One of the most worrying symptoms of the world’s current economic ills has been a resurgence of protectionism. National governments the world over have raised the barriers on foreign companies seeking to enter their domestic markets.
This recent phenomenon runs counter to the post-war trend. The period since the end of the Second World War has seen a remarkable growth in cross-border trade. World trade grew from a value of $57 billion in 1947 to $6 trillion in the late 1990s. The European Union was founded in 1957 and promoted the idea of a single European market. Other regional trading blocs, such as the North American Free Trade Agreement (Nafta), have also developed and generated prosperity.
Yet the notion that we are on an inexorable journey towards unmitigated free trade has not born fruit. Recent years have seen the United States and continental European governments pull up the drawbridge to outside investment. The Doha free trade talks collapsed earlier this year.. The giant economies of the East, such as China and India, have also shown resistance to foreign investment.
Time and time again, economic history has shown that open economies tend to have higher growth and productivity in the long-term. It was the economist David Ricardo (1772-1823) who set out the theory of this in his work on comparative advantage. In more recent times, the British economy has proved the point, benefiting from its openness to foreign ideas, people and investment.
If you look at our company, WPP, the global advertising and marketing services group, over the past 23 years, the single most helpful following wind has been free trade and the lack of protectionism. These conditions are now endangered as countries turn inwards, and pull up the barriers. This can only harm the world economy in the long-term, which badly needs a boost at this turbulent time.
Sir Martin Sorrell is Chief Executive of WPP and an advisory council member of Business for New Europe