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Jewish World Review
Feb. 17, 2009
/ 23 Shevat 5769
Some think the New Deal rescued the United States from economic crisis in the 1930s. Others argue precisely the opposite. But whatever their ideology and whatever their credentials, most of the pundits, historians, and economists who debate the Great Depression agree about one thing: Whatever may have caused the crisis, protectionism, trade barriers, and, yes, the Smoot-Hawley Tariff Act helped ensure that it lasted as long as it did. So uncontroversial is this view that it is virtually U.S. government policy. "To this day," intones a State Department Web site, "the phrase 'Smoot-Hawley' remains a watchword for the perils of protectionism."
With equal solemnity, government officials everywhere are now echoing that sentiment. Last weekend, the finance ministers of the G-7 once again swore fealty to the official anti-tariff mantra, announcing that they remain "committed to avoiding protectionist measures, which would only exacerbate the downturn." U.S. Treasury Secretary Tim Geithner agreed: "All countries need to sustain a commitment to open trade and investment policies which are essential to economic growth." So did his German colleague: "We will have to do everything to ensure history does not repeat itself."
This is all very well except that there are many ways to pursue protectionist policies, and rest assured that someone, somewhere, is right now trying every single one of them. New tariffs are already in force, for example, in Russia, where especially high ones have destroyed the previously thriving used-car import business (and thus inspired used-car salesmen to stage a series of unusually violent protests). Rumors of more tariffs pending in Brazil, in the Philippines are haunting the steel industry trade press. Still, these are minor infractions. The real story, over the next several years, will be the spread of more carefully camouflaged protectionism measures, some legal and some not, deliberately designed to help one nation's workers or companies at the expense of those next-door.
These kinds of games are already being played stealthily in Europe, where, despite the pious recitations of G-7 finance ministers and despite the free-trade rules that are supposed to be enforced by the European Union almost everyone is seeking to protect domestic industry as fast as they can. The French have not only thrown heavy subsidies at their automobile industry, they have made it crystal clear that the money is to be spent in France. "If we are to give financial assistance to the auto industry, we don't want to see another factory being moved to the Czech Republic," declared French President Nicolas Sarkozy, failing to note that the Czechs and the French theoretically share the same free-trade zone with open borders. Meanwhile, the Slovaks, who live in the same free-trade zone, have declared that if the French try anything funny in Slovakia, they're going to "send Gaz de France packing."
The Germans, whose economy depends heavily on exports, often object to all this but they are quietly playing a subtler game, offering special loans to German companies, for example, through German banks that the German government now partly owns. The Spanish have also joined in, with subsidies for Spanish companies, as have the Swedes. Both, like the United States, started with the automobile industry but if cars, then why not other industries, too? Some British banks, meanwhile, have quietly told their employees not to invest abroad.
Whatever the finance ministers might say, all these measures are, of course, extremely popular, and political parties of all stripes have capitalized on them wherever possible. The U.S. Congress put its nonsensical "Buy American … as long as no trade laws are broken" clause into the stimulus bill, thus guaranteeing that every infrastructure investment be accompanied by a flood of extra paperwork. A Spanish minister has called on his nation to "Buy Spanish." In England, the most popular strikers' slogan is now "British jobs for British workers." Expect more than one political leader, on more than one continent, to rise to power in the next few years riding a wave of protectionist sentiment.
But this should surprise no one. After all, Smoot-Hawley was popular. At the time of its passage, more than 1,000 economists of all ideologies signed a petition against it. Since then, historians have reckoned it reinforced the global slump: Between 1929 and 1934, world trade declined by 66 percent. Still, the politicians of the 1930s knew which way the popular winds were blowing and those of the present know, too. There is no need to hold any further G-7 meetings to warn against the perils of a protectionist world: We're living in one already.
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Gulag: A History
Nearly 30 million prisoners passed through the Soviet Union's labor camps in their more than 60 years of operation. This remarkable volume, the first fully documented history of the gulag, describes how, largely under Stalin's watch, a regulated, centralized system of prison labor-unprecedented in scope-gradually arose out of the chaos of the Russian Revolution. Fueled by waves of capricious arrests, this prison labor came to underpin the Soviet economy. JWR's Applebaum, a former Warsaw correspondent for the Economist and a regular contributor to the Wall Street Journal and the Washington Post, draws on newly accessible Soviet archives as well as scores of camp memoirs and interviews with survivors to trace the gulag's origins and expansion Sales help fund JWR.
Comment on JWR contributor Anne Applebaum's column by clicking here.
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© 2008, Anne Applebaum