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Analysis

TTIP, protests and the lessons of history

Export surpluses can be a mixed blessing

by Brian Reading

Fri 7 Oct 2016

Brianreading 6500

On 17 September, a reported 80,000 people gathered in Berlin to protest against the proposed Transatlantic Trade and Investment Partnership between the European Union and the US, and the Comprehensive Trade and Economic Agreement between Canada and the EU. There were similar demonstrations in other German cities. These protests were not spontaneous. Graphic pictures on banners and a huge blown-up snake swallowing US dollar bills – not to mention a couple on stilts dressed to represent Europe and the US – show that the demonstrations were well organised.

On the same day bombs exploded in New York and New Jersey, in rubbish bins, with injuries but no fatalities. Both developments reflect a level of organisation – in the German example, that of the masses, in the American example that of the few. Both show how protests, both peaceful and lethal, have become commonplace.

History is replete with large-scale popular protests. To take just three examples from American history, the Boston ‘Tea Party’ of 1773, leading up to the American war of independence; the 17,000-strong ‘bonus army’ of first world war unemployed veterans that gathered in Washington in 1932, only to be driven out by General MacArthur with cavalry and tanks; and the anti-Vietnam war demonstrations of the 1960s and early 1970s. British and European examples include the ‘Peterloo’ massacre of 1819, when a popular protest for universal suffrage was murderously dispersed.

Underlying the evolution of protests over the centuries is the development of mass communication – the printing press, newspapers, radio, and now the internet.

Those who participated in the Berlin demonstrations probably had little understanding of the issues involved, but were expressing a generalised feeling of grievance. Those who instigated it are more likely to feel threatened by free trade. This is remarkably odd. While the EU single market is widely popular, the idea of extending it beyond the EU is anathema. A free trade area in a protectionist world is a suboptimal solution. The advantages of trade creation within are offset by trade diversion from without. Fears of globalisation dominate.

Germans have enjoyed manifest advantages as a result of the single market and euro membership, but have suffered unrecognised deprivation too. Their real output gains have been lent to foreigners in balance of payments surpluses. A surplus means you can spend less than you earn.

Being competitive and achieving export surpluses is not a blessing unless used to good purpose by an aging population. It is mercantilism, reminiscent of Bismarck’s reflections after victory in the 1870-71 Franco-Prussian war. Bismarck observed that Prussia should have paid reparations to France, not demanded them.

The damage done to Germany from mercantilism was and is extreme. This lesson was forgotten at the Versailles peace conference in 1919 but learnt after 1945, notably in the form of the Marshall Aid programme.

Change cannot be prevented. There will always be losers. In 1811-16 the British Luddites broke up the machines that lost them their jobs. Machines created many more. Resisting it is futile.

The lesson is that society has an obligation to look after the losers for the good of the many. The message from the demonstrations in Germany, and the rise of left- and right-wing extremists, is its failure to do so.

Brian Reading was an Economic Adviser to Prime Minister Edward Heath and is a Member of the OMFIF Advisory Board. This is the first in a new OMFIF series by Brian Reading – 'Global Reading'.

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