In this episode of Discourse Magazine Podcast, economist Don Boudreaux reflects with historian Steve Davies and fellow economists Douglas Irwin and Arvind Panagariya on the legacy of the repeal of Britain’s Corn Laws 175 years ago—an event that occurred on June 25, 1846. They discuss the effects of the Corn Laws, the circumstances leading to the laws’ repeal, the ensuing rise of free trade both in Britain and globally, and much more. Boudreaux is a professor of economics at George Mason University. Davies is the head of education at the Institute of Economic Affairs in London. Irwin is the John French Professor of Economics at Dartmouth College. Panagariya is a professor of economics and the Jagdish N. Bhagwati Professor of Indian Political Economy at Columbia University.
DON BOUDREAUX: First of all, thank you, gentlemen, for joining me on this event. Dan Griswold wishes he could be here, but he’s somewhere in the Sierra Nevadas without any electronic connections. Let’s begin. As I said by the email, let’s let the conversation be flowing and natural. It doesn’t have to stick strictly to the events of 1846. We can certainly toward the end at least talk about modern trade policy, the implications of the Corn Laws, the repeal, the incidents that led to the repeal for modern development and trade policy. Let’s start.
On the evening of June 25th, 1846, the Duke of Wellington persuaded the House of Lords to vote favorably on legislation that was earlier approved in the House of Commons. That legislation repealed Britain’s Corn Laws. These were protective tariffs on imports of grain into Britain. That action was regarded then as significant, and I think history has confirmed that judgment.
Let me read actually from the preface that Thomas Hardy wrote in 1895 to his 1886 novel “The Mayor of Casterbridge.” This is the first paragraph of the preface. This is Thomas Hardy: “Readers of the following story who have not yet arrived at middle age are asked to bear in mind that in the days recalled by the tale, the home corn trade on which so much of the action turns had an importance that can hardly be realized by those accustomed to the sixpenny loaf of the present day and to the present indifference of the public to harvest weather.”
It goes on a little bit, and he mentions “the uncertain harvest, which immediately preceded the repeal of the Corn Laws.” I take this as evidence that the Corn Laws did have some impact and the repeal was regarded in Britain as a major event. Economists and scholars in the 175 years since have looked to the repeal of the Corn Laws as a significant watershed event in trade and trade policy. We have with us today three outstanding scholars to commemorate the 175th anniversary of the repeal of the Corn Laws.
We have Steve Davies, who’s head of education at the Institute of Economic Affairs in London. He’s the author most recently of the 2019 book “The Wealth Explosion: The Nature and Origins of Modernity.” I’ve known Steve for well over 30 years and can say without any hyperbole that I’ve learned far more history just talking to him and listening to his lectures than I’ve learned from any other person or any source.
Steve is joined by Professor Douglas Irwin. Doug is the John Sloan Dickey Third Century Professor in the Social Sciences in the economics department at Dartmouth College. He’s the author of seven books and countless papers and essays on trade. Doug’s 2017 book “Clashing Over Commerce” is a magisterial history of U.S. trade policy from the nation’s birth right up to the Trump presidency.
Last but not least, we’re honored to have with us Professor Arvind Panagariya, who’s professor of economics and the Jagdish Bhagwati Professor of Indian Political Economy at Columbia University. Arvind’s data-rich 2019 book “Free Trade and Prosperity,” which I highly recommend, offers a powerful case for how economic openness combats poverty.
A Brief History of the Corn Laws
BOUDREAUX: Again, thank you all for joining me. Steve, let’s start with you. What exactly were the Corn Laws, when were they enacted, and why?
STEVE DAVIES: Strictly speaking, the Corn Laws only date back to 1813 or, before then, 1773. In the 18th century, there were many duties on imported goods of all kind, including duties on imported grain of any kind. There were also, at the same time, bounties paid for the export for grain. This was all part of the mercantilist political economy of 18th century England.
In 1773, what they did was to consolidate this very complicated system of bounties and duties into a much more simple system, which wasn’t exactly like a conventional tariff. What it did was to say that you could not import grain from other parts of the world into the United Kingdom unless domestic grain prices went above a certain level, which was set at that time at 48 shillings a quarter. A quarter is a certain number of bushels of grain.
Then in 1813, at the end of the Napoleonic Wars, this was revised and the threshold was raised to 80 shillings a quarter, which to put that into contemporary terms in inflation-adjusted money, that amounts to £1,102 a ton, an imperial ton. Now, the goal, therefore, was to keep a floor on the price of grain and therefore of anything made from grain—particularly bread, a staple food at the time.
Basically, you could only get cheaper grain from abroad if the domestic price went to an incredibly high level. In fact, it never reached that 80-shillings-a-quarter level throughout the entire period, up to the repeal in 1846. So it was quite deliberately designed to keep corn prices, and therefore the prices of bread and other staple foods, at a very high level.
Now, this was defended on some very bad economic theory grounds put forward most notably by Thomas Malthus. The idea was that this would actually boost wages, amongst other things. But it was also quite blatantly a piece of class legislation, which was designed to put money into the pockets of the agricultural interests.
