Economic liberalism is the
notion that markets are the most efficient means of allocating capital and
resources. Furthermore, economic liberalism invokes the credo in favor of
individual liberty espoused by Thomas Payne in his Rights of Man, namely "that
government is best which governs least."
Embodying free trade, economic liberalism allows, more comprehensively,
the freedom of capital, goods, and services to move most freely across borders
with limited intervention of governments. Capital controls are
minimal, foreign credit is widely available, capital account convertibility is provided,
and direct investment is facilitated.
In evaluating international posture with regard to international trade in 2020, it is important to look at the trend in underlying political institutions. While Woodrow Wilson fought to make the world safe for democracy in World War I, its major proliferation has come since the fall of the Berlin Wall. The advent of democracy is not new, but its proliferation is noteworthy, and its increased presence is likely to affect its growth and subsequently impact the extent to which international trade is governed by domestic majority interests.
Some scholars cite the Hegelian concept that history is rooted in consciousness and that economic liberalism is a necessary precondition for political liberalism. This contention is verified empirically in post-Soviet Eastern Europe where economic liberalization has paved the way for democratic development. Contrarily, this contention is empirically overturned in South East Asia where economic liberalization has not historically engendered democratic success. In Singapore, Lee Kwan Yew consolidated his authoritarian city-state under a liberalized economy, and in 1978 Deng Xiaoping followed by example in economically liberalizing a Communist China that, to this day, is politically illiberal.
Economic liberalism will not necessarily have a causal relationship with further democratic development. One could argue that economic illiberalism could have a greater impact in helping create conditions for democratic development. Western states have argued for liberal trade engagement, arguably helping developing states leverage their comparative advantages to export goods to an expanded market. In South Korea, however, comparative advantage in producing rice at one time limited the extent to which they could gain export diversification. Only by pursuing illiberal trade policies, exporting goods but allowing its domestic industry to flourish by restricting imports, was South Korea able to foster industry agglomeration, improved efficiency, reduced costs of production, and altered terms of trade that gave them comparative advantage in producing higher-value final goods -not rice. In South Korea, illiberal economic policies were perhaps a permissive cause of their economic, and perhaps democratic success.
In the case of democracies interacting through international trade regimes, to the extent that democracy is politically liberal, it will largely be economically liberal due to overlap between political and economic rights. For example, the political rights of the individual, as protected under liberal democracy, include the Lockean economic right to personal property.
However, to believe that liberal democracy will necessarily lead to economic liberalism is false. In fact, under specific property circumstances these two forms of liberalism can be at odds, even mutually exclusive. For example, a politically liberal democracy guarantees the protection of property rights, but in the case of ideas, intellectual property is a political right and an economically illiberal policy. Patents are politically liberal because they protect individual ideas as "intellectual property," but economically illiberal in that they guarantee a temporary monopoly in an attempt to protect property and incentivize creativity. In liberal democracies, elements of economic illiberalism should exist to protect individual rights, and this will necessarily impact international trade.
Underlying political institutions therefore necessarily impact those international bodies that arbitrate agreements on international trade. The World Trade Organization, as transitioned from GATT in 1995, will create agreements by consensus that then require national ratification. An increased proliferation of democracy -especially illiberal democracy- will create institutions wherein the private interests of an uninformed and selfish majority could make citizen demands requiring illiberal trade policies that are protectionist and counter-productive. Enhanced global trade will require not only a central body that allows free transmission of ideas, but also that each constituent regime promotes politically liberal policies that countermand their myopic trade policies forced by a tyranny of the majority that scholars of antiquity most feared in democracy.
Scott E. Hartley is a Masters student in International Affairs at Columbia University. He received his BA in Political Science from Stanford University where he received the 2004-2005 Stanford Dean of Students Outstanding Achievement Award. He has policy experience in NGOs, the UN, the US State Department, and the White House.
This article has been shortlisted for the Atlantic Community's "Global Governance in 2020" student competition.
The Atlantic Community's World Economic Forum Focus Week (Jan 22 - Jan 28)
This article is part of the Atlantic Community's World Economic Forum Focus Week in a 5 day run-up to the WEF Davos Conference (conference begins Wed 28 January). We are focusing on two of the most pressing aspects of the conference: the Global Economy and Climate Change.
Other articles in our series on the WEF:
- Jordan Levine: Socioecological Innovation: an Alternative Future
- Yam Ki Chan: Unipolarity's Days Are Numbered
- Sam Vanderslott: Action on Climate Change Requires Global Technology Transfer
- Alyssa M. Ramsey: Human Rights: A Matter of Guiding the Invisible Hand
- Scott Micheal Moore: A Multidimensional Approach for a Planet in Peril
- Dr. Luke Nichter: Redefining the IMF
From the discussion on the community page we will generate a special Atlantic Memo that will be distributed to WEF organizers and to decision makers worldwide at the start of the conference. Please share your comments on the recommendations and issues raised in this article. We want to know how you think the WEF Davos Conference should approach the long-term questions raised by the global financial situation.