Samuel Gregg on National Security and Industrial Policy

international trade mercantilism economic growth international relations protectionism



Picture a policy conversation, perhaps in Washington, about national security. Who’s sitting around the table? It might be the President, national security advisors, military personnel, or generals, but not economists. And yet, national security is often used as a reason to intervene into the economy. 

At the mention of national security, it seems economists often shut their mouths and run away (or hide under a rock, or something). But why? How should economists think about and engage with concerns about national security?

Today, the wonderful Sam Gregg joins us to talk to us about industrial policy and national security. He is the author of The Next American Economy and he is the Frederick Hayek Chair in Economics and Economic History at the American Institute for Economic Research.

He explains how national security is often used as a justification for industrial policy, and how industrial policy actually harms both national security and economic strength. Join us to hear about the economic policy that improves national security!!



Want to explore more?


Read the transcript.


Juliette Sellgren 
Science is the great antidote to the poison of enthusiasm and superstition. Hi, I'm Juliet Sellgren, and this is my podcast, the Great Antidote named for Adam Smith, brought to you by Liberty Fund. To learn more, visit www.AdamSmithWorks.org. Welcome back. Industrial Policy, all the rage these days. I know you might be rolling your eyes because industrial policy’s unsound economically, but there are claims about national security or men in the workforce or China, I guess that's national security. And then are we really certain that economics wins out in those cases, something we should talk about? So today on October 16th, 2024, I'm excited to welcome Sam Greg to the podcast to talk to us about this. He's been on the podcast numerous times, so go check those out. They were all wonderful. He's the author of The Next American Economy and he's also the Friedrich Hayek Chair of Economics and Economic History at the American Institute for Economic Research, AIER. He won the Bradley Prize this year, which is super duper awesome. If you don't know what the Bradley Prize is, check it out, look it up. You will not be upset that you know about it now. So welcome to the podcast.

Sam Gregg 
Thank you for having me on, Juliette.

Juliette Sellgren (1.32)
So a new first question for you. What is one piece of advice that you would give to your younger self?

Sam Gregg (1.41)
The one piece of advice I'd give to my younger self is to read as many books as possible. I read a lot of books when I was an undergraduate and a graduate student and at high school actually as well. But I think at that time of your life, there are opportunities and you have time and opportunities to read books and you should take advantage of that as much as possible because as you get older, the time to do that radically diminishes.


Juliette Sellgren 
So how many books do you read a year now, do you know?

Sam Gregg (2.23)
Well, I would say probably between anywhere between 20 and 30. And I'm a quick reader, and that doesn't necessarily mean I read every single line in a particular book. Every book has things in it. You realize, okay, I already know this, I can skip over. So learning how to read a book actually, I think is also good if you are wanting to gain as much information as possible. And I mentioned reading books because I think there's a great temptation today to just settle for things like articles, even good articles and short pieces on the web, et cetera. And those things are fine, but they're not a substitute for deep informed immersion in a given topic. And good books will do that.

Juliette Sellgren (3.12)
How many books do you think you could have read if you had taken this advice when you were younger?

Sam Gregg (3.18)
Well, I read a lot, as I mentioned before when I was younger. But I think that if I had been focused on some other things, less focused on some other things at the time, important things, but nonetheless time consuming things, I probably could have doubled the amount of books that I read.

Juliette Sellgren 
So are you saying that if I maybe don't go to class, I could read more books?

Sam Gregg 
I think that if you read more books, you could certainly supplement a lot more of the things that you learned in class.

Juliette Sellgren (3.51)
Okay, good. I'll keep that in mind. No, that's great advice. That's great, great, great advice. I need to stop myself from buying books. I need to actually read them and I love reading, but I just like buying them. The idea of reading

Sam Gregg (4.05)
Well isn't advice, don't buy a book until you've finished the one you've just bought.

Juliette Sellgren (4.10)
Yeah, that is very good advice. I'll definitely take both of those into account. So let's get started on industrial policy. We've talked about this before on the podcast, but could you give us a brief or maybe not so brief, however brief you think we might need explanation of what industrial policy is?

