Another reaction to Gilpin (Chapter 5 until the end)

GATT has turned out to be an illusion and will, according to the author, continue to be an illusion. Its universal rules will simply not be respected by those that have a chance to use them for their own benefit. This is how he sees the present world: Undoubtedly the most prominent feature of the emergent trading regime and the most significant departure from historic patterns will be the expansion of sectoral protectionism. Gilpin also refers tothis phenomenon as Ne Protectionism and describes it like this: In substantial and growing numbers of services, basic industries, and high technology areas, governments and corporations negotiate market-sharing agreements. Involving principally the advanced economies and the newly industrialized countries (NICs), such horizontal accords are intended to gain market access, acquire strategic technologies, and preserve employment. But, as Gilpin also argues, these accords will only benefit the few. In his words, an international trading regime based in large part on negotiated market shares and cartelization is not only highly inefficient but also characterized by gross inequities. However, as he states writing in the decade 1980-90, powerful forces will continue to push the world economy in that direction. Now, nearly 20 years later, we understand that he was right, in the short run, but uncertainty is all there is if we look towards the future. A revival of the GATT dream sometimes seems to be the only way out; and in view of the disasters we may face if no serious political action is taken, it may even become a real life option.

In his analysis, Gilpin speaks of the current (1980s) trade regime as a mixed regime. He considers it the product of the interaction of two opposed tendencies. On the one hand, as he states it, the world has reached its highest level of free trade and economic interdependence ever: tariff barriers have declined dramatically during the postwar period, the foreign sector in most economies has expanded, and international competition has increased. Yet, as he puts it, the greater openness has given rise to and is paralleled by powerful counter tendencies: economic closure in the form of the New Protectionism. It entails economic nationalism embodied in industrial policy and more and more strategic trade policy; a trend that was made possible by the enhanced importance of oligopolistic competition. New Protectionism is characterized by non tariff barriers and operates beyond the power of national governments. The phenomenon is much harder to control and regulate than the traditional import restrictions imposed by nation states.

Of course, there was no way Gilpin, who was right in his analysis in the shorter run, could foresee that the world economy would collapse precisely due to the actions of those actors that worked against the GATT morale and tried to benefit to the limit from the oligarchistic opportunities provided by the opening up of national economies (the so called free trade). These actors made immense profits at the cost of fair trade and by doing so successfully blocked any intention aimed at improving real economic opportunities for less developed countries (at the level of countries not selected actors within those countries), implementing effective redistributive policies and reducing poverty across the globe.

As a consequence, the gap between the rich and poor has increased to a level that makes the world fall apart, not because of a lack of leadership, as Gilpin puts it, but because of a lack of morale by the political and economic leaders of today. It is not surprising that with this result even the American voters have decided to derail the train. Unfortunately, they were too late to stop it and those who should have stopped it earlier refused to do so due to their vested interests. But now that it crashed, the voters realized that to fix the world, they should not put back on the same trail, but rather give it a different direction. This is where Obama comes in. In fact, in his final conclusions to chapter Six, Gilpin also refers to the quality of leadership as the factor on which the stability of the world market economy depends. More actors should have realized this at the time of writing…

When discussing the dependency theory, Gilpin criticizes the argument that the world market or capitalist international economy operates systematically to thwart the development of the Third World. He states that little evidence supports the charge that the international economy operates systematically to the disadvantage of the least developed countries (LDCs), even though he agrees it may be the case for some individual countries. According to Gilpin, the threat faced by the Third World is not dependency but the likelihood of continued neglect and further marginalization. What lacks since the Second World War is an adequate international regime whose purpose is global economic development. Like GATT?

According to Gilpin, this failing is not the fault of the capitalist world alone, but also of the socialist bloc and the wealthy oil producers. Furthermore, according to Gilpin, economic development will not occur unless a society puts its own house in order. As liberals stress, and Gilpin underlines, economic development will not take place unless a society has created efficient economic institutions. What is important for economic development and escape from dependence is the capacity of the economy to transform itself, a task that is ultimately the responsibility of that society’s own economic and political leadership.

Gilpin describes all actors that participate in the interdependent international economic market of the 1980s: the capitalist world, the socialist bloc, the wealthy oil producers and the third world. He argues that there was no international regime that pursued global economic development. What he means to say is that there was no political will to do this, as the power balance still favored trends of increased wealth for the few. The poor had no voice and no claims to make. However, it seems unfair to state that a major part of the responsibility of underdevelopment lies in the hands of the local political and economic leadership given the immense interference from bilateral and multilateral agencies in their local affairs. Has real institution building ever occurred? Until today, external aid is conditional and it is in the interest of donors to hinder receiving countries from building their own economic institutions.

National sovereignty does not exist in this world, or at least not for those countries that depend on external aid. They can not spend their money that way they think is best; they can not build their country the way they believe is right. They receive severely conditioned grants, including obligations to contract companies from the donor countries. In the capitalist world nothing is given for free; everything comes with a price. How can you put your house in order if your leaders are bought by foreign capital? I do not know what Gilpin means when he says the foremost problem is not external dependence but internal inefficiency. It is just unfair to say it this way, even though I understand the point he wants to make. To my view, however, the main problem is not inefficiency; the first and most crucial problem is a trade problem: inequality.

This has created countries thorn apart by the interests of the capitalist world. Only when the ‘free trade’ world truly includes underdeveloped countries as respected partners into its economic policies, real negotiations on fair trade will start opening the way to a more just world. Liberalism in itself is not the problem, as it is only an instrument to understand modern economics; the question is how it is implemented. It is about the morale of political and economic leaders when they establish the rules of the game, and about who they include in their negotiations as respected partners.

I do agree with Gilpin that a mayor problem is the failure of the multilateralism of the GATT that according to his analysis has been displaced by bilateralism and mini-lateralism. He even states, at the end of his book, that the new international economic order of the mid-1980s raised profound issues of economic equity for the conscience of mankind. As he predicted, many societies are suffering from the closure of world markets and still require massive economic assistance if they are to have any chance to escape from their poverty. He argues that the liberal world economy based on nondiscrimination and multilateralism had defects, but at least it provided economic opportunities that shrank in the more nationalistic world economy of today. But as he sees it, the politicized economic world of the1980s and of today, does not need to return either to the malevolent mercantilism and economic warfare of the 1930s or to the expanding and relatively benevolent interdependence of the 1960s. According to him, the postwar age of multilateral liberalization is over and the world’s best hope for economic stability is some form of benign mercantilism. This is a statement I like, as it relates to some sort of morale we may need to demand from our political and economic leaders when they establish new rules of the game. We need a return to the negotiation table truly including all countries finally getting the GATT right. Today’s economic and financial turmoil may become a window of opportunity in this respect. And I love it when Steve Wonder says: I love you Barack Obama.