Now, that meant, of course, not only the tenant farmers but also the great landowning families, the people who at this time completely dominated and controlled the largely unreformed British constitution through the mechanism of so-called pockets and rotten boroughs, borough constituencies, which were effectively in the gift of a patron, usually a landlord.
There was an amazing political lock, if you will, on the political system—at least it appeared so—which meant that this blatant piece of class legislation, which essentially forced ordinary people to pay more for their staple food in order to supplement the incomes of the already wealthiest people in the country, was able to get through and be maintained in place.
BOUDREAUX: Just really quickly, did the 1832 Reform Act, do you think that played a role in enabling the—which, as I understand it, took some political power in Parliament away from the landed aristocracy and put more of it into towns and cities?
DAVIES: To a certain extent, yes. The actual act itself in 1832 is not as big a change as many people actually think it is. Rather, unsurprisingly, the Whig government that brought it in got rid of a lot of Tory rotten and pocket boroughs but somehow mysteriously overlooked a lot of Whig ones. What a surprise!
What was more significant about 1832, I think, was the fact that although it wasn’t in itself a revolutionary change, it was a change after a prolonged period, a couple generations really, in which British politics have been in a kind of stasis. It created a kind of context or an environment in which people thought that, yes, change was possible.
Consequences of Repealing the Corn Laws
BOUDREAUX: I want to return later to the role of ideas versus the role of interest groups in our discussion, but before doing that, let me ask Doug: Doug, you’ve written a lot about the economic consequences of the Corn Laws and their repeal, and just last month in the “Economic Journal,” you and Maksym [Chepeliev]—how’s his last name pronounced?—have a major new paper looking at the consequences of the repeal. Can you summarize what you find?
DOUGLAS IRWIN: Sure. Steve said it very nicely that the Corn Laws were actually a very complicated set of restrictions on imports. It wasn’t just a simple ad valorem tariff; it was a sliding scale. The duties imposed depended upon the prices in the British market. It’s like the variable import levies sometimes we see in the European Community or the Common Market, common agricultural policy or what have you. If prices were high in Britain, the tariff was low, but if prices were low, then the tariff would be much higher.
The Corn Laws had been revised in 1815. There was a huge debate that involved David Ricardo and a bunch of others. Some pressure to reduce it in the 1830s, but it was really appeals for reforms in the 1840s that got rid of it. At that time, when the Corn Law tariff, the ad valorem equivalent, hit about 40%, it was basically prohibitive. In the late 1830s, early 1840s, there were no imports of grain for certain periods when world prices were low. Therefore, the tariff was high.
But right around the time of the repeal, the tariff was about 28%. So what Maksym and I do in our paper is we do a simulation of, what is the economic consequences of getting rid of a 28% tariff on grain? This is a time when agriculture is a pretty big sector in Britain. About 9% of employment was in grain agriculture. About 24% of total British employment was in agriculture altogether.
First of all, that’s an important note, that grain agriculture was not all of British agriculture; it was just a segment of it. There was pastoral agriculture, which is actually exporting from Britain.
BOUDREAUX: That would be things like sheep farming and—
IRWIN: Exactly. Wool, meats, other things like that. That’s important because the claim is always “You can’t open up your market because it will devastate the sector.” Well, there’s different components of the sector, and some actually did very well after the repeal of the Corn Laws. Not grain agriculture, which is important for bread, as Steve was saying.
When you get rid of an import tariff, you’re going to import more of those commodities. You’re going to have to pay for that, so your exports of other goods will go up. You’re going to be reshuffling resources around the economy when you do that, and we basically find three things.
One is, yes, there are efficiency gains from doing this. You’re going to reallocate capital labor to where you have a comparative advantage, and the economy will be better off for that. But also, Britain was a large player in world markets at this time, and there are some adverse terms-of-trade effects, namely that the prices of your exports will go down because Britain was a big player in the world textile market. You might depress some of those prices.
You’re going to drive up the world price of grain and cotton because you’re once again drawing on the world’s resources, and Britain was such a major economy. It turns out what we find is the terms-of-trade losses and the efficiency gains basically wash out. They offset each other.
The second thing is that there’s going to be a lot of redistribution of income within the country. Here’s where David Ricardo and others really nailed it. Land grants went down, and that’s what we find in our simulation, but real wages will go up and the return to capital will go up.
Then the third thing we find is we actually disaggregate income distribution effects a little bit in a very crude way. What we find is that the top 10% of income earners were worse off and the bottom 90% were better off.
Winners and Losers After Repeal
BOUDREAUX: Real quickly, these top 10%, how can we think about these people now? What kind of work did they do?
IRWIN: Exactly. Basically, the way I think about it is “Downton Abbey.” Steve Davies put it well. These are the landed aristocrats. They have a large income, but their portfolio is all in land. If that’s where your income is coming from, land rents are going to go down. The landed aristocracy, they’re going to take a hit, but basically everyone else in society is going to be better off.
If you own capital, so the middle classes and the merchant classes, they’ll be better off, the manufacturers and if you’re just a poor laborer. Sometimes we talk about “Downton Abbey” versus “Oliver Twist.” Oliver Twist is hungry; he wants cheap bread. There are many more Oliver Twists than there are landowners like “Downton Abbey,” so it’s a pro-poor, progressive policy in that sense.
