The Past Speaks

Imran Ahmad Khan, Member of Parliament for Wakefield, is a rising force in UK politics. In part because he achieved a historic victory over a Labour incumbent in a very working-class, traditionally Labour town, Khan is seen by many as the future of the modern Conservative Party. He is one of the most visible gay Muslim politicians in the UK. A graduate of the war studies postgraduate programme at King’s College in London, he has particularly interesting things to say about geopolitics.

He recently sat down with retired economic history professor and all-round interesting smart guy Steve Davies to talk about the future of free trade and British foreign policy (listen here). Khan spoke about the UK’s long history of promoting free trade and the long-standing belief that international free trade can help to promote world peace. Historically, this theory informed the robust advocacy of free trade by a range of British and American intellectuals and political leaders from Adam Smith and Richard Cobden to Cordell Hull and other architects of the GATT in the 1940s. In 1990s many leaders in the Western democracies were too confident that the process of integrating into the world economy would make authoritarian regimes peaceful and, eventually, democratic. That optimistic theory pervaded the academic literature in that era, informed the optimistic thinking of the Clinton administration, and was popularized by the journalist Tom Friedman with his Golden Arches theory of world peace.

Today, nobody is quite so sanguine about the ability of globalization and open markets to make the world peaceful and to promote human rights. Instead of becoming more peaceful and more respectful of human rights, authoritarian regimes are becoming more bellicose and more repressive. Rather than being on the cusp of a “South Korea in the 1980s style” transition to democracy, some of the world’s authoritarian regimes have become more belligerent and more domestically repressive as they have grown wealthy via globalization. We see that pattern in a couple of the large, nuclear-armed countries in what was formerly known as the Communist bloc. This pattern is the precise opposite of what capitalist peace theory would lead one to predict.  

Liberal democracies now need to come up with the sensible ways of managing their trade with countries that are both economically important and politically authoritarian.  There are three basic approaches open to us.

One approach is to systematically cut off all of the commercial relationships that currently connect firms and households win the liberal democracies with firms and households in authoritarian regimes, which is the approach advocated by some of the people who were around Trump, such as Steve Bannon. This approach led to Trump announcing a ban on Americans using TikTok, a harmless app that had been developed by a firm that happened to be located in an authoritarian country. Trump’s TikTok ban, which was ultimately blocked by the courts, deprives American consumers of a fun little app and is unfair to the apps creators, none of whom have been shown to be responsible for any human rights abuses.   

 As Steve Davies and Professor (and now Lord) Syed Kamall  have recently argued in a recent book, adopting the approach typified by the TikTok ban would be an act of national self-harm with serious economic consequences. Moreover, it would be a deeply illiberal exercise in collective punishment, as it would punish entirely blameless individuals and firms  who happen to live in authoritarian states. It would also be counterproductive, as such an approach would cut off the flow of liberal ideas to authoritarian regimes. Davies and Kamall rightly stress that last point.

At the other extreme, there are those that say the degree to which people in a given capitalist country interact with firms in an authoritarian firm should be entirely determined by the free market. This approach would mean that if some consumers in the UK want to, say, buy goods produced by unfree labour in an authoritarian regime or if a company wishes to sell high-tech dual use technology to that country, the government shouldn’t interfere with their freedom to do so.  Let’s call that the hardcore or maximalist libertarian approach.

A middle of the road approach says that democratic governments need to set ground rules about what type of trade their citizens are allowed to do with firms and individuals in authoritarian countries. Most Western countries seem to be gravitating towards that approach. The trillion dollar question, however, is how should these rules should be set and which principles should guide their development. Who gets to decide whether a given transaction between citizens of a democracy and citizens of an authoritarian regime gets to go ahead?

Should decisions about which transactions we are going to allow to proceed be made by a centralized process involving a small number of individuals working in secrecy? Or should such decision be made through a more inclusive distributed process? In other words, should the decisions be made by government officials who issue diktat saying “We aren’t going to allow this transaction to go ahead because of national security and stuff” or do we want decisions to be more transparent and to involve multiple veto points?