Sam Gregg (4.37)
So in a lot of the literature and a lot of the current discussion about industrial policy, there's a tendency to be very loose about what is defined as industrial policy. I have heard some people on the economic nationalist side of the debate say economic policy is industrial policy. So in the very sense that you have an economic policy, that's a type of industrial policy in the sense that the government have a stance towards the economy and they understand that as being industrial policy. But I think that's mistaken because if that was the case, then literally everything would be industrial policy. And I think that's part of the intention behind some of these very broad expansive definitions. But to my mind, a coherent and working and workable definition of industrial policy is selective interventions by the state into specific economic sectors. The intention being to deliver better economic outcomes then would otherwise be realized by letting the market work and many of those outcomes that industrial policy ostensibly seeks to realize many of these economic outcomes are also justified on grounds that have to do with things like political dynamics in a given country, perceived social or economic trends that some people regard as negative or in many cases it's seen as a way of bolstering a country's capacity to deal with threats from the outside, whether those threats are military threats or whether those threats are perceived to be economic challenges that are directed against your country by another country.
(6.46)
So many people, as you know, are arguing on both sides of politics that we need industrial policy as a way of countering the rise of China. So that's a very good example of how a non-economic rationale is being used in the United States and many other countries today to try and explain why we need to have industrial policy, whether it's things like semiconductors, whether it's particular pieces of technology that are deemed important for national security reasons, et cetera. So that's how I define industrial policy. And I should say that that definition is something that I've used. I've drawn on people who I think are good faith participants in public debate who favor industrial policy and who understand that if you're going to be advancing the case for industrial policy in an intellectually honest way, then you need to define what it's,

Juliette Sellgren (7.52)
And from that last statement, you can tell that you really engage with this stuff from a standpoint of taking it seriously, speaking the same language when we talk about this, which is really difficult, I think, especially because there are so many groups that kind of, I don't want to say appropriate, but appropriate might be the best word, that appropriate this kind of banner of industrial policy for different ends and as a solution to different goals. And I don't entirely know. I guess the way to ask this is how would you set the stage for the conversations that happen about industrial policy? So part of the reason why the definition is so important is because there are so many different people talking about it. You have the politicians, you have this popular conversation about it, and I do think a lot of the times the definition is lost, but who else is kind of involved in this and how do you even begin to navigate this conversation as a whole?

Sam Gregg (9.07)
Well, I do think that first of all, establishing an agreed upon understanding of what constitutes industrial policy and what doesn't is critical. Because if you don't have an agreed upon definition, then you end up talking past each other. And so whenever I'm involved in discussions about industrial policy or even debates about industrial policy, one of the things I do is say, I think we need to be clear about what we mean by industrial policy because if we are not, then we'll essentially be arguing in a way that's not cognizant of the other person's perspective of what we're actually trying to discuss. So that's the first thing. The second thing I think is that we need to be very clear about what good economic theory tells us about industrial policy, but also attentive to the history of industrial policy. And I mentioned the historical side because in the current debates about industrial policy, there's very much an effort on the part of those who favor industrial policy to point to historical examples of where they believe it has worked.
(10.28)
And so they will often point, for example, to Southeast Asia to countries like South Korea, Malaysia, Taiwan, et cetera, and they will say, well, this is an example of how it works. And I think that it's very important to explore those historical examples to discover whether it's in fact true. And one of the things I've found, and I've written about this in a few places, is that most of these policies have failed including in the historical examples that they cite. And I think that's important because if you can show that these policies have been tried before in different parts of the world, including in the United States and that they have, and we have lots of empirical evidence and historical evidence, evidence that they don't work, then you can supplement the economic theoretical arguments with empirical and historical information that's accurate and true. And I think that's very important for persuading people whose first point of intellectual engagement with these issues is to go straight to economic theory.
Now I write about economic theory all the time, it's super important, but you also have to be very cognizant of the audiences that you are talking to. And remember, most people are not cognizant of economic theory. They tend to be generally speaking more attentive to things like history and they have some knowledge of these things, albeit in many cases I think a mistaken understanding of these things. So making these types of broad arguments is a way I think of being where they are when it comes to these discussions and showing them that the foundations on which they're making their arguments are actually pretty flawed.

