I just read this article in The Economist called ‘The Return Of Economic Nationalism’. It’s a really interesting piece on the potential consequences of the financial crisis, I recommend reading it. Clearly, the current financial crisis has had important economic impacts, but also significant political ones.
During the 1990s Francis Fukuyama declared ‘The End of History’ and that capitalism had won out over all other economic doctrines. And it’s true that capitalism has been the key factor in the economic growth and prosperity we have enjoyed for so long. But this financial crisis has blown the lid on many of the contradictions and moral hazards of unregulated capitalism. Thinkers on the left now have the clout to call for more active intervention by the state. In times of crisis there is great temptation for governments to look inward and retreat from global markets. But this can be dangerous (The Great Depression was deepened because of protectionism).
At Davos 2009 Prime Minister Gordon Brown warned against countries adopting protectionist policies, he said that this ‘global crisis’ requires the ‘world to come together as one’. However, The Economist fears the reemergence of economic nationalism. Economic nationalism is when governments focus on protecting domestic jobs and consumption, but do so by imposing tariffs that distort trade. Taken to its extreme, economic nationalism is the opposite of globalization. That is why the ‘Buy American’ phrase in Obama’s stimulus package is so worrying to so many.
I’m worried about what this could mean for developing countries. Developing countries already experience unequal terms of trade in the global markets. International trade is an important tool for economic growth and central for getting developing countries out of poverty. Returning to economic nationalism will have devastating effects on poor countries. I believe that President Obama is too well versed in history and clever to do this. But I’m sure the pressure towards economic nationalism is currently very strong in many parts of the US.
It is important to see the financial crisis an opportunity to restructure the economy and markets. This must be done on an international level. Furthermore, it may sound harsh, but the fittest and most efficient sectors and firms are those that will survive. The inefficient sectors will be revealed. Any domestic response to this crisis must have positive long-term effects. Therefore education, social welfare and technological advance are some of the most important investments that should be made, if we want to create a thriving economy.
Do you agree or disagree? Let me know your thoughts? Would love to hear them.
Image credit: Jon Berkeley/ The Economist