Friedrich List and the pre-history of Modern-Day Competitiveness Thinking

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Friedrich List

The German-American economist Friedrich List never once mentioned competitiveness directly by name, but he nonetheless remains an important figure in the pre-history of the Competitiveness Agenda, a modern body of thought that, put crudely, says that countries need to shower capital on capital and the owners of capital, for fear that they’ll flee to more hospitable jurisdictions. It is, in part, a theory about how nations ‘compete.’

List is not a famous economist from history, and this blog judges him harshly. But this is not to say that he should be ignored: one cannot present a comprehensive historical account of the agenda without at least some discussion of List’s National System of Political Economy. It was he who first made the case in the 1840s for collective national sacrifice in the interests of stronger future macroeconomic performance. Choose carefully the sectors in which you might expect to prosper at other countries’ expense, he said, and then channel all available resources into those sectors. No other social objectives could be allowed to interfere with this one overriding priority, which is why List felt able to advocate the political privileging of national economic champions.

This latest post for Fools’ Gold by Matthew Watson reviews List’s arguments, but also shows why they have never been treated as good economics.

Friedrich List’s Role in the Pre-History of Modern-Day Competitiveness Thinking

By Matthew Watson

The Competitiveness Agenda has a distinct history in economic theory, one that can be pieced together by looking at how economists have written about competitiveness over the years. But it also has an equally distinct pre-history. There are a number of classic texts in economics without which the debate about competitiveness would be largely unimaginable in its current form. These were not economists who wrote explicitly about competitiveness but whose work made it possible for their successors to do so. Pride of place in this regard might very well go to Friedrich List’s 1841 book that translates into English as the National System of Political Economy.

The Competitiveness Agenda
This involves special pleading to bestow perks (such as tax cuts, or financial deregulation) on Capital and its owners, on the basis that if they aren’t pampered they will flee to other more hospitable jurisdictions.

We argue that the Agenda causes a range of harms.

If there is room for doubt about this statement, it tends not to be in relation to List’s significance to discussions of competitiveness. It revolves around the much more fundamental issue of the status of his National System within the history of economic thought. Do not open textbooks on the subject expecting to find his contributions to economic theory being reviewed there in any great detail. Indeed, do not expect to come across any mention of List at all. To describe the National System as a classic text that stands comparison to the other major books in economics might therefore be something of a stretch.

Yet it still definitely has its adherents, mainly amongst the development studies community, whose members often see in List’s steadfast refusal to defer to the laissez-faire policies of his own day important lessons today for developing countries seeking enhanced political space from the influence of global governance institutions. His exclusion from the history of economic thought textbooks, they say, is merely evidence of the mainstream profession’s attempts to silence all non-pro-market economics.

The historians of economic thought counter, though, by pointing out that nobody at the time that List was writing thought that the National System represented good economics, and that the debate since that time has simply reaffirmed the suspicion that its theoretical basis fails to cohere even in its own terms. They follow a long scholarly tradition that treats List as a political pamphleteer who pushed his pet policies behind a veneer of economic analysis and not someone who showed any genuine aptitude for economic theory.

List’s solution was to call for concerted national sacrifice in the interests of accelerated economic development. In effect, he put the present generation into conversation with future generations, asking how their competing economic interests might be balanced. List clearly weighted the interests of future generations the more highly of the two

Even the provenance of the National System adds weight to the critics’ concerns. It started life as an entry for a prize essay competition, but its contents hardly found universal favour amongst the judges, who thought that it misrepresented the current state of economic theory. List pressed on regardless, with the ensuing book-length version showing no attempt to reconcile his argument to the judges’ objections. The caricatures remained intact.

The most important aspect of List’s work for the modern-day Competitiveness Agenda is his insistence that the whole of the economics profession had gone irredeemably wrong in its identification of the most relevant unit of analysis. List thought that economists worked at two irreconcilable extremes, leaving a gaping hole in the middle. Their theory treated the individual as the privileged actor within the economy, he said, subsequently scaling up the choices of individuals into an analysis of how the economic system functions best at the global level by placing everyone in charge of their own personal destiny. He complained about strict adherence to “the principles of cosmopolitical economy”, by which he meant a “boundless cosmopolitanism, which neither recognises the principle of nationality, nor takes into consideration the satisfaction of its interests”.

List objected in the strongest possible terms to the way in which this wrote out of economic theory the primary political unit to which individuals are socialised.

“Between each individual and entire humanity,” he wrote, “stands THE NATION, with its special language and literature, with its peculiar origin and history, with its special manners and customs, laws and institutions, [and] with the claims of all these for existence, independence, perfection, and continuance for the future.” And yes, he did use capital letters so that nobody could miss the emphasis he wished to place on what he called “a society … united by a thousand ties of mind and of interests, [which has] combine[d] itself into one independent whole”.

List’s specific concern was how he might mobilise sufficient political support within a not-yet-unified and still only embryonically industrialised Germany to make good the economic gap it experienced to Britain in the 1840s. His nationalist economic theory was therefore only ever a thinly veiled cover for an avowedly nationalist politics. Germany’s burgeoning middle classes were accused of anti-patriotic consumption by allowing themselves to be beguiled by cheaper-cost British consumption goods. They were complicit, List complained, in enabling British producers to flood the German market and in therefore positioning Germany as Britain’s trade captive, with the latter treating the former “worse than a subject people”. Britain, he said, was able to use its economic advantages “to declare a war of extermination against the manufacturers of all other countries”, thus “erect[ing] a universal dominion on the ruins of the other nationalities”. “The reason for this is the same as that why a child or a boy in wrestling with a strong man can scarcely be victorious or even offer steady resistance.”