Juliette Sellgren (12.27)
Something that I was realizing is that industrial policy is kind of this funny term because did we have agricultural policy? This is just a general question I guess because when I think about who is pointed where in terms of looking at industrial policy, I feel like there's been a big debate about, oh, well Adam Smith liked kind of like industrial national security policy stuff, and there's that debate that will exist forever and ever because kind of unclear, but what came before is there always been industrial policy.

Sam Gregg (13.09)
Has always been efforts by governments really from the early modern period onwards to systematically try and intervene in different parts of the economy to engineer different results than would otherwise be delivered by markets. So you find that certainly in the mercantilist period, you find this even in the 19th century, which is often seen as the heyday of classical liberal thought. There were people who were arguing for these types of policies. You mentioned agriculture. I think that's important because even many classical liberals in the 19th century and in parts of the 20th century tended to see agriculture as an area where the government needed to intervene because of specific features of the farming sector of the economy that are different. So the argument goes from other sectors of the economy. So as long as you have governments trying to deliberately intervene, whether it's through subsidies or tariffs or tax preferential treatment or any number of efforts to put their thumb on the scales, we've always had industrial policy going on even in periods where it seemed like free markets and the case for the market economy had intellectually triumphed and even to a certain extent had been absorbed by the popular consensus because, and I think the reason is why does this keep occurring?
I think it's because there is a sense that certain outcomes delivered by markets are either unfair or hurt particular sectors of the economy, or in some cases of course, it's a question of specific interest groups wanting government intervention into their sectors of the economy to protect them from foreign competition or to bolster sometimes their own position vis-a-vis domestic competitors. So that impulse, that self-interested impulse, in many cases we find manifesting itself in lobby groups, in particular industries, trying to persuade political leaders that they need to support them for ostensibly in the interests of the general welfare or the common good, but which in on closer examination is actually all about trying to bolster their own position against present day and future competitors.

Juliette Sellgren (16.06)
So let's kind of go deeper into the national security concerns aspect of industrial policy. There are so many, but this one is super important and you've just done a bunch of work on it, which is really phenomenal. When we're starting to do this, I think I was telling you about this earlier, I have a hard time both as a classical liberal, but also just as someone with an econ brain and someone who likes to think in terms of economics, how do we even think about national security? How do we define it? What sort of weight should we give something like that?

Sam Gregg (16.50)
Well, the way to begin that discussion is to point out that free marketers, free traders, classical liberals, have always taken, have national security seriously. For the most part, you find this in Adam Smith for example, when he uses the famous expression defense trumps opulence, by which he means if a nation is not secure from threats from abroad, then its economic development is likely to be impeded. So national security is one of those things that free marketers, classical liberals have said yes, if there is a genuine national security concern at stake, and if it is the case that there's no other way of dealing with this particular problem other than some form of stated intervention, then free marketers have always been willing to say yes, I think this is a reasonable position to take. But it also depends, and I think your question points to this, it also depends again on what we just talked about, which is definitions.
(18.11)
What constitutes national security, what really is it all about? It's one of these phrases that's used a lot, but often with in precision. And that matters in the context of many of our economic debates today because I think there's a tendency on the part of a lot of economic nationalists to see everything as a national security concern. And I don't think that's fair to the literature about national security or those scholars who have studied it very, very carefully. So when I think about something like national security, I look at it in terms of there's obviously a strong military dimension to it. There's also the idea that national security is the responsibility of nation states primarily. And that's been the case really since the mid 17th century with the Treaty of Westphalia. But if I was going to come up with a very, very concrete definition, I'd say something like this, I'd say national security is the safekeeping of the nation as a whole, and its highest priority is the protection of that nation's people from attack and from other external threats by maintaining forces and maintaining as a consequence of that a country's independence as a state.

