Unilaterally adhering to free-market ideology doesn't seem to be working so well for us either
Boris Johnson’s speech at Greenwich this week was a paean to the virtues of free trade. At times his language was every bit as ornate as the ceiling of the Painted Hall (‘Britain’s Sistine Chapel’) where he was holding forth:
“…free trade is God’s diplomacy — the only certain way of uniting people in the bonds of peace since the more freely goods cross borders the less likely it is that troops will ever cross borders.”
But as well as the vivid flourishes, there were darker strokes:
“Free trade is being choked… The mercantilists are everywhere, the protectionists are gaining ground.”
Mercantilism is the policy by which one nation seeks its own advantages by fixing the terms of trade to the disadvantage of others. Specifically, the mercantilist power seeks to maximise its exports and minimise its imports in order to build up its reserves and force its rivals into debt.
The errors of mercantilism were supposedly exposed by economists like Adam Smith and David Ricardo (both namechecked by the prime minister in his speech). And yet it continues in practice, if not as a respectable idea.
Mercantilists are everywhere — i.e. “export-oriented” economies like Germany and China fixing the terms of trade through state aid, regulatory barriers, currency manipulations and other tricks. Meanwhile, Britain, with its comparatively open economy has high levels of debt, allows key companies to be swallowed-up by foreign competitors and flogs-off its land and housing to all-comers.
The free-trade fundamentalists — who appear to have written the PM’s speech — insist that we’re the winners from this arrangement. But if that’s true why can’t our young people afford to buy their own homes? Why do we have such an appalling productivity record? Why can’t we update our digital infrastructure without Chinese help?
And what of our neo-mercantilist trading ‘partners’? Have they reduced themselves to North Korean levels of penury? Not at all. In fact, quite a few of them have been doing rather well — growing noticeably richer and more powerful.
This doesn’t mean that free trade is a fundamentally bad idea, but I wish Boris had spent more time explaining how a free trading nation can protect itself in world full of cheats.