We’ll get into the politics of this later, but as Steve was pointing out, if the Parliament is dominated by the landed aristocracy, it’s going to be tough to get this through because it’s against their interest. We’ll come to that, I’m sure.
BOUDREAUX: Just real quickly before I ask a question to Arvind, just to explain to our audience—when you say the terms-of-trade effect, am I correct in saying that that really means, if the terms of trade turn against the country, that means that the amount of imports the country receives for any quantity of its exports falls?
IRWIN: The way I think about it is, Britain is going to have to export more to pay for the imports of grain and mainly export textiles, so you’re going to drive down textile prices a little bit, so the rest of your export goes down. You have to buy more cotton, driving up world cotton prices, and you’re buying more grain. If you were a small country, you wouldn’t have an impact on those prices, but Britain is the world’s largest economy, and so when they have to buy 10% or 20% more grain, that’s going to affect world supplies.
BOUDREAUX: It has an effect, yeah.
Trade Liberalization in Developing Countries
BOUDREAUX: Arvind, you spend a lot of time looking at the consequences of trade openness, particularly for developing countries and trade protection. I wonder if you have any ideas about what lessons today’s developing countries might draw from the British experience of 175 years ago, when they moved in a rather dramatic fashion, I think it’s fair to say, to become in the second half of the 19th century what Frank Trentmann, a historian, calls a free trade nation. What are your thoughts about that?
ARVIND PANAGARIYA: All right, Don. Particularly the liberalization of agriculture in the 20th century turns out to be a very different story, as far as I understand a bit the history. I’m not a historian. I think Doug and Steve will have to correct me, but it seems to me that when you come to particularly the post-Second World War history, almost everybody is protecting agriculture.
Whereas the United Kingdom unilaterally liberalized agriculture in the post-Second World War era, all countries multilaterally protect agriculture, and the constituency for agricultural liberalization is simply absent. Developing countries want to industrialize, so they are not so interested in agriculture.
There is this prevailing orthodoxy that somehow agriculture cannot be the engine of growth—elasticity pessimism: both the fear that low income elasticity means that over time, as incomes in the industrial countries rise, the terms of trade would automatically turn against agriculture and primary products, and also low price elasticity. Even if the countries themselves try to export more of these products, prices will drop so much that what they will receive in return for their exports would impact less in terms of imports. Both of those—there’s elasticity pessimism with respect to income as well as price—drives countries away from agriculture.
They don’t seek any liberalization from the industrial countries, either, of the agricultural products that they are exporting at the time because they really want to get into industry. Generally, I think you need to start out initially at least with protectionism, except perhaps for Hong Kong, which was always free trading. Almost every country starts out with import substitution, and this is about industrialization.
Then around the early ’60s, even late ’50s, really, the countries begin to shift, at least in East Asia. You’ve got Taiwan. Followed by Taiwan is South Korea. Almost the same time, Singapore. These three—and Hong Kong, of course, was already free trading—they begin to liberalize, begin to rely on exports for their industrialization, and these countries really take off.
I’m not quite sure whether in the end the British experience of unilateral liberalization played a whole lot of role there, but certainly you can say that liberalization, at least in the early years, was unilateral. In this sense, whether or not the British unilateral liberalization influenced these countries, there is a parallel, certainly, historically that these countries are liberalizing unilaterally.
Then we know the history that some of the countries did not liberalize—India and China—and they performed extremely poorly ’50s, ’60s and ’70s. Then China turned open outward. Politics of Deng Xiaoping came in place of Mao, who thought very differently. He looked at the experience of the East Asian countries—South Korea, Taiwan, Singapore—and also embarked on liberal trade policies.
Then China has experienced almost more than three decades of 10%-plus growth. India came later in 1991, which also then liberalized. But all of these liberalizations, by the way, were largely unilateral. There are some elements of bilateral or multilateral because you’re also simultaneously negotiating the Uruguay Round agreement and so forth, but if you look, the unilateral liberalization far exceeds what they agreed to in the Uruguay Round agreement. So in this sense, it’s really unilateral liberalization.
I suppose those economists who were advocating, particularly starting in the early 1970s, this liberalization—they were themselves certainly very much also influenced by the British experience of unilateral liberalization. Some of the intellectual input may have come through that.
BOUDREAUX: Thank you. I just want to reiterate my praise for your book “Free Trade and Prosperity.” You go through these case studies of different countries and show with enormous amounts of data the very tight connection between the degree of openness and the degree of poverty alleviation. This is remarkable work.
The Anti-Corn Law League
BOUDREAUX: Steve, so, famously the repeal of the Corn Laws is credited not (as I mentioned earlier) so much to the 1832 reform law, but to the Anti-Corn Law League led by Richard Cobden and John Bright. Can you tell us who were Cobden and Bright? What was the Anti-Corn Law League, and what’s your opinion of the role that it actually did play in the repeal?
DAVIES: There is a campaign to reduce or completely repeal the Corn Laws that begins quite early on. There’s a petition in 1820. Then this chap, Charles Villiers, he puts forward an annual motion to Parliament throughout the 1830s and early ’40s calling for the repeal of Corn Laws.
BOUDREAUX: He’s in Parliament?