So that's important because what does this tell us? It tells us that there are things that the state can do on national security grounds, but there are also things that the state cannot do on national security grounds. So for example, let's take public health. Now, a pandemic, as we know, can threaten the life and health of the people who live within a given sovereign state, but unless that pandemic has been, unless it's a result of something like a biological weapon used by a foreign state, it's not an attack of one state upon another. So dealing with something like a pandemic is the responsibility of those who have responsibility for health. It's not the responsibility of national security officials in the first place. But we also start to understand that if you take national security seriously, you start to understand that national security, the capacity of a state to maintain its independence and protect itself from external attack is very heavily dependent upon having a strong and dynamic and competitive economy.
(20.59)
In fact, if you read some of the national security theorists writing in the 19th century in the 20th century, you see them saying things like the first duty of the grand strategist is to appreciate the commercial and economic position of his country and to know what its economic resources and its economic liabilities are, in other words, maintaining and growing a country's economic strength is a prerequisite for that country's ability to defend itself. So a state, sovereign state that can't maintain sufficient economic growth, for example, is going to be very unlikely to meet its national security needs. And the classic example from the 20th century is the Soviet Union. The Soviet Union collapsed for many reasons, but one of the reasons it collapsed was that its economy wasn't capable of generating the amount of economic growth that the Soviet Union needed to maintain its position as a great power.

So when you think about national security that way, you start to realize, okay, there's a clear definition of what it means, and that excludes certain things from national security, which I think is very important in today's discussion with this tendency to national securitize everything. But you also understand that economic growth is a prerequisite for any country's ability to defend itself. And that in turn takes you to the argument of, well, what is it that is most likely to generate substantive and sustained economic growth? And for people like me that the argument is, well, that's obvious, a dynamic competitive open economy characterized by rule of law, limited government and private property rights.

Juliette Sellgren (22.53)
That was wonderful. Just I guess to step back and figure out kind of where we are now, what that means to me is that then anyone that says we can use industrial policy for both national security and economic growth is kind of misunderstanding how that might fit into national security or why national security might be a valid claim. But also you're kind of using a blanket thing to try to achieve these ends that are kind of different. You need economic growth in order to have national security. You can't achieve both ends using the same thing because you need one to get the other. Does that make sense?

Sam Gregg (23.48)
Yeah. So that's the problem with industrial policy. The problem with, well, one of the many problems of industrial policy, I argue if you're thinking about national security concerns, is that it actually degrades a country's economic growth. Industrial policy leads to massive misallocations of capital throughout the economy. It invites problems of cronyism and even corruption, et cetera. And all those things mitigate against the capacity of a country to establish and maintain and grow a high level of economic growth. Now, you can certainly, and I think free market economists would agree on this, you can pump a lot of money into a sector of the economy and you'll get certain results. There's no question about that. But of course, what you have to ask is, okay, was that the most efficient allocation of resources? And the answer is you don't know because industrial policy advocates can't say that They know with certainty that it was a good allocation of resources, but what we do know is that it most likely resulted in capital resources going into parts of the economy that it wouldn't otherwise have gone if markets had been allowed to operate.

And if you take the position that markets are the best allocator in terms of efficiency and effectiveness of capital and other resources that we need to grow fast, then you start to see that the industrial policy argument for boosting economic growth in order to realize national security is a very flawed type of position. And so I think these are the sorts of things that we need to be wrestling with when it comes to this very important discussion about the relationship between free markets, free trade, and national security. And one of the things I try to do is to look at the arguments that we hear being made by economic nationalists and ask ourselves, okay, well what is it they're actually arguing? Does it make sense or where does it not make sense? And one of the things I found is that I think free marketers have generally been a little reluctant to engage the national security, all sorts of reasons for that.

But one is you need to master a lot of the national security literature because there's a whole field of study out there called National Security Studies, and I think if you're going to be talking to people who are serious national security scholars and who are not ideologically bound or committed to industrial policy because they think that this is the way forward and who are at least open to a discussion about the ways in which markets actually boost national security, then you need to get on top of that literature. And that's one of the things I've tried to do because I think a lot of free market people have not always engaged in some of these discussions.

