Thursday, April 2, 2015

the perils of free trade

I spoke of Correlli Barnett’s excellent 1972 book The Collapse of British Power in an earlier post but this book contains so many stimulating ideas that it’s likely to inspire quite a few posts from me.

A subject that Barnett deals with that still has considerable relevance is free trade. Free trade become a kind of fetish for the British ruling classes in the late 19th and early 20th centuries, just as it has become a fetish in our age.

Free trade may have had some economic advantages but it had some unexpected costs. In particular it placed Britain in a precarious situation should the country become involved in a protracted modern technological war.

Free trade had a disastrous effect on British agriculture. As a result Britain grew increasingly dependent on cheap agricultural imports. That’s no great problem in peacetime but in wartime it was always going to make the nation even more vulnerable to an enemy with the ability to menace seaborne trade. A country, for example, that built a fleet of submarines could threaten the United Kingdom with starvation.

There was also the effect on industry. Superficially you might imagine that free trade would have made British industry more competitive and more efficient. Barnett argues that it had the opposite effect. While German industry, safe behind tariff barriers, became steadily more modern and more efficient British industry languished. Protectionism, paradoxically, encouraged German industrialists to be innovative and to accept the risks involved in making the huge investments necessary to maintain a technological edge. British industry, deprived of protection, had no such incentives. British industry remained small-scale and old-fashioned.

The decay of British industry caused problems in the First World War. Britain had to buy aero engines from the French and at times was force to buy the aircraft themselves. There were severe ammunition shortages. Both were caused by the small-scale and backward nature of the industrial base.

The Australian-designed CAC Boomerang fighter
Even bigger troubles would follow in the Second World War. Throughout the 1920s and well into the 30s the British armed forces were starved of funds and allowed to run down to potentially catastrophic levels. The uncompetitive British economy, the result of the industrial decay, meant that the government simply could not afford to maintain adequate armed forces. When it finally became obvious in the late 30s that rearmament could not be avoided other problems became apparent. British industry was not up to the job. The aircraft industry was a prime example. They could design superb modern aircraft like the Spitfire but they could not build them without importing numerous vital components from other countries such as the US. As late as 1938 British armaments manufacturers were buying vital components from Germany!

In the Second World War Australia came face to face with these sorts of problems. With Britain heavily engaged in Europe she could not provide modern weaponry for Australian forces engaged in home defence. We discovered the dangers of a lack of industrial self-sufficiency. At the time Australia responded energetically enough. We even learnt to design and build our own combat aircraft - the Commonwealth Aircraft Corporation Boomerang fighter which proved to be an effective ground attack aircraft. Our experiences in the Second World War provided much of the impetus for the development of a modern manufacturing sector in the post-war period, a manufacturing sector that has now been largely destroyed by free trade.

Free trade can be economically advantageous in peacetime in the absence of any serious  threat. There is however a price in the form of reduced military security. If the international situation suddenly becomes dangerous the price may prove to be very high.

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