Economic Nationalism

Economic nationalism has returned to the fore of scholarly and policy debates. The concept took on renewed significance in the wake of the global financial crisis as countries sought to respond to the domestic effects of the economic disaster. Nationalist responses were initially praised by some who saw them as logical mechanisms to protect domestic economies and condemned by others fearing the shadow of the Great Depression and the rise of fascism that kindled inter-state rivalries and led to World War II. The latter concern has become more prescient in more recent years with the rise of right-wing authoritarian nationalism, in the US, Europe and of course India and Brazil.

Nationalism has long been seen as a central explanatory factor underpinning protectionist economic policies, from the era of late imperialism and mercantilism that marked the end of the ‘first’ globalization, through the post-war era when newly independent states sought to assert control over domestic economies that were previously controlled by colonial powers in the name of development, to the current of period of neoliberal crises. However, while the concept of economic nationalism is frequently deployed it is often underspecified, posited as the cause of protectionism in some cases while providing a rationale for liberalization in others. This research seeks to address issue by providing a more rigorous articulation of this crucial concept.

To do so the project analyzes puzzling contrasts in policy approaches to regulating foreign investment in post-war India and Brazil (1945-1960). Conventional approaches cite India’s leftist ‘socialism’ and Brazil’s right-wing authoritarianism to explain why India generally resisted foreign direct investment (FDI) while Brazil welcomed foreign firms. However, this ignores puzzling industry-level variation: India restricted FDI in manufacturing industry such as automobiles but allowed multinationals to establish dominant positions in natural resource-based sectors like petroleum, while Brazil welcomed foreign companies to establish its nascent automobile industry but strongly prohibited FDI in oil. This variation is inadequately explained by pluralist theories of organizational power, materialist approaches based on these countries’ structural positions in the global economy, or ideational theories resting on the role of economic ideas. Instead, this research argues that policymakers’ preferences were shaped by contrasting colonial experiences that generated distinct nationalist beliefs in the role of foreign capital in industrial development. Indian economic nationalism was rooted in the idea that British free trade policies deindustrialized India by destroying pre-colonial manufacturing skills thus derailing India from its ‘natural’ industrialization course. Nationalist development goals were thus oriented towards regaining lost manufacturing prowess. Brazilians had no such social memory of past manufacturing glory. Instead, nationalist beliefs rested on protecting natural resource wealth. These differences in the content and meaning of development thus combined to generate distinct varieties of economic nationalism and ensuing policies and patterns of industrialization in both countries that persist to this day.

_{Image credit: The Rise of Economic Nationalism Threatens Global Cooperation. Monica de Bolle. Peterson Institute for International Economics}