Juliette Sellgren (27.01)
And you're entirely right. I don't even think, let's say you were to pull classical liberals, free marketers, whatever, on maybe even the schools of thought in national security world, I do not think that we would do a very good job of identifying and defining them. So as the in-House scholar on this, could you kind of walk us through kind of, I guess broad strokes who the different groups are within this and how do you kind of engage with each of them in terms of economics?

Sam Gregg (27.49)
So there are free market scholars who have looked at this question, Dr. Anne Bradley, who's at the Institute for World Politics and also does work at George Mason University and for the Fund for American Studies. She is a very serious scholar of this particular subject. And one of the things you find with free marketers who have thought through these questions is that they spend some time trying to identify the different schools of national security thought, and they can broadly, I mean, there's numerous schools of national security thought like in economics, you've got lots of different schools of economic thought. It's the same for national security, but broadly speaking, it breaks down into two groups. One are what are called realists realist national Security scholars, and then there are internationalist national security scholars. And this is important to understand because the realists basically argue, the realists basically argue that when it comes to our understanding of international relations and national security, that the nation state is the central element of national security. We have lots of different international organizations like the UN or subnational institutions like the European Union, but a realist will say that international relations, the fundamental building block is the nation state, and that international relations is regulated by what's called an equilibrium of states. This is where the phrase the balance of power comes from.
There's a sense here that nation states are the foundation, and the interests of nation states don't change. So even if a government changes, there's very little change in the fundamental interests of the state, and this is why you can find a lot of continuity even with changes of government in foreign policy and national security policy. So that's what I would call the realist conception. The internationalist conception of national security is that peace is maintained among states via supranational and international institutions through which states seek to establish what's called collective security. Now, this goes back to people like Immanuel Kant with his short essay called Perpetual Peace, which was written in 1790. You can find this expressed in the development of international institutions that are derived from the desire of states to try and mitigate their differences through coming together in different collective fora to discuss how they're going to resolve their differences.

There's sometimes a willingness to subordinate nation states to the decisions of international institutions after the first World War. You can imagine this took off in a very powerful way with the establishment of things like the League of Nations and related bodies like the Court of International Justice and the International Labor Organization, and after the Second World War, there's more institutionalization of this in the form of the United Nations. So those are the two schools of thought, realist versus internationalists. Now, within the realists and among the internationalists, there's a lot of different arguments that go on within these particular schools. So I am deliberately oversimplifying, and I think it's very clear that if you look at different countries, foreign policies, you can see how realists and internationalists exert different levels of influence upon the foreign policy and national security policy of any given state. But that being said, one thing is very clear, the primary actor that acts to protect and promote the security of states today in our world in 2024, it's not the United Nations, it's not the International Court of Justice.
(32.16)
It's fundamentally the sovereign nation state. And I don't see any prospect of that changing in the near future. So from that standpoint, national security remains firmly the responsibility of states, and that's why I think we should talk about national security rather than global security. But that's important if that's true, whether you agree with it or not. If that's true, then the action when it comes to things like the relationship between security of states and things like economic policy and trade policy comes down to nation states making decisions about the way forward. And that's important. If you're interested in shaping national security in ways that is more amenable to free market ideas, free trade ideas, classical liberal ideas about the economy and the state, then that's where I think the action lies.

Juliette Sellgren (33.24)
I mean, maybe I'm just kind of a realist in this way, but especially given, I always think of the example of, well, I guess this was excused by national security, the tariffs, the Trump tariffs on China and the trade war. We basically walked all over the WTO, we were like, Nope, doesn't apply. Whatever ignored. And I mean, plenty of people have complied, ignored, whatever. There's a whole history, a whole episode to be done there. But it seems like, and I mean I'm going to go even further and reduce it to basic principles of economics types, models, but when you think about the realist conception of the foreign policy stage, it seems like maybe it's like an oligopoly. There are a few major players, and obviously there are different ways to go about maybe explaining this, but I'm thinking it's kind of competitive. There are a bunch of players, but then if you look at the internationalist conception seems more like you're trying to get everyone to collude.

