsidies, regulatory barriers, etc. are means to limit globalization in order to protect certain interests. But the governments don't tell the truth: claiming that they respect Keynesian precepts, their policy should aim at defending citizens' interests. Instead, they focus on producers' and state's ones but this policy is not effective (suboptimal situation of protectionism). [...]

[...] Without this support, the company would never have developed and the market would be monopolistic, dominated by Boeing and this situation would be far all but Pareto efficient. But this can hardly be applied to the defense of the Western textile industry after the dismantling of the Multifiber Agreement (this old industry did not deserve protection anymore) or the protection of the productive agricultural sectors in the EU and the USA. Once the “infant industry” has well developed and reached the level of foreign competitors, then List recommended free competition so neither Airbus nor Boeing (which was helped to counter the effects of the European subsidies) should be financially helped. [...]

[...] The governments are clearly under the pressure of the producers who are the central actors in this paradigm (and this can be seen in France for instance, with the tradition visit that candidates to the presidency have to make at the Agriculture Exhibition before the elections and the necessity to clearly express in their program their desire to defend the CAP). With free trade, the domestic production would decrease as the world market price is lower than the domestic price: this favors the citizens but penalizes the producers. Thus, the CAP guarantees minimal prices and incomes for farmers. This way, the consumers' interests (in term of quantity of consumption because of the higher domestic price) is not the priority. One can however argue that the “infant industry” theory of Friedrich List provides a legitimacy to some kinds of protectionism. [...]

[...] They recognized that it is not “classical liberalism”, but argue that the “wild liberalism” would cause a suboptimal situation probably worse B. Policies that are in fact economic nationalism If one reads Keynes' works, one is unlikely to find that he promoted protectionism: Keynes had fought protectionist fold in Europe after the First World War. In the contrary, he favored free trade (with international rules and cooperation) and recommended state intervention through fiscal and monetary stimulus but that did not mean any kind of protectionist measures In fact, we should consider that European and American policies in cases like aircraft or agricultural subsidies should simply be analyzed in the frame of the “economic nationalism” paradigm. [...]

[...] This is an obvious source of worry for the state, especially in certain strategic domains. It's clearly understandable that the support given to Airbus enabled the European not to be dependent on their American suppliers. The strategy of the French government that refused to let Suez be bought by the Italian Enel and supported its merger with Gaz de France in order to create a national “champion” of energy is an example of “economic patriotism” (as Prime Minister Dominique de Villepin said). [...]