Sunday, February 19, 2017

The Economist’s Shameful Defence of Free Trade and Laissez Faire

It’s been going on for about 170 years.

Here is an example from the Economist of 28 March, 1874 – in the midst of the Bihar famine of 1873–1874 – defending the de-industrialisation of India caused by the imposition of free trade on India in British textile exports, even when that industry in Britain had been built up by decades of state protectionism:
“A charge is often made against the English Government that it has injured the Indian population by destroying the native manufactures and replacing them with ‘Manchester goods.’ This is said to have made them more exclusively dependent on the land than they were before, and more helpless in a famine. But the very contrary is the truth. ‘Manchester’ does not give India her manufactures for nothing; India has to buy them, and for that purpose she must produce something which she can sell in the markets of the world. The possession of that saleable commodity is a resource to India in a famine, because she can then expend much of the proceeds in the purchase of food and diminish her demand for Manchester manufactures for a time.

It is an analogous fallacy to say that the English rule has induced the Indian population to devote their industry not to the growth of food, which they would consume in a famine, but to the production of exportable commodities unfit for food which they cannot then consume. In reality, the greatest possible benefit to an Indian district whose food crop has perished, is not to be wholly dependent upon it, but to have another crop—jute, or silk, or sugar—which probably will not perish at the same time, and by the sale of which it can obtain money to buy foreign grain.

The true accusation against the English Government is not that it has lessened the safety of this precarious population, but that it has brought that population into existence. If our rule had never existed their numbers would have been much less. One main effect of our Government has been largely to augment the number of people dependent on crops of the lowest kind of food, and liable to die in the greatest possible numbers if those crops should fail. To put it in the way that Englishmen will understand best, we have rapidly multiplied, and are still rapidly multiplying, a class in India exactly of the kind which the poorest part of the Irish once were, but beyond comparison more numerous than the Irish, and distributed over an area beyond comparison greater than that of Ireland. A more startling result of the sudden application of an exotic civilised Government to an Oriental nation has never been seen before.

The next application is, however, as startling. Having created this vast precarious population, we feel, as Englishmen and as Christians, that we are bound to keep them alive. But this is incredibly difficult. Famine on a great scale, now so uncommon in Europe, is still very common in half-civilised Asia. A slight failure of rain at a particular period may destroy wholly or in part the single crop on which the lowest population which we have described subsists. Severe local scarcities are incessant, great famines are by no means rare. The native rulers formerly did nothing; one effect of these terrible visitations was that the numbers of the people were kept near to a manageable limit. But we have to deal with far greater numbers, and we have said that we will not permit any of them to perish. As by the unintended effect of civilised Government we have given life to an immense number of human beings, we cannot, in common humanity, according to our notions of humanity, leave them to perish.

What, however, must be the effect on the people themselves of this unprecedented and unexpected benevolence? Already we hear reports which fill us with anxiety. We are told that ‘the people are thronging to the relief works to enjoy comparative idleness, and that the sowing of the next crop is neglected.’ The intelligence is the more painful because it was to be expected. These lower Asiatics have not many virtues, but they have one—a patient, anxious, intense industry. This has been implanted in them by long ages of difficult life. It is only by it that they have lived; without it they would have perished. They had no one to help them, and so they were taught self-help. But if they come to believe that they have some supplementary agency to rely upon; that the English Government, whose ordinary strength they know, and whose extraordinary strength they cannot estimate, will keep them alive whatever happens, the one great ingredient of civilisation which they already possess, incessant and careful forethought, will be taken from them, and we shall have filled India with a population more numerous than that which we found there, but physically not better, and morally inferior.” (“Neglected Aspects of the Indian Famine,” The Economist, vol. 32, no. 1596, Saturday, March 28, 1874: pp. 378–379).
Of course, the truth is that British imposition of free trade on India did cause the de-industrialisation and the collapse of its pre-modern manufacturing sectors. See here:
(1) “The Early British Industrial Revolution and Infant Industry Protectionism: The Case of Cotton Textiles,” 22 June, 2010.

(2) “Britain’s Protectionism against Indian Cotton Textiles,” 12 July, 2016.
Even if the Indian economy was “diversified” by new export crops, agriculture is a dead-end, diminishing returns-to-scale sector, and the only real path to prosperity is through a dynamic, growing modern manufacturing sector.

Had the Indian rulers had the foresight and freedom to employ the protectionist policies used by Japan in the 19th century, they would undoubtedly have done much better.