Sam Gregg (34.47)
So there's a lot that we can say about those things. Right? So you mentioned the WTO. The WTO, I think has actually been a relatively effective institution in terms of forwarding and advancing trade liberalization, but that's because it has been supported by the powers the nation states that really matter in international relations, those being the United States, the European Union, Japan, and we will probably talk about China at some point, but China's entry to the WTO was obviously a very big deal. So that's one thing. A second thing is that, yes, when it comes to trade policy, if you are a realist in the way you understand foreign policy and national, then you will probably see very quickly that some powers are much more important than others. And that means that what the United States does, what Japan does, what China does to a certain extent, what the European Union does is more important than smaller countries and their views on things like trade policy.

Also, I think another thing which comes very clearly out of your train of thought is that there was a point in time after the collapse of communism where there was a sense that the world was moving in a particular direction of greater economic liberalization, that international institutions were going to be playing a bigger role in shaping the world, both in terms of foreign policy, defense policy, national security, and also trade policy. And as you know, there were people like Francis Fukuyama who were basically arguing, we've arrived at the end of history, and so we are moving in this direction. And that was a very powerful narrative that a lot of classical liberals and free markets in general bought into the sense that we're all going to end up as liberal democracies and market economies. Then trade liberalization seems to be a logical path, if not an inevitable path that countries should be falling.
(37.11)
And I think a lot of classical liberals signed up to that vision of the world in international relations. But of course, there aren't many people who are making that type of geopolitical argument today. It's pretty clear, I think that we are back in a world much more like that, that existed in the 19th century, which is essentially one of geopolitical competition. Now, I don't think geopolitical competition disappeared between 1990 and 2008. Of course, it was still there. Nation states are always competing with each other, but there was a sense that somehow there was a different narrative in which to understand all this, but that has changed. We are now back in a geopolitical, a very, very geopolitical world in which there is intense competition between nation states, most notably between the United States and China. And if you are a free marketer, if you're a classical liberal, if you believe in things like free trade, then you need to take that geopolitical reality into account if you're going to be advancing trade liberalization and economic liberty more generally.

To pretend that we're living in 1991, I think is a mistake for free marketers. It's also a mistake for free marketers to assume that liberal democracy and economic freedom more generally is sort of inevitable. I think that's a mistake, and I think for the most part, free marketers understand that and have what we're all struggling with now is how we advance these things in a world that's much more like 19th, the 19th century than the period of the 1990s. Now, some respects, we should keep in mind that the 19th century, particularly the second half of the 19th century, was a period where there was tremendous economic liberalization that went on including trade liberalization. So what I'm saying is that we shouldn't assume that geopolitical conflict somehow rules out or makes impossible economic liberalization at a domestic or international level. If we look at the 19th century, these things went hand in hand, and that's something I think we should be learning from to understand how they did it in the 19th century, how classical liberals who exerted considerable influence in domestic and international settings at that period of time were able to advance economic liberalization despite the fact that there was a lot of geopolitical competition.

Juliette Sellgren (39.55)
Yeah, so easy to ask, I guess, is how did they do it? I mean, if we're looking at a world where basically if it is not a predetermined thing that everyone is going to be economically liberal, how does it help us to be economically liberal? While other, I almost said firms, while other countries are not this idea of openness when everyone else, or not everyone else, but even one or two major players are closed. I can see how that very easily becomes a slippery slope for someone who cares about this balance of power. Us being open seems like it would hurt.

Sam Gregg (40.41)
Yes. No, I think that's the intellectual and political challenge that we are faced with. We need to go and ask ourselves, how do you do these things? And if you look at them in the 19th century, there are a couple of ways in which this was done. One was through unilateral liberalization. So when Britain in 1846 got rid of the Corn Laws, it basically was unilaterally liberalizing its economy rather than engaging in trade agreements with other countries as a way of trying to advance trade liberalization. So that's one model that was followed. Now Britain was really the only country that did that, but it was immensely successful for Britain. The evidence on that I think is very, very clear. So that's the first thing. So the corn laws were basically domestic and laws, but also tariff laws about imports of food into Britain. And because these laws were in place, it meant that there was a protectionist dimension to Britain's stance vis-a-vis the rest of the world.

