Haberler’s 1943 chapter frames regionalism as a constitutional problem of postwar order, not merely as a tariff question. The issue is whether international cooperation should proceed through universal institutions composed of sovereign states or through larger regional federations.
To put the question the other way around: suppose that some machinery for international co-operation on a worldwide scale, like the League of Nations, is set up; should it be based on regional blocs or on independent states?
His answer is cautious. Regional organization may sometimes be useful, especially where small states are too narrow for efficient production, but its economic case is not distinct from the classical case for free trade. Larger markets permit specialization, mass production, and wider division of labor; yet those gains are best secured by nondiscriminatory liberalization rather than by protected blocs. Haberler therefore separates complete customs unions, which may genuinely enlarge markets, from partial preferential systems, which often preserve protection under a cooperative label.
A major strength of the chapter is its insistence that “federation” is not one thing. It can involve goods trade, capital movement, migration, currency arrangements, credit policy, or wider coordination of domestic controls. This taxonomy prevents regionalism from becoming a vague remedy for all postwar difficulties.
A federation can, however, be restricted to certain fields, and in each field a different degree of intimacy of interrelation may obtain.
Haberler treats migration as politically constrained and monetary union as more complicated than mere identity of currency. He also argues that in an interventionist economy tariffs cannot be analyzed in isolation. Exchange controls, quotas, purchasing directives, transport rules, taxation, subsidies, and price controls can all undo nominal trade concessions. Thus a tariff agreement between planned or heavily regulated economies requires much broader coordination if it is to have real force.
There would be little use in agreeing on low tariffs if the other partner could always nullify such an agreement by exchange control measures or by suasion or coercion of producers and traders which would prevent them from buying foreign products.
The core economic distinction is between complete customs union and incomplete preference. A full customs union abolishes internal trade barriers and establishes a common external policy; it may approximate free trade within a larger area. A preferential arrangement, however, can divert imports from lower-cost outsiders to higher-cost insiders, reduce tariff revenue, and confer gains on favored exporters without increasing real efficiency. Haberler’s analysis anticipates later “trade creation” and “trade diversion” arguments: discrimination may look like liberalization while actually worsening allocation.
The economic situation is, however, by no means so clear in the case of incomplete customs unions.
He applies this reasoning to Pan-Europe, Pan-America, Scandinavian cooperation, Benelux, and the Danubian region. Geography alone does not determine efficient trade areas; maritime routes, resource differences, climates, skills, and production structures may make distant exchange more valuable than neighboring integration. Eastern Europe presents the strongest case for reconstruction through larger units, but even there Haberler favors voluntary and limited arrangements over forced centralization.
The institutional argument is equally important. Haberler rejects both the belief that organization alone can create peace and the view that institutions are useless. If the automatic mechanisms of the nineteenth-century liberal order have broken down, conscious international agreement becomes necessary. But that agreement should aim at worldwide nondiscrimination rather than hardened continental spheres. Regional blocs may have political or military justification, especially under threats of aggression, but economically they are dangerous when they become preferential empires.
The conclusion is liberal but not laissez-faire in a simple sense. Haberler accepts the need for full-employment policy, exchange stability, and some international machinery. What he resists is the conversion of postwar reconstruction into discriminatory regionalism. Complete and voluntary unions may help in special cases; partial blocs are the central danger, because they turn cooperation into exclusion and make world order harder to rebuild.
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