At the same time, it is true that the problems of development faced by India were serious indeed. A 19th century India would have needed to (1) impose birth control and family planning to limit population growth and (2) abolish their caste system which prevented social mobility and the development of social capital, at the very least.

A further point is interesting here. At the time this Economist article appeared (on March 28, 1874), India was experiencing the Bihar famine of 1873–1874 in Bihar, parts of Bengal, the North-Western Provinces and Oudh. The Economist was railing about the expenditures and relief measures taken by the British government in India to prevent mass starvation.

But it was not the free market that prevented mass starvation in parts of India in 1874.

A more diversified production of exportable commodities in India did not prevent mass starvation amongst the poor with no income whose crops failed and who could not afford to buy food. And even if the rich export-oriented commodity producers did have money, they were clearly not interested in paying to avert mass starvation.

Curiously, history ran an experiment for us at this time. As lieutenant-governor of the Bengal Presidency in 1874, Sir Richard Temple (8 March 1826–15 March 1902) used government intervention shunning free markets to deal with the famine:
“The news which reached England in October [1874] that nearly half the population of our greatest Indian province stood in dire peril of famine stirred the public mind to its very depths. The memories of the Orissa fiasco were still recent, and men felt that a repetition of the horrors brought about by procrastination and incompetence would lead to an impeachment of our rule by the entire civilised world. The feeling found energetic expression in Parliament and the press, and the Secretary of State echoed the unmistakable voice of public opinion when he told the Viceroy that ‘Her Majesty’s Government relied on his shrinking from no available means, at whatever cost, to prevent, as far as he could, any loss of the lives of her subjects in consequence of a calamity which threatened Bengal.’

Lord Northbrook rose to the occasion. He placed his Finance Minister, Sir Richard Temple, in charge of relief operations in the threatened tract, which included the western districts of Bengal, still known under their ancient title of Behar. In concert with his trusted lieutenant he took more than adequate measures for feeding a population of 2,500,000 during seven months. ….

Lord Northbrook therefore resolved to supply the anticipated deficiency [of food] by bringing 342,000 tons of rice from beyond the seas, an amount nearly equal to the average annual export from Bengal.” (Skrine 1901: 223–224).
Sir Richard Temple, then, imported nearly half a million tons of rice from Burma and provided relief works and a public dole (Davis 2001: 36). As Davis notes, it was the “only truly successful British relief effort in the nineteenth century” in India, which averted mass excess deaths (Davis 2001: 37).

In other words, mass starvation was averted by aggressive government intervention.

The sequel to this good government and basic human decency was not a happy one, however.

As the full cost of the relief efforts became known,
“… Temple came under withering fire from London for the ‘extravagance’ of allowing ‘the scale of wages paid at relief works to be determined by the daily food needs of the labourer and the prevailing food prices in the market rather than by the amount that the Government could afford to spend for the purpose.’ In public, he was lambasted by The Economist for encouraging indolent Indians to believe that ‘it is the duty of the Government to keep them alive.’ Senior civil servants, convinced (according to Lord Salisbury) that it was ‘a mistake to spend so much money to save a lot of black fellows’ denounced the relief campaign as ‘pure Fourierism.’ Temple’s career was almost ruined.” (Davis 2001: 36–37).
In the subsequent Indian Great Famine of 1876–1878 in Madras, Mysore, Hyderabad, and Bombay for two years, the British government reverted to its laissez faire policy and miserably cruel and inadequate relief measures.

It is estimated that about 5.5 million people died in India from this famine.

In other words, the morally degenerate free market fanatics of that era won out.

All in all, although Classical Liberalism certainly had admirable and defensible ideas, its obsession with the free market and doctrinaire hostility to government intervention essentially boils down to the core idea: it is not the business of government to keep its citizens alive, even under the most dire circumstances, because markets take care of everything.

Thus Classical Liberalism quite clearly has its own level of moral depravity and irrationality, though admittedly not as bad as other authoritarian ideologies of the 20th century.

Anonymous. 1874. “Neglected Aspects of the Indian Famine,” The Economist vol. 32, no. 1596 (Saturday, 28 March): 378–379.

Davis, Mike. 2001. Late Victorian Holocausts: El Niño Famines and the Making of the Third World. Verso, London.

Skrine, Francis Henry. 1901. Life of Sir William Wilson Hunter. Longmans, Green and Co., London.

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1 comment:

  1. Great article. Puts the Free Trade argument into historical context.