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Principle of Comparative Advantage: Bicentenary

Volume 778: debated on Tuesday 17 January 2017


Asked by

To ask Her Majesty’s Government what plans they have to celebrate the bicentenary of David Ricardo’s principle of comparative advantage, and the case for free trade.

My Lords, free trade is and will remain fundamental to the prosperity of UK citizens and of people around the world. We will celebrate this bicentenary by delivering the best environment in which UK trade can thrive and the benefits of free trade can be felt by all.

My Lords, I thank my noble friend for that encouraging reply and welcome in particular her clarion call on behalf of free trade, which echoes the remarks of our Prime Minister, who has promised to make Britain a global beacon of free trade. I am a little disappointed that she is not able to promise a party to celebrate the publication in 1817 of On the Principles of Political Economy and Taxation by David Ricardo, in which he established the point that poor people and poor countries benefit from free trade just as much as rich people and rich countries, and thereby laid the foundations for the repeal of the Corn Laws and the prosperity of the country. If she were to change her mind and throw such a party, would she consider inviting Donald Trump, Donald Tusk and other mercantilists in the hope that they might learn to love free trade?

I think I will leave arranging the party to my noble friend, and he can draw up the guest list. But I reassure him that whatever the setting, the UK will remain a strong and proud proponent of free trade, which, as Ricardo’s work predicted, has spread prosperity, lifted millions out of poverty and enhanced political stability across the globe.

My Lords, does the Minister recall that Ricardo’s classic example of comparative advantage was between Portuguese wine and English woollen cloth? Several industrial transformations later, with active Governments intervening to alter the terms of comparative advantage—in Japan, Korea and now China—would she agree that the formulation, negotiation and regulation of free trade is infinitely more complicated than Ricardo could ever have imagined?

Yes, it is infinitely more complicated, as most things are in life. There is nothing black and white in anything, but trade can contribute to economic growth and poverty reduction internationally. It helps to raise incomes and create jobs, and has been the greatest liberator of the world’s poor, harnessing the forces of globalisation to spread prosperity and lift millions from poverty. We cannot underestimate that.

My Lords, the list of names at the party was interesting but, I suppose, appropriate for a banker who made his money shorting the market in order to speculate on the result of Waterloo; he made a million pounds and was able to retire for the rest of his life, when no doubt many parties were held. Does the Minister realise that Ricardo qualified his original proposal because he ensured that it was applicable only to situations where capital was immobile? If capital is mobile, it results in offshoring, economic decline and joblessness. Taking us forward to the present day, could she confirm that the new industrial strategy, which from what she has said will be based on Ricardian principles, will for the first time allow measures to be taken against foreign capital taking over British companies in a hostile way?

I do not think there is time today to go into various academic works. If the noble Lord is alluding to protectionism, we are committed to taking a fair and balanced approach to protecting sectors against unfair trade.

My Lords, does my noble friend agree that there was a strand in the Brexit referendum campaign that was hostile to the open movement of goods, services, talent and investment, and that that strand was deeply unattractive? Does she agree that it has never been more important for this country and this Government to be a really inspiring voice in support of free trade?

I absolutely agree with my noble friend. To reinforce that, according to the World Bank, in the three decades between 1981 and 2011 liberalised trade practices in the developing world saw the proportion of their citizens living on less than $1.25 a day fall from 50% to under 20%. This represents the greatest decrease in material deprivation in human history.

Do the principles of free trade mean that after we leave the EU this country will be flooded with American beef stuffed with hormones, which, while we are members of the EU, we are protected from?

Does the Minister agree that the principle of comparative advantage works only if trade is not only free but also fair?

I absolutely agree with the most reverend Primate that there has to be free and fair trade. Those are very important principles.

My Lords, does the Minister accept that the Ricardo principles apply even more strongly now that we have a realistic value for the pound?

My Lords, in view of the obvious importance of David Ricardo’s principle of comparative advantage, could the Minister perhaps arrange a briefing for those of us who had never heard of it until today? [Laughter]

I will ask my noble friend Lord Ridley to write to the noble Baroness, but I also suggest that she read his very interesting article in yesterday’s Times.

My Lords, given the mention a moment or two ago by my noble friend Lord Rooker of American hormones, could the Minister also arrange to circulate Malthusian principles at the same time as Ricardo’s?

Perhaps the noble Lord could do that himself to inform us. We will continue to take into account the views of academics, economists past and present, business, civil society and indeed the devolved Administrations and Parliament in delivering the best trading environment for the UK’s future. The Government’s engagement with Parliament has already been extensive and will continue to be.