Interests, ideology and institutions: A review of Bhagwati on protectionism☆

Jagdish Bhagwati, widely known as one of the most outstanding trade economists, but in fact an economist of much wider range, has turned in this little book to the political economy of international trade. Based on the inaugural Ohlin lectures at the Stockholm School of Economics, this book reflects a dramatic shift in the theory of commercial, indeed of economic, policy that has occurred in recent years a shift to which Bhagwati himself has made a central theoretical contribution. This shift has taken the form of changing the way in which the government and hence economic policy is considered and modeled in economic theorizing. For many years economists have been working with the assumption of the “absent colleague.” When a correct policy was not implemented because political obstacles were in the way, the economist would say: “It is not for me to identify these political constraints; let the political scientist turn his mind to such issues.” But the colleague in political science would do his own thing, and economically correct policies remained unimplemented. We only heard, from time to time, complaints about “lack of political will.” But this is not a helpful notion. The phrase sometimes suggests that the good intentions are there, but somehow the will to give them expression is missing. But it is hard to believe that intentions not manifested in any way other than proclamations exist. The phrase then comes near to being a tautology, for the absence of will is also the absence of the action to express this will. One does not have to be a behaviorist to believe that will must be expressed in action, so that if there is no action, ipso facto there is no will. Alternatively, it might give rise to an infinite regress. It would be of no use to exhort those without the will to muster the will. For if the will to action is absent, the will to will the will will also be absent. Attention should have turned to how to create the political base, the alliance or coalition of interests to implement the reform. Eventually economists themselves started to think about the political economy of policy making. Theorizing about the invisible hand of the market was now supplemented by reflections on the nasty invisible foot of interest groups that trampled on and destroyed the beautiful work of the invisible hand. The earlier economic writings did, however, contain an implicit theory of the state. On this theory, the state and the government, like Platonic guardians, looked after the common interest, the general welfare of the community as a whole. Whenever markets failed, governments stepped in to correct these failures. Whenever markets were inadequate to pursue desirable objectives other than efficient allocation (such as income redistribution, conservation of the environment or the pursuit of cultural values), the government saw to it that these objectives were included. Bhagwati calls it the puppet government view, for government acts like a puppet of the economists. According to this view, government could do no wrong. The new theory of pubiic choice has swung to the opposite extreme: government can do no right. It is simply the executor of the selfinterested pressure groups on whose support it depends, and whose “rent-seeking” distorts economic activity in directions far away from an efficient or equitable allocation of resources. It should be noted that Bhagwati in his exploration of “directly unproductive profitseeking” (DUP) activities has both widened the concept of “rent-seeking” and narrowed the scope of its damaging effects by showing that, pace the public choice school, in a distorted economy additional rent-seeking or revenueseeking can increase welfare.’ Bhagwati examines the ideology, interests and institutions that influenced and conditioned for nearly half a century attempts at trade liberaliza-