The Other Canon

Reinert’s intention is not to innovate, but rather to resurrect a body of economic thought, largely Germanic in origin, that in fact helped establish England, Germany, and the United States as economic powers before the current Anglo-Saxon economic orthodoxy took hold. This school seeks to account for the unevenness of economic development, claiming that textbook economic theories that predict "factor price equalization" that leads to increasing equality among nations engaged in international trade are clearly mistaken in light of data that shows the increasing impoverishment of developing countries that have attempted to integrate with the global trading system.

The 1990s have brought a backlash against liberal economic dogma similar to that which led to the European revolutions of 1848. In the wake of those events, 19th century economists were far more interested in the "social question" than their late 20th-century counterparts, and were thus less likely to succumb to economic dogma without questioning its practical effects. To emphasize the heritage of Reinert’s "Other Canon," it’s worth reproducing some guidelines for the discipline of economics supplied by US economist Edwin Seligman in 1886. For Seligman, a responsible economics:

1. Discards the exclusive use of the deductive method, and stresses the necessity of historical and statistical treatment.
2. Denies the existence of immutable natural laws in economics, calling attention to the interdependence of theories and institutions, and showing that different epochs or countries require different systems.
3. Disclaims belief in the beneficence of the absolute laissez-faire system; it maintains the close interrelations of law, ethics and economics; and refuses to acknowledge the adequacy of the assumption of self-interest as the sole regulator of economic action.

One fundamental component of the "Other Canon" is activity-specificity. Reinert writes:

Today we intuitively understand that Bill Gates and Microsoft could not have achieved the same profits and the same wage levels if they had been raising sheep instead of producing software. A theory and policy distinguishing various types of activities were fundamental to centuries of economic policy.

Indeed, during the 19th century, US economists noted that England observed such activity-specific policies for centuries, and only after achieving economic dominance did they promote Ricardian trade. The US thus accused England of "pulling up the ladder" on other countries seeking increased competitiveness via industrialization. Reinert notes that "all presently industralized economies have passed thru a period of active and activity-specific economic policy" and that "such a period represents a mandatory passage point for any nation." Korea represents a contemporary example of a country that has achieved development along the lines of this strategy.

Another important aspect of alternative point of view of the "Other Canon" is that it challenges the excessive financial or monetary orientation of post-World War II economic policy, whether in the form of Washington Consensus policies or in the Keynesian demand-management policies that continue to be observed particularly in the European welfare states. Such an orientation takes for granted the productivity of capitalism without questioning the conditions under which productivity is possible.

Lest Reinert be dismissed as a socialist, he notes that Marxist analysis shares with Ricardian economics a mistaken mechanical conception of the "labor theory of value." At the same time as that theory furnishes the basis for orthodox trade theory that would ultimately find its expression in the Washington Consensus, the theory led Marx to insist that laborers should have the right to the whole of their product without taking into consideration the "human Geist of new ideas and leadership" that drives economic growth.

Finally, Reinert stresses the importance of subjecting economic policy to the light of experience and reason rather than dogmatic adherence to orthodoxy. He identifies the two "vices" of contemporary economics: the "Krugmanian vice" refers to the tendency of economists to insist that potentially useful economic theories not be applied in practice if they don’t accord with economic orthodoxy. Conversely, the "Ricardian vice" refers to the practice of basing economic policy on classical economic hypotheses even when they are demonstrably harmful.

The Rise of Illiberal Democracy

When the failure to find "weapons of mass destruction" in the aftermath of the US invasion of Iraq made evident the deceit in the Bush administration’s selling of the action to the American public, that administration gradually shifted its rhetorical strategy to emphasize the benefits that would redound to the Iraqi people as a result of America’s having toppled a repressive dictatorship and replacing it with a "democracy." The assumption was that the very notion of free elections would conjure the image of an Iraq entering the community of peaceful nations and thus inspire continued support for a war that was increasingly costly in both financial and human terms.

This calculation sought to exploit the confusion in the minds the American public of the word "democracy" with the phrase "liberal democracy." The distinction between the two is the subject of Fareed Zakaria’s article "The Rise of Illiberal Democracy." In defining liberal democracy, Zakaria writes:

[Liberal democracy] is a political system marked not only by free and fair elections, but also by the rule of law, a separation of powers, and the protection of basic liberties of speech, assembly, religion, and property. In fact, this latter bundle of freedoms–what might be termed constitutional liberalism–is theoretically different and historically distinct from democracy.

Importantly, he notes, the rise of the two types of freedoms may have conincided historically, but they’re not intrinsically linked. Without denigrating the value of elections, it’s clear that the prevalence of "constitutional liberalism" within a nation’s borders is far more important to the well-being of that nation’s citizens than the right to vote. Zakaria seems positively politically incorrect in evoking the relative beneficence of the British imperialism in light of the subsequent democratic experiences of its the British empire’s colonies:

British rule meant not democracy–colonialism is by definition undemocratic–but constitutional liberalism. Britain’s legacy of law and administration has proved more beneficial than France’s policy of enfranchising some of its colonial populations.

Indeed, democracy implies no guarantee at all of civic welfare, as the "rise of illiberal democracy" in the Middle East has demonstrated:

In the Islamic world, from the Palestinian Authority to Iran to Pakistan, democratization has led to an increasing role for theocratic politics, eroding long-standing traditions of secularism and tolerance. In many parts of that world, such as Tunisia, Morocco, Egypt, and some of the Gulf States, were elections to be held tomorrow, the resulting regimes would almost certainly be more illiberal than the ones now in place.

Zarkaria reminds us of "two common, and often mistaken, assumptions–that the forces of democracy are the forces of ethnic harmony and peace. … But without a background in constitutional liberalism, the introduction of democracy in divided societies has actually fomented nationalism, ethnic conflict, and even war."

None of this should necessarily be new. Tocqueville famously warned of the danger of the "tyranny of the majority" inherent in democracies, and anyone who’s had a high-school civics class can tell you that in a society with "majority rule" there must be protection for "minority rights." Now we see evidence that democracy exacerbates conflict in countries with no tradition of rule of law and weak civil societies.

But America’s enthusiasm for promoting free elections without attention to its liberal constitutional counterpart seems to disregard such lessons. Even before the Iraq debacle, (Zakaria was writing in 1997), American foreign policy was marked by a tolerance for all manner of illiberal behavior provided that the country in question hold free elections. Zakaria concludes with the following counsel: "Economic, civil, and religious liberties are at the core of human autonomy and dignity. If a government with a limited democracy steadily expands those freedoms, it should not be branded a dictatorship." "…Instead of searching for new lands to democratize and new places to hold elections, [the US should] consolidate democracy where it has taken root and … encourage the gradual development of constitutional liberalism across the globe."