The name is absent

of such growth depends primarily on the performance of domestic producers. There has to be a body of
(private or public) entrepreneurs able and willing to organize new productive enterprises in response to
sufficient incentives and supported by a stable framework of legal, financial and technical institutions.
But domestic policies, including trade policies, that take account of the need to promote a growing cadre
of domestic entrepreneurs, to encourage diversification and to realize the externalities that generate
increasing returns, are likely to diverge from those that focus on the improvement of allocative efficiency.
The former may argue for discrimination in favor of domestic producers whereas the latter is neutral on
the issue.

Thus, even accepting the utilitarian foundation of the criterion of efficiency, it does not provide
an unassailably reliable and clear-cut guide to policy. Market failures have to be allowed for, and a
dynamic definition does not lead to the same policy prescriptions. But as a surrogate criterion for fairness
in the global trading system, its utilitarian basis constitutes a more fundamental flaw. In his critique of
utilitarianism, Rawls (1971) noted that the idea of “the greatest good for the greatest number” is not
compatible with forms of social cooperation entered into by equals for mutual advantage. All participants
expect some benefit and none seek the greatest good of the greatest number. Without reciprocity, the
voluntary cooperation does not take place.⁴

Despite the uncertain intellectual basis for the conventional criterion of efficiency, its prescription
in support of free trade has a strong visceral attraction for a great many economists. We suggest that the
reason lies not solely in the logic of the equilibrium analysis from which it is deduced but in a broader
belief based on two observations, one empirical and one historical. First, it embodies the simple, but
irrefutable, truth — so persuasively enunciated by Adam Smith — that specialization raises living
standards, and since “the division of labor is limited by the extent of the market,” barriers to trade are
inherently suspect. Second, it is consistent with the historical observation that capitalist enterprise,
operating in ever expanding markets, has appeared to be the most effective way of raising the income and

⁴ Amartya Sen (1988) has offered an extensive critique of the efficiency criterion. See, for example, his lectures “On
Ethics and Economics.”

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