WAVES OF PROSPERITY
Greg Clydesdale
Robinson, UK
432 pages; Rs 599
Ibn Khaldun would have been surprised by Donald Trump’s anti-trade tirade. The 14th century north African scholar had grasped the key role of global trade in ensuring prosperity, a concept that appears to have eluded the President-elect of the United States of America.
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For Donald Trump, the Arab historian could have also explained the logic in simple terms: “With regard to the amount of prosperity and business activity in them, cities and towns differ in accordance with the different size of their civilisation”. When more people live in a city, demand rises and so does trade. Standing in Egypt on the shores of the Mediterranean gave this predecessor of Adam Smith a perspective on global trade that Mr Trump and even his erstwhile rival Hillary Clinton have found difficult to follow.
Trade helps. True, it does not help everyone all at the same time; it often distributes the rewards and punishments for nations asymmetrically and unfairly. But for centuries before Khaldun, and for centuries thereafter, countries have recognised this risk and yet traded among themselves. The history of successful nations is also of their trade impulses. When they shut shop, those nations declined. Mighty nations such as China and India that took the wrong call and decided to shut themselves off from the global supply chain, paid the price through a drop in prosperity. And yet, protectionism is very much on the presidential agenda for the United States in 2016. Even UK’s Brexit, despite noises about reconnecting with India rather than Europe, is being recognised as essentially a wrong call.
Waves of Prosperity by Greg Clydesdale traces this global ebb and flow of trade over the centuries, building the story around the fortunes of the shipping industry. It is a timely reminder that rants against the role of trade in the current world are pretty much in line with the same feelings in the past, too. Mr Clydesdale is certainly not the first one to recount trends in global trade. As nations traded, they also developed extensive treatise on it. Philip D Curtin’s Cross Cultural Trade in World History to Jagdish Bhagwati’s works light up a long line of such works.
Recounting the encounter of English and Dutch merchants with Indian tycoons in the seventeenth century, Mr Clydesdale raises the pertinent point that international trade is not necessarily a fair deal among the parties. “By the 1630s, the Mughal court was convinced that, if kept within their bounds, the trade of the Dutch and English companies was beneficial to Surat. Although they might provide some competition to local shippers, they also provided access to European markets for local products…. No one illustrates the superior wealth of the Indians more than Virji Vora…Vora freely played the Dutch and English East India Companies off against each other and both learnt they could not afford to offend him. The English found they were dependent on the agents of Virji Vora for goods and were frequently in debt to him. This dependence was such that he could force the English to carry his goods on their ships”.
What drives trade, as the author’s narrative shows, is the staying power of countries on the global high seas. Just as Vora’s successors folded up their long distance forays into tight overland route, their suspicion of foreign merchants grew, the Chinese were done in by their reluctance to upgrade their ships to the standard of the Dutch vessels, even though states in Asia preferred to do business with them than the Europeans.
And, as nations slip up, they go on a protectionist drive. Mr Bhagwati makes the same point in a blog. He refers to the rise in demand for free trade in Britain at the end of the nineteenth century when “British hegemony was challenged by the rise of Germany and the United States” and connects it with the same demand a century later. “What I have called the ‘Diminished Giant Syndrome’, which gripped Britain, recurred in the United States in the 1980s, when Japan’s rise led to similar demands for fair trade”.
What Mr Bhagwati calls the Diminished Giant Syndrome, the professor of economics at Massey University, New Zealand says happens with nations that ease up on innovation. So long as nations ride the innovation cycle they are quite comfortable with trade but as soon as they dismount, concerns about what trade would do to their domestic industry pick up.
Maybe the same processes are at work in the US, which makes that country uncomfortable with developments in rising Asia. Certainly the Trans Pacific Partnership (TPP) was an example of some of that, excluding as it did China and India to build up a trade wall ringed with standards that said “If your labor standards are different from mine, then that amounts to unfair trade. These standards must be equalized before free trade is introduced”. (Bhagwati, ibid). So the world is possibly better off with the sunset on TPP and the establishment of the Regional Comprehensive Economic Partnership that brings with it the willing cooperation of both India and China.
As Mr Clydesdale rephrases Khaldun’s argument “the West need not fear the rise of the East…Wealthy foreign nations are necessary to provide markets for our industries. We need only remember that China and Gujarat both grew together and the growth of Malacca made this possible. We need hundreds of Malaccas around the world with which we can all grow”.
