Although not familiar to professional economists, the author is evidently well known in legal and social science circles. This book represents a bold attempt to question and restructure the theory of comparative advantage and the idea of free trade that springs from it. The word ‘reimagined’ in the title is appropriate, as much of the argument is imaginary. While questioning the desirability of free trade and the effectiveness of economic analysis in general, the author claims not to advocate protectionism, but, in the policy chapters of the book, he recommends a few drastic changes in the trading system.
It is not possible in a short review to cover the entire analysis advanced in the book, for it is replete with new ideas and challenging propositions. Many of them are well taken, and may some day be incorporated in accepted economic theory. While it is appropriate to challenge the assumption of the Heckscher–Ohlin (H–O) model, one must admit that (a-la Friedman) a theory is best judged by the validity of its predictions, and the H–O model does explain many real-world phenomena. What follows concentrates on some of the questionable propositions in the book.
Many of the arguments in the book are well-known propositions that do not necessarily conflict with the idea of free trade. Examples are: (1) the fact that comparative advantage is a dynamic concept that can be modified or ‘made’ by government policy which changes the country's relative factor endowment (observe the case of Japan). (2) The idea that trade affects the distribution of income in society. (3) The proposition that the terms of trade is relevant to the division of the gains from trade between the trading nations. (4) That restraints of trade never constitute a first-best solution to domestic problems. And (5) that under differential protection the level of protection accorded to industries is profoundly influenced by political power and influence (a problem the author would prefer to assume away). If rapid growth is the country's objective, then, he maintains, free trade is not its best policy – forgetting that trade is not the only, or even the main, determinant of growth.
Strategic trade policy is generally endorsed by the author, but he proceeds to ignore all the well-known operational limitations of such a policy. It is true that the H–O model is too simplistic to explain all trade among all countries, but it does explain many global phenomena. While the author endorses the new (post H–O) trade theories that are based on scale economics and less than perfect competition, he forgets that these theories yield more rather than fewer benefits from trade. It is not clear whether he endorses a ‘forced’ increase in labor compensation beyond the increases in productivity. But, if he does, he should heed the example of German unification, and what happened to East German unemployment as a result of wage increases well above the level justified by productivity.
When it comes to protectionism, the author implicitly divides countries into three categories: (1) advanced economies, (2) least developed, and (3) countries in between. He then asserts that (A) free trade is most beneficial between countries within each category or between countries in groups 1 and 2, while (B) protection is justified for trade between countries in groups 1 and 3 or between 2 and 3:
Restraints on trade are most likely to be justified between trading partners that are neither at roughly equal nor at very unequal levels of development and productivity (total factor productivity as well as labor productivity). Free trade is likely to be most beneficial when practiced between countries that are either at very different levels or at comparable levels of development and productivity. Its harms and dangers are likely to be greatest when it takes place between countries that are at unequal but not extremely unequal levels of development and productivity, such that the relatively more backward economy lies within striking range of the relatively more advanced one. In such a circumstance, the burden will fall chiefly on the relatively more backward economy. (p. 110)
No specific demarcation line (or even examples) is provided to distinguish between categories of countries. The justification for the distinction has to do with the gain from comparative advantage, which is most pronounced in case (A) weighted against the loss to development that might have been achieved through ‘emulation, learning, and benchmarking’ (most important in case (B)). If one is to apply this distinction to the ‘flying geese’ model of Asian development, it calls for free trade between Japan and Indonesia, but not between Japan and Korea. Implicitly assumed here is that pressure groups and power politics will play no role in establishing differential protection between industries, that compensating losers from free trade is easy in an advanced economy, and that somehow the international trading system can be reorganized to accommodate the distinction between (A) and (B). It is difficult to justify such revolutionary changes on the basis of mere assertions end arguments. The word ‘reimagined’ in the book's title is certainly appropriate.
Some specific recommendations include: tightening up world labor standards to protect labor and even alluding to free labor mobility; and abolition of patent protection, replacing it with public subsidies as an incentive for invention (why?).
A couple of editorial comments are in order. The book needs to be thoroughly edited, among other things to get rid of 16 line long sentences (e.g. on top of p. 3). Various paragraphs are very obscure and need to be clarified (e.g. the last paragraph on p. 88) and rejections of certain conventional wisdoms need to be justified. Here is one from the top of page 202: ‘The dogma that the advance of real wages must be tied to increases in the productivity of labor is, I have claimed, false despite its widespread acceptance.’
In the final chapter, the author states that the book should not be read ‘as a polemic against free trade’. Maybe not, but too much of it consists of assertions (rather than testable hypotheses), without even examples to illustrate them. To buttress his arguments, I would suggest adding many real world examples. It is indeed difficult to revolutionize a theory that has been around for many years and change radically a trading system built on it, by writing one book. It certainly can't be done by simply imagining that an alternative system is superior.
