Friedrich List and National Political Economy

Friedrich List and the Political Economy of the Nation State

  • In this globalised era, the role of the state is increasingly debated. Nationalism is frequently ignored.
  • “The very nature of economics is rooted in nationalism’ (Robinson, 1962). Liberal and socialist/Marxist theories are routinely used to explain globalisation but nationalism was the most important ideology in the production of the nation state.
  • I discuss List’s theory to help our economic analysis of the state.
  • List popularised the ‘infant industry’ theory but was much more important than that alone.
  • Firstly the economic role of the state is clarified before concluding that the diminishing autonomy of the state due to globalisation is over-stressed by laissez-faire conceptions of political economy.
  • Nationalism is much more that the Nazism, conservative and fascist formsit has become commonly associated with. Take nationalism as an ‘imagined’ but important communal identity; multiculturalism and nationalism reinforce rather than contradict each other.

Productive Powers and the Process of Globalisation:

  • List emphasised the concept of national productive powers. It is based on a distinction between wealth itself and the causes of wealth.
  • a person may possess wealth, i.e. exchangeable value; if, however,he does not possess the power of producing objects of more value than he consumes, he will become poorer. A person may be poor; however, if he possesses the power of producing a larger amount of valuable articles than he consumes, he becomes rich.(List, 1841: 133)
  • Capital comes in 3 forms: natural, material & mental/intellectual. Mental is the most important for wealth creation.
  • List believed Adam Smith placed too much emphasis on material capital.
  • Smith himself made clear the distinction between wealth and the causes of wealth in his attack on mercantilist political economy. As an alternative to the collections of gold and silver they expoused, Smith contributed the division of labour and the accumulation of capital as the key determinants of development.
  • List should be considered one of the founders of human capital theory of labour suplpy – for this he deserves more credit.
  • It was only in the 60’s that Gary S. Becker introduced the concept to mainstream economic theory. It did not receive the justice it deserved considering the important role of the state and nationalist movements in creating a system of mass education.
  • It is the extent and amount of human capital that distinguish betweem developed and undeveloped nations. At the primitive stages of economic development mental capital is very limited but in the later stages of development the constraints on the augmentation of mental capital are removed. This is what makes the division of labour and the accumulation of capital possible.
  • Thus we have two conceptions of economic development: 1) material factors are key & 2) politics and human capital are key.
  • This divide is embodied in the current debate on globalisation.
  • Globalisation comes down the economic processes that carry human society towards economic and social organisation on a global scale. Materialistic, Smithinian, laissez-faire interpretation associating globalisation with accumulation of wealth and the division of labour. There is a diminshed role for the state.
  • The forces of globalisation are products of the augmentation of mental capital, a learning process which includes the creation of new forms of knowledge as well as the product of new forms of political organisation. The nation-state has a crucial role in promoting, guiding and regulating the processes of globalisation.
  • Characteristics of economic development: List’s point of view
  • Four characteristics of the state made it indispenasble to List’s poltical economy:
  • The collective nature of economic activity in a developed economy: It is a division of labour if “one savage on one and the same day goes hunting or .shing, cuts down wood, repairs his wigwam,and prepares arrows, nets, and clothes; but it is also a division of labour if (as Adam Smith mentions as an example) ten different persons share in the different occupations connected with the manufacturing of a pin: the former is an objective, and the latter a subjective division of labour; the former hinders, the latter furthers production” (List, 1841: 149)
  • The latter division is subjective (vs. objective) and entails much greater need for cooperation. List emphasises the union of human efforts towards a common goal of development.
  • Communication is crucial if society is not to break down under this cooperation.

Societial Conflict in a Developed Economy

  • The deeper the specialisation becomes, the more great the fragmentation of interests and identities that follow. Division of labour broadens the scope for political conflict.
  • The need to coordinate the interests of commerce, agriculture and manufacturing was the social conflict List was primarily concerned with.
  • List followed the crucial process of manufacturing overcoming political resistance from opposing social groups before it could flourish and prosper – e.g.Britainand the Corn Laws which imposed tariffs on imported grain at the will of the landowners to raise the profit from their land. Manufacturers called for their removal as higher living costs meant higher labour costs. List noted a similar divided between the manufacturers in the North and the agriculturalists in the South of theUnited States. Victory for the manufacturers was pivotal in the economic development of a nation.
  • List was activelt involved in the debate over the German customs union which eventually resulted in the formation of Zollverein (1834). Developed economies create new forms of societal conflict and List emphasised the role of the state in promoting the national interest and these should be considered when creating a national political framework.
  • Markets and industrialisation are largely state-created institutions rather than autonomous spheres of human action.

Time Preferences in a Developed Economy:

  • It is necessary for long term growth that economic actors adopt a long-term concerning the harvests of their labour.
  • Hunting man did not think in the long-term – he was concerned with finding meat on each day as it came; the earnings from his effort are very apparent in short-term.
  • Agricultural man needed to look a little further into the future – crops had to be harvested over time, which was spent ploughing and nurturing the produce.
  • Manufacturing man looks further in time, as does the inventor who must invest large amounts of mental and material capital.
  • There further forward in time a society looks, the more advanced it’s economy.

Culture and Productive Powers in a Developed Economy:

  • Productive powers are culturally grounded and nationally bounded. The political and cultural institutions of society greatly influence its productive powers.
  • “The publicity of the administration of justice, trial by jury, parliamentary legislation, public control of the state administration, self-administration of the commonalties and municipalities, liberty of the press, liberty of association for useful purposes . . . we can
  • scarcely conceive of any law or any legal decision which would not exercise a greater or smaller influence on the increase or decrease of the productive power of the nation” (List, 1841)
  • Mental capital in particular is under the influence of these institutions – teachers, clergymen, artists and blue collar workers all impact on this.
  • Mental capital is nationally bounded (unlike capital and technology)
  • Productive powers are nationally bounded as they are codified in morals, laws and norms.
  • National economy is not the product of national boundaries or political machinery but the outcome of national ideas, national institutions and the desires of a people to belong to a nation.

