Economist\'s February 5, 2009 Print

¶ … Economist's February 5, 2009 print edition titled "The return of economic nationalism" discusses the current economic crisis and the effect it is having on global trade. The global economic crisis has had a number of consequences around the world, one of which is that politicians are demonstrating an increasing tendency towards what the author terms "economic nationalism." This is described as a variant on protectionism, and is embodied in actions that encourage the spending of money domestically at the expense of global free markets. One such example is the contentious "buy American" clause in the U.S. stimulus package bill.

Around the world, politicians are under pressure to protect local jobs and local industry, but the author outlines that such economic nationalism would only serve to harm the economies they are designed to help. As economic growth comes to a halt, unemployment rises and citizens looks for answers. The easy answers are found in stimulus that is directly targeted at voting citizens. However, the economic crisis would only be exacerbated by such actions, as they would contract investment flows. Instead, nations should work together to expand global trade, an action that will result in greater job protection overall.

The article discusses at length the Buy American clause and the ramifications it would have for global trade. If the provisions are allowed into the stimulus package they will result in a further contraction of global trade and would therefore do more harm than good. Similar clauses to support domestic business have failed in other parts of the world, or have succeeded domestically but had a net negative impact on global economic growth.

2. The author makes the case that Barack Obama should take a stand against economic nationalism with the economic stimulus package. They further contend that the President should champion three principles with regards to economic stimulus - coordination, forbearance, and multilateralism. The argument for these three principles is made primarily on economic grounds, with a little bit of emotion as well. The authors are thin on economic details.

They do not demonstrate, for example, that coordination is better economically, they merely state it. They do make more of an economic case for forbearance and multilateralism, however.

Their position is that nations should work together on stimulus packages, because better international coordination will yield better results for each nation. Stimulus packages that are geared around one nation fly in the face of globalization, and open up that nation for reprisal from other nations. Coordination, however, would allow for the continuation of the global economic system, which is better in the long run. The authors make the case that open markets should remain at the heart of each stimulus package, even if in some cases there are foreigners who benefit. Multilateralism is critical to the continued development of the global economic system - the authors argue that the Doha Round should still be completed and the IMF should help shore up struggling emerging economies.

Lastly, the authors make the case that only U.S. can take the leadership role in the preservation of the global economic system. If free market capitalism's main proponent "goes it alone," the other nations are sure to follow, unraveling decades of work on free trade and causing significant economic harm to most nations as a result. There is much emotion to the arguments, though they are made based on underlying economic principles including the belief in the market development power of free market capitalism.

3. At its heart, this editorial promotes the underlying principles of free market capitalism. Trade is assumed to be a net generator of wealth by the authors; therefore the reduction of trade will result in a reduction of wealth. One of the key points they authors make is with regards to capital flows. Economic nationalism, they point out, will alter and in some cases diminish global capital flows to the detriment of the nationalists.

Global trade, they argue, needs leaders that strongly support its institutions and mechanisms. They advocate the completion of the Doha Round, and reduced trade sanctions. Such sanctions are the inevitable consequence of economic nationalism, and will reduce trade overall.

The issue of sovereignty also comes up in this piece. Each nation must deal with its own crisis, but to put sovereignty and local interests ahead of global economic development would be a mistake - sovereignty itself is not put on the table but clearly the role of sovereignty is something the authors wish world leaders to consider during this time of crisis.

Other concepts that relate to this piece are globalization, economic specialization (the value of comparative advantage), and protectionism under the Smoot-Hawley Act. Globalization supports economic specialization; protectionism undermines it. Thus, the move towards increased protectionism is a move towards reducing economic specialization, which in turn reduces economic growth and global economic strength.

4. In general, I agree with the authors. They make the case that support of, for example, bad banks, is detrimental to economic growth.

The rationale for a globally-integrated economic system is to encourage the specialization of labor, something that is discouraged by economically nationalist policies.

Also discouraged are external cash flows. If nations respond to nationalism with nationalism, as is typical, cash flows will be reduced. This will lead to decreased incidence of specialization and reduced global cash flows. Capital may remain domestic in the short run, but because that capital will not be used as efficiently as it otherwise would be, the benefits will be fewer. Thus, some jobs may be created but not as many jobs as would have been created had the markets been left open.