And when these were abolished against considerable domestic opposition at the time, from not surprisingly, those who were beneficiaries of this, it basically opened up the British economy. It meant that it also meant that the efficiencies that we associate with exposure to global competition became very pronounced in Britain, so much so that Britain became so economically strong and was able to produce goods so efficiently and fast that the other countries protective measures really didn't have much impact upon the growth of the British economy. So that's the first thing. The other way it was done was through trade treaties, and that's sort of how things have been done for long periods of history. Now, trade agreements are basically where two or more countries get together and they decide they're going to agree upon the way through which these merchants from both countries are going to trade or more than one country are going to trade with one another.

That doesn't necessarily mean liberalization. A trade agreement can be a highly illiberal thing when it comes to organizing trade relations, but not at least because trade agreements are heavily influenced by lobby groups, unions, environmentalists, et cetera, who will want certain things from this. But trade agreements are also a way in which you can try and pursue an overall lowering of tariffs between one or more sets of countries. And I think in the period from Second World War onwards, a lot of focus was put upon the World Trade Organization and you signed up to the World Trade Organization, and that meant that you had to agree to lower your tariffs according to whatever the WTO set as the levels, right? So there was sort of an effort upon universally reducing tariffs over time. Now, the WTO is not especially helpful right now because it's not able to function in the way that it was functioning for a lot of the 20th century because a lot of people now regard it as inefficient, not effective.
(44.24)
And of course, the WTO has no way to back up to force people who have signed up to its protocols to follow through on them. I think we could, I mean, multilateral trade liberalization is always preferable. That's why the WTO has been, and to a certain extent, still is still very important because multilateral trade liberalization reduces more tariffs overall and in a more cohesive and clear way. But I think we're going to find ourselves at the moment opting for what are often called ppl, lateral trade agreements, whereby several countries get together, they agree to liberalize trade between them, they make themselves available for other countries to join as long as they're willing to abide by the same degrees of the rules or whatever the rules are that apply for that particular lateral agreement. A good example of that would be the Transpacific Pact [Editor’s note: Partnership]. That's a very good example of lateral trade agreement, and that's actually been relatively effective. So there are different ways in which you can pursue trade liberalization in a world in which there is intense global geopolitical competition and conflict, and in which some players are not, don't seem particularly interested in pursuing trade liberalization as a whole. We have options in front of us,

Juliette Sellgren (45.52)
And those options are not industrial policy. So I guess how do you tie this all together in kind of responding to advocates of industrial policy, well for national security reasons, while also maintaining that you need this economic growth and this robust trade liberalization in order to actually sure do it

Sam Gregg (46.25)
Well? So there's a number of things that I think. One is to show that if you accept that economic growth is fundamental for national security, you have to ask yourself what delivers economic growth? Industrial policy tends to degrade national economic growth. That's very hard to dispute. So that's the first thing. So you say, I believe in market liberalization, I believe in trade liberalization for all the good economic things that it brings, but it also makes a country stronger, economically stronger, and economically strong countries are in a better position to deter foreign threats than countries that are economically weak. So that's one thing. A second thing is to point out that trade liberalization tends to promote better relations between countries because they have a self-interest. When you liberalize trade with another country, both countries presumably do so because they believe that it's ultimately in their self-interest to have this type of economic engagement with one or more other countries.

