Economic nationalism, a multifaceted phenomenon that intertwines economic policies with national interests, has seen a resurgence in the global arena. Read here to learn more.
In the context of global markets, economic nationalism should be viewed as a collection of strategies to establish, support, and defend national economies.
Economic crises, nationalist movements, and expanded governments all contributed to the development and institutionalization of economic nationalism in the 20th century.
This article delves into the intricacies of economic nationalism, examining its historical context, key features, benefits, challenges, and implications in the contemporary world economy.
Economic Nationalism: Historical Context
Economic nationalism is not a new concept; it has roots in the mercantilism of the 16th to the 18th centuries, where nations sought to accumulate wealth primarily through trade surplus and colonization.
The ideology gained prominence during the 19th and early 20th centuries, paralleling the rise of nation-states and industrialization, which saw countries imposing tariffs and quotas to protect nascent industries and preserve national wealth.
The post-World War II era, particularly with the establishment of the Bretton Woods system and the General Agreement on Tariffs and Trade (GATT), marked a shift towards liberal internationalism, focusing on reducing trade barriers and fostering global economic cooperation.
However, the late 20th and early 21st centuries have witnessed a resurgence of economic nationalism, driven by globalization’s discontents, financial crises, and geopolitical tensions.
What is Economic Nationalism?
Economic nationalism can be characterized by policies that prioritize national interests, economic independence, and security.
It manifests in various forms, including protectionism (tariffs, trade barriers), state capitalism (state ownership or control of businesses), and efforts to control foreign direct investment (FDI).
The ideology is underpinned by the belief that the state should have a pivotal role in directing the economy to protect and promote national interests and sovereignty.
Unlike globalization which promotes interdependence among nations, economic nationalists favor tariffs to restrict free trade, promote indigenous industries, and seek import substitution.
- Protectionism: Imposing tariffs and non-tariff barriers to protect domestic industries from foreign competition. For instance, the U.S. steel and aluminum tariffs imposed in 2018 aimed to protect these industries under national security grounds.
- State Capitalism: Governments taking ownership stakes in key industries or sectors. China’s model, where the state owns or controls significant portions of the economy, including technology and manufacturing sectors, exemplifies state capitalism within an economic nationalist framework.
- Foreign Direct Investment Scrutiny: Increasing scrutiny of FDI to prevent foreign control over strategic industries. Examples include the Committee on Foreign Investment in the United States (CFIUS) reviewing foreign investments for national security implications.
Benefits of Economic Nationalism
- Protection of Domestic Industries: By sheltering local industries from international competition, economic nationalism can help preserve jobs and promote industrial development.
- National Security: Ensuring control over strategic sectors and reducing dependence on foreign entities for critical supplies can enhance national security.
- Economic Sovereignty: Economic nationalism advocates for a country’s right to pursue its economic policies without external coercion, preserving its sovereignty.
- Prevents drain of foreign exchange: Imports cause a drain of foreign exchange, and the ideology prevents this from misbalancing the trade.
Criticisms
- Trade Wars and Retaliation: Protectionist policies can lead to trade wars, as countries retaliate with their tariffs, potentially harming global trade.
- Economic Inefficiency: Protectionism can lead to inefficiencies, as industries shielded from competition may lack incentives to innovate or improve productivity.
- Impact on Global Supply Chains: Economic nationalism can disrupt global supply chains, increasing costs for consumers and businesses and potentially leading to shortages of goods.
Economic Nationalism in the 21st Century
The 21st century has seen a notable rise in economic nationalism, driven by several factors:
- Global Financial Crises: The 2008 financial crisis led to questioning of the global financial system and calls for more national control over economies.
- Globalization’s Discontents: While globalization has lifted millions out of poverty, it has also been associated with job losses and wage stagnation in developed economies, fueling nationalist sentiments.
- Geopolitical Tensions: Rising tensions between major powers, such as the U.S. and China, have spurred efforts to decouple economies and regain control over strategic sectors.
The resurgence of economic nationalism presents both challenges and opportunities for the global economy.
- On one hand, it poses risks to the multilateral trading system and could lead to fragmentation and inefficiencies.
- On the other hand, it prompts a reevaluation of globalization’s impacts and the need for policies that ensure more equitable growth and resilience against global shocks.
