[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
copied for non-profit educational uses if proper credit is given to
the author and EH.Net. For other permission, please contact the
EH.Net Administrator ([log in to unmask]; Telephone: 513-529-2229).
Published by EH.Net (December 2004). All EH.Net reviews are archived
at http://www.eh.net/BookReview.
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