So in other words, there's an appeal to self-interest that this is good for us and therefore that's why we should do it. This is not about universal peace. This is not about some type of unilateral world order. This is a raw calculation of self-interest on the part of states that trade liberalization serves both of our interests. It's also the case, I think that countries that have good trade relations, by which I mean relatively open trade relations with others, that tends to reduce the incentives for those countries to get into conflicts with one another. Because if you're trading with another country and the trade is mutually beneficial, which by definition usually is then the incentives to get into a conflict, let alone go to war with another country, start to diminish. Now, that does not mean, I will say that trade liberalization makes war between countries impossible.
(48.40)
We know that's not true. We know that's not true, not least because the world was relatively economically liberalized in 1914, and there were even people at the time arguing that European countries would never go to war with each other, or at least the war would be short because there was so economically integrated that there was no thing that would encourage them to break up that integration. There was nothing that would really outweigh that. Well, it turned out not to be true because in 1914, European governments decided that things like what they perceived to be national interests, treaty obligations with other countries, ethnic ties, et cetera, they made the calculation. Governments made the calculation that they were prepared to sever and upset these ties of economic integration. So free traders, I think should be very careful before they start saying that free trade and trade liberalization leads to the abolition of war.

It doesn't. What it does do is reduce the probabilities of conflict with other countries. And then of course, I think the other part of the argument is to say, here's the ways in which national security being bolstered by industrial policy actually backfires. It actually backfires, and I think it does so because I think protectionist policies, industrial policy ends up weakening the countries that adopt these types of policies. And there's actually plenty of historical evidence for this that when you engage in protectionist policies or you play the industrial policy game, you tend to annoy other countries. So one of the reasons why America and Britain had such bad relations between each other in the second half of the 19th century, despite the fact that these were peoples who had a common historical origin, a common religion, a common language, all these things that very much they had in common.

One of the major points of contention between these two very important great powers was about trade and the fact that America's tariff policies were pretty high. Protectionism was the position for a lot of the second half of the 20th century for the United States, and this really ticked off Britain, which at the time was the world's superpower. So that's an example of how protectionist policies can actually result in a country getting into serious conflicts, or at least having tense relations because you are blocking and trying to impede people from that country, from that great power that controls a third of the world. You're trying to impede them from trading with Americans. It's not surprising that Britain and America had this very bad relationship. And it's not surprising also that when the United States started to liberalize some of its trade policy towards the end of the 19th century and into the early 20th century, that relations between the United States and Britain improved. So, I mean, I could go on, but I do think that in the end, industrial policy doesn't promote national security. It actually undermines it. And that's the argument I think, with those of us who believe in free trade, those of us who are classical liberals and believe in economic liberalization, that's the argument we need to be making to serious national security scholars and policy makers.

Juliette Sellgren (52.17)
Wow, you wrapped up everything yourself so nicely. Thank you so much for taking the time to share your knowledge, your wisdom, and to explain all of this to us on the podcast today. I really enjoyed it, and I learned a ton, and I know my listeners will as well. I have one final question for you.

Sam Gregg 
Sure.

Juliette Sellgren 
That is, what is one thing that you are currently working on to improve yourself or your skills?

Sam Gregg (52.46)
Okay, so one of the things that I've always believed is that knowledge of foreign languages gives you the capacity to enter into often very different understandings of the world. I was very lucky to learn, in fact, it was French. I did at school and university, but up, which has been great. I also did Latin at school, and I let that go a little bit. And one of the things I'm doing right now is getting my Latin back up to scratch, because that too introduces you into a whole different way of thinking about the world and understanding certain types of realities.

Juliette Sellgren
But it's a dead language.

Sam Gregg (53.36)
Well, it is a dead language in terms of people's communications with people, other people today, but it was the language of Western civilization for a long period of time. In fact, some would argue for almost a thousand years, many of the most important texts that have greatly influenced the development of the West, and therefore lots of other parts of the world are written in Latin, have never been translated into other languages. The other thing about Latin is that it really helps you with logic. It's a very logical language. Maybe that's the advantage of it being a dead language, right? But I think that's something that is very helpful when it comes to clarity of thought about any number of questions.

Juliette Sellgren 
Once again, I'd like to thank my guests for their time and insight. I'd also like to thank you for listening to The Great Antidote Podcast means a lot. The Great Antidote is sound engineered by Rich Goyette. If you have any questions, any guests or topic recommendations, please feel free to reach out to me at Great antidote@libertyfund.org. Thank you.
Comments
Add a comment
Never shown anywhere
Or
Sign in