Do ideologies rule the world? Do they last? Yes, they rule and last as long as they serve the purpose of powerful nations or individuals. This is a cynical statement. But cynicism is not without reason or it would not have existed.
Adam Smith, a Scottish economist, wrote his book ‘The Wealth of Nations’ (1776), which is considered to be the Bible of capitalism. His ideas ran counter to the prevailing economic theories of his day, especially mercantilism. He propounded the idea of free trade.
Free trade does not have a single, unified definition. It generally refers to trade between nations without any artificial barriers introduced by the government. He said that free trade brought wealth and prosperity to individuals and nations and, thereby, increase the sum-total of human welfare.
Governments, he said, should allow the “invisible hand” to rule the markets. If everybody acts from self-interest and is spurred on by the profit motive, then the economy will work more efficiently. Smith wrote that it is as if an “invisible hand” guides the actions of individuals for the common good. Government action, however, was required to impose anti-trust laws; enforce property rights; and police and protect the industry essential for national defence.
This idea was further developed and refined by British politician and economist David Ricardo in 1817 when he presented the law of comparative advantage. Simply stated, if two nations trade and one of them is more efficient in producing both goods A and B, it should produce good A in which it is more efficient and leave good B to the other trading partner nation to produce. As a result, trading goods A and B with each other becomes more beneficial, even when one nation is more productive than the other.
Britain adopted free trade and became the leading industrial nation of the 18th and 19th centuries. It gathered enormous amounts of wealth and riches. Unfortunately, the ideology applied to Britain only. Its vast colonies were excluded from this ideology. Let’s not forget how it pulverised the weavers of Bengal. Textile was the leading industry of the Subcontinent at the time. Soldiers were sent to destroy the looms so that the factories owners of Lancashire could thrive.
The worst example was the Salt Act. Britain’s Salt Acts prohibited Indians from collecting or selling salt – a staple in their diet. Citizens were forced to buy the vital mineral from the British who, in addition to exercising a monopoly over manufacturing and selling salt, also exerted a heavy salt tax. Defying the Salt Act, Mahatma Gandhi started the Salt March or the Salt Satyagraha in March 1930 – a trek of 240 kilometres on foot to the sea to make their own salt. The British called it an act of rebellion.
The Roaring Nineties and globalisation – an era of great optimism and great expectations – heralded not only free movements of goods and services but also resulted in free movements of finance and ideas. The world is one village, it was proclaimed. Reams of paper were wasted celebrating globalisation and high-minded pronouncements came from intellectuals of all stripes. Poor nations were given hope that their days of deprivation will soon be over. The West will become the East and the East will become the West and happily the twain shall live.
China appears on the world stage with economic reforms called ‘Socialism with Chinese characteristics’. These reforms were started in December 1978 by reformists within the Communist Party of China that was led by Deng Xiaoping. In three or more decades, it became the second largest economy of the world and was referred to as the factory of the world. According to the World Bank, more than 500 million people were lifted out of extreme poverty over the last three or more decades.
Unable to cope with a surging China, America’s public opinion shifted inwards and compelled Trump to push his ‘America First’, agenda. Adam Smith has once again been turned on his head. On March 9, Trump slapped a 25 percent tariff on steel and 15 percent tariff on aluminum imports, daring the world to start a trade war. He said: “Trade wars are good, and easy to win”.
Ignorance is a voluntary misfortune. It is the mother of impudence and the nurse of obstinacy. Wars, whether they involve physical warfare or trade, have never been won. It is the war that wins. After independence from Britain, the US embraced free trade as a policy, but only when it was favourable to it. The most prominent trade war of the 20th century was ignited by the Smoot-Hawley Tariff Act of 1930, which imposed steep tariffs on almost 20,000 imported goods. America’s trading partners retaliated with tariffs on US exports, which plunged to 61 percent from 1929 to 1933. America had to repeal tariffs in 1934. It was such a disaster that it held sway over American trade policy for 80 years.
The writer is a former civil servant and a former minister.