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Economic nationalism

Evan Davis | Notes on Real Life |
23 Jan 08, 11:35 PM

I only arrived in Davos a few hours ago, but I've had three conversations and they've all ended up coming back to the same kinds of issues â€“ protectionism and free trade, economic nationalism and the shift of economic power in the world.

If you'll forgive the name-dropping, two of those conversations involved George Soros and Henry Kissinger, who I actually spoke to before I arrived. (You can hear Soros online and Dr Kissinger will be broadcast on Thursday's Today programme).

But my not-very-representative sample of three conversations is clearly not altogether off-agenda, because I notice that David Cameron is here this evening, giving a speech on the subject as well.

"The heroes will be those who held their nerve and stood up for free trade" is his line, (while commending John McCain for doing that in the US election campaign).

It is not surprising the issue of trade has come up.

First, the US election has displayed some signs of gentle (or not so gentle) economic nationalism.

Secondly, it is â€“ as you might have noticed - an interesting time in the world economy, and there might be a temptation for countries to retreat into the language and diplomacy of "looking after their own workers".

It might make sense at a selfish level for individual nations to put up trade barriers - although few economists would concede even that â€“ but it rarely makes sense for the whole world to look after their own workers, because what we gain by protecting our workers, we lose by others protecting theirs.

Anyway, I expect the general issue of America's response to the rise of the emerging economic powers to absorb quite a few people here.

I'm not going to suggest it will dominate the Davos coffee-bar conversations of the investment bankers and private equity guys, but it does have a resonance at the moment.

Comments Post your comment

1.
At 09:37 AM on 24 Jan 2008,
DaveH wrote:

I was just about to write "Will that include someone from Societe General then?" when I decided to look at Robert Peston's blog first and you know what ....

I can only say I am stunned by the incompetyence of these so-called institutions and the stupidity of their lending. Now we have a possible fraud, which must make poor old Nick Leeson feel rather inadequate these days. I was interviewed the other day by a differently-named part of Merrill Lynch (they of $7.8bn losses), but having had no comeback at all, seem to have ben turned down for being too highly skilled (including the SII Ops Risk Certificate).

Too many complacent and ineffective people in too many important positions for the world's good in general seems to be the root of he problem. Maybe we do need a recession to clear many of them out.

As for Cameron, he wants to cut off from the EU, let alone anywhere else, and will be rather too keen on protecting his complacent chums in these important positions.

2.
At 01:22 PM on 24 Jan 2008,
Chris S wrote:

"It might make sense at a selfish level for individual nations to put up trade barriers - although few economists would concede even that ..."

Forgive me if I'm wrong, but it would appear from this statement that you are one of those few economists? In other words, you appear to be saying that erecting trade barriers would be great for a country, if only they could prevent other countries from retaliating?

I believe most economists argue that individual countries are better off with as few barriers to trade as possible, *even* if their trading partners put barriers in place. The counter intuitive nature of this argument makes it difficult to get across, which is why tit-for-tat economic nationalism - in the name of saving jobs - wins more popular support than open borders.

If you really believe protectionism is bad, shouldn't you try to explain that there are probably *no* winners, instead of presenting it as a game where the craftiest (or most powerful) negotiators get the prize?

3.
At 01:43 PM on 24 Jan 2008,
Tom wrote:

You mean that Gordon Brown was off his trolley when he said that he wanted British jobs for British workers? What about English jobs for English workers?

4.
At 02:04 PM on 24 Jan 2008,
Alan Olney wrote:

I can't hear anyone standing up for free trade at the moment. The minute it gets sticky, they all come running to the government. So the tax payer bails out Nothern Rock and interest rates are slashed in America. Maybe a planned economy might safe guard the interest of the ordinary tax payer and balance them against the interests of the super rich.