Economic Nationalism in Old and New States

"The new states are mostly states that were formed as a consequence of independence movements in Africa and Asia . And many of those, after independence, went almost immediately towards types of economic policies that were highly protectionist and led to the growth of power-hungry states. Nationalist sentiments tended to be strong in many of the colonies and the countries that were under Britain, France, the Netherlands and Portugal. So, one of the first things many nationalists wanted to do after independence was to take back land and capitalist property that was owned by foreigners. They wanted to nationalise industries that were big and had, up to then, been organized in order to serve the interests of a foreign power. Many of the new leaders wanted—pretty much immediately—to cut a lot of the economic ties that they had with their colonial masters. They quickly entered into a type of economic paradigm that was closer to economic nationalism than anything else. Some of them were inspired by the Soviet Union. Others were not. But all of them tended to move into policies that led to high trade barriers, bans on foreign direct investments and the nationalization of industries. They were driven by the desire to have state control—or to take back control, to coin a phrase. They wanted to demonstrate that power was now in the hands of others. Yes, Johnson didn’t like any of this. He wrote in academic prose and, being an economist, he liked to use algebra, so none of his writings were very direct. Where he was unique is that he changed the way many economists think about economic protection. Part of that is related to the developing world, but it was also about protectionism in the developed world, in ‘old states’. He was very against the Keynesian demand-management consensus that had developed after Keynes and his General Theory , not least the whole theory of optimal tariffs and what was called the ‘second-best’ solution to manage national demand problems by trade policy. He said somewhere that the “second-best policies are usually recommended by third-best economists working for fourth-best politicians.” Johnson thought that Keynesianism took on a life of its own after Keynes’s death and became a lot more macroeconomic; a lot more supportive of balance-of-payment policies; a lot more focused on trying to control the business cycle with different policies that lead to fairly strong interventions in different markets, through industrial policy, through labour market protections, through stop-go monetary policy, or by other means. Support Five Books Five Books interviews are expensive to produce. If you're enjoying this interview, please support us by donating a small amount . And what Harry Johnson did, together with others, was to open this field up for a new way of thinking about money, macro and trade that we now take for granted—a lot of what we now think of as the natural way to look at how the economy works. That wasn’t at all natural in the ’50s and ’60s, during the heyday of the Keynesian consensus. At that time, the World Bank and many other institutions that later become associated with American-style free market policies were far more excited about the economic model in the Soviet Union than they were about America. They were far more excited by command-and-control types of economic policies. Harry Johnson basically showed how this didn’t work and how the world of actual economic integration had moved away from the type of world that underpinned the Keynesian view of international economic exchange. He was the one who started thinking about the role of multinational firms in international trade, thinking about intra-firm and intra-industry trade. He showed how border protections caused ripple effects in domestic markets, how they distort domestic markets and lead to bad allocations of investment and labour in domestic economies. That was his contribution to thinking about economic nationalism. He demonstrated how that progressive consensus emerging from the 1920s, developing and getting stronger through the Keynesianism paradigm, needed to change. Yes, it’s in there. But there are also contributions from others. It’s not just Harry Johnson writing there. He didn’t write many books, he mostly wrote papers. There is a story about him, that for every flight he took—and they were many since he was a professor both at Chicago and the LSE—he drank a bottle of whiskey and wrote one paper. But he did edit a lot of books. This is a conference volume. It also includes people taking a positive view on economic nationalism."