DAVIES: He’s in Parliament. Yes. Interestingly, the majorities against his motion decline steadily throughout the 1840s, which I’ll return to. In 1842, there was a majority of 303 against him. In 1845, the majority had got down to 132. Now, Richard Cobden was a chap from Sussex who had moved up north basically and got into manufacturing. John Bright was a friend of his, a Quaker manufacturer from Rochdale near Manchester.
In 1828 a meeting was held at a place called the York Hotel in Manchester to launch a campaign to repeal the Corn Laws. Neither Cobden nor Bright could attend that initial meeting, actually. Only six people turned up. But they sent promises that they would attend, and they attended the next meeting, and they rapidly became the leaders of it. What it was was really the first example of a large mass campaign for political change that was not a revolutionary one.
There was Chartism at the same time, which was a revolutionary working-class movement calling for radical reform of the political system. The Anti-Corn Law League didn’t do that. It had a much more focused demand, which was for the total and immediate repeal of the Corn Laws. Now, notice the intransigent quality of that demand. They were not calling for a royal commission. They were not calling for some reform or maybe an adjustment to the sliding scales that Douglas Irwin was talking about.
They were talking, basically, “Get rid of the whole thing and do it now.” What it was was an enormous mass popular movement, which had an enormous array of activities, ranging from great big anti-Corn Law bazaars, where people would bring in trades and sell them to social clubs, even to a poet—Ebenezer Elliott, the Corn Law Rhymer, as he was called.
It was a mass movement which made use of all of the means of communication that were becoming available at the time, such as the use of the newly established railways and turnpikes, to build a national organization. The question is, was it really responsible for the repeal? Because it was formed in 1838, and then eight years later in 1846, Parliament voted in May of that year to repeal the Corn Laws.
Now you could say that in one sense they put pressure on MPs and particularly on [Robert] Peel, the Conservative prime minister, to respond to it, but they were helped by circumstances. You mentioned in your initial remarks the succession of wet summers that took place in the late part of the 1840s, which caused serious bad harvest problems throughout the British Isles, which because of the Corn Laws could not be addressed with low-cost imports. This caused increasing discontent in the agricultural districts, but also in the manufacturing districts.
At the same time, you also have the catastrophic failure of the potato crop in Ireland due to the blight, which led to an absolute humanitarian catastrophe—the great Irish famine in which nearly a million people died and which led to the mass emigration of an even larger number of people from Ireland. Ireland, by the way, is the only place in Europe that has a population that is smaller today than it was in 1820, and that’s partly because of the effects of the famine and the mass emigration that followed.
So, circumstances also tended to assist the Anti-Corn Law League’s case. But the other thing which happened, I think, is first of all—Douglas Irwin has written about this—Peel was almost certainly convinced simply on an intellectual basis by exposure to political economy arguments, Ricardian political economy. But also, I think the key thing was that the Whigs changed.
The kind of hardcore of the Tory Party, which was strongly attached to the landed interest, remained obdurately opposed to it—people like the young Benjamin Disraeli and Lord George Bentinck. But the Whigs—people like Lord John Russell—over the course of the 1830s and 1840s, they shifted their position significantly. I think their thinking was not so much to do with political economy, or even as much the arguments made by the Anti-Corn Law League. It was the feeling that if they didn’t do this, there would be a violent social revolution.
It was rather astute and farsighted politics on their part. They wanted to avoid the kind of violent social conflict that they feared would otherwise happen if they didn’t do this. Of course, at the back of their minds was the memory of how a run of bad harvests in France in the 1780s had played a part in sparking off the catastrophe, as they saw it—with good reason—of the French Revolution, and all that had followed onto it.
So the Anti-Corn Law League was increasingly pushing, if you like, at a door that was being slowly opened by the Whig aristocrats. What I think it did was two things, though. One is it ensured that when the repeal came, it was total and immediate—well, free of a phasing-in period, but effectively immediate. It wasn’t a kind of slow, gradual or half-hearted process. It was an abrupt and dramatic one.
But the other, more important thing was the thing you alluded to that Frank Trentmann talks about. They had a huge effect on the popular culture, and they fixed in the minds of the British working class in particular, right up to the present day, the profound belief that free trade is good for the poor and the working man and woman and that protectionism is basically a conspiracy by the rich and special interests to screw over the working class.
That became part of the popular culture, if you like, of the British working class because of the Anti-Corn Law League. That’s why even to this day the British population, according to EU surveys, is the most strongly pro-free trade of any country in Europe. The only country that comes close is the Dutch. That’s because, unlike the rest of Europe, the lower middle class and the working class in Britain is and always has been solidly in favor of free trade. That’s the real legacy.
Ideas and Interest Groups
BOUDREAUX: I’m very intrigued by the connection between, or the tension between, interest group politics. I teach at George Mason, the home of the Center for Study of Public Choice, where everything’s driven by special interest groups and rational ignorance. There is an element of the Anti-Corn Law League and the speeches that were given, particularly by the incredibly eloquent Cobden about the benefits of free trade, not only materially, but it was going to promote peace. He was very almost utopian about his belief in free trade.
