Home' Policy Magazine : Policy Vol 33 - No 1 Contents 35
POLICY • Vol. 33 No. 1 • Autumn 2017
interventionism may not worry the affluent, but
it mitigates against the life opportunities of the
young and less well-organised ordinary citizens.
Indeed, interventionism and protectionism can be
considered a war on the poor: The US Council of
Economic Advisors estimates US tariffs amount to
an additional tax of 1.7% on the poorest 10% of the
population, but a tax burden of only 0.4% on the
richest 10%.7 Only open international competition
has acted as a political brake on these trends.
In the face of growing statism, a spreading
sclerosis gripped the politico-economic systems of
advanced industrial countries. Leaders were less
and less able or willing to anticipate or recognise
the need for facilitating structural adjustments to
international trade liberalisation. Instead, political
and administrative elites became more reluctant to
make concessions in trade negotiations. They also
made it harder for foreign investors to gain free
and equal access, because that might endanger local
industrial cronies and the expansion of social welfare.
Rather than cultivating competitiveness, high-
taxing governments began to rely on global political
cartels (such as the G-5, G-7, or G-20) to outflank
the competition from producers in new industrial
countries. More recently, artificially inflated energy
costs have added further to the loss of international
competitiveness of mature economies.
Mancur Olson has given us—in my opinion—
the best and most realistic analysis of how the
proliferation of collective actions gradually leads to
ossification and citizens’ disenfranchisement.
1945, the core of the Western democratic system
experienced no major political disasters. Democratic
politics could therefore abandon strategic statecraft
to focus on opportunistic rent-creation. As a result,
the forces of economic growth were white-anted.
Mediocre political operators were able to brush
aside the interests and wishes of ordinary people,
eventually losing their trust. Since the early 1980s,
when Olson spoke about these dangers while
visiting the Australian National University,9 this
loss of trust in government and ruling elites has
progressed much further than he ever would have
The drift was halted temporarily in the 1980s by
economic reforms in key Anglo-Saxon countries.
Above all, Reagan and Thatcher inspired a new
self-confidence. But by the turn of the century
that confidence had dissipated again. Only some
countries that had avoided much of the first
wave of postwar liberalisation—Australia, New
Zealand and developing countries such as China,
Vietnam, Chile or Peru—belatedly discovered the
benefits of more openness to trade and investment.
Consequently, they have achieved good economic
growth in recent years. These late converts to the
free trade philosophy of the 1950s and 1960s now
count among the most committed holdouts for
globalisation, while a new mercantile nationalism is
Multilateral negotiations over the liberalisation
of trade and investment reflected these domestic
developments, which brought the gradual progress
towards more economic freedom to a complete halt.
The Doha Round, which the WTO started in 2001,
died a slow death. Governments, when obliged to
make border-opening concessions, now relied more
and more on ‘behind-the-border’ impediments to
foreign trade and investment with the pretext of
security, health, labour standards, environmental
or other objectives—a form of protectionism by
Some thinkers, who still remembered the
disastrous material and political consequences of
economic nationalism one hundred years earlier,
tried to rescue the global rule-based system by
advocating a different approach to liberalising
international trade and factor flows. Despairing
of the futility of diplomatic horse-trading, die-
hard free traders now appealed to ‘coalitions of
the willing’. Governments with relatively free
economies were invited to negotiate—as a second
best option—preferential free trade associations.
Governments unwilling to implement advances in
free trade and investment were free to stay away.
This inspired proposed preferential free-trade
Mancur Olson has given us the best
and most realistic analysis of how the
proliferation of collective actions gradually
leads to ossification and citizens’
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