The polls have closed in France, and the people of that oh-so-difficult-to-please nation have decided that they do not want to have anything to do with the new, so-called European Union.   One demonstrator’s sign really said it all: “No to free trade in Europe.”   While summing up a popular attitude towards the forces of “globalization,” the anti-free trade rhetoric also explains why Europe is having such a tough time with its economy.   Long dependent on protectionist policies that guaranteed markets and jobs, the Europeans are perhaps the society least prepared for the Global economy that is whirling all around them.

            By saying “no” the European Union Constitution, the French foolishly believe that they can somehow suspend the laws of economics. While analysts agree that the main reason the EU constitution went down in flames was public anger over France’s failed economic policies, it is also a disturbing trend of ignoring historical evidence for what sounds good.  

This isn’t some new, neo-Right wing economic viewpoint; it is the same argument made by a Scottish guy who published a memorable little tome entitled An Inquiry into the Causes and Effects of the Wealth of Nations about two centuries ago.  His name was Adam Smith, and the country that would not remove its trade barriers was, at the time he wrote his book, the world’s only super power.   The problem then (in Britain) as now (in France) was that people in power convinced themselves that the only thing that kept their constituents employed was a series of trade barriers designed to “protect” industry. 

            As now, one of the main targets of protectionism were agricultural products, mainly wheat, which the Brits confusingly call “corn.”   The “Corn Laws,” were built around that notion that Britain needed to be completely self sufficient in the event of war, and that for strategic (as well as political) reasons, all of Britain’s “corn” had to come from Britain. Like today’s protectionists, this all sounded very logical until someone started doing the math.  Smith was one such mathematician. When he finished, he wrote a book that was the economic equivalent of declaring that the emperor (in this case King George III) wasn’t wearing any clothes.

            Smith’s main point was that protectionism was a fallacy, and that while many believed it “protected” this or that industry, it did so at the expense of the common good by forcing everyone to pay higher prices for goods and services.  Examining the price of bread, Smith found that British bread was significantly more expensive than bread made with French, Russian, or Polish wheat.   Since the cost of food consumed an inordinately high percentage of a poor person’s wages, the cost of this protectionism did (and still does) fall heaviest on those least able to afford it.

Instead of trying to keep all the corn trade “in-house,” Smith argued that Britain should buy corn from places that held a “comparative advantage” over Britain, places like the United States and Australia. When Britain repealed its corn laws, it entered a period of economic prosperity that only ended with the First World War. 

            Yes, there are those who denounce economic reality as unfair, like our fellow with the sign at the beginning of this piece, but the world they propose to replace it is one of economic protectionism all dressed up as being “fair.”  As demonstrated by France’s experience over the last twenty years, protectionism offers none of these benefits at great cost.  Like it or not, we have over 200 years of evidence proving that Smith was right. 

You can reach William P. McGowan at AngryEconomist@sbcglobal.net