Social Conflict and the Stolper-Samuelson Theorem

Abstract

This paper presents a new theory of trade policy-making based on the possibility of social conflict, and determines the conditions under which it will apply. In a setting where property rights are poorly enforced, the paper shows that the Stolper-Samuelson theorem embodies a set of sufficient conditions for a revolution to occur. By pinpointing a conflict of interest between the ruling elite and workers over trade policy, the theorem implies that workers may have an incentive to mount a revolution. However, this also implies that the elite can use trade policy to make concessions to the workers and hence avert a revolution. In an extended framework, a set of sufficient conditions for revolution to occur are provided even when the Stolper-Samuelson theorem fails to hold. Among other uses, the new theory presents a resolution to the long-standing puzzle over why Britain repealed the Corn Laws.