Economic Nationalism in Old and New States

Harry G. Johnson, Harry G. Johnson

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000421347
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Originally published in 1968, this book brings together contributions from social scientists in anthropology, economic history, economics and political science in an exploration of the nature and effects of economic nationalism. The opening essays presents a formal theory of nationalism that relates the phenomenon to rational government processes. Following chapters explore whether nationalism and economic development went together and whether nationalistic economic polices actually promoted development. How far British economic policy was influence by nationalism, or its corollary for a successful country-imperialism is also assessed. Examples from China, Mali, Mexico and Canada are included.

1. A THEORETICAL MODEL OF ECONOMIC NATIONALISM IN NEW AND DEVELOPING STATES

Harry G. Johnson

Nationalism in new and developing states is a complex problem of increasing concern to both political scientists and economists. To the political scientist, nationalism appears on the one hand as an integrative ideological force facilitating the establishment of a viable and cohesive nation-state; on the other hand, ethnic groupings, especially when they coincide with geographical, linguistic, and religious differences, generate the phenomenon of nationalism within the state and constitute a threat to the political stability of the state and the prospects for its survival. In addition, nationalism is a factor fundamental to the understanding of the ideological role of the concepts of colonialism and imperialism in the political life of formerly colonial states. Equally, to the economist, nationalism appears on the one hand as a driving force responsible for the urge of less developed countries (of which the majority are new states) to accelerate their economic development by economic planning, and on the other hand as the major political influence responsible for the fact that many features of the policies, concepts, and methods of economic development planning in such countries either do not make economic sense or would make economic sense only in certain specific and rather exceptional economic circumstances the actual presence of which no one has felt it necessary to establish by empirical economic research.

This last point may be illustrated by a variety of examples. In the first place, both public pronouncements in developing countries and the literature on economic development are pervaded by an emphasis on industrialization as the necessary path to economic development, despite the fact that many economists, looking either to past economic history or to the current situation in the less developed countries, have concluded that the development of agriculture or of exports of certain natural resource products constitutes their logical path to economic development. Second, concerning the choice of industries to be fostered by development policy, there is a marked tendency to consider certain industries as strategic, almost regardless of the size of the country, its location, or its available skills. Which industries these are depends in large part on the stage of development. In the earliest stages of development, a steel industry is generally regarded as the sine qua non of economic development, even though steel requires a massive investment of capital and the world steel industry has tended to suffer from chronic over-capacity rather than excessive pressure of demand. In more advanced countries, like Canada, Australia, the Union of South Africa, Mexico, and Argentina, the sine qua non of development is a domestic automotive industry, even though the establishment of such an industry involves essentially the local production of American or European models at costs substantially above the prices of imports. In countries that are generally regarded as advanced, other than the United States, a comparable emphasis has been placed on the production of atomic energy, even though the commercial profitability of that form of power is not yet firmly established. As indicated, an economic justification for regarding the specific industrial activities mentioned as strategic is difficult to provide; instead, the selection of what activity is strategic seems to be governed by rivalry with and imitation of other nations that are considered in some sense to be superior.

Reprinted with permission from the Political Science Quarterly, LXXX (June, 1965), 169-85.

A third example, different in nature, is the almost universal prevalence of a preference for public enterprise over private enterprise. Such a preference is not necessarily a question of nationalism — it may be a consequence of political philosophy — but it frequently seems to be dictated by nationalism rather than by socialist political principle. The problem for the economist here is to explain what, if any, advantage a country with limited managerial skills and limited administrative capacity derives from organizing industrial activities under governmental control rather than through reliance on the competitive market place.

Two other examples are drawn from the area of international economic relations. In commercial policy, developing countries generally place great emphasis on policies of substituting domestic production for imports when the economics of the situation would indicate that economic efficiency would best be served by reliance on the principle of comparative advantage. And in almost all the developing countries and new nations, there is strong opposition to the investment of foreign capital and to the employment of foreign scientific, technical, and managerial personnel, even though capital and professional people are scarce and their scarcity frequently constitutes the major bottleneck in the process of economic development. Both phenomena are clearly derived from nationalism.

The problem these examples pose for the economist as social scientist is to explain the tenacity with which these policies are followed and the regularities of behavior that can be discerned among countries, in terms of an underlying logical connection running from nationalism to economic policy. The purpose of this article is to provide such an explanation in the form of a theoretical model of economic nationalism in new and developing states; the intention is not to pass judgment on the wisdom or otherwise of nationalist policies, but rather to explain such policies as a rational and economic response to certain types of situations.

The theoretical model presented derives primarily from three recent applications of economic theory to problems hitherto not generally considered to fall within its range.¹ The first of these is Gary S. Becker’s study of discrimination against Negroes in the United States.² The key concept of this work is the “taste for discrimination,” the notion that people who discriminate are willing to sacrifice material gain — by paying higher prices or accepting lower prices in their economic transactions — in order to enjoy a psychological gain derived from avoiding contact with the group discriminated against. The model of nationalism presented here adopts from Becker’s work the notion that individuals seek — in accordance with the postulates of economic theory — to maximize their satisfaction, but that this satisfaction includes enjoyment of both psychic income and material income; it simply substitutes for the taste for discrimination a taste for nationalism.

The second source of the model is Anthony Downs’ application of economic theory to the processes and practices of democratic government.³ Downs’ basic hypothesis is that political parties seek to maximize their gains from office, but that they win office by catering to the preferences of the voters and can continue in office only by satisfying the voters’ preferences for various types and quantities of governmental activity. In other words, power is exchanged for desired policies in a political transaction between party and electorate. A strategic element in Downs’ theory of the workings of democracy is the cost of acquiring information. Downs uses this cost to explain the reliance on persuasion in arriving at political decisions, the inequality of political influence, the role of ideology, electoral apathy, and the bias of democratic government toward serving producer rather than consumer interests.