In Doug’s book, the one I mentioned earlier, “Clashing Over Commerce,” this magisterial history of U.S. trade policy, Doug mentions the ideas that were prevalent at different times in U.S. history, I think. And Doug, you can correct me, but my reading of your book is that at the end of the day, U.S. trade policy basically reflected economic interests to the extent that we liberalized.
It wasn’t because we Americans became infatuated with or inspired by Adam Smith or Jagdish Bhagwati or the early Paul Krugman or Doug Irwin. It’s because political coalitions changed, the pattern of activity across the country changed in such a way as to promote liberalization. When we got more protection, that was also due to interest group politics. I don’t know if this question makes sense, but to what extent do you think, at least in American economic history, did ideas play a role as compared to raw interest group politics?
IRWIN: That’s a great question. You’ve certainly captured the thrust of the book, that a lot of trade politics in the U.S. is congressional politics, and a lot of congressional politics is local interests and how they feed through. You’re absolutely right. I’ll point out two instances, I think, where ideas do matter in the U.S. context. I think Steve is right that ideas mattered more in the British context. That’s the land of Adam Smith and David Ricardo. Ricardo was a member of Parliament. Economic thought was born in Britain in many ways. It was always part of the debate.
I think he said quite eloquently and accurately when they repealed the Corn Laws, it was viewed as class legislation, and for many, many decades afterwards, the lower classes fervently wanted free trade in bread, cheap bread. We didn’t quite have that dynamic in the U.S., but two instances where ideas did matter: I’d say the big one is Cordell Hull, who during the 1930s and into the 1940s really wanted to shift U.S. trade policy towards freer trade, negotiating trade agreements with other countries.
BOUDREAUX: He was secretary of state for FDR, right?
IRWIN: Exactly, secretary of state. The longest-serving secretary of state in U.S. history, fervent free trader. You might say, well, he was from the South, which is the region traditionally associated with free trade in the U.S. Yes, but he did have almost a Cobden-like conviction that it would lead to peace, that it wasn’t important just for the economics of it, that there are broader reasons.
He really did almost single-handedly change the direction of U.S. trade policy. Obviously, World War II and other factors played into that, but that’s why we got the GATT and the postwar open trading system.
The other one is actually nicely timed with the Corn Law repeal. That is, there’s always this political battle in the U.S.: Democrats generally want lower tariffs, and Republicans want higher tariffs, at least in the 19th century.
When Britain was considering the repeal of the Corn Laws, the U.S. saw this as an opportunity: We’re going to be able to export a lot more grain to Britain. There’s actually a major tariff reduction in the U.S. in 1846 that was timed in some sense with the British, saying, “We have to take advantage of this.” So that’s known as the Walker Tariff, which in terms of the pre-Civil War period was one of the biggest unilateral tariff reductions in U.S. history, precisely mimicking, and to some extent coordinated with, the repeal of the Corn Laws.
BOUDREAUX: This raises a question that I want to ask you in just a moment, but before I do that, your mention of Cordell Hull, who really does come across as almost quite heroic in your book . . . Frédéric Bastiat is often quoted as saying something like, “If goods don’t cross borders, soldiers will.” But there’s no evidence that Bastiat ever said that or anything like that in French or in English.
He certainly would agree with the sympathy. But I think it’s been traced. Who did say it? There’s a guy named Otto Mallery, who was an undersecretary of state during Cordell Hull’s tenure in the U.S. State Department. I don’t know anything about Otto Mallery, but in Jeff Frieden’s 2006 book on globalization, he quotes him. He actually misspells his name as Maller. But it is interesting that out of the Cornell Hull State Department, we get this very Bastiatian, Cobdenian sentiment, which I think there’s a lot to it. It’s an important part of the case for trade openness.
Other Countries’ Response to Repeal
BOUDREAUX: But specifically in your paper, you do find, if I remember correctly, that one of the reasons why—the benefits to Britain of the repeal in 1846 were that other countries, and I gather not just the U.S., but other countries followed suit.
Which is an interesting fact, given that the way people think of retaliatory tariffs now is that, “Well, if we lower our tariffs, other countries are going to—” and this is something that Tories worried about: If we lower our tariffs, other countries are going to keep theirs high and screw us over. But you find that other countries actually followed suit. And I take it that wasn’t a coincidence. You think that had something to do with the experience that Britain was setting?
IRWIN: I think, actually, to build on one point that Arvind raised when he talked about the boom that many countries have experienced after moving towards freer trade, Britain experienced the same boom. The model I was talking about in the paper is very static. It doesn’t really look at that element to it. But there was this mid-Victorian boom in Britain where things went very well for the economy, and people were raised out of poverty, and what have you.
Other countries saw this, that Britain was flourishing. I think it’s the role of ideas—Cobden spreading these ideas throughout Europe, the idea of free trade spreading—and also the example of Britain doing well under free trade and other countries wanting to mimic that. I don’t know whether Arvind would agree with the post-World War II period, but once again, when South Korea and Taiwan began to open up and they did well, that gives you the example that, gee, maybe that’s a good strategy to follow.
That was certainly the case in Britain during this period. So, you’re right, it wasn’t just the U.S., but it was other European countries that said, “We should move towards freer trade as well.” Belgium removed their Corn Laws a few years after the British did.
BOUDREAUX: Having more to do with, “Oh, look, it’s working,” rather than some ideological commitment to . . .
