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Let's Shake Off the Shackles of Free Trade

The G20 leaders must be flexible - a little protectionism could give nations vital breathing space

Noreena Hertz

Today the leaders of the world's 20 biggest economic powerhouses will converge on London. The mood is sombre. They face the greatest global economic crisis yet. They acknowledge that it was man-made: the outcome of extreme risk-taking, shameful lack of oversight and a complacent blindness to the downside of untrammelled free-market economics. They are nervously conscious that decisions must be made without reference to the very tools and theories on which they have relied for the past 30 years.

These leaders are in uncharted waters. Waters that churn and spew out conventional wisdoms, economic laws and long-accepted axioms as, one by one, they prove ill-suited for these times. The absolutism of the key tenets of neoliberalism: privatisation, deregulation, balanced budgets have been rejected by all but the most dogmatic. Apart from one - the primacy of free trade.

It is basically sacrosanct. While banks are nationalised, bonuses recalled and trillions of dollars of debt racked up, while pretty much every concept, belief or ideal is interrogated, contorted or set aside, "free trade is good" continues to be a totemic truth, ring-fenced from debate. No questioning of this axiom is even on the G20 agenda.

In fact, the free trade brigade, which encompasses most mainstream politicians, business leaders and thinkers - outside France, that is - seems to be on evangelical overdrive. "The solution to the crisis is more free trade," President Lula da Silva of Brazil says. The Chinese Commerce Minister announces that Beijing is "firmly opposed to trade protectionism", while Gordon Brown expressly warns against abandoning "the gospel of free trade".

"The gospel of free trade." What an extraordinary thing to say. Surely the past few months have taught us that there is no economic or financial principle we should not challenge.

Moreover, their dogmatism smacks of duplicity. Mr Brown's anti-protectionist stance can hardly be reconciled with his "British jobs for British workers" battlecry. It's not just Mr Brown: a new World Bank report states that 17 of the G20 countries have set up protectionist barriers in recent months.

So we have countries publicly preaching free trade, but making protectionist moves on the sly. Such dissemblance creates two problems. It fosters distrust between nations at a time when, without trust, there is almost no chance of reaching a collective solution to the crisis. And it sends out a dangerous message to electorates - that their leaders are unwilling to embrace the intellectual honesty and flexibility needed to question absolutely everything they have held dear in economic policy over three decades - no caveats.


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We urgently need a frank, honest and grown-up discussion about the final frontier of neoliberalism - free trade. Instead we get scaremongering: "Remember the 1930s; don't take us back there." This isn't even an accurate representation of the past. Economic historians now explain the collapse of world trade in the 1930s not as a result of protectionism, but of shrinking demand and a lack of trade credits.

We also continue to be presented with a false dichotomy - free trade versus protectionism. What we need is a nuanced analysis of where on the free trade-protectionism scale nations need and want to be positioned, and what the implications of that are.

The ability to have this discussion openly is vital when countries are under huge pressure from voters to protect jobs and businesses and create compelling narratives about their own recovery. The truth is that, when used specifically, and limited by time, as Sweden and Japan did after the 1970s oil shocks, protectionism can be a lifeline for a struggling country. It can provide a breathing space to retrench.

I'm not advocating trade war, or proposing that powerful countries be allowed to erect trade barriers with impunity. It's just that I don't think protectionism should be seen as a taboo. Instead we should see it as a tool that can be deployed to address local economic freefall, but can also create far-reaching collateral damage.

Its use, therefore, must be sanctioned by the global community, practised with caution, within guidelines. Perhaps there is a role for the World Trade Organisation, not in enforcing the letter of the free trade law, but in adjudicating what is fair and right at present.

If such a system had been in place it could have meant, for example, that the UK would not have lost large swaths of investment in its wind farm industry as it did last week. It turned out that other countries had been providing far more significant subsidies and grants, which are trade barriers of a kind, than the UK. In fact, protecting nascent industries in the environmental sector might be essential for some countries to meet emissions reductions targets while ensuring energy security. For the poorest countries, being granted a period to nurture some industries may allow them to develop sectors with the resilience to withstand the rough and tumble of the marketplace.

The G20 meeting will show us if the world is led by intellectual sophisticates or a dogmatic generation unable to respond powerfully and flexibly to our economic nadir. Productive trade arrangements will be pivotal to our futures. Rather than simply restating old beliefs about the supremacy of free trade, the G20 should place it under the microscope. If we have learnt anything over the past few months it should be that economic axioms are, at best, schools of thought, and that wisdom comes not from blindly accepting convention but from interrogating and challenging what we think we know.

Noreena Hertz is a Fellow of the Judge Business School, University of Cambridge, and author of The Silent Takeover: Global Capitalism and the Death of Democracy.

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