Ideas, interests, and institutions: American trade liberalization in the 1960s

By Mark McAdam

This post is part of the HISRECO 2018 series. Participants of the 2018 HISRECO conference were asked to write short blogposts to highlight their contribution to the conference for a general audience.  The idea of this blogged conference comes from the « Learning by the book » conference in Princeton, published as a series on the History of Knowledge Blog. This post is number 2 of 7.

Ideas matter. That this platitude applies to politics and public policy outcomes is a truism that has found acceptance across much of the academy. Yet while this assertion may seem largely uncontentious, at least to those who research ideas—in other words, those engaged in studying worldviews, normative beliefs, and notions on cause-and-effect relationships—it is not at all clear how ideas matter. Yes, ideas matter. But there is no agreement about the multiple ways in which ideas can be important for public policy and institutional change.

Ideational scholarship as it relates to institutional change has made tremendous progress over the past 30 years. Two important advances stand out in particular: (1) the dissolution of viewing ideas and interests as separate entities and (2) understanding that institutional transformation need not occur exclusively in moments of crisis, but rather that institutions can change gradually, discontinuously, and perhaps most importantly, endogenously. Let us discuss these developments in turn.

First, early theorizing on the importance of ideas positioned the concept as antithetical to (material) interests. Interests, it was assumed, were clearly identifiable and frequently manifested themselves in concepts such as monetary wealth or political power. Ideas, as a result, were often regarded as “not that”—as explanatory for cases in which the pursuit of clearly identifiable self-interest was found wanting. Yet, over time, this distinction has been dissolved. For what constitutes interests? Are our defined interests not fundamentally a result about what we think is important to us? And if we must consider what we believe to be important, do ideas not necessarily contribute to our interest formation? A take-away message should not be difficult to detect here: ideas and interests are inextricably enmeshed.

Second, in recent years, a reexamination of ideationally-driven institutional change has taken place. Whereas earlier approaches emphasized the importance of crisis in loosening societal conditions to allow for institutional transformation, more recent work has considered endogenous change in which new institutional arrangements do not emerge in a grand moment in history, but rather gradually and incrementally. This shift coincided with a move away from explaining institutional stability to a greater focus on explaining discontinuity.

These shifts marked important developments in terms of how scholars thought about ideas. And demonstrating how ideas matter is still a tricky business. In all of this, however, we can maintain that ideas are not independent entities; rather, “they are instruments in the hands of actors” (Blyth, Helgadottír, and Kring 2016, 158).

From ideas to American Trade policy

Explaining the formulation of liberal trade policy in the Kennedy administration sheds light onto the developments described above. Indeed, why liberal trade policy was pursued in the United States in the early 1960s is a bit of a mystery. It certainly was not the case that the Trade Expansion Act of 1962, which served as the basis for multi-lateral trade negotiations in GATT’s Kennedy Round, acted as a mere continuation of liberal trade policy instituted following the Great Depression. Following landmark legislation in the Reciprocal Trade Agreements Act in 1934, which repealed much of the Smoot-Hawley tariffs and set the country on course for increased trade liberalization, there was discontinuity in American trade policy in the succeeding decades. While both tariffs and non-tariff barriers were reduced early on, by the 1950s, in particular, the impression existed among policy makers that American trade legislation had morphed into a tool for protectionism, not for liberal trade.

JFK_Signing_TEA1962
Kennedy signs the Trade Expansion Act of 1962. Source: John F. Kennedy Presidential Library and Museum.

Moreover, the conditions for liberal trade were unfavorable in the early 1960s. First, the commercial landscape had changed immensely by the early 1960s. European and Japanese industry were in the process of recovering following the devastation of war. Low labor costs—compared to the United States—were a particular business advantage to exporting firms, and the American market saw a seven-fold increase of imports between 1935 and 1960. This competitive pressure threatened many American firms and jobs who became increasingly uncomfortable with economic integration and open markets.

Second, this had an effect on demands interest groups made on Washington. George Humphrey, Secretary of the Treasury in 1954, underscored this point, noting that

[W]e were protectionists by history and had been living under a greatly lowered schedule of tariffs in a false sense of security because the world was not in competition. That has changed now and the great wave of world competition from plants we had built for other nations was going to bring vast unemployment to our country.

(Cited in Eckes 1995, 168)

Third, in the late 1950s, the United States first entered into a balance of payments deficit. A traditional surplus nation, this shift elicited grave concern amongst policy makers – and especially Kennedy – who feared that further liberalizing trade could have a negative impact on the balance of payments and cause a depletion of American gold reserves.

Fourth, public support for increased economic integration was also waning, with a decreasing number of Americans indicating their support for closer economic ties by the early 1960s.

Considering these circumstances, the prospects of liberal trade in the 1960s seemed ill-fated. Yet despite the belief that “the tide is running in a protectionist direction” (Viner 1961, 565), Kennedy’s presidency laid the groundwork for the most significant trade liberalization in three decades. How come?

McAdam_picture_Ball
George Ball: American diplomat. Source: Wikimedia Commons.

Enter George Ball, Kennedy’s Under Secretary of State for Economic Affairs. A life-long free-trader, friend to and (political) disciple of Jean Monnet, and a visionary for an economically and politically united Europe, Ball was chiefly responsible in convincing Kennedy to pursue liberal trade policies. This is particularly noteworthy because Kennedy was not “a doctrinaire free trader” (Borden 1989, 64). Indeed, he was concerned about how more liberal trade policies might threaten sectors of American industry and—even more pronounced—what effect increased imports could have on the balance of payments.

Nevertheless, Ball and the group surrounding him was able to construct the national interest in such a way that he was able to convince Kennedy that increased economic integration was in the country’s interest. His lobbying of Kennedy began before the electoral contest had been settled in November 1960. A close associate of Adlai Stevenson, a Kennedy rival in seeking the nomination for the Democratic Party, Ball made use of his position to establish contact to Kennedy and to propose policy goals to be pursued following a possible electoral victory.

Kennedy’s embrace of the pragmatism of these ideas offered an opening to Ball. Utilizing issues of current interest was particularly important in moving the goals Ball believed in forward. Discussions about the United Kingdom’s accession to the European Economic Community were on the agenda in mid-1961—particularly whether the United States would support economic integration to which itself was not privy—and Ball used this instance to argue his case. Fully aware of the negative commercial impact of trade diversion that the UK’s move to join the Common Market could have on American industry, Ball argued the opposite to Kennedy. In a memorandum to the president, he suggested—with little evidence to draw on—that the Common Market’s expansion to include the UK would lead to such immense economic growth that demand for American products would actually increase.

Similarly, Ball and the advisers surrounding him were aware that trade liberalization did not improve the balance of payments issue per se. Relief to the deficit would only occur if American exports exceeded imports to the United States. A larger increase of imports over exports would worsen the deficit. Knowing this, Ball and his fellow advisers nevertheless framed the issue in a way to suggest that liberal trade policy was necessary to improve the balance of payments problem.

How ideas become important

This narrative is important because it highlights how ideas can be important in public policy formulation. The early 1960s were not a period in which increased trade liberalization was a foregone conclusion. With the outcomes of public policy being indeterminate, the ideas a policy adviser had played a pivotal role in transforming institutions. At the same time, it underscores recent developments in ideational scholarship: (1) ideas and interests are not separate entities but are rather mutually dependent; and (2) institutional change can indeed be discontinuous.

Moreover, ideas are not present in a vacuum. They exist in contexts in which specific agents hold and act upon them. Liberalized trade policy was possible because an actor with specific ideas had access to Kennedy. The case of American trade liberalization in the 1960s thus offers a prospect of how to incorporate agency into ideas research. Acknowledging that George Ball functioned as a political entrepreneur may be stating the obvious. But this case reveals one example of how agency might be specified: as actors who constructed interests for politically powerful agents, leading to institutional transformation.

And it is in this sense that the history of economic thought can complement the ideas and institutions research program: understanding who agents are, what they believe, and how they act may serve as stepping stones to understanding how ideas become important and how they are employed in public policy. In other words, we may be able to more effectively trace that ideas serve as instruments in the hands of actors.

Mark McAdam is a Ph.D. candidate in International Political Economy at Witten/Herdecke University (Germany). He can be reached at mark.mcadam[at]uni-wh.de.

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