IRWIN: There are always going to be some actors who are ideologically committed, and they help propel and publicize the idea that the example works out well.
Ideas and Politics of Trade Openness in Developing Countries
BOUDREAUX: I want to ask Arvind, back to a more modern time when you looked at developing countries and the various degrees to which they adopted more trade openness. To what extent did ideas play a role, and to what extent was it just cold political calculation that opening trade would benefit those with political power?
PANAGARIYA: I would say, initially, certainly the leadership was very, very important. Singapore’s case, Lee Kuan Yew; South Korea, Park Chung Hee; and similarly, I think, Taiwan. In Taiwan, perhaps economists were playing some role. Through economists the ideas were coming in. But once these three experiences became available, then the impact of ideas began to happen because the earlier part, post-immediate Second World War period, economists were generally . . .
I mean, you see opposite advice is being given by the economists to the developed and developing countries, right? The GATT is all about liberalizing trade among the developed countries or the richer countries—this liberalization will do good. But exactly the opposite advice is going from the economists as well to the developing countries, that the only way to industrialize is import substitution because you are an importer of industrial products.
But Korea, Taiwan, Singapore, they realized that industrial good is not a single good. It’s a collection of many different goods, and there are all these labor-intensive products, such as clothing, footwear, furniture, all sorts of kitchenware, like manufacturers that you can export, taking advantage of your cheaper labor. Once economists caught on to that, starting with the first big project done by the OECD [Organisation for Economic Co-operation and Development], led by Ian Little, and then the second one, NBER [National Bureau of Economic Research], led by Jagdish Bhagwati and Anne Krueger, I think then ideas began to play a very critical role.
I think the dissemination of what had happened in these countries versus what had not happened—also Béla Balassa, actually, at the World Bank. And particularly in the 1980s, the World Bank and IMF really took the ideas that had been developed by the trade economists and pushed those in the developing countries. They got a lot of bad name because they tried to push it more like a bulldozer and as conditionality on the countries and so forth.
My own reading is that the overall impact of that was that those ideas began to take root in the countries themselves. As you come later, China liberalizes, and clearly, I mean, if there is no China, there is no India. It is the experience of China that is observed in India, that here was a country larger than India in terms of population, and it was simply not true that large countries could not use exports as an engine of growth.
China actually demonstrated that in the 1980s. People like us then—Jagdish Bhagwati, myself, T. N. Srinivasan—could then point to that kind of experience. And also, I think, some of the forward-looking, more progressive Indian bureaucrats played some role there, learning actually from the experiences. So ideas really have taken root through different routes.
Africa, Latin America also—you’ll see that finally these successes that free trade produced, both in terms of growth as well as poverty alleviation, massive reductions in poverty in large countries like India and China—in the hundreds of millions. These are not small numbers. That really has led to liberalization in Africa and Latin America as well.
You come post-1995, let’s say, or mid-1990, somewhere around that, countries are themselves owning the liberalization. I think ’80s look bad because a lot of the countries were not so convinced. Some of it got reversed, but also it was not managed very well. Once countries began to own, you see many of these countries that opened up also saw their economies grow much faster.
So when you look at time-wise across the developing world, it is really the post-early-to-mid-1990s years that really show the fastest growth, even on an aggregate basis. But you can also disaggregate the countries and almost always find that except for oil exporters, which are a little bit of an exception, largely countries that open up are also the ones that are growing faster. That turns on its head the other conventional wisdom that Dani Rodrik and others had earlier argued around late 1990s.
Ha-Joon Chang also, later on, talks about it, but Ha-Joon Chang of course is wrong because he is not using up-to-date numbers. For Dani Rodrik, he was writing in the late 1990s. Until then actually he’s able to make the case that, “Oh, the golden age of development actually is the import substitution age,” which is the 1960s coming up to mid-1970s. But that simply is because 1980s turns out to be a debacle period, for variety of reasons. Nineteen eighties, many of the countries did not do well.
But once countries began to own their own liberalization and they felt that they were the ones liberalizing unilaterally . . .
BOUDREAUX: Just really quickly, ideas that you mentioned a few moments ago in the 1980s that I think you said were being pushed like a bulldozer—that’s what people refer to derisively today as the Washington Consensus, right?
PANAGARIYA: Yes. That, too, and as I said, the World Bank and IMF really got a lot of bad name for pushing those ideas. Yeah, absolutely they wrote what then John Williamson called the Washington Consensus.
Unilateral Free Trade
BOUDREAUX: Steve, and maybe Doug too or Arvind, the repeal of the Corn Laws is considered to be a unilateral move toward free trade. And so I often tell people that history has very little in the way of examples—some but very little—of countries, particularly large countries, unilaterally adopting free trade. Is it fair to say that starting in 1846 Britain became a practitioner of unilateral free trade?
DAVIES: Up to a point. The thing was the British state made this enormous unilateral step in 1846 of essentially getting rid of most agricultural protection. Now, there was still an enormous array of other duties in place across a very wide range of goods, and your colleague John Nye, I think, has shown, in many ways, by some measures France was actually more free trade than Britain at this time—
BOUDREAUX: I think Doug has something to say about that, though.
