Iso­la­tion­ism has never worked!

Pro­fes­sor Stephane Garelli on grow­ing iso­la­tion­ism.

The Smart Manager - - Contents - STÉPHANE GARELLI IS PRO­FES­SOR EMER­I­TUS AT IMD.

Stephane Garelli, IMD, looks back in time to show­case the im­pact of pro­tec­tion­ism and how it has failed to bring eco­nomic suc­cess.

From Trump’s wall and im­mi­grant ban, to Bri­tain pulling away from its long­time part­ners, the ten­dency to­ward iso­la­tion­ist poli­cies is on the rise in the west.

We have seen this be­fore but it has never had the in­tended ef­fect of mak­ing any coun­try in question “great again”.

When Chi­nese ad­mi­ral Zheng He re­turned to his coun­try in 1424 af­ter his im­pres­sive fleet ves­sels—of up to 120 me­ters in length—had nav­i­gated the world’s oceans, he was or­dered by the new Em­peror Hongxi to erase all traces of his ex­pe­di­tion. Thus, be­gan a long pe­riod of iso­la­tion­ism for China. In 1793, when Sir George McCart­ney led a Bri­tish Em­bassy visit to Chi­nese Em­peror Qian­long, he found a rich court, but a na­tion in dis­ar­ray. This pe­riod of Chi­nese his­tory was later de­scribed as the ‘Im­mo­bile Em­pire’ in a book by French writer and politi­cian Alain Peyr­e­fitte.

Who made the great­est con­tri­bu­tion to world pros­per­ity? The mag­nif­i­cent Chi­nese fleet whose dis­cov­er­ies were dis­carded or the three in­signif­i­cant ships of Christo­pher Colum­bus—each a mere 22 me­ters long—which a few years later opened the roads to new worlds? A Bri­tish econ­o­mist, An­gus Mad­di­son, has tried to shed some light on the sub­ject and to ex­plain the long-term eco­nomic devel­op­ment of na­tions since… year one.

At the time, China and many Euro­pean coun­tries had a rel­a­tively sim­i­lar GDP per capita es­ti­mated at around USD $600. In 1300, North­ern Italy be­came the rich­est re­gion in the world with a GDP per capita of over USD $1,600. In 1600, the Nether­lands reached first place with a GDP ex­ceed­ing USD $2,650 per capita. By 1820, it was Great Bri­tain’s turn to be­come the rich­est na­tion, thanks to its trad­ing em­pire and the in­dus­trial revo­lu­tion. For all of them, in­ter­na­tional trade and openness were fun­da­men­tal to wealth cre­ation.

In con­trast, China, which had of­ten ex­pe­ri­enced long pe­ri­ods of iso­la­tion­ism, did not reach the level of year one again un­til 1963. For al­most 2,000 years, Chi­nese lead­ers had failed to in­crease the long term wealth of their pop­u­la­tion. Then in 1979, un­der the lead­er­ship of Deng Xiaop­ing, China re­versed trends and ini­ti­ated a new ‘open door’ pol­icy. The re­sults have been stag­ger­ing. To­day, GDP per capita in China is over USD $8,000. And, to come back to where we started—ship­ping—China is now home to more than half of the world’s

50 largest ports and ac­counts for 39% of world ship­ping trans­ac­tions.

It is an as­ton­ish­ing feat of his­tory: China has un­der­stood the mes­sage of openness and trade at the very same time as the win­ners of yes­ter­day—the United States of Amer­ica, Bri­tain, and per­haps soon France, and the Nether­lands—be­lieve that they will re­gain pros­per­ity by with­draw­ing from the global com­mu­nity.

Of course, one should not un­der­es­ti­mate the ugly side of glob­al­iza­tion ei­ther. Ac­cord­ing to the OECD, 70% of mid­dle-class house­holds in wealth­ier na­tions have not seen any growth in their rev­enues over the past ten years. In the United States, rev­enue stag­na­tion af­fects 80% of these house­holds and al­most 100% in Italy. Such a trend de­serves to be ad­dressed and cor­rected, but not with the pro­tec­tion­ist ap­proach sug­gested by many of to­day’s pop­ulist move­ments, which have his­tor­i­cally failed.

Why do openness and trade cre­ate pros­per­ity? Fun­da­men­tally, be­cause in an open world with free trade peo­ple on the other side of the border, the en­e­mies of past wars, have more eco­nomic value alive than dead. The day that China over­turned a strat­egy of con­fronta­tion and revo­lu­tion for one of openness and trade, it be­came a pros­per­ous and pow­er­ful na­tion.

Vic­tor Hugo ex­pressed the same idea dur­ing his mem­o­rable speech at the Peace Congress of 1849 in Paris. His words are now in­scribed on the mon­u­ment that com­mem­o­rates the bat­tle of Water­loo: “The day will come when there will be no other bat­tle­fields than mar­kets open­ing to trade and minds open­ing to ideas”. What a tragedy that so many gov­ern­ment lead­ers to­day seem to have for­got­ten the lessons of his­tory! ■

The day that China over­turned a strat­egy of con­fronta­tion and revo­lu­tion for one of openness and trade, it be­came a pros­per­ous and pow­er­ful na­tion.

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