Quinn Slobodian's book is an intellectual history of neoliberal thinking on the world economic order, starting with the demise of the Habsburg Empire and climaxing in the creation of the World Trade Organization (WTO). The book is admirably researched and well written. Anyone interested in ideas on the world economic order will not find a better and a more comprehensive account. Slobodan is a historian and he shows that he masters the tools of his trade by artfully mixing his recount of the ideas of the liberal thinkers with descriptions of the political circumstances they faced, the institutions with which and through which they cooperated, and their personal contacts and conflicts. The result is a lively book, very enjoyable to read.

Slobodian presents the ideas of three generations of thinkers, from the group around the Austrian economist Ludwig von Mises in the 1920s in Vienna to what he calls the ‘Geneva School’ of economists and international lawyers. He defines the Geneva School as comprising well-known European thinkers, attentive to questions of the international order, that either held academic positions in Geneva (Wilhelm Röpke, Ludwig von Mises, and Michael Heilperin) or presented major parts of their research in Geneva (Friedrich August Hayek, Lionel Robbins, and Gottfried Haberler). Also included are what he describes as the ‘trio of Hayekian GATT experts’, consisting of Jan Tumlir, who was Director of Economic Research and Analysis at the GATT Secretariat, as well as Ernst-Ulrich PetersmannFootnote ¹ and myself who both worked as lawyers at the GATT.Footnote ²

Slobodian notes that it was the European neoliberals who were most attentive to questions of international order and most consistently looked beyond the nation state at the world as a whole. In his view, their counterparts across the Atlantic had an understanding of neoliberal thought that tilted towards the Anglo-American side and that ‘exhibited the peculiarly American quality of ignoring the rest of the world while assuming that America was a working model of it’.Footnote ³ As a result, the distinct contributions of the Geneva school to neoliberal thought were often neglected in English-language discussions.Footnote ⁴ Slobodan's book therefore fills a gap and I would recommend it highly to anyone reflecting on the world economic order and wishing to examine the full panoply of ideas on that order that creative European minds have developed over the past one hundred years.

The main conclusion of the author is that the neoliberal project focused on designing institutions – not to liberate markets but to encase them, to inoculate capitalism against the threat of democracy, to create a framework to contain often-irrational behavior of governments, and to reorder the world as a space of competing states. In his view, the normative neoliberal world was not a borderless market without states but a world ‘kept safe from mass demands for social justice and redistributive equality by the guardians of the economic constitution’.Footnote ⁵ He summarizes the essence of Geneva School neoliberalism on this issue as follows:

• • International institutions should act as mechanisms for protecting and furthering competition without offering spaces for popular claims-making …

• • Democracy is a potential threat to the functioning of the market order …

• • Democracy's danger is its legitimation of demands for redistribution.Footnote ⁶

Slobodian describes his book as a long-simmering product of the popular protests against the WTO at its 1999 meeting in Seattle. He did not participate in these protests but many of his acquaintances did; they came back with tales of zip ties, pepper sprays, and nights in jail. He presents his book to them as an ‘apology for not being there and an attempt to rediscover in words what the concept was that they went there to fight’.Footnote ⁷ For Slobodian, the protests suggested ‘that the Geneva school liberals were so busy building crystalline fortresses for the world economy that they failed to … figure out a way to placate populations cleft by vast gaps of inequality’ and that, if their ‘goal was to fine-tune the rules to prevent disruptive demands for social justice or redistribution, then victory is nowhere in sight’.Footnote ⁸ He concludes his book by noting that the declining popularity of binding trade legislation suggests that, ‘if the intention of the neoliberals was ‘to undo the demos’, the demos – for better or worse – is not undone yet’.Footnote ⁹

