Year XLV, 2003, Number 3, Page 131



The Return of Protectionism and Europe’s Responsibility
The principal cause of the failure of the WTO conference in Cancun on 10-14 September 2003 is the strong conflict of interests that put the different countries or blocks of countries represented there in opposition to each other. This means that Cancun was the effect of a crisis in world trade that has been going on for some time and that in turn is the expression of deep imbalances whose nature is both economic and political.
International trade plays a decisive role in the growth of the world economy, and thus in increasing the welfare of the citizens of the more privileged areas of the planet and in improving the development prospects of the more economically marginalised ones. It expands during periods of political stability and contracts when the relations between States become tense and national egoism prevails over co-operation.
The world market is a profoundly different reality from the domestic market of a State. Both are governed by rules. But those which govern the domestic market of a State which is a market in the strictest sense of the term are formulated and imposed by a sovereign power. Whilst those which govern the international market — which could be bilateral or multilateral — are voluntary, since they come out of treaties or conventions, or are in any case based on reciprocal trust between the contracting parties. Their effectiveness therefore depends essentially on the goodwill of the States that have accepted them. And it is inevitable that this goodwill is stronger when power relations between the States involved are more clearly delineated. It is true that there are organisations (in particular the WTO) that promote the formation of international trade rules and whose task it is to settle trade disagreements borne out of differences in their interpretation. But these organisations do not have their own power beyond that of the States which comprise them, and therefore they do no more than reflect their power relations: they work when the power relations between States are sufficiently strong to bring about a high degree of convergence between their interests, and they do not work, or work badly, when there is no such convergence of interests.
Far into the horizon of world history is the growth of a Federal State encompassing the entire planet. When this happens the world market shall become a great domestic market. But before then, as has always happened in the past, a world market will develop only where the economic and political hegemony of one or more superpowers is in a position to make up for the lack of a world State, even if it does so only imperfectly. This has happened in the history of the last two centuries with the hegemony of Great Britain over the rest of the world during the 19th century and with that exercised, albeit to a lesser extent, by the United States, in the decades following the end of the Second World War over that part of the world subject to its control.
It should be noted that, before today, a feature of the States that drove the international economy was having a structurally favourable trade balance, set off by capital exports in the form of portfolio investments, or direct investments, or non-returnable aid to the rest of the world, or to that part of the world on which their hegemony was being exercised, and thus also to developing countries. Here we are reminded of the huge British investments made in the colonies and the decisive aid given by the United States to Western Europe after the Second World War through the Marshall Plan. This means that the hegemony of the superpowers must not only be economic, but at the same time political, and thus create large areas of interdependency to encourage the formation and the respect of common rules.
Today the world finds itself in a situation of anarchy. Consequently world trade is going through a phase whose possible outcomes are disconcerting and in which one can see the rebirth of the spectre of protectionism. It goes without saying that the current global power order is characterised by the undisputed military and technological domination of the United States. But this domination is not founded on any substantial consensus of allies whose interests converge with those of the hegemonic power. On the contrary, having become subjects, the latter begin to feel a growing unease, which more and more often breaks out into an attitude of open aversion, and is thus fragile and unstable.
This occurs because today the hegemonic power is not able to produce a surplus of wealth within its borders, which can be exported and shared with the other countries in its zone of influence, promoting international trade and thus increasing global wealth. Today the United States are an economic power in decline. In truth it is a decline that has been going on for some time, because the foreign balance of the USA ceased to show a surplus since 1976, and then more and more markedly so since the Reagan presidency. However, after the dissolution of the Soviet Union and the end of the Cold War, and in a particularly dramatic way with the end of the speculative bubble of the 1990s, the rise to power of Bush jr and the war in Afghanistan and Iraq, this tendency has increased alongside the exponential growth of the global responsibilities of the USA. And, contrary to what occurred after the end of the First World War and in the first decades following the end of the Second World War, today they are the biggest debtors in the world: Their trade balance deficit is more than 5 per cent of their Gross National Product and almost half of their National Debt, which is just as large, is held by foreign investors (it must be remembered that the saving propension of American families is zero). And what is even more worrying is that both deficits are increasing at a breathtaking rate. The USA therefore no longer export wealth. They only export war, whilst they import wealth, demanding that the rest of the world finance their hegemony by participating in their military enterprises, or by financing them, or through protectionism, or the purchase of US Treasury bonds by foreign investors. Their currency is of course still the one in which most international transactions are carried out and which is kept in the central bank reserves of the other countries. But this only occurs because the Euro does not have a State behind it to give European monetary union sufficient guarantees of stability. In fact the dollar is depreciating, and alongside that its hegemony is weakening. And, if this tendency were to continue, or even increase, it would mean a crisis of confidence and financial disturbances of incalculable proportions. The truth is that the American economic recovery, apparently so vigorous, is extremely unstable because it rests on foreign wealth. Therefore we should not expect the boost for overcoming the current critical phase of the world economy to come from the American locomotive, which in any case no longer exists.
This certainly does not mean that the American economic (and political) power has ended its historical cycle and that its guiding role in the world economy should be substituted by another actor. The production system of the United States remains a great reality, and it shall continue to be decisive in increasing the welfare of the world in the decades to come. But the USA shall have to be flanked, in a dialectic of both collaboration and competition, by one or more global power centres whose economies are strongly dynamic and open to the rest of the world and who are able to free the United States from the unsustainable burden that the solitary exercise of their hegemony involves. The USA could thus stop playing the role of policing a world order which in any case they are not able to maintain and start employing the newly freed resources to promote peaceful collaboration, exchange and development within more restricted regional areas.
