The management of surplus capacity: or how does theory stand up to protectionism 1970s style?

Contemporary trends toward protectionism seem not merely to represent a passing phase in the world political economy but reflect widespread resistance to deep-seated structural change. In three major sectors of the world economy characterized by surplus capacity—textiles, steel, and shipbuilding—state policies increasingly challenge liberal, market-oriented economic arrangements. The emergence of restrictive arrangements in these areas is still primarily organized nationally: multinational enterprises do not dominate economic activity. Conflict among firms over market shares is reflected, therefore, in conflict among governments. Such conflict may be temporarily resolved through market-sharing agreements, but these are inherently unstable. Increasing state involvement is likely in the long run to exacerbate the problems of capitalism and to increase conflict over international economic issues. These adverse developments will call further into question theories of international political economy that assume compatibility between a liberal, market-oriented international economic system and a state-oriented international political system.