Slobodian cautions that he does not ascribe the small number of individuals whose ideas he analyses with ‘superhuman strength or causality’ and he recognizes that ‘neoliberal thought has not mapped directly onto reality in the era since the 1980s’ and that his narrative ‘cannot substitute for reconstructing the rum of negotiations and bargaining that led to the WTO’.Footnote ¹⁰ He nevertheless claims to have identified as ‘the animating ideas behind the enterprise itself’ those expressed in the writings of the ‘Hayekians at the GATT’.Footnote ¹¹

Slobodian's narrative of the liberal thinking expressed in those writings is as follows: The domestic markets are social institutions created and protected by laws and institutions. Democracy is prone to redistributive policies and therefore is capable of destroying these markets. Each nation must therefore subject democracy to checks and balances. Similarly, the world market must be created and protected by treaties and international institutions with the authority to impose limits on democratic decision-making. The function of the WTO, so Slobodian concludes, is to provide the required legal and institutional framework on the global scale and to protect the world market against disruptive demands for social justice and redistribution.

Slobodian does not present this narrative as the perception of the WTO of the protesters in Seattle. He claims that the WTO was actually intended and empowered to prevent disruptive demands for social justice and redistribution, that the ‘Hayekians at the GATT’ had prepared the intellectual ground for this, and that they were therefore co-responsible for the popular rejection of trade legislation.

In my view, these claims are based on fundamental misunderstandings.

If one wants to identify the ideas reflected in the WTO agreements, one needs to examine the historical origin of the WTO. The law of the WTO expands and refines principles that can be found in the provisions of the GATT created in 1947. The provisions of the GATT in turn are based on those contained in the reciprocal trade agreements concluded by the United States in the 1930s and 1940s under its Reciprocal Trade Agreement Act (RTAA). This Act gave the President of United States the authority to reduce import duties by up to 50% in reciprocal trade agreements and to implement those tariff reductions by executive order without congressional approval.

The US Congress agreed to this extraordinary transfer of power to the US President because, after its adoption of the infamous Smoot–Hawley tariff, it had concluded that the normal legislative process, when applied to trade issues, was prone to be taken over by special interests. One Senator complained that the Smoot–Hawley tariff was ‘protection run perfectly mad … It is conceived and written in the interest of victorious business organizations who are using their power, which they obtained by … unfair and deceitful means, to put through Congress one of the most selfish and indefensible tariff measures that has ever been considered by the American people.’ Walter Lippmann, a well-known columnist at the time, described the tariff bill as ‘a wretched and mischievous product of stupidity and greed’.Footnote ¹²

As a result of the RTAA, trade policy was determined in the framework of reciprocal negotiations, in which not only the interests of import competing industries and the purely local interests of each legislator but also the interests of exporters and consumers and the overall national interest were more effectively represented. As explained by Irwin, ‘the RTAA helped boost the bargaining position and lobbying strength of exporters in the political process … By directly tying lower foreign tariffs to lower domestic tariffs, the RTAA fostered the development of exporters as an organized group opposed to high tariffs and supporting trade agreements.’Footnote ¹³ The RTAA is no longer in force. However, the US Congress continues to make major changes in tariff policy only after reciprocity negotiations and in the framework of so-called fast track procedures under which the agreement negotiated by the administration can only be accepted or rejected as a whole.

Against this background, it seems strange to me to imagine that the governments negotiating the WTO Agreement, influenced by neoliberal thinking, sat down to protect the world market against the threat of democracy and redistributive policies, as Slobodan claims. In fact, their primary objective was to devise a code of conduct and an institutional framework that would help them to protect themselves against domestic pressure groups seeking privileges at the expense of the nation as a whole, a framework that they could invoke to rationalize and stabilize their own trade policies. The WTO did not contribute to the vast expansion of world trade and the reduction of poverty by obliging its Members to sacrifice social justice on the altar of the world market but by offering them a legal framework they could use to overcome the domestic political obstacles to the adoption of policies furthering the national welfare.

