What are the distinguishing features of a genuinely cosmopolitan international economic order?

Such an order gives the concepts of national and international sovereignty pride of place. That means that national governments are key participants in the international economy; governments are key "players" or "actors" as economists might say.

A liberal cosmopolitan international economy is made up of many small nations which act much like constituencies in an international federation. Such a federation is characterised by a constitutional international sovereign; a sovereign which only deals with matters such as the provision of international public goods and legislation/regulation to correct market failure at the international scale. Inasmuch as such a sovereign is represented by a government, that government would be no more than a revitalised United Nations, with an extended international judiciary.

Commercial policies - whether the setting of tariffs, the taxing of foreign exchange or the regulation of foreign investment - are very much the prerogative of sovereign national governments. Such national policies - if conducted in a cosmopolitan spirit - would only be implemented if they did no harm to the world economy. The absence of harm to others is the difference between enlightened and unenlightened self­interest.

The acid test is to imagine that a policy being implemented by one government is in fact being implemented by all national governments. Would that damage the world economy, improve it, or have no effect upon it? An example of an unenlightened national policy is the New Zealand Reserve Bank Act. If all governments simultaneously implemented the high interest anti­inflation policies associated with that legislation, then the world economy would move into a phase of stagflation - depression with inflation. When global interest rates are high, global unemployment rises, cost inflation rises, and no country is able to offset this by appreciating its exchange rate (which is what the NZ Reserve Bank seeks to do when it raises interest rates.)

An alternative cosmopolitan view - a non­liberal order which comes half way between ultra­imperialism and liberal cosmopolitan economy - can be called "neomercantilism". This is the regionalisation of the world economy into "blocs" which are effectively large economic nations; ie economic nations made up of regional groups of political nations. Such nations tend to engage in "strategic trade" practices, because any one bloc is big enough to, on its own, influence the global economic environment, for better or for worse. In so doing, that nation may be able to impose some degree of international law, in contrast to the anarchy of ultra-imperialism where private corporations exert political power over national sovereigns.

Strategic trade may or may not improve the economic well­being of all nations; it depends on the specific policies and on the prior state of the world economy.

The globalisation of the late 19th century took such a neomercantilist form, when the world was divided into economic empires. The British economic empire included countries such as Argentina and Denmark, and it later came to be called the "Sterling Group". In those days each imperial grouping was a mini world economy.

Modern neomercantilism, however, is based on regionalism, which in some ways represents a retreat from globalisation. It is certainly one way of asserting countervailing political power in a world where many private corporations command more resources than to national sovereigns. Such a system is not cosmopolitan, however, when the political processes themselves, especially within the dominant nations, are captured by private corporate interests.

I believe that many forms of protectionist policies - moderate protectionist tariffs, foreign investment controls, foreign exchange taxes - enhance the world economy. Thus they can be correctly labelled as "cosmopolitan." Such policies, when generally implemented by all or many countries, improve the international economy especially when there is "macroeconomic failure" such as global unemployment.

Such protectionist policies enhance the world economy by decreasing the opportunities to profit from global financial speculation. And they enhance the world economy by increasing wages and employment in each nation, thereby making the citizens of each nation better customers for internationally traded goods. And they enhance the world economy by reducing the cost of failure, thereby giving more people within each country an incentive to give their ideas a go. A national security blanket, in each nation, provides an incentive to move away from traditional risk­averse practices.

Protectionist policies help to break the classical mindset that promoted a natural "international division of labour". Therefore protection frees people to pursue occupations which it is commonly believed their country is not naturally suited. In a cosmopolitan world economy, New Zealanders would rarely be obliged to emigrate to pursue the occupation of their choice. (They may of course emigrate for other reasons, just as people from other countries might want to come to New Zealand.)

While the ratio of world trade to gross world product tends to fall after the introduction of protectionist policies, the actual amount of world trade tends not to fall. In many cases in history, world trade has accelerated following periods of renewed protection. One book that shows up the historical reality and the lack of correlation between the growth of the international economy and the pursuit of free trade policies is Paul Bairoch's: Economics and World History: Myths and Paradoxes (1993).

Perhaps the best historical example of protection boosting the world economy relates to the Great Depression of the early 1930s. The Depression was caused in large part by the deflationary monetary and fiscal policies (read "high interest rates" and "balanced budgets") generally thought to be "sound" and "responsible" in the 1920s. As a result of these national policies designed in part to increase exports without increasing imports, world trade collapsed in 1930. The eventual recovery was marked by a return to protection, a recovery in each nation's domestic economy, and consequent upon each domestic recovery, a recovery of the international economy. Indeed, this recovery created ideal conditions for the decolonisation required to convert a neomercantilist imperial world economy into a liberal world order.