Protection and Underdevelopment

As we have seen, free-trade liberalism and the theory of comparative advantages has often been challenged during the nineteenth and twentieth centuries with arguments of mercantilist stance. Such a "Third World" critique with a mercantilist flavor has been developed in order to explain development and underdevelopment as a consequence of economic globalization. Hence, scholars have insisted that old mercantilist ideas were inspired by the same arguments that were propounded during the nineteenth-century discussion on the role of import substitution as a means for underdeveloped countries to become more developed, and ultimately rich. Thus, for example, the Italian economist Cosimo Perrotta insists that the core of the favorable balance theory "really" was what E. A. Johnson conceptualized as a "labor balance theory" (Johnson, 1937). Thus, the main concern of mercantilism was industrial development. Its core was the development of national industries through international trade. Perrotta defines the mercantilist doctrine as a theory of development, stressing that a ". . . country gains in exchange if the value of the matter imported is greater than that of the matter exported, whereas it loses if the labor put into the product imported is greater than put into the product exported" (Perrotta, 1991, p. 321; 1993). So depicted, mercantilism becomes nothing other than a proxy for import substitution policies. According to such lines of thought - which, says Perrotta, connect the seventeenth-century mercantilists with nineteenth- and twentieth-century protectionism - the establishment of industry will give rise to value-adding production and more employment.

Hence, according to such a view, as early as the seventeenth century the mercantilists had a clear picture of the importance of those factors that development economists critical of free trade, such as Paul Prebisch and Gunnar Myrdal, stressed 300 years later, namely that in international trade there is an unequal advantage for those parties involved that depend on the commodities exchanged or, to put it differently, on the different productive potentials and linkage effects. Perrotta and others are doubtlessly correct in emphasizing that many mercantilists were aware of how a higher productive potential in the form of "modern" industry, apart from causing more employment, provided the more developed country with a technological monopoly, which could be used for exploitation or improvements in terms of trade.

Interpreted in this way, mercantilism once again becomes state-building by economic means: a promotion of growth and economic modernization in an internationally competitive milieu. To some extent, it also becomes identical to protectionism. However, the danger of this approach is that mercantilism becomes too broad and encompassing a concept. Once again, it turns into a wide description of an economic policy that has been pursued by nation-states throughout history. Instead, I would argue that it is more fruitful and revealing to undertake a more historical reading of what mercantilism really was. Hence, in a historical sense, it was a discussion that emphasized the role of trade and manufacture in economic growth and modernization. However - in the sense in which Adam Smith and others have tended to interpret it over the past two centuries -it was never a coherent theory, with a "favorable balance of trade" theory at its core.


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