[Please pardon me if this post is too far afield for our list, but using "the repeal of
the Corn Laws in Great Britain in 1846" as a case study convinced me that at least some
members of the list might find this review and book interesting.  If not, delete away. HB]
 
 
------------ EH.NET BOOK REVIEW -------------- 
Published by EH.NET (December 2004) 
 
Michael Lusztig, _The Limits of Protectionism: Building Coalitions  
for Free Trade_. Pittsburgh: University of Pittsburgh Press, 2004.  
xvi + 272 pp. $27.95 (paper), ISBN: 0-8229-5843-0. 
 
Reviewed for EH.NET by Anthony Patrick O'Brien, Department of  
Economics, Lehigh University. 
 
 
George Akerlof once remarked that the problem with macroeconomics is  
that in half the models unemployment is impossible, and in the other  
half full employment is impossible. A problem with models of rent  
seeking applied to international trade is that it's unclear how free  
trade ever survives. The firms that benefit from protection benefit a  
lot. Everybody else is hurt a little. This isn't quite true, of  
course. The steel tariffs the Bush Administration imposed a couple of  
years ago hurt steel users, particularly smaller ones, quite a bit.  
Still, the rent-seekers have more to gain, and so should be more  
successful at bribing legislators. The result ought to be much more  
protectionist legislation than we actually see in the United States  
and other industrial countries. 
 
Michael Lusztig, a professor of political science at Southern  
Methodist University, believes he has discovered the resolution of  
this paradox. In Lustzig's view legislators are corrupt, their votes  
for sale to the highest bidder, and so tend to favor protection. On  
the other hand, heads of government -- presidents and prime ministers  
-- favor liberalizing trade because they are either beneficent social  
planners or because they reap the political benefits of the more  
efficient economies that result from free trade. The relative lack of  
protectionism, then, reflects the ability of presidents to  
outmaneuver Congressmen. Presidents manage this by converting to free  
trade a sufficient number of firms that might otherwise have lobbied  
for protection. The notion that presidents and prime ministers are  
altruistic social planners will draw a horse laugh from most  
economists. (Note, again, Bush's steel tariffs.) The thing is,  
though, most of the time it may well be true. At any rate it seems  
more plausible than Lustzig's alternative argument that either the  
harm from protection or the benefits from free trade are likely to be  
visible to voters soon enough to have much impact during the average  
election cycle. One of the book's weaknesses is that Lusztig spends  
little time establishing why there is typically a divergence between  
the interests of presidents and the interests of Congressmen on the  
question of liberalizing trade. 
 
Lusztig divides rent-seeking firms into those that have no hope of  
surviving without protection -- his "mythical and extreme example" is  
olive farmers in Finland -- and those firms that prefer protection,  
but that might succeed at competing internationally, if forced to.  
Lusztig compares the second group to the "idle adolescent who prefers  
a parental allowance to getting the metaphorical haircut and job."  
The existence of this second group means that reducing protection may  
actually increase political support for free trade by convincing some  
firms to shift resources away from rent seeking and toward competing  
internationally. 
 
Most of Lusztig's book is devoted to seven case studies that he  
believes demonstrate the shortcomings of the conventional  
rent-seeking model. In these studies, governments reduced protection  
for one of three reasons: there was an economic crisis, the IMF or  
World Bank ordered the reduction, or the government's objectives  
changed, as when, for instance, protection was reduced as part of a  
general program of reform. Lusztig's case studies are based on  
secondary sources, including a smattering of articles by economic  
historians. They contain few statistics and no formal statistical  
analysis. The seven case studies include: the repeal of the Corn Laws  
in Great Britain in 1846, the growth of support for free trade in the  
United States during the 1930s and 1940s, the movements to free trade  
in Mexico, Canada, New Zealand, and Chile in the 1980s, and the  
failures of movements to free trade in Brazil and Australia. Lusztig  
does a good job demonstrating that in each country and time period  
there existed a sizeable group of "flexible rent seekers" who could  
be converted to free trade, once the process of dismantling  
protection seemed irreversible. The successful liberalization  
programs were those that pulled off this conversion without  
generating too strong a political backlash. 
 
Lustzig divides the outcomes of his case studies into "successes,"  
where trade was liberalized and the liberalizing president or prime  
minister survived politically, "failures," where liberalization  
either failed or succeeded but the liberalizing president or prime  
minister was driven from office; and "mixed," where only minor  
liberalization occurred. Lustzig argues that the success of  
liberalization depends on presidents and prime ministers knowing  
whether to eliminate protectionism all at once (the "Big Bang"  
strategy) or piecemeal (the "Iteration" strategy). His case studies  
discuss at length why one or the other strategy was preferable in  
particular circumstances. Lustzig hopes his analysis will provide  
guidance to presidents and prime ministers contemplating launching  
programs of liberalization. I have to say, though, that his advice on  
when to blow protection up and when to ease it out the door seems  
pretty vague and ad hoc to me. In any case, in practice trade  
liberalization is generally only one component of the political  
strategy of the typical president or prime minister. So, the pace of  
liberalization is often dictated by broader political considerations. 
 
The book is a quick read, is well written and is jargon free. But the  
lack of economic analysis limits the book's appeal to economists. The  
only sporadic attempts to engage the economic history literature also  
limit the book's appeal to economic historians. The book does seem  
well suited to undergraduate students of international relations or  
international political economy. 
 
 
Anthony Patrick O'Brien is professor of economics at Lehigh  
University. His principles of economics text, co-written with Glenn  
Hubbard, will be published in 2005 by Prentice-Hall. 
 
Copyright (c) 2004 by EH.Net. All rights reserved. This work may be  
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Published by EH.Net (December 2004). All EH.Net reviews are archived  
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