List’s solution was to call for concerted national sacrifice in the interests of accelerated economic development. In effect, he put the present generation into conversation with future generations, asking how their competing economic interests might be balanced. List clearly weighted the interests of future generations the more highly of the two, saying that the present generation should accept reductions in its purchasing power and in its living standards if this is what it took to establish an enhanced trajectory of national economic development. The prize of ultimately being able to rival the British as a global economic power was simply too great, he argued, to consent to British producers’ continuing presence in the German market. Kick the British out, even if this meant forsaking all sorts of consumption activities that their presence currently made possible, and allow indigenous German industry to fill the ensuing gap. The nation would forever be grateful for the sacrifice, he reassured those who would be required to vote for their own short-term impoverishment.

For List, the key to superior development performance was to be found in successfully nurturing what he called the nation’s ‘productive powers’. This was about ensuring that choices could be made about the sectors in which the national economy should specialise and that money should be taken away from consumption to pump-prime investment in those sectors. On this point there appears to be evident continuity between then and now. List’s specific concept of the nation’s productive powers may no longer be appealed to explicitly as justification for transferring resources out of consumption and into favoured sectors in the name of competitiveness. However, the idea remains with us today that pump-primed investments in certain sectors can reflect back positively in enhanced growth for the economy as a whole. Proponents of the Competitiveness Agenda today use an incredibly similar rhetorical structure for their arguments to the one that List first developed in the National System the best part of two centuries ago. The fear of forever falling behind if not acting now is a shared image that acts to animate the underlying political vision.

Interestingly, List provided no plausible philosophical mechanism to explain why people would voluntarily cede the right to political and economic autonomy in the abstract interest of enhancing the nation’s productive powers. Yet this would have been an inevitable outcome of realising the future that he argued for so vociferously in the National System. For those people lucky enough to own property, it would have meant forgoing the right to dispense of it how they saw best. Whereas for everyone else not similarly blessed, it would have meant learning to adjust to a situation where no amount of material deprivation might ever be enough if there was always another plateau for the productive powers to attain. The text of List’s best-remembered book simply calls for national sacrifice many times over without ever once being able to outline the philosophical basis on which that sacrifice might be considered legitimate by the people being called upon to make it. In its place there is simply the frequently repeated assertion of the economic status gain that the nation as a whole might experience if, at some uncharted time in the future, it finds that its accumulated productive powers are without parallel anywhere else in the world. But an argument that never goes beyond mere assertion is inevitably undermined in its believability.

The modern-day Competitiveness Agenda also calls for national sacrifice but without a philosophical explanation of why that sacrifice should be consented to. The politics of competitiveness works by telling us, often ad nauseam, that we must prepare ourselves for rocky times ahead if we are to emerge as the ultimate winners of the global race. There is an unspecified account of a greater good that might ensue if we are to renounce some hard-won rights in the present. But this is never accompanied by a matching account of whose vision of the good life we are being asked to buy into. The image of a nation being willingly forged together is just as fuzzy in discourses of national competitiveness today as it was in List’s theory of national economy in the 1840s. Some will gain, most will not – this is an argument about collective sacrifice, after all – but how the winners and losers relate to one another remains a mystery beyond unsubstantiated assertions about the necessity of the policy. This is the flimsiest justification imaginable.

It is significant that List could command precious little support amongst the economists of his own day, as well as that not much has changed in this regard in the intervening period. The absence of the National System from textbooks in the history of economic thought can be read conspiratorially. But there is no real reason to think of this as a conservative clique defending its own members through the calculated omission of a maverick whose work slays its chosen idols. The truth is much more prosaic than that. The three parts that comprise the National System are called, respectively, ‘The History’, ‘The Theory’ and ‘The Systems and the Politics’. Yet it is difficult to see anything beyond a narrowly partisan historical account and a very weak theoretical exposition of the wider economic system, all of which serves as a handmaiden to a single policy goal. List takes 500-plus pages to make the same basic point over and over again in a variety of ostensibly different ways: Germany needs to decouple itself from Britain’s prevailing laissez-faire system if it is ever to compete with it as a free trade equal. It is not hard to understand where the charge of pamphleteering comes from.

The modern-day Competitiveness Agenda is also propelled by a process of persuasion through repetition. The only difference today is that List-like calls for national sacrifice have now gone mainstream and it is those who seek to refute the Competitiveness Agenda who are treated as mavericks. Just because the weight of contemporary political opinion appears to support strategies for national competitiveness, though, does not suddenly turn bad economics into good economics. There is no magical alchemist’s touch in operation here that instantly rehabilitates List’s National System and provides it with the intellectual respectability that none of his peers felt inclined to confer upon it. Bad economics remains bad economics irrespective of the popularity of discourses of competitiveness. This is the real story that needs to be told. List’s National System is important to the pre-history of the modern-day Competitiveness Agenda precisely because it helps to reveal how shaky its economic foundations are.

Matthew Watson is Professor of Political Economy in the Department of Politics and International Studies at the University of Warwick and an Economic and Social Research Council Professorial Fellow.

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