¹ The model also owes something to my earlier attempts to understand the origins of the particular policies recommended by Canadian nationalists in recent years; see my “Problems of Canadian Nationalism,” Chap. 2 in The Canadian Quandary (Toronto: McGraw-Hill of Canada, 1963), and “Economic Nationalism in Canadian Policy,” Chap. 6, below.

² Gary S. Becker, The Economics of Discrimination (Chicago: University of Chicago Press, 1957).

The third source of the model is Albert Breton’s analysis of the economics of nationalism.⁴ Breton identifies nationality with ownership by nationals of various types of property, and regards it as a type of collective consumption capital that yields an income of utility and can be invested in by spending public funds on the acquisition of such capital. Using this framework, Breton produces a number of specific and testable propositions about nationalism: nationalist policy is mainly concerned with redistributing income rather than with increasing it; specifically, the redistribution is from the working class to the middle class; consequently, where the working class is poor, there will be a tendency to resort to confiscation rather than the purchase of property. Furthermore, nationalism will tend to favor investment in national manufacturing, since manufacturing jobs and ownership are preferred by the middle class; its collective nature will appeal to socialists; and its emergence will be correlated with the rise of new middle classes who have difficulty in finding suitable career opportunities.

The development of the model of economic nationalism starts from Downs’ model of the working of democracy. It is posited that political parties are engaged in the business of exchanging governmental policies and services — from which a party in power derives benefits in the form of psychic and material gains of various kinds — for votes from the electorate. The party’s success in gaining and keeping power depends on its success in furnishing what the electorate desires from the government in exchange for its votes. The main obstacle to efficiency in this exchange stems from ignorance on both sides about the prospective gains from the policies offered and the cost of acquiring the information necessary to make the exchange efficient. This obstacle forces the political party to depend for its information about voter preferences on pressure groups and lobbyists, and on the communications media. Also, though Downs does not develop the point because he is primarily concerned with established democracies, this dependence gives the political parties a strong incentive to gain control over communications media as a means of establishing political control.

³ Anthony Downs, “An Economic Theory of Political Action in a Democracy,” Journal of Political Economy, LXVI (1957), 135-50; An Economic Theory of Democracy (New York: Harper, 1957).

⁴ Albert Breton, “The Economics of Nationalism,” Journal of Political Economy, LXXII (1964), 376-86.

The average voter, however, is motivated by his own rational self-interest not to acquire much knowledge about the policies of political parties and their consequences for his economic welfare, because whether or not he is well informed he will have a negligible influence on which party is elected. It is this that gives ideology a crucial role in political life. The establishment of a distinctive party ideology simplifies the party’s problem of communicating with the electorate by enabling the party to summarize all of its policies in one general symbolism; and it simplifies the problem of the voter, who can vote by ideology instead of being obliged to weigh up each party’s record and promises on the whole range of specific policy issues. Parties will therefore compete largely through their ideologies.

In well-established democracies, the type of party system that emerges from this competition will depend on a variety of features, including the distribution among voters of ideological preferences, type of election system (whether by proportional representation or by plurality), and the geographical distribution of voter preferences. Proportional representation will tend to foster a multiplicity of ideologically differentiated parties; whereas plurality election will promote a two-party system, except where ideological difference is associated with geographical region. Actual policy in a multi-party system will, however, represent a compromise among ideologies owing to the necessity of forming coalitions to command power. In a two-party system the relation of party ideologies will be determined by the distribution of voter preferences for ideologies: if voters tend to group around a central ideological position (the distribution of voter preferences is unimodal), party ideologies will tend to be virtually indistinguishable. If, on the other hand, voter preferences group around two or more typical positions (the distribution of voter preferences is multimodal) and voters refrain from voting if party ideology departs too far from their own ideological preferences, party ideologies will be significantly differentiated; such a situation, however, may make the country politically unstable and threaten political disintegration.

Where democracy is not well established, there will be a strong incentive for a party to attempt to create a comprehensive and preclusive ideology to enable it to enjoy exclusive control of government; this will be especially so in an underdeveloped economy and society. The change of office from party to party in a normal democracy is an economically wasteful process, and relies on the capacity of the socio-political and economic system to reabsorb ousted political office holders without imposing great private losses on them. In an economically underdeveloped country, the change of office between parties is likely to impose substantial economic losses on the individuals who have to wait their turn in office, by comparison with the power and the material gains they would enjoy if they controlled the government permanently. The acceptance of normal democracy depends on acceptance of the rules of the game, but the acceptance rests not only on a democratic tradition but also on an economic and socio-political system that does not impose severe economic losses on political losers.

Nationalistic feeling provides a foundation for the establishment of a preclusive ideology as a prerequisite for one-party government; there is an evident connection between the stridency of nationalism in the new nations and their propensity to establish one-party government. Even where the two-party system is maintained, the competition in ideology would tend to make both parties stress nationalism and nationalist policies if there were widespread nationalist sentiment among the electorate. Only if there were a sharp division of voter preferences, with some voters envisaging serious disadvantages, would there be significant political division on the issue; in this case the political stability of the country would be seriously threatened.

Finally, one of Downs’ important conclusions is that the working of political democracy will display an asymmetry with respect to economic issues. This asymmetry arises from the concentration of producer interests and the dispersion of consumer interests. The relevance of this asymmetry for nationalism is that nationalist policies tend to concentrate on specific producer interests, whereas their costs are dispersed thinly over t...