DAVIES: —because of all these other duties that the British state had. The reason was they were actually mainly a source of revenue. But what happened was following 1846, [William] Gladstone, who of course being one of Peel’s younger supporters in 1846, while he was chancellor—in a succession of budgets he basically completely reconstructed the fiscal basis for the British state and, in so doing, got rid of virtually all of the remaining duties.
So, as well as the initial step towards unilateral free trade, Britain then pursued a consistently free-trade policy thereafter. France was doing much the same thing even before 1846 under the July Monarchy, as it was called, the Orleanist monarchy of Louis Philippe. Then other countries, as Doug said, followed suit—the Swiss, the Dutch, the Danes later on, the Belgians—and there was a general adoption of this model.
It even then spread to other parts of the world, notably Latin America with Argentina under [Domingo] Sarmiento and then also Uruguay, with the result that by the 1900s Uruguay and Argentina were two of the richest countries on the planet by per capita GDP. Argentina, I think, was the fifth-richest country in the world in 1910, which is a tragic thing to think of now.
It was like that. So, it was a kind of unilateral measure, but it was more the fact that it was then followed through and the example caught on elsewhere. The interesting thing is, if you look at the current state of play, as Arvind says, we had a long period after World War II where import substitution was the name of the game, it seemed, with very, very disappointing results. The comparison people kept on making was between Ghana and South Korea because in 1961 Ghana and South Korea had the same GDP per capita.
Then 20, 30 years later, South Korea has shot ahead; Ghana is still in a terrible state thanks to the import substitution policies of [Kwame] Nkrumah. This has now moved away, and the interesting thing is that now I think the part of the world where we’re seeing the most rapid movements towards free trade now, unilateral moves to free trade, is Africa. And it’s one of a number of reasons why personally I’m very bullish about Africa’s economic prospects.
The place where we’re now seeing a reaction against free trade at the moment is actually in the wealthy countries, the developed countries, places like the United States and also large parts of Western Europe. But I think it’s not driven by economic concerns anymore. It’s more driven by a kind of complicated set of political changes that are going on in those countries. So I think that in terms of economic ideas, the case for free trade is actually in better shape than it has been for a long time.
BOUDREAUX: The intellectual case?
DAVIES: Yes, indeed. The political case in the Third World. The current government in India, the BJP, swadeshi as they call it—economic self-sufficiency—is a key part of their ideology. But despite all the many bad things that Narendra Modi has done, they have not really pushed that part of their ideology, and that I think is revealing.
Protectionism in Britain vs. France
BOUDREAUX: You mentioned my colleague John Nye, and he has an article (then later a book) that, to summarize, I think it’s fair to say he’s already—well, historically, we think of the British as being the great free traders and the French as being protectionist. Doug, you had a pretty powerful pushback to John early on, I think, in the “Journal of Economic History.” Can you briefly summarize that?
IRWIN: Sure. John looks at the average tariff figures for the U.K. and France during the 19th century, and Britain starts out pretty high and comes down, but France is lower. So he says Britain’s converging to French levels of lower tariffs and says France was more open, was a freer-trade country. But France had a lot of interventions. They had quotas, which are not going to be captured in those tariff figures, and as Steve pointed out, a lot of the duties, particularly after Gladstone—Gladstone is sort of the unsung hero, in some sense, of pushing Britain towards free trade.
You ask the question, did they just get rid of everything in 1846? No, it was a process. In the 1830s I think they got rid of the navigation laws, which Adam Smith had talked about; Corn Laws in the 1840s. A lot of other duties were cleaned up by Gladstone, and the capstone or one of the capstones was the 1860 budget, where actually Cobden plays a role there too because that was the Cobden-Chevalier treaty, another way in which Cobden brings his ideas of free trade for everyone.
He called it the International Law of God—it’ll lead to international peace. He didn’t want France and Britain fighting, so a freer trade agreement was a way of locking that in. But what Gladstone did in the 1860 budget is, as Steve mentioned, just consolidate a lot of the duties, and a lot of the British duties particularly in the mid-to-late 19th century were essentially excise taxes.
So, Britain really doesn’t produce wine, but they’ll tax wine, and so the tax could be pretty high, raise a lot of revenue, but they’re not really protecting a domestic industry. It’s not import substitution. John Nye would disagree. He would say, “Well, actually, it was indirectly helping out the brewing industry, the beer industry.”
Alcohol is a special case for taxation. When you look at manufactured products, when you look at agricultural, the major traded products, Britain was wide open by the mid-to-late 19th century and France was not, despite the differences in tariff figures. A little bit of measurement issues, excise taxes versus tariffs, and then other policies as well.
BOUDREAUX: Thank you.
PANAGARIYA: May I add on that side a little bit?
BOUDREAUX: Of course. Please.
PANAGARIYA: I have this book by Ron Findlay and Kevin O’Rourke open on my desk, and they have a table on page 403 which shows the tariff duties for a large number of countries in two years, 1875 and 1913. And guess what are the duties reported? These are for manufacturers, so agriculture is separate. Even though U.K. had already liberalized, but the manufacturers’ tariffs: U.K. 1875 zero, 1913 zero. They cite Bairoch as the source of that.
