Review: Protectionism

Jagdish Bhagwati
Massachusetts Institute of Technology, 1995

Review Copyright © 1998 Garret Wilson — October 14, 1998; 9:30am

Based on the Jagdish Bhagwati Ohlin Lectures, delivered at the Stockholm School of Economics in October, 1987, Protectionism are the thoughts and critiques of a pro-trade economist that, more or less, make the case for multilateral free trading policies. This thin tome is not for absolute beginners, since it requires at least a cursory knowledge of many trade-related subjects — indeed, after grabbing it because of its deceptively thin size, I had to set it down so that I could come back and start again after my knowledge of economics had been risen. After this hurdle has been passed, Protectionism does help reinforce basic free-trade ideas, but new concepts are not numerous (or, if numerous, not apparent).

Part of the problem of Protectionism is not the truth or falsehood of its ideas, but its style of writing. Maybe this all would come across easier in a lecture setting; maybe it would read like poetry if I were a real economist, rather than a novice pretending to be an economics student. But in my opinion, the entire book is very slow reading, filled with dry phrases and economics jargon. I found that at times Bhagwati’s presentation of his idea of jargon seemed to be more understandable than his "normal" presentation: "It is plausible that liberalization-induced trade expansion, through its efficiency effects (called in jargon the ‘gains from trade’), fed the postwar growth of incomes," can be thought of as typical of the book’s content.

This is not to say section easily understood or outbreaks of levity are not to be found. Although they seem like spontaneous oases in a desert of dry prose, the few light readings are enjoyable and illustrative. In his critique of ill-formed anti-dumping policies, for example, one finds:

Poland’s exports on golf-carts to the United States were challenged on anti-dumping grounds. Now, there is no way in which "true" or "fair" costs and prices can be meaningfully determined for centrally planned economies in the first place. And the Poles did not even play golf, so there were no domestic prices to work with: the Poles had put the cart before the course (51).

And again, when refuting Zysman and Cohen’s assertion that a variety of domestic production should be artificially maintained because of economic linkages tying "the crop duster to the cotton fields, the ketchup maker to the tomato patch, the wine press to the vineyards," Bhagwati replies,

Now, as I read the profound assertion about the tomato farm and the ketchup plant, I was eating my favorite Crabtree and Evelyn vintage marmalade. It surely had not occurred to me that England grew its own oranges (114).

Unfortunately, even with the two or three jokes almost driven into the work and tossed in the footnotes (such as typifying the use of counterfactuals by the "economist who, when asked, "How is your wife?," replied: "Compared to what?") (56), these seem to be the only breaks in the mood of the book, which is serious to the point of monotony.

Bhagwati brings up some interesting speculations when discussing the effectiveness of protection. Protectionism in the United States increased in the mid-1970's, but trade continued to grow more quickly than income in the same time period. Bhagwati explains that some protectionist policies are "porous;" that is, they are not effective, but allow trade to seep through, as it were. An example cited from Robert Baldwin is a restriction on importing coats with removable sleeves; in this case, the sleeves could be removed and the products imported separately as vests (56). It is Bhagwati’s contention that the US’ executive branch had a pro-trade bias during this period, so these porous, ineffective protectionist policies were implemented to appease protectionist legislators (58).

Drawing on the decline of Britain in the 19th century, Bhagwati draws some parallels with the United States in the 20th. By use of pie graphs, he shows how Britain sunk from 31.8% of the world industrial production in 1870 to 14.0% in 1913, with the US increasing output during the same time period. Similarly (for Bhagwati), between 1950 and 1980 the United States has sunk from 40.3% of world GDP to 21.8%, with Japan increasing output percentage. He therefore claims that, "The United States and Germany were to Britain what the Pacific nations — Japan in particular — are to the United States today.

Bhagwati is not completely anti-protectionism. He believes that "infant industry protection had a perfectly legitimate role, even within the classical theory of gains from specialization and trade" (91). Bhagwati acknowledges that there are political pressures that present other reasons for protection other than the issue of economic prosperity — some countries may have a preference of industries, preferring not to be "hewers of wood and drawers of water," for example (91). I would assume this would also apply to India’s early attitude that modern countries are industrialized; therefore to be modern India should industrialize. I don’t know what Bhagwati’s response would be to the latter statement, however.

In some cases, therefore, it seems that Bhagwati offers concessions to countries that have other goals to meet than simply maximizing economic gains. His last chapter on "Institutional Reform" seemed content to settle with compromises in order to move toward freer trade. For example, no countervailing duties unless a "foreign subsidy were to exceed, say, 20 percent, rather than the minuscule amounts now being countervailed" (116). He does believe, though, that using GATT to push human rights issues is not advantageous, and that there should be a "far greater tolerance of other countries’ social objectives" (127). "It may be more cost-effective to use another policy or set of policies toward that purpose and to keep trade policy within the bounds of an international regime that gains from trade" (122).

Protectionism is therefore worthwhile reading, but should not be the first economics book you reach for when searching for an introduction. Bhagwati, in my opinion, could have created something that flows a little better, but maybe this was meant to be heard, not read. Either way, it at least shouldn’t hurt your understanding of the arguments against protectionism, provided you know a bit of the basics first.