The Role of the State: Nurturing the Productive Powers of the Nation

  • Discussed above is List’s account for the state in political economy. In List’s trade theory, it is that of protector of the national productive powers.
  • When analysing the export of manufactured goods to theUSfrom theUK, and the trade in cotton and wool coming the other way. Free-trade advocates argued that it was fair trade, however List believed it was not as the trade was taking place between two different types of capital – mental and material.
  • By forcing theUSto specialise in agricultural productionBritainwas preventing its accumulation of mental capital. This exchange reinforced the military and economic superiority of theUK.
  • Protection is therefore recommended in some cases as a tax on mental capital. Mater for mater, and mental capital for mental capital.
  • List advised the role of government was to open up an economy to longer term gains in mental capital, sometimes this involve present sacrifice for stronger future productivity.
  • List argued the source of British trade superiority in certain markets was due to the British educational system.
  • As a nation becomes more industrialised, it becomes more necessary to secure the service of suitable, trained people in the factories and workshops. Such people are now able to command higher salaries and wages than was formerly possible. It will be easier for them to devote themselves entirely to a particular branch of knowledge, provided that they have the necessary natural aptitude and the good preliminary training. Knowledge is becoming more specialised. (List, 1838)
  • ‘A nation should not regard the progress of industries from a purely economic point of view.
  • Manufacturing becomes a very important part of the nation’s political and cultural heritage’ (List, 1838)

Concluding Remarks

More than 150 years have elapsed since Friedrich List first published his National System of Political Economy. Yet his ability to analyse and predict the practices of the state’s economic role is still remarkably relevant to our present political and economic analysis. Much of what is now perceived worldwide as a ‘pragmatic’ conception of the state’s economic role was already predicted, analysed and justi.ed by List. The regulated system of trade in the form of the General Agreement on Trade and Tariffs, the investment in infrastructure, and the emphasis on education were all suggested by List as key policy objectives for any national economic policy making and are now visible in the international economic system. Current key political economy concepts, such as those of national product, national product per capita, national accounts and national balance of trade, also reect the fact that our economic terminology and perspective on economic matters today are still tied to national terms. All these are important and suf.cient reasons to attract attention to the political economy of nationalism. This in turn may lead us to a more fruitful discourse regarding the economic roles of the nation-state and the meanings of national economy. On the basis of this discussion it is possible to offer two insights into the future economic roles of the nation-state and economic nationalism. First, the current discourse overlooks the intertwined relationship between the ideology of nationalism and the current roles, practices and functions of the state. Both liberals and marxists often treat nationalism as a widespread type of ‘political anomaly’. This does not help to attract attention to the study of the political economy of nationalism.24 Laissezfaire theories, which always regarded the state as a dysfunctional factor in the conduct of economic affairs, are now reasserting themselves again in the current terminology of globalization.25 The facts are, however, that nation-states always faced economic challenges and usually overcame them (of course with different degrees of success in different countries and periods). It is reasonable to doubt the assertion that globalization leads to a diminishing of the nation-state. There is no reason to believe that the economy can regulate itself on an international scale better than on a national scale. Economic development on a global scale will only make the need for better coordination and cooperation more urgent and clear, new forms of conict will emerge and the need to create social conditions that are adequate for long-term investment will become more evident than ever before.26 Indeed, globalization is increasingly removing limitations on trade and capital, but to concentrate on those aspects of economic activity is to repeat the mistake of materialist conceptions of economic development of neglecting the importance of human capital. Human capital is less likely to be subject to globalization and is nationally bounded as labour markets all over the world are becoming more and more closed to immigration. If it is possible to speak reasonably of global capital and trade, it is meaningless to speak of global labour markets. As the importance of human capital is increasing rather than decreasing, one may even point to the increasing importance of the nation-state in nurturing the national productive powers. Trade barriers may collapse and material capital may be dispersed in all directions but perceptions of the nation-state as the protector and nurturer of the national productive powers are still valid. This brings us to a second issue which has to do with the practicality of nationalism in economic development. In this respect Friedrich List was one of the founders of the political tradition that perceives nationalism as a rational and universal force. Economic nationalism, one has to remember, had an important role in the elimination of the particularistic political economies of pre-modernEurope. Nationalism was then closely intertwined with the imperative of industrialization (Gellner,1983), and for the peripheral nations of Africa, Latin America, Eastern Europe and the Middle East it was closely connected with the idea of progress. Since this is true for the past in industrial societies as well as for the present and future in developing ones, there is no reason to assume that it will not be the same in the future. As was well argued by James Mayall, nationalism and globalization are more interconnected with than contradictory to each other, since they always appeared ‘in the world together and constantly reinforced one another ever since. The rise of nationalism was a response to a globalization process, just as globalization itself, or rather what kept the process going, was largely a consequence of nationalist competition’ (Mayall, 1997). Nationalism and globalization, ‘like a bickering old married couple’, predicts Mayall, will remain mutually dependent. If nationalism is to survive – in either its Gandhian or its Nazi versions – it will have some important implications for the way in which economic structures are shaped and economic policies are enacted. If this is the case, we cannot continue to avoid nationalism and its implications; indeed, we must give proper attention to the political economy of nationalism.