The history of economics is largely a struggle between twoopposing schools of thought, “liberalism” and“mercantilism.” Economic liberalism, with its emphasis on privateentrepreneurship and free markets, is today’s dominant doctrine. But itsintellectual victory has blinded us to the great appeal – and frequent success– of mercantilist practices. In fact, mercantilism remains alive and well, andits continuing conflict with liberalism is likely to be a major force shapingthe future of the global economy.
Today, mercantilism is typically dismissed as an archaic and blatantly erroneous set of ideas about economic policy. And, intheir heyday, mercantilists certainly did defendsome very odd notions, chief among which was the view that national policyought to be guided by the accumulation of precious metals – gold and silver.
Adam Smith’s 1776 treatise
The Wealth of Nationsmasterfully demolished many of these ideas. Smith showed, in particular, thatmoney should not be confused for wealth. As he put it, “the wealth of a countryconsists, not in its gold and silver only, but in its lands, houses, andconsumable goods of all different kinds.”
But it is more accurate to think of mercantilism as adifferent way to organize the relationship between the state and the economy –a vision that holds no less relevance today than it did in the eighteenthcentury. Mercantilist theorists such as Thomas Mun were in fact strongproponents of capitalism; they just propounded adifferent model than liberalism.
The liberal model views the state as necessarily predatory and the private sector as inherentlyrent-seeking. So it advocates a strict separation between the state and privatebusiness. Mercantilism, by contrast, offers a corporatist vision in which the state and privatebusiness are allies and cooperate in pursuit ofcommon objectives, such as domestic economic growth or national power.
The mercantilist model can be deridedas state capitalism or cronyism. But when itworks, as it has so often in Asia, the model’s “government-businesscollaboration” or “pro-business state” quickly garnersheavy praise. Lagging economies have not failed to notice that mercantilism canbe their friend. Even in Britain, classical liberalism arrived only in themid-nineteenth century – that is,
after the country had become the world’s dominant industrialpower.
A second difference between the two models lies in whetherconsumer or producer interests are privileged. For liberals, consumers areking. The ultimate objective of economic policy is to increase households’consumption potential, which requires giving them unhindered access to thecheapest-possible goods and services.
Mercantilists, by contrast, emphasize the productive sideof the economy. For them, a sound economy requires a sound productionstructure. And consumption needs to be underpinnedby high employment at adequate wages.
These different models have predictable implications forinternational economic policies. The logic of the liberal approach is that theeconomic benefits of trade arise from imports: the cheaper the imports, thebetter, even if the result is a trade deficit. Mercantilists, however, viewtrade as a means of supporting domestic production and employment, and preferto spur exports rather than imports.
Today’s China is the leading bearer of the mercantilisttorch, though Chinese leaders would never admit it – too much opprobrium still attaches to the term. Much of China’seconomic miracle is the product of an activist government that has supported,stimulated, and openly subsidized industrial producers – both domestic andforeign.
Although China phased outmany of its explicit export subsidies as a condition of membership in the WorldTrade Organization (which it joined in 2001), mercantilism’s support systemremains largely in place. In particular, the government has managed theexchange rate to maintain manufacturers’ profitability, resulting in a sizabletrade surplus (which has come down recently, but largely as a result of aneconomic slowdown). Moreover, export-oriented firms continue to benefit from arange of tax incentives.
From the liberal perspective, these export subsidies impoverish Chinese consumers while benefitingconsumers in the rest of the world. A
recent studyby the economists Fabrice Defever and Alejandro Riaño of the University ofNottingham puts the “losses” to China at around 3% of Chinese income, and gainsto the rest of the world at around 1% of global income. From the mercantilistperspective, however, these are simply the costs of building a modern economyand setting the stage for long-term prosperity.
As the example of export subsidies shows, the two modelscan co-exist happily in the world economy. Liberals should be happy to havetheir consumption subsidized by mercantilists.
Indeed, that, in a nutshell,is the story of the last six decades: a succession of Asian countries managedto grow by leaps and bounds by applyingdifferent variants of mercantilism. Governments in rich countries for the mostpart looked the other way while Japan, South Korea, Taiwan, and China protectedtheir home markets, appropriated “intellectualproperty,” subsidized their producers, and managed their currencies.
CommentsWehave now reached the end of this happy coexistence. The liberal model hasbecome severely tarnished, owing to the rise ininequality and the plight of the middle class inthe West, together with the financial crisis that deregulation spawned. Medium-term growth prospects for the Americanand European economies range from moderate to bleak.Unemployment will remain a major headache and preoccupation for policymakers.So mercantilist pressures will likely intensify in the advanced countries.
As a result, the new economic environment will produce moretension than accommodationbetween countries pursuing liberal and mercantilist paths. It may also reignite long-dormantdebates about the type of capitalism that produces the greatest prosperity.
加JingGuanBbs
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