Thursday, April 16, 2009

Adam Smith on Government Roles

Leon Fink, a history professor at the University of Illinois at Chicago, writes (16 April) on “The piratical world of commerce” at the Chicago Tribune HERE.

Unlike the 18th Century Barbary pirates, to whom they have been compared on the superficial grounds that they are both poor Muslims feeding off oceanic traffic, today's pirates are stateless actors generally operating in a medium (the ocean) of weak or even fictive states. Moreover, though they may be the most violent actors at sea, the pirates' mercenary motives and ethics place them in the mainstream of today's shipping world.

In "The Wealth of Nations," 18th Century political economist Adam Smith famously anticipated a world in which an unfettered marketplace would maximize production, trade and wealth. Yet, even as he counseled restraint from governmental interference, Smith allowed himself wiggle room when it came to commerce and the sea. Maintaining access to the navigable world and, if possible, control of the world's trade, was a crucial mark of national power.

For the most part, world shipping today is the prototype for "globalization," the reign of private marketplace competition over any national or political consideration. In keeping with a pattern of deregulation that has steadily grown since World War II, shipowners (commonly centered in the richer, Western countries and Japan) have evaded the labor and tax laws of their home states by registering their vessels with governmental weaklings like Panama, Liberia and the Marshall Islands as "flags of convenience"

Smith was far too much a ‘man of the world’ to have ‘anticipated a world in which an unfettered marketplace would maximize production, trade and wealth’ (much of that notion was invented by modern economists in the 20th century).

Also, he was not confident that free trade would be established (he called that idea utopian) [WN IV.ii.43: 471], and he criticised the French Physiocrats for demanding that ever aspect of their philosophy or 'precise regimen' (which some of them called ‘laissez-faire’) be implemented in full (WN IV.ix.28: 674].

Smith did not anticipate 'a world in which an unfettered marketplace would maximize production, trade and wealth' nor counsel against all government interference as a principle; he certain counselled against those 18th-century examples of government interference, some of them going back to Elizabethan times (Acts of Settlement, Statute of Apprentices, Incorporated Trades and Guilds, Mercantile Political Economy, legislators and those who influenced them imposing legal monopolies and tariff protections, and general arrogance that they knew better than individuals about managing their affairs.

But it is essential to understand that Smithian political economy saw important roles and major roles for government in infra-structure investment (roads, canals, harbours, city sanitations, pavements, and street lighting), administration of justice, and in public-interest activity (Royal Mail, banking regulations, interest rate ceilings, cloth stamping, gold assaying, palliative health care, education and ecclesiastical freedoms).

To these must be added his acknowledgement of the government’s ‘first duty’, to protect the society from invasions, among which he recognised the need for an island society like Britain to ensure a sufficiency of naval power to protect its foreign trade (the Acts of Navigation). Of course, British governments, captured by special interest groups, took these sensible measures to the extremes of armed unnecessary interventions beyond defensive necessity to wilful intervention in Continental dynastic disputes, in unprofitable trading companies and colonies, and general hostilities based on toxic ideas of ‘jealousy of trade’, mercantile monopolies, and excessive expenditures (the seven-years war being typical at £120 million).

However, Professor Leon Fink’s article on the modern problem of piracy, apart from these observations, is an excellent read and I recommend that you follow the link above.

Apologies for some duplicate postings but I could not post this afternoon for some reason and my attempts led to duplication off screen.

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