Mercantilism Reconsidered

Adam Smith and his liberal followers decisively won the intellectual battle against mercantilist models of capitalism. But recent history tells a more ambiguous story: growth champions such as Japan in the 1950’s and 1960’s, South Korea from the 1960’s to the 1980’s, and China since the early 1980’s have all had activist governments collaborating closely with large business.

CAMBRIDGE – A businessman walks into a government minister’s office and says he needs help. What should the minister do? Invite him in for a cup of coffee and ask how the government can be of help? Or throw him out, on the principle that government should not be handing out favors to business?

This question constitutes a Rorschach test for policymakers and economists. On one side are free-market enthusiasts and neo-classical economists, who believe in a stark separation between state and business. In their view, the government’s role is to establish clear rules and regulations and then let businesses sink or swim on their own. Public officials should hold private interests at arm’s length and never cozy up to them. It is consumers, not producers, who are king.

This view reflects a venerable tradition that goes back to Adam Smith and continues a proud existence in today’s economics textbooks. It is also the dominant perspective of governance in the United States, Britain, and other societies organized along Anglo-American lines – even though actual practice often deviates from idealized principles.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/t7jaPXd;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.