Why do rich nations fail? At a time in which wealthy nations such as the United States, Japan, and much of Western Europe are experiencing unprecedented economic difficulties, this article argues that the 18th century experience of the Dutch Republic can provide important insights. The Dutch economy was by far the world's wealthiest and most technologically advanced as late as 1700, but subsequently experienced more than a century of economic decline as manifest in mass unemployment, rising inequality, an absolute decline in the median standard of living and a loss of technological leadership. The proximate cause of this decline was the evisceration of Dutch manufacturing, largely as a result of the systematic mercantilism that swept through much of Western Europe beginning in the 1690's. In spite of the positive results of protectionism in Dutch neighbors such as England, France and Prussia, Dutch elites failed to learn from these experiences and maintained largely unilateral free trade policies down to the Republic's final days. This essay argues that political factors, namely the cultural and political distance between Dutch elites and mainstream society were a critical factor in accounting for the Republic's passive response to foreign mercantilism and explain this important episode of economic decline.
- free trade,
- international competition
Available at: http://works.bepress.com/edwin_way/1/