Philippe Legrain: protectionism is the ‘economics of the madhouse’

Legrain: The Smoot-Hawley tariff failed to create jobs.

Last month’s provocative piece by Ha-Joon Chang on the need for increased economic protectionism to help overcome the recession has received a scathing response from Philippe Legrain, a contributing editor to Prospect and author of Open World: The Truth about Globalisation . In a web exclusive on our main site, Legrain claims that greater protectionism would only serve to reduce people’s purchasing power, and would result in higher import taxes and therefore less demand for our imports:

“Higher taxes and lower exports as a cure for the global recession? This is the economics of the madhouse.

Instead, Legrain argues that the key to easing the global crisis is to boost global demand, and calling for “coordinated government action combining large fiscal stimulus packages, unconventional monetary policy measures, and the nationalisation and restructuring of zombie banks that are dragging the economy down with them…This would boost employment, especially if combined with cuts in payroll taxes and increased help for workers to retrain and find new jobs.”

Will greater protectionism really brings us closer to depression era economics? Or is Chang right in his assertion that that “free trade has never worked very well, but is going to malfunction even more in coming years”? Let us know what you think.

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Jobs, not shopping

Messrs Smoot and Hawley in 1929: don't blame us for the crisis!

Ha-Joon Chang has been described by Martin Wolf—the FT commentator—as the world’s most effective critic of globalisation. The South Korean economist writes a short, provocative piece in the new issue about how we have misunderstood the protectionism of the 1930s and how we should not be afraid of some open, limited protectionist measures now. His point is that it is happening anyway because political pressures insist on giving priority to national interests when recession strikes—the important thing is to distinguish between what is acceptable protectionism and what is unacceptable protectionism. Surely it is legitimate for the British government to insist that, when it invests in a bank, the bank gives priority to lending to companies and households in Britain. Similarly there will be a tendency for public procurement to favour local employment. Such measures do not require 1930s-style trade tarriffs and could surely be made compatible with the EU single market, at least for a limited period. Ha-Joon Chang’s views are, however, regarded as extremely dangerous by many mainstream economists: let us hear from some of them.

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