Towards alliances between savings and growth countries

Faced with the return of protectionism, it's important to remember that there can be no prosperity without trade, competition and work. For liberals, the challenge is not to withdraw, but to forge new alliances with the world of tomorrow.

Protectionism is nothing new. What is new, however, is the intellectual prestige it is regaining today. In the name of sovereignty, reindustrialization or the defense of the middle classes, it is once again becoming a politically respectable option. We need to take stock of what this development means: not only a setback for free trade, but also a threat to prosperity and, ultimately, to political freedom itself.

Yet the vast majority of economists have always defended a simple idea: exchange is preferable to closure. David Ricardo, William Nassau Senior, Frédéric Bastiat, and now Gregory Mankiw, have all shown in different ways that an open economy produces more wealth than a closed one. Why is this? Because free trade stimulates competition, lowers prices, expands outlets and drives producers to greater efficiency.

The history of economic liberalism is inseparable from this conviction. In the Magna Carta, In the 18th century, when London and Bordeaux benefited from a trade-friendly regime, this was the founding text of English liberties. This is no mere detail: political liberalism and economic liberalism were born together, in the idea that the circulation of goods, like that of men and ideas, limits the arbitrariness of power.

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Protectionists always put forward the same arguments. The first is unfair competition. Yesterday, they denounced the «five-cent Chinese worker» who would ruin the «five-franc French worker»; today, they accuse China, India or Bangladesh of undercutting prices through lower wages or massive subsidies. It's an impressive argument, but it misses the point: what counts in the end is consumer purchasing power and a country's ability to stay ahead through innovation, quality and productivity.

No developed nation can sustainably align itself with low costs. The only rational strategy is to move upmarket. What I would call, to borrow an Italian image, the strategy of the Corso MagentaThis means accepting global competition for commoditized products, and concentrating our strengths on what we know how to do better than others. Prosperity does not lie in closure, but in technological advance, quality, branding, know-how and organization. If no one works except in China, no one will be able to afford Chinese products.

People always talk about unfair competition, but no competition is fair. In a way, the Germans are already unfair to the French, because they work. Similarly, 95% of employees worldwide earn less than the French minimum wage (Smic). We need to be one step ahead of them.

Democracy, purchasing power and sovereignty: a trilemma

Protectionist temptations are resurfacing, however, because Western democracies are facing a real malaise. As the Turkish economist Dani Rodrik has clearly shown, our societies want democracy, purchasing power and economic sovereignty all at the same time. But these three objectives are not fully compatible.

Donald Trump's United States has chosen democracy and sovereignty, at the cost of purchasing power. Contrary to popular belief, tariffs are paid not by foreign producers, but by American consumers. They are a tax in disguise. China, on the other hand, favors sovereignty and productive efficiency, at the cost of democracy. As for Europe, it has so far chosen democracy and purchasing power, accepting the loss of a share of its industrial sovereignty.

We can criticize this European model. Nevertheless, it remains the model most in line with the liberal ideal, provided it is complemented by a coherent strategy of investment, innovation and external openness. The mistake would be to believe that Europe will save itself by imitating Trumpism or Chinese authoritarian capitalism. Protectionism doesn't protect freedom: it erodes it.

The real issue for the coming decades lies elsewhere. It has to do with demographics and global savings. We are entering a world where the rich countries are old, while many of the poor and emerging countries are young. This is where the future will lie.

Old rich countries and young poor countries

Developed countries still have substantial savings. On the other hand, young countries will need massive amounts of capital to create the hundreds of millions of jobs required for their urbanization and development. Nigeria, India, Pakistan and other Asian and African countries will be at the heart of this transformation. The decisive question, therefore, is not how to keep goods out, but how to keep capital, investment, skills and technologies flowing intelligently.

In other words, tomorrow's liberalism will have to think less in terms of customs walls and more in terms of alliances between countries of savings and countries of growth. European nations have every interest in forging a win-win relationship with young countries: we have the savings, they have the demographics; we have the industrial experience, they have the equipment needs; we have an interest in openness, so do they.

There are, of course, worrying counter-examples. Some ageing countries are living beyond their means, consuming more than they produce and financing their standard of living through debt. Such is the case in France. This imbalance is unsustainable. A nation is not enriched in the long term by deficits, subsidies or monetary gimmicks. It grows richer through work, savings, production and investment.

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This is an elementary truth that the times sometimes seem to forget. A country's standard of living does not depend primarily on public transfers or political slogans, but on what it actually produces. Only what has been created can be distributed sustainably. When production stagnates, purchasing power can only be maintained through debt, i.e. future impoverishment.

This is why protectionism is a dead end. It undermines purchasing power and calls for increasing control of the economy, and therefore of freedoms. It claims to reassure, but it locks people in. It promises protection, but leads to relative scarcity and routine. It flatters sovereignty, but ends up undermining democracy or prosperity.

In this changing world, liberals must not seek alliances against openness, but for openness. Alliances with all those who understand that economic freedom is not the enemy of political cohesion, but its condition. Alliances with democracies that refuse to withdraw. And alliances with young countries, where an essential part of the world's future lies.

Jean-Marc Daniel is a French economist and author of numerous essays. This text is a summarized version by Le Regard Libre from his February lecture at the Journée libérale romande, in Lausanne.

You have just read an analysis from our dossier «What alliances for the Liberals?», published in our print edition (THE FREE LOOK N°125).