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When we do want to account for the way domestic politics aVect trade policy, we should bear in mind some diVerent ways of classifying groups of interested parties. SpeciWcally, we can make a distinction between classes (which can be very large) and interest groups (which tend to be smaller).

In the early 1990s, the governments of the US, Mexico, and Canada were negotiating the North American Free Trade Agreement (NAFTA). NAFTA is an unusual trade bloc in that it straddles the line between the Wrst and third worlds, the rich and the poor.

Most labor unions in the US opposed NAFTA, while business interests largely supported the agreement. The principal argument in opposition to NAFTA was that US workers would be put in direct competition with workers in Mexico, where wages are lower, and where environmental and workplace health and safety standards are more lax. This would lead, the argument went, both to a loss of jobs in the US, and to a reduction in wages and a deterioration of working conditions. Labor lost the argument, and NAFTA was ratiWed. Whether or not NAFTA deserves a share of the blame for the continued decline of the relative earnings of lower-paid workers within the US, is too complicated a question to answer right now. The important thing is simply this: labor (to the extent we can say that the positions taken by US unions reXect the interests or views of US workers) thought that it would be hurt by NAFTA, while capital thought that it would be helped.

The views of the unions and the capitalists in the US were consistent with standard trade theory. As we saw in Chapter 4, the Stolper–Samuelson theorem holds that when trade barriers between two countries are lowered, the gains go disproportionately to the more abundant factor in each country (that being capital in the US, labor in Mexico); in each country, the scarcer factor is the relative loser, and may even lose in absolute terms.

The Stolper–Samuelson theorem is within the standard Heckscher–Ohlin framework of trade theory. As such, it sees a country’s comparative advantage as resulting from its capital–labor ratio: rich countries have high ratios and specialize in capital-intensive goods, while poor countries have low ratios and specialize in labor-intensive goods. In

68 THE GLOBAL ENVIRONMENT OF BUSINESS

the US, capital expected to gain from NAFTA and labor expected to lose. (I’ll consider the Mexican side of the bargain in later chapters.) That divides one large country into two groups, identiWed with two factors of production. Marx would have called these social classes.

Compare this with the case of Germany in the 1870s, and the marriage of iron and rye. There, the owners of heavy industry and large farms supported tariVs, those of light industry and small farms opposed them. Workers were similarly divided. This situation, too, has a place in standard trade theory. The Ricardo–Viner model helps to understand what happens when capital can’t be moved from one industry to another: spindles and looms can’t be used to make silicon chips. In this case, we divide capital into two or more industry-speciWc factors. Now, when trade barriers are lowered (or raised), some industries win, and others lose. But now the groups of winners and losers are interest groups, much smaller and more numerous than social classes.

The concentrated interests theory is about interest groups: concentrated interests are more likely to organize and to exercise inXuence. Is that the best way to understand the politics of trade? Kindleberger, you will recall, thought not, and argued that ideology played a large role. The NAFTA case raises a diVerent question about the interest group model: when does political organization go beyond interest groups to something broader, such as class?

The answer suggested by the diVerence between the Heckscher–Ohlin and Ricardo–

Viner models of trade, is that it depends on the degree of factor speciWcity within a country. Hall and Gingerich (2004) tell us that the political response to international production today has been diVerent in the US than it has in Germany, and argue that this is because both labor and capital move more easily between industries in the US.

I will discuss the reasons for this diVerence in mobility in Chapter 11. For now, just notice that in the NAFTA case we are in a Heckscher–Ohlin world, where labor and capital move easily between industries. In such a world all workers within a country are in one boat, and all owners of capital in that country are in a diVerent one; the politics of trade are then class politics. In the marriage of iron and rye (and, Gingerich and Hall argue, in Germany today) capital and labor are both industry speciWc, and trade politics are interest group politics.

Another way of understanding diVerences in trade policy between countries and over time is that when there are both low barriers to trade and high international capital mobility, the industry-speciWc nature of capital may not matter as much: many manu-facturers in the US are threatened by imports from low-wage countries, but NAFTA made it easier for the companies to buy or build factories in Mexico; while this strategy requires some scrapping of their established capital stock in the US, this is not nearly so great a sacriWce as that required to move their capital to another industry altogether. In that case, the problems addressed in the Ricardo–Viner model disappear, as does any common interest between capital and labor in particular industries.

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6 ^Empire

The previous chapter concerned ways in which states interact to shape the international trading system. In the history of the international system, however, it has often been the case that certain states have chosen not to interact diplomatically with others, but to simply conquer them. Krasner uses the heading of ‘‘regionalization’’ to cover anything that brings two or more states together in a single market. This category includes regional blocs like the EU; systems of regional hegemony, such as once exercised by the US in the western hemisphere (those schooled in American history may know it by the anodyne title of the Monroe Doctrine); and the formation of empires through outright conquest. For Krasner, this serves a useful analytical purpose, because he’s concerned with the formation of large ‘‘regional’’ markets as an alternative to global liberalization – it doesn’t matter if they are voluntary unions or empires.

The diVerence does matter though, in more ways than one. I will not dwell here on the injustices of empire; readers with an interest might Wnd a good starting place in Mike Davis’s Late Victorian Holocausts (2001). With reference to Krasner’s argument, however, we need to recognize that while empires can serve as large protected markets, many colonies simply do not have much purchasing power, and it is hard to attribute this kind of empire to Krasner’s motive of creating protected markets. The late nine-teenth century European colonial expansion in Africa and Southeast Asia was primarily about access to raw materials – rubber, tin, copper, and so on.

The growth of new industries and high-volume production in the late nineteenth century had increased the appetite, in all industrial countries, for such previously minor materials. Yet on the face of it, empire was an odd procurement strategy. The new imperialists of that era had been schooled on the principles of free trade. Nowhere is the concept of comparative advantage more clear-cut than with raw materials – diVerent parts of the world have natural comparative advantages in the form of endowments of certain minerals, or climates and soils suitable for growing certain crops. Why, then, not simply buy the raw materials?

A simple answer is that it is sometimes cheaper to steal than to buy. This, certainly, has been the motive for empire more often than not. North Africa was the granary of the Roman empire. Prior to conquest by Rome, grain had been traded across the Mediterranean, now it was seized. The relationship between Rome and its colonies was, in fact, just a blown-up version of the relationship between the Roman cities and

the countryside. Peter Brown (1971, p. 12) quotes the Roman physician Galen, who was writing about famine in the countryside:

The city dwellers, as was their practice, collected and stored enough corn for all the coming year immediately after the harvest. They carried oV all the wheat, the barley, the beans and the lentils and left what remained to the country folk.

Not a pretty picture, if you lived in the countryside, which almost everybody did in those times. The parallel between empire and colonies, city and countryside, is reXected in one set of twentieth century terms for the rich industrial countries, and the others:

metropolis, and periphery.

The early centuries of modern European expansion can certainly be cast in similar terms: the seizure, Wrst, of gold, silver – what Marx called ‘‘primitive accumulation’’ – and land; then of people, in the use of slaves on plantations and in mines. All of these were unadorned theft. The question is whether this is also a good way of understanding the renewed imperialism of the late nineteenth century.

6.1. Natural resources, transaction costs,