Contrary to Slobodian's assumption, WTO law does not impose on its Members a laissez-faire philosophy; nor does it prevent redistributive policies. While it imposes limits on measures that discriminate against goods or services of foreign origin, it does not significantly limit other forms of intervention in the economy. Since most market imperfections arise within the national economy, the measures needed to attack the source of such distortions directly are generally not taxes or restrictions on foreign goods or services but domestic policies, such as policies to control monopolies or cartels or to subsidize or tax activities that would apply to both domestic and foreign goods and services. The same theory applies to government interventions that seek non-efficiency objectives, such as income redistribution, because in most cases they can be achieved most efficiently through internal policy measures, such as progressive income taxes or welfare payments. As a matter of principle, one can therefore very well be convinced that governments should intervene in the economy to redistribute income and still be in favour of markets open to imports.Footnote ¹⁴

Max Corden has classified the evolution of economic thought which led to this conclusion into three stages:

• • In the first stage, the gains from trade … became to be appreciated. The great tool of analysis to emerge was the law of comparative costs. This stage is, above all, associated with the names of Adam Smith and David Ricardo … The case for free trade was really a special case of the argument for laissez-faire.

• • Gradually, more and more reasons have come to be seen why laissez-faire may not lead to an optimum for a country. Perfect competition does not necessarily rule, there may not be full employment, the income distribution that is yielded by the laissez-faire solution may not be a desirable or just one, necessary structural changes may not take place, and so on … Parallel with the qualifications to laissez-faire more and more qualifications to the argument for complete free trade were developed. This has been the second stage of thought …

• • In the third stage of thought, the link between the case for free trade and the case for laissez-faire has been broken. One can believe that there are many reasons for the government to intervene in the economy – to maintain full employment, to bring about a desirable distribution of income, to adjust resource allocation and consumption patterns in the light of external economies and diseconomies, and so on – and yet one can also believe that, broadly, free trade is best. The point is simply that intervention in trade may not be the best way of dealing with the various problems mentioned since they are essentially caused by ‘domestic distortions' rather than trade distortions.Footnote ¹⁵

Jan Tumlir, Ernst-Ulrich Petersmann, and I developed our ideas about the world trade order in the light of the third stage of the evolution of economic thought identified by Corden. In our discussions, we came to counter-intuitive conclusions: The main function of the GATT as a system of rules was to resolve conflicts of interest within, not among, nations.Footnote ¹⁶ The main function of GATT as a negotiating forum was to enable governments to defend the national interest not against the national economic interest of other countries but against sectorial interest within their own country. And the main function of the GATT as a dispute settlement forum was to enable governments to overcome the political pressure of their import-competing industries by enlisting the support of the exporting industries in other countries in an orderly, predictable proceeding.

Jan Tumlir argued in our discussions that a government needs a framework of constraints on its policy options of the kind set out in the GATT in not only the nation's interest but also its own. Only within a framework of self-imposed limitations on policy options can a government, whatever its color or structure, effectively resolve in its trade policy the perennial conflicts between short-term political expediency and long-term national welfare, between producers' and consumers' interest, and between the population's desire for economic growth and its desire to avoid the structural adjustments needed for growth. He observed how unprincipled policymaking vests interest groups with privileges, which generate resources that enable them to vie with the government for political influence. In his view, there were worrisome signs of an erosion of internal sovereignty of governments resulting from past and expected grants of privileges to organized groups. What was commonly identified as an erosion of the multilateral trading system was, in Tumlir's view, a consequence of an erosion of the internal sovereignty of governments. (One can note only with regret how topical Tumlir's observations are.)

