Many governments under the umbrella of the World Trade Organisation (WTO) and a large body of economists view free trade as a boon for the world economy. The governments of the USA, UK and the nations comprising the EU support the concept of free trade but do they practice what they preach? Several economists suggest that free trade would boost the world economy and by doing so benefit the poorest countries. Those in the opposing camp are of the opinion that it’s all about securing markets for profit and little to do with the poor. The opposition to free trade also suggest that such trade has no moral compass.
The World Trade Organisation (WTO) is busy trying to dismantle as many barriers to trade as it can negotiate. They envisage a free world market in which governments place no restrictions on exports or imports. In effect, “…free trade enables foreign companies to trade just as efficiently, easily, and effectively as domestic producers”. It would seem clear to me that the big boys have a head start as their business is already up and running and highly organised.
The first free trade agreement (FTA) was between America and Israel in 1985. This was followed by the North American Free Trade Agreement (NAFTA) in 1994 between the USA, Canada and Mexico. FTA’s were not simply to be about trade but to encapsulate a moral imperative.
“The net effect of the new FTAs on other countries involved should also be beneficial but much more significant than the effects on the United States because of the much smaller size of these countries”. Bruce Arnold, US Congressional Budget Office, July 2003.
However, in practice the policy does not seem to have worked to the benefit of the smaller economic state. In 2002 it was recorded that trade between Israel, Canada, Mexico and Jordan and the USA was: the others received 37.2% of American exports but supplied 31% of US imports. That is a significant disparity. We have to assume, Mr Arnold had not seen the figures before his speech. Twenty years later and the Economist (January 2014) suggest that Mexico has benefitted greatly because of inward investment and a developed manufacturing base. However, it hasn’t slowed the immigration from Mexico or the number below the poverty line.
Moreover, Denise H. Froning writing in 2000 pointed out that trade is the bedrock of American prosperity. She is fond of the adjective ‘stellar’ in describing the benefits of free trade to the American economy between 1990/2000, she found that during the period the US economy grