Introduction

Valuable as they are, conventional economic models have not succeeded in explaining the great differences in economic performance in different countries or historical periods. The ‘old’ growth theory is called into question by the absence of the convergence in per-capita income levels across the globe that it leads one to expect. The ‘new’ growth theory readily accommodates continuing differences in per-capita incomes across countries, but does not yet provide much insight into why the particular countries that became rich were the ones that grew. Neither does it explain why a few poor countries have led the world in economic growth at the same time that the poor countries as a whole have not been catching up.

In a book, The Rise and Decline of Nations, some article-length publications that foreshadowed it, and some subsequent papers and publications that focused on Eastern Europe and on the Third World, I presented a theory that combines the insights of familiar neoclassical economic models with a model of collective choice. The model of collective choice enables the theory to comprehend certain aspects of political and organizational life. The theory succeeds in explaining the most dramatic and puzzling variations in economic performance across countries. The present chapter will differ from the aforementioned book and articles in two ways.

First, this chapter will attempt to show how the same fundamental forces that influence economic performance everywhere show up in a very different forms in countries with different initial conditions.

Commenting on Douglas Irwin's papers is no fun. They are historically literate. They are elegantly written. They are carefully argued. They leave the discussant little to say. Chapter 4 here is no exception. In an approach to policy analysis near and dear to my heart, Irwin looks back at previous historical episodes of successful and failed trade liberalisations to see what light they shed on current controversies over how to best achieve an open trading system. The motivation, as the chapter makes clear, derives from the trend in recent years away from the multilateralism of the GATT and toward regional – in some cases, bilateral – trade agreements. At issue is whether bilateralism or multilateralism is more conducive to trade liberalisation, a question upon which Chapter 4 seeks to shed historical light.

If the author strongly endorsed one or the other strategy, it might have been possible for us to engage in an entertaining fight. What he has instead done is to conclude – correctly – that the answer depends on the circumstances. There is good bilateralism and bad bilateralism. Bilateral agreements can be trade-creating or trade-diverting. Bilateral agreements can lead to a cascade of other bilateral agreements and to a general opening of trade, or to retaliation against discrimination and to the fragmentation of trade. Similarly, there is good multilateralism and bad multilateralism. Multilateral negotiations can reduce negotiating costs through economies of scale, or they can divert attention away from potentially beneficial bilateral deals.

History provides, as Irwin notes, examples of all of these cases: of benign bilateralism in the 1860s and pernicious bilateralism in the 1930s; of successful multilateralism in the 1960s and failed multilateralism in the 1920s.

In the 1950s and 1960s, the main line of conceptual development in most of the social sciences was contradictory to that in economics. In most social sciences other than economics, the single most influential framework was probably the one the late Talcott Parsons presented. Economics, on the other hand, was not influenced by this framework and even proceeded along an opposing line. Diversity and debate are, of course, desirable, so these differences had their uses. Still, in another respect they were (or should have been) troubling. The substantive domains of the social sciences overlap a great deal, so the mutually contradictory frameworks sometimes led to opposing results that could not all be true. Scientific progress normally leads to scientific consensus, presumably because results become so compelling that all competent investigators are persuaded and professional disagreements focus on new and not-yet-settled issues that are, in turn, eventually often also resolved.

In more recent years, the theoretical evolutions of the different social sciences have perhaps been more encouraging. The habits of thought in these sciences are probably not so different now as they were a couple of decades ago. Significant numbers of leading people in each of the social sciences are working along quite resonant lines. Work is also going on in different disciplines that is cumulative across disciplines. This is clearly true, for example, in the work on the Arrow paradox, on the theory of deterrence and strategy, on collective action and public goods, and on spatial models of political interaction.