There are good reasons for thinking that following principles should apply here: consistency with least-common-denominator shared values, transparency, and decentralized enforcement.

There are many problems with the centralized process approach that the US adopted under Trump.  Most obviously, there are the problems with banning specific commercial transactions on vague “national security” grounds is that the justification for such bans are usually unclear and based on classified information. “National security”, an American term that has now spread to many other countries, can be invoked in almost any case, as when Trump limited Canadian steel exports to the US on specious national security grounds.

A more fundamental problem with the centralized approach is that not all citizens may agree with the conception of national security that informs the thinking of the person or persons who are charged with deciding if a given transaction undermines national security. We wouldn’t entrust a single policymaker with the power to block all proposed transactions that are “unethical” in the opinion of a because people’s definitions of what is “unethical” are so diverse. If we are going to interfere with freedom of contract by allowing democratic governments to block some transactions involving our citizens and the citizens of authoritarian states, we need very clear standards that accord with the values of virtually all citizens. (I say virtually all because I know that 100% unanimity is impossible).   

Another problem with the approach typified by the Trump administration’s banning of TikTok on national security grounds is that decision-making about which transactions to a permit is highly centralized and is concentrated in the hands of just a few bureaucrats is almost never a good idea. Such top-down, centralized approaches are usually counterproductive because of what Hayek called the Knowledge Problem and also the enhanced probabilities for bureaucratic self-interest that emerge whenever you entrust decisions to a small group of unelected officials.

So how should democratic states make and enforce rules about what sorts of transactions their citizens are not allowed to contract with individuals and firms in authoritarian countries? There are strong theoretical reasons for believing that the best way of filtering trade between liberal democracies and authoritarian regimes is to create a distributed process for deciding which transactions are going to be banned. Ideally, this process should be grounded in moral principles that command near universal assent rather than vague judgement calls about “national security”. For instance, while many Americans clearly disagree with the principle that defending Latvia from Russia is something that US taxpayers ought to be doing, virtually everyone in that country believes that murdering individuals because of their political views is wrong. That’s why there is now widespread support for Magnitsky legislation in many Western countries. (When a country passes such a law, which are named after a Russian lawyer who was murdered by Russian officials, prevent the individuals who were involved in such crimes from doing business there).

Similarly, there is now nearly universal support for the idea that de facto enslaving people so they can produce a commodity for export is deeply immoral. I’m certain that if you look on the internet hard enough you can find a couple of racists who think that the abolition of slavery by Abraham Lincoln was a bad thing but I think we can all accept that 99% of the citizens of Western democracies now believe that slavery and social systems closely akin to slavery are wrong. Similarly, 99% of citizens in Western democracies believe that genocide is everywhere and always wrong.

The lowest common denominator norms against murder and slavery, not vague ideas about national security or the national interest, should in, my view, by the basis of laws in Western countries for limiting transactions between their citizens and persons in authoritarian regimes.   

We should also make the enforcement of these laws a more distributed process, so instead of relying on government agencies to impose fines on firms and individuals that break the rules, Western countries should create tort systems to incentivize firms and individuals not to enter into commercial transactions that facilitate murder and slavery in authoritarian regimes. Such tort systems could be modelled on the Alien Tort system in the US, which is currently being used in an effort to discourage multinational firms from using commodities produced by unfree labour. (We should all be following the case of Nestlé USA Inc vs Doe, which is now before SCOTUS). The virtue of this approach is that it would force people who believe that a given transaction would tend to result in more murder and slavery in such countries to publish evidence to support their claims. Such evidence might take the form of satellite photos and eyewitness accounts of escapees. As a tort-based approach involves more people in the process than a bureaucratic approach, which should result in better decisions.   Moreover, a tort-based approach harnesses the profit motive of lawyers and private investigators to help gather and assemble evidence of wrongdoing overseas.