For France, 1875, it is 12% to 15%, rises in 1913 to 20%. In fact, Germany is reported as having lower tariffs, 4% to 6% in 1875, though that rises to 13% in 1913. Certainly, the numbers that I see here reported in the Findlay-O’Rourke book go on that side. In fact, not only do they go on that side, but the tariffs reported are actually zero for manufacturers.
By the way, Doug, also when you say Nye says that it helped the domestic brewery industry in U.K., the excise duties, but the excise duty will also apply. If it’s not a trade tax, then it will also apply to the domestic manufacturers. Therefore, it cannot actually have a protective effect.
Trade in Britain After the Corn Laws
BOUDREAUX: Thank you for those data. Doug, your position is supported here. What’s the history of trade in Britain after the Corn Laws? We get the Corn Laws repealed in 1846, and I understand it—as Doug said, it’s a process. It’s not like all tariffs go away immediately. Certainly, Britain kept revenue tariffs, as opposed to protective tariffs.
But I understand that Neville Chamberlain’s father, I believe, Joseph Chamberlain? Wasn’t the term tariff reform? I believe that was it. There was a movement in Britain, starting at the end of the 19th, beginning of the 20th century, to return to protection. Steve, can you tell us just a little bit about that?
DAVIES: Yes, there was indeed. Basically, as Doug says, there was an enormous mid-Victorian boom from 1850 through to, really, the mid-to-late 1870s, in which the British economy did extremely well, and the manufacturing sector in particular did very, very well. Then in the 1880s, you start to get the agricultural sector, which had taken a bit of a hit from the repeal of the Corn Laws, but even then, as he explained, it was only part of it that takes a hit. The rest of it has actually done pretty well because livestock eat grain. Therefore, cheaper grain was good for livestock farming.
In the 1880s, you start to get mass importation of cheap beef from Argentina and cheap grain from the United States. This does cause a big decline in British agriculture, leading to what Lloyd George described as “a great slump in dukes,” which is an interesting expression. From about the late 1880s onwards, you start to get the growth of a movement by British industrialists, in particular, feeling that they’re facing competition that they do not like, particularly from imperial Germany and the United States, the two rising industrial powers really.
This is associated, however, with a set of political ideas, ideas about Britain’s having an imperial identity. The politician who is most associated with this, this notion of Britain as being an imperial state with possessions all over the planet, is this man you mentioned, Joseph Chamberlain. What he does is, in 1886 he splits—he was a Liberal originally—and then in 1886 he splits the Liberal Party over the issue of Irish home rule, which he opposes because it threatens this idea of the British imperial nation.
He then goes into coalition with the Liberal Unionists, his followers are called, with the Conservatives, and they become the Unionist Party, and he’s in the Cabinet. Then in 1903, he resigns from the Cabinet and starts an enormous campaign, which is interestingly modeled on the Anti-Corn Law League, for what is called tariff reform. The idea of tariff reform is to revert to protectionism, but not purely for Britain.
The idea is to have imperial preference, where the British Empire would become a huge Free Trade Zone but with very high tariff barriers against the other rival powers—Germany, the United States, Russia and France, basically. This is explicitly linked to an active policy of subsidizing industrial manufacturing growth in Britain, a large welfare state, and a very large army and navy, and, of course, imperialism.
It’s the worst possible combination of politics, and it leads to a catastrophic split in the Conservative Party actually, with the result that in 1905 the Tory Prime Minister [Arthur] Balfour has to hand in the seals of office to the king. He delayed doing this until the Cabinet got their salaries paid, which led Lloyd George in one of his most deadly remarks to say, “They died with their drawn salaries in their hands,” which is an incredibly cutting remark. What then happened was the Liberals, fighting on the free-trade platform, won the greatest landslide victory that any single party’s ever had in British political history the following spring in 1906.
But yes, there is a big revival of protectionism in the Conservative Party led by Chamberlain, in the very late 19th and early 20th century. It’s explicitly associated with a set of other ideas, particularly imperialism, and a particular conceptual British identity, but also militarism and the idea of a large and expansive state of various kinds, which was to be funded partly by the tariffs, the revenue that the tariffs would generate.
So that’s what happened. Eventually, in 1931, that side won the argument, and in the context of the great economic crisis of the 1930s, Britain finally abandons the free-trade policy at the Ottawa Conference.
BOUDREAUX: With some qualifications, it sounds like it’s fair to say that Britain was truly a free-trade nation from 1846 until—for 85 years?
DAVIES: Yes, indeed, and maybe a centerpiece of their foreign policy as well. Britain’s foreign policy, throughout the 19th, early 20th century, is to try and encourage other countries to also adopt free trade. There is some hypocrisy in it because the way they treat the Indians, for example, does not fit nicely with the free trade orthodoxy they espouse, as Liberals—more radical Liberals—are constantly trying to point out, people like Dadabhai Naoroji are constantly pointing out to them. But broadly speaking, it’s the centerpiece of not only their fiscal trade policy, but also their foreign policy.
BOUDREAUX: I want to respect your time, so we’re near an end. I want to thank all of you for joining me. I want to thank all of you for the marvelous work you do to promote a liberal world order of peace and free trade. Thanks very much.
IRWIN: Thank you, Don.
DAVIES: Thank you.