Chapter 4: Market imperfections and state strategies
This chapter considers several perspectives that are critical of the dominant free trade narrative. They recognize that markets are imperfect and consider the consequences. There is no single, simple theory here, like comparative advantage, but a series of propositions about how trade is often an inelegant business, involving change over time and asymmetries of power and wealth. The chapter discusses three influential and in some respects overlapping schools of thought, before making some general criticisms. The next section discusses mercantilism, a longstanding and diverse tradition in favour of policy interventions in trade as part of broader strategies to build national economies. The section discusses the mercantilist tradition before Smith and the influential responses to classical political economy, coming particularly from Hamilton in the US and List in Germany. The second substantive section discusses ideas that poorer countries suffer structural disadvantages and deteriorating trading conditions. It begins with the theories of Singer (1950) and Prebisch (1950), considers other ideas of poorer-country disadvantage and goes on to discuss how even in a supposedly liberalizing world, trade remains an organized and managed activity. The chapter then introduces New Trade Theory (NTT), and suggests that (consciously or otherwise) this appropriates some of the insights of the poorer-country perspectives, of systematic power and disadvantage, to identify how large, rich countries can use asymmetries to their advantage and gain through trade restrictions.
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