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States and Markets Nationalist Political Economy.

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Presentation on theme: "States and Markets Nationalist Political Economy."— Presentation transcript:

1 States and Markets Nationalist Political Economy

2 Friederich List, The National System of Political Economy, 1841

3 In this lecture A recap on the conception of mercantilism Lists national political economy critique of Adam Smith conception of the role of the state in promoting development historical context – Germany, England and France Lists policy prescriptions state and economy power balancing alliances the German Zollverein From Theory to Practice the US, Bismarck and Japan Contemporary relevance an antidote to free market capitalism?

4 Mercantilism Revisited Key role for the state in controlling the economy Self-sufficiency the ultimate goal of economic policy National pride built on military force National wealth assessed by the amount of gold possessed – the concept of bullionism the need for trade surplus to ensure national prosperity tariff policy should protect domestic producers domestic sea force to control foreign markets Agriculture the basis of national food security (and the base of the fiscal system) Importance of colonies as suppliers of cheap raw materials and markets for finished goods

5 Adam Smiths critique of mercantilism and the new orthodoxy Classical Political Economy List as a proponent of a return to mercantilism sort of, but not quite

6 Preface to The National System Of Political Economy "I have been accused by the popular school, of merely seeking to revive the (so-called) 'mercantile' system. But those who read my book will see that I have adopted in my theory merely the valuable parts of that much-decried system, whilst I have rejected what is false in it; that I have advocated those valuable parts on totally different grounds from those urged by the (so-called) mercantile school, namely, on the grounds of history and of nature"

7 The Philosophical Context - List on Smith Although largely critical, List acknowledged Smiths contribution Smith as the first person to undertake a comprehensive study of this kind Smith as the originator of the science of political economy Smiths work should be built on and taken further, not simply rejected

8 Smith and the Depoliticisation of Political Economy mathematical theory requires simplicity but the real world of economics is complicated Smiths Comopoliticalism the theoretical economy the world as a single entity Lists Political Economy the real world of rival nations

9 Smiths conception of nations as a relic of the past that would simply disappear in an age of enlightenment – Smith as a liberal utopian? BUT It is a dictate of the law of self- preservation [for a nation] to make its particular advancement in power and strength the first principles of its policy

10 Economies are national, not individual governments must decide what is best for the nation and what is best for the nation might not be what is best for individuals eg: building canals goes against interests of waggoners Governments must intervene in economy but not too much – over-regulation is a problem Economies are national, not individual – hence national political economy

11 Smith Paid Too Much Attention to Exchange, and Not Enough to Production natural capital – land, sea, rivers and mineral resources material capital – machines, tools etc used in the production process mental capital - skills, training, industry, enterprise, armies, naval power and government

12 Smith ignored mental capital – productive members of society doesnt include professors and teachers! need to consider what will create wealth in the future not just not just scientific discoveries, advances in technology, improvements in transport, the provision of educational facilities but also but also the maintenance of law and order

13 All things being equal, developing mental capital should be the most effective in the long term in developing the nation

14 Britain, Germany and France UK laissez faire policy only promoted when it suited the UK eg: promotion of free trade with British colonies because the terms of trade benefited Britain elsewhere, if laissez faire policies didnt help the national interest, it was simply ignored eg: high tariffs on imports English as bullies and good-for-nothing For List, it was always England not the UK

15 Apart from Prussia all the rest of Germany had for centuries been under the influence of free trade... that is to say, the whole world was free to export manufactured products into Germany, while no one consented to admit German manufactured goods into other countries. British Dominance and German Development

16 Napoleonic Continental System Napoleons economic war against Britain 1806 Berlin Decrees prevented any ship from Britain from landing in French controlled Europe 1807 extended to Russia via Treaty of Tilsit and extended to any ship from a neutral country (effectively America) transiting through Britain

17 Impact of Continental System Negative impact on Britain – deemed as a good thing by List Reduction in exports Reduction in corn imports – c.33 % rise in prices Reduction in wages and employment Depreciation of Sterling and increased inflation

18 Ultimately negative impact on France Reduction in gold inflows to France Reduction in French customs revenue needed to maintain Napoleonic armies Reduction or elimination of imported goods f rom British coloniesparticularly new luxury goods - coffee, sugar, tobacco, cocoa, and cotton textiles

19 But beneficial to German states growth of domestic industries where British imports had previously flourished growth of domestic industries to service the large internal continental market contrary to free trade theory, protectionism helped German development and bolstered the national economy national cause Germany not a nation state yet End of the Continental System, 1812/13 supremacy of British naval power growth of German nationalism renewed flood of cheap British imports into Germany

20 Lists Policy Prescriptions A recognition of power in the global system and the importance of power balancing List as Realist ?? Initial conception of England as the problem calls for an alliance of nations to counter England Subsequent conception of the emergence of Russia and the USA as the new global powers need to ally against them to stop them becoming hegemonic call for an Anglo-German alliance

21 Delink from free trade until you are strong enough to compete any nation which owing to misfortunes is behind others in industry, commerce, and navigation... must first of all strengthen her own individual powers, in order to fit herself to enter into free competition with more advanced nations. State should protect and nurture the productive powers not just about bullion, but developing industries, transport and infrastructure, education, laws etc more than just traditional mercantilism State Led Development

22 Towards a United Germany History had shown the importance of a large market protected from unfair competition from the predatory trade policies of more developed states (ie: England) German confederation of 1815 – 39 sovereign states each too small to compete in the international economy

23 The Zollverein

24 The American National Economy Exiled to the US for political views, 1825 (and later returned to Germany as US consul) Impressed by John Quincy Adams and Henry Clay's American System active government promotion of agriculture, industry and science continental integration through government funded infrastructure developments Funded by high public land prices and external tariffs… Abominable Tariff of 1828 … which also protected domestic producers

25 Importance of state control of banks to direct lending in support of government identified strategic objectives Alexander Hamilton and the First National Bank of the United States strong state to fund national economic integration and development (and to fight wars!) (List supported Hamilton despite his policy of tariff reductions)

26 Listian Ideas Post-List 1844 The Politics (fourth book of the national system Calls for establishment of German State with single currency and flag, strong navy, single government, strong state led development, new national system of roads, railways and canals 1846 Dies in supposed suicide

27 Otto Von Bismarck – First Chancellor of Germany, establishment of German State with single currency and flag, strong navy, single government, strong state led development, new national system of roads, railways and canals

28 Japanese Industrialisation Toshimichi Okubo and learning from Germany the origins of Japanese industrialisation in the early 20 th Century The Ministry of International Trade and Industry the origins of the post-War Japanese economic miracle

29 Listian Political Economy Today Dominance of neo-liberalism as a development discourse and negative examples of autarkic economies eg: Burma and North Korea (but neither are Listian in any real way)

30 A critique of rational choice theory? theory only works if the messy complexity of real life is assumed away the reality of real political economy is messy and complicated The disjuncture between theory and practice free trade only promoted when it serves national interests agricultural protectionism in the USA, the EU and Japan but …..

31 An alternative model of development Notwithstanding the current orthodoxy, development in the USA, Germany, Japan and the late industrialising East Asian NICS all originally occurred under Listian conditions rather than under free market capitalism

32 Han Deqiang and Chinas New Left critique of the impact of Chinese integration into the global economy explicitly refers to the works of List

33 Reading The National System of Political Economy


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