Jan Tumlir, Ernst-Ulrich Petersmann, and I thus considered that the GATT, though formally a treaty among nations, was functionally part of the domestic constitutional framework for trade policymaking and we examined the GATT from that angle. Our objective was not, as Slobodan writes, to develop institutions designed ‘to encase the global market from interference by national governments’. Our focus was on the inability of most governments to pursue trade policies benefitting the public as a whole, the absence of constitutional constraints limiting the grant of privileges to pressure groups, and the resulting inability of courts to protect the public from government failures in the field of trade policies. We agreed with Robert E. Hudec when he rejected the claim that policymaking constrained by trade agreements ‘circumvents democracy’ as a red herring: the expression of electoral preferences in protectionist legislation was in our view not anymore legitimate – or ‘democratic’ – than the expression of electoral will achieved by the process of authorizing international negotiations plus implementing legislation.Footnote ¹⁷

Our perceptions of the functions of the GATT can of course not be transposed hook, line, and sinker to the WTO agreements. Unlike the GATT, some WTO agreements do not merely regulate the choice of policy instruments but set standards of policy conduct. The most important example is the Agreement on Trade-Related Intellectual Rights, which prescribes standards concerning the availability, scope, and use of intellectual property rights. The quantitative limits on domestic support set out in the WTO Agreement on Agriculture and some of the sector specific commitments assumed under the General Agreement on Trade in Services could be regarded as other examples. Moreover, some of the WTO agreements, in particular those on subsidies, on sanitary and phytosanitary measures, and on technical barriers to trade could be interpreted to prevent the attainment of legitimate regulatory objectives.

The limitations that the WTO imposes on the choice of policy objectives are nevertheless minimal. Most of the intellectual property rights standards that were incorporated into WTO law existed already under a range of intellectual property conventions. The domestic support commitments under the Agreement on Agriculture do not prevent Members of the WTO from according to their farmers income support that is decoupled from production. Similarly, commitments in the field of services can be made subject to conditions and qualification, and can be renegotiated. The Appellate Body has carefully avoided interpretations of WTO agreements that would have prevented the attainment of legitimate regulatory objectives. The fear that the Appellate Body, as an organ of a trade organization, might systematically favour trade interests over legitimate non-trade interests in its interpretation of the WTO agreements has proven to be unfounded.

For these reasons, the law of the WTO, just like the law of the GATT, can be described as a code of good conduct for trade policymaking on which governments can base their trade policies in their own, and in their country's, best interest. I do not claim that this applies to all Members in all circumstances at all times. However, since tariff concessions and services commitments need not apply to all products and all sectors and may be renegotiated at any time, WTO law is sufficiently flexible to permit each Member to adjust the scope of its commitments to open its market to foreign products and services to its policy constraints.

I would like to recommend to anyone skeptical about this conclusion to take the trouble to examine the factual details of a cross-section of the cases decided by the Appellate Body. In the overwhelming majority of the cases, the measures declared to be illegal by the Appellate Body were the result of regulatory capture and its ruling facilitated the correction of a government failure in the domestic political process. Most of the cases demonstrate that Robert E. Hudec was right when he said that ‘protectionism tends to be traded between legislators as though it were a free good’.Footnote ¹⁸ In general, the Appellate Body's ruling made the regulatory capture and the costs it entailed more visible and the legislators, when implementing the ruling, could take a decision on the matter that was more informed and took into account a wider range of interests than the measure found to be inconsistent with WTO law. Moreover, in most cases, the implementation of the ruling tended to redistribute economic benefits acquired by a small but politically powerful group to the public at large. Democracy? Redistribution? I believe that anyone concerned about these matters has good reasons to welcome the corrective influence of the Appellate Body's jurisprudence.

For these reasons, I believe that the constraints of WTO law on democratic decision making and redistributive policies, and the ideas that the ‘trio of Hayekian's at the GATT’ developed in the 1970s and 1980s on these matters, are not what Slobodian claims them to be in the final chapter of his book. Slobodian does not merely present in this chapter the perceptions that the demonstrators in Seattle had of the world economic order. He engages in an evaluation of the impact and problems of an institution without, however, examining the law, the jurisprudence, the methods of operation, or the powers of that institution. Had he done so, he would have discovered some of the misconceptions about the WTO that prompted his acquaintances to go to Seattle and would have enabled them to choose the target of their protests more wisely in the future. Instead, he propagates those misconceptions, which is an unhelpful ending to an otherwise excellent book.