Economic nationalism in India
Economic nationalism in India has been a significant force in shaping the country’s economic policies and strategies since its independence in 1947.
This approach has gone through various phases, reflecting India’s evolving economic priorities, political ideologies, and the global economic environment. Understanding economic nationalism in India requires an examination of its historical context, key policies, shifts in economic ideology, and the impact of these policies on India’s economic development and position in the global economy.
Post-Independence Era (1947-1991)
In the aftermath of independence, India, led by its first Prime Minister, Jawaharlal Nehru, and influenced by the economic policies of the British Fabian Society, adopted a model of economic nationalism that emphasized self-reliance, protectionism, and a significant role for the state in economic development.
- The government implemented a mixed economy model, where key industries were nationalized, and the state-controlled critical sectors like mining, telecommunications, and transportation.
- The Industrial Policy Resolution of 1956 and the establishment of the Planning Commission in 1950 were significant steps in this direction, focusing on heavy industries and aiming to reduce dependence on foreign investments and goods.
- This period was marked by the License Raj, a regulatory system that required businesses to obtain government licenses to set up and run industries.
- While this system aimed at protecting domestic industries and preventing monopolies, it eventually led to inefficiencies, slow growth, and corruption.
Economic Liberalization (1991 Onwards)
The economic crisis of 1991, characterized by a severe balance of payments problem, forced India to adopt structural reforms and liberalize its economy.
- The New Economic Policy (NEP) introduced in 1991 marked a significant shift from protectionism to integration with the global economy.
- The reforms included deregulation, privatization of state-owned enterprises, and opening up to foreign investment.
- Despite this shift, economic nationalism continued to play a role in shaping policies that sought to balance liberalization with protecting national interests.
Key Features of Economic Nationalism in India
- Protection of Domestic Industries: India has implemented various tariffs and non-tariff barriers to protect its emerging industries. For example, the Make in India initiative, launched in 2014, aims to encourage companies to manufacture their products in India and incentivize domestic production. Other initiatives like Vocal for Local, and Atmanirbhar Bharat also fall under the broader vision of economic nationalism.
- Promotion of Domestic Innovation: Programs like Digital India and Startup India aim to foster innovation within the country, reduce dependencies on foreign technology, and create a self-reliant digital infrastructure.
- Strategic Global Engagement: India’s approach to economic nationalism also involves strategic engagement with the global economy through bilateral trade agreements, participation in international forums, and attracting foreign investment in sectors critical for India’s growth while ensuring that it does not compromise its economic sovereignty.
Impact and Challenges
Economic Development: Economic nationalism in India has had a mixed impact. On the one hand, it has helped develop domestic industries, reduce foreign dependence, and improve self-reliance. On the other hand, protectionist policies have sometimes led to inefficiencies and hindered India’s competitiveness in the global market.
Balancing Global Integration and National Interests: One of the significant challenges facing India is balancing its integration into the global economy with protecting its national interests. While foreign investments and technologies are crucial for India’s growth, there is also a need to ensure that this does not lead to a new form of economic dependence.
Addressing Inequalities: Economic nationalism must also address the issue of inequalities within the country. While India has seen significant economic growth, this has not always been evenly distributed. There is a need for policies that ensure that the benefits of economic nationalism and growth reach all sections of society.
Conclusion
As India continues to navigate the challenges of the 21st century, the principles of economic nationalism will likely continue to shape its strategies, aiming to achieve a balance between self-reliance and global integration, and ensuring that economic growth translates into broad-based improvements in living standards for its population.
Economic nationalism, with its emphasis on prioritizing national interests in economic policy, presents a complex challenge to the liberal international economic order established in the post-World War II era.
While it offers potential benefits in terms of protecting domestic industries and enhancing national security, the risks of protectionism, trade wars, and global economic fragmentation cannot be overlooked.
As the world economy continues to grapple with the ramifications of globalization, technological change, and geopolitical shifts, the debate over the merits and drawbacks of economic nationalism is likely to remain a pivotal issue. Finding a balance that promotes economic sovereignty and national interests while preserving the benefits of global trade and cooperation is one of the foremost challenges facing policymakers today.
Related article: Dollarization of economy
-Article by Swathi Satish
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