The actor which seems destined to carry out this task, due to its level of total revenue, to the degree of technological development and the large market it has access to is the European Union, and in particular those countries which make up the Monetary Union. It is true that today there are other areas of the world whose degree of development is just as advanced or whose economy is expanding at a bewildering rate. Observers point especially to the two great economic powers of the Far East, Japan and China. But these are both countries which have great weaknesses. Japan has not yet emerged from a phase of stagnation which has lasted more than a decade. China, although in a phase of strong development, only has a gross domestic product equal to about a quarter of the Japanese for a population 10 times as big. But, above all, both countries are large net exporters and they do not have vast zones of influence in which to invest and promote growth (although it must be remembered that China’s imports are increasing and that a Chinese zone of influence in East Asia is underway). For China and Japan therefore the fact that exports exceed imports means mostly a flight of real wealth from the country in exchange for depreciating dollars. And these are largely invested in USA bonds, and thus finance American military power; and partly they are sterilised in the enormous central bank reserves. The reality is that both in China and Japan, behind the favourable trade balance, lies an extremely large productive sector which is strongly protected, destined exclusively to re-supply the domestic market and that has an extremely low productivity and cannot be opened to imports from the industrialised world, except in a very limited way, for partly different reasons (the feudal structure and dependency of one part of the economy on political potentates, and the fragility of the banking system, suffocated by enormous and irrecoverable credits, in the case of Japan; the massive presence of the army and the state bureaucracy in the Chinese economy, which is still far from being liberated from the shackles of centralised control of production). In addition, in the case of Japan, the domestic market is relatively restricted and cannot be integrated with those of neighbouring countries according to the model of the European single market, since Japan is separated from them by a chasm of great diffidence.
Only Europe remains. But today the member states of the Union and more particularly those in the Euro Zone cannot act as the locomotive of the world economy, in collaboration with the United States, because the presence of both a single currency governed by a single central bank and 12 separate economic policies for which the governments of 12 separate sovereign states are responsible, forces the member countries to adopt measures which prevent the re-launching of their economies. Since they intend to maintain the Union alive without a democratic power to govern it, they must on the one hand reciprocally tie their budgetary policies (through the “Stability Pact”) and on the other hand subject themselves to rigid competition control, delegated to the Commission in Brussels. It is well-known that both budgetary restrictions and competition control are subject to continuous bargaining and compromises and are often circumvented or simply disregarded by the Member States. But it is also clear that this cannot go too far or else the same European currency may become a victim of the irresponsible behaviours of the governments. These governments are thus curbed by these limiting conditions which is a significant brake on development. And this can only prevent the European economy from rebounding and thus boosting the world economy. And so Europe is vegetating at the margins of the international economic (as well as political) equilibrium, compromising at the same time the welfare of its citizens and the development of world trade.
The economic growth of Europe is prevented by its division. Its enormous potentials are sterilised by the lack of a political European power to ensure the political control of the Monetary Union, to create the conditions for an expansionary economic policy and to constitute an active pole for a more stable and evolutionary global economic and political equilibrium.
The federal unification of Europe would be the clearest signal of a radical conversion of the current catastrophic tendency towards an increase in protectionism and instability. It is a fact that certain protectionist encrustations, such as the common agricultural policy could not be eliminated overnight. But they could make important steps towards their own liberalisation. In any case the birth of a new European state reality, albeit initially limited to a relatively restricted core, would give a strong boost to the birth of an open and peaceful world equilibrium, and would thus favour a strong growth of international trade. In a climate marked by stability and co-operation the problem represented by the surpluses of China and Japan could be resolved not by restricting exports or trying to impose an appreciation of their currencies, but by helping them to create the internal conditions for increasing their imports, and for increasing their wealth and that of the rest of the world. A federal European government could play an important role in promoting the development and unity of the countries of the Middle East and could put itself forward as the active mediator in the Israeli-Palestinian conflict, which is a permanent factor of paralysis for the entire region. It must be remembered that the success, albeit little more than symbolic, of Chirac, Schröder and Blair in their Iran mission was in any case a significant indicator of the great need that the region has for Europe. In an equilibrium of this kind the space available to the other potential poles of world economy in order to boost their productive development and to resolve their serious domestic problems would increase. And Europe, creating a climate of effective co-operation, could only make a strong positive contribution to the protection of the environment and the progressive improvement of working conditions in developing economies without prejudice to competitiveness, as well as the economic takeoff, even via some type of asymmetric protectionism, for African economies.
But the current European Union does not have the necessary instruments to reach this goal. In order to free itself from the restrictions caused by its division and to carry forward a great economic policy plan aimed at a strong encouragement of scientific research, vigorous technological development and the creation of a vast infrastructural network, it is necessary that the will to stop the current drift towards anarchy and the increasing inability to act becomes concretely manifest at the heart of Europe. What is needed, in place of the current weak confederation, paralysed by the need to permanently resort to complex and sterile compromises, and thus one which is condemned to economic stagnation and technological backwardness, is the birth of a true democratic power, peaceful but strong, able to mobilise the resources of its own economy and the consensus of its own citizens. This would be a power that can only be born within the restricted framework of the founding countries, but, starting from this framework will allow the economies of the other countries of the Union to take off within the sphere of the great single market, and will enlarge progressively until it reaches the borders of the current Union and the larger one that is about to be born.
There is no other road to take to reinvigorate world trade and to facilitate the development of the poor and marginalised countries. Nor is there any other way to stop the perverse spiral of anarchy and protectionism which is allowing the re-emergence of threatening spectres of a past we had all long considered to be over.
The Federalist

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