Economists know that international integration creates winners and losers. But we do not fully understand why the ‘losers’ so often set the policy agenda. This column argues that economists are only now beginning to grasp the influence of nationalist ideas in shaping the policy narrative. The impact of nationalism rests on its ability to weld disparate special interests together into coherent coalitions and present a unifying story of progress and community amid adversity. In the 19th century, just as now, these stories found easy multiplication in popular media and on the marketplace of ideas.
When Robert J. Shiller coined the term ‘narrative economics’ during his presidential address to the American Economic Association in 2017, he was calling on economists to take stories seriously (Shiller 2017). The stories commonly told about economic events, he argued, shape the public’s understanding of past and present problems, thereby conditioning policy makers’ choices for the future. In my book The Nationalist Dilemma: A Global History of Economic Nationalism, I try to heed Shiller’s call (Suesse 2023). Based on historical case studies in 30 countries over the past 250 years, the book investigates nationalism as a powerful master-narrative that has often dominated public policy discussions, sometimes explicitly, and often unwittingly.
But what is it that makes businesspeople, consumers and policymakers listen to nationalist positions?
General and special interests
Protectionist groups often share a common legitimacy problem: by definition, they represent special interests seeking to prevent free-trade policies with potentially general welfare benefits. An explicitly nationalist frame of argumentation has several advantages for these groups.
First, nationalist narratives help to unite often disparate groups under one banner. A prominent example is provided by the politics of tariff setting in the antebellum United States. One of the most protectionist politicians of that era was Henry Clay, Senator and long-time speaker of the House. In the fractured political arena of his time, he knew that those states that had most to gain from tariffs, largely the mid-Atlantic states such as Pennsylvania, would not carry the vote alone. Hence, he combined protectionism with policies promoting a national bank and infrastructure investments into one package he called the ‘American System’. Banking policies satisfied New England states, whereas building roads and canals pandered to the interests of the sparsely populated mid-Western states. Together, this coalition had the votes Clay needed to outmanoeuvre the South and hike up tariff rates. While a number of issues bound this coalition together, including an opposition to slavery, the narrative of a unified ‘American System’ that Clay created effectively allowed him to paste over the coalition’s internal fractures. Narrative creation, of course, was not cheap. Political advocates of the ‘American System’ spent considerable sums bankrolling promising economists to their cause, including prominent authors such as Henry Carey and Friedrich List, who crafted elaborate theoretical systems to advocate for tariffs.
Such narratives have allowed protectionists to reach out to parts of the population that are not directly negatively affected by market integration. Another example is the passing of the 1879 German tariff law, which was the brainchild of large producers in heavy industry and grain agriculture (the so-called ‘Marriage of Iron and Rye’). This protectionist coalition framed their proposal in terms of the ‘Defence of National Labour’ and launched a coordinated publicity campaign on that basis. In doing so, they successfully encouraged participation by ordinary consumers and workers who sent letters agitating for tariffs to politicians. These outreach activities, riding on a wave of nationalist fervour, also allowed tariff advocates to denigrate free traders as “enemies of the people” and “unpatriotic elements”. This rhetoric finds echoes in the rallying cries of modern agitators tarnishing “globalists” as traitors to the national cause. Then as now, it effectively delegitimised liberal positions and put the arguments of free-traders beyond the pale of acceptable debate.
Public relations, then and now
A well-oiled public relations machine has historically been crucial in aiding nationalist causes. Many Latin American countries have seen ‘populist’ politicians, such as the Argentinian Juan Perón or the Bolivian Evo Morales, craft their economic policies to correspond with symbolic events in national history. When Morales nationalised the country’s oil and gas fields in 2006, he explicitly did so in memory of the fallen heroes of the 1930s Chaco War, who had fought in part over this oil-rich ground. When Perón expropriated the British-owned railways in 1948, he similarly celebrated this with huge bombast in front of jubilant crowds as a symbol of recovered sovereignty. The pomp and ceremony conveniently concealed the financial realities of the situation, as his government paid foreign railway owners handsomely for parting with their outdated stock. Perón also declared the 9th of July, the day when Argentina’s hero San Martín had declared the country’s independence from Spain more than a century earlier, to be the ‘Day of National Economic Independence’. He thus linked political sovereignty (a concept no Argentine could possibly disagree with) to economic sovereignty (a much more contested subject). The same patterns of speech were repeated in 2016 by another American populist, Donald Trump, when he was “declaring America’s economic independence” in front of aluminium workers in Pennsylvania, America’s oldest industrial heartland. In this speech, Trump attempted to place his own policies in the tradition of acclaimed protectionist ‘Founding Fathers’, including Alexander Hamilton and Abraham Lincoln. And while professional economic historians will balk at the validity of Trump’s comparison, his rhetoric was evidently followed by electoral success.
While propaganda and managing the media message is important for success, economic nationalism is not all smoke and mirrors. Much nationalist messaging leverages notions of identity and community that appeal especially in times of radical change, be it political upheavals or financial crises. China in the early 20th century presents such a scenario, where the ruling Qing dynasty was disintegrating in a vortex of foreign aggression, economic stagnation, and civil wars. All this went hand in hand with an increasing penetration of domestic markets by foreign products. Chinese nationalist intellectuals countered these trends by propagating the concept of a Chinese national identity, one that was assumed to be perennial and hence resistant to change. At the same time, they exhorted their compatriots to purchase products corresponding to this new national identity – that is, to prioritise domestic products over British or Japanese ones. The resulting ‘National Products Movement’ became one of the big mass movements of early 20th-century China. Similar community-building attempts took place in colonial India, where charismatic leaders such as Gandhi advocated the exclusive consumption of products ‘made in India’ to strengthen the bonds among citizens of the emerging nation.
A narrative of progress
Selling stories has therefore always been part of economic nationalism. Friedrich List himself, possibly the most prominent theoretician in this genre, took great care to fashion his protectionist thinking into policy-relevant soundbites that could easily be absorbed by politicians. Yet List also realised that narratives of isolation, by themselves, were hardly a recipe for success. Pure autarky was, even in the early 19th century, viewed as outdated and regressive. List instead coupled protectionist appeals with a narrative of industrial growth. The latter, he proposed, would amplify national power and wealth (as well as providing plenty of employment opportunities). Industrial growth, in List’s view, required not only infant industry protection, but also an educated workforce, advanced technology, and a modernised banking system. Economic nationalism was therefore painted as an optimistic and progressive force. List’s posthumous defenders saw these ideas at the origin of the impressive growth of the German economy in the late 19th century, which they depicted as a showcase of fast-paced industrialisation and technological advancement. The resulting association between Listian policy recipes and German growth outcomes lend additional credence to his ideas (notwithstanding the dubious causality between the two). This narrative of being able to provide an ‘indefinite increase’ in production subsequently became one of the major selling points for List’s ideas abroad. Policymakers from Imperial Russia to the Ottoman Empire and Meiji Japan attempted to follow List’s recommendations, giving rise to a remarkable uniformity in nationalist ideas across the globe. Similarly, today’s nationalists, from Donald Trump to the Brexiteers in the UK or Hungary’s Viktor Orban, often echo each other in their pronouncements on the dangers of globalisation.
Conclusion: Taking nationalism seriously in economics
The tendency of nationalists to invoke similar arguments and rhetorical styles when speaking on the economy gives us a chance to study and explain the sources of this ideology. Taking economic nationalism seriously as a phenomenon with real economic impacts should not, of course, legitimise it. As much as it is a discourse designed to paper over fractured coalitions, it is subject to its own contradictions. The most severe of these is the tension between the desire for isolation from the world economy, on the one hand, and the admiration of fast-paced industrial growth, on the other. As many nationalist policymakers have found in the past, economic development is very hard to achieve in the absence of foreign trade and investment. These are real economic trade-offs that narratives cannot dispel.
Nonetheless, narratives are influential in helping economic nationalists gain and hold on to power. This is in accordance with a growing body of research investigating the degree to which ordinary consumers and voters are swayed by notions of national identity and their representation in the media (Della Vigna et al. 2014, Pandya and Venkatasan 2016, Atkin et al. 2019, Couttennier et al. 2019, Sequeira and Nardotto 2021). This complements more traditionally minded analyses that view economic nationalism mainly as a reaction by losers from trade (Colantone and Stanig 2017). What is still missing is a robust quantitative analysis on how these ideas filter through to policymakers (Everett and Fritz 2019). As the historical record and our current predicaments suggest, policymakers may be as susceptible to fall for slanted narratives as ordinary citizens.
This article first appeared on VoxEU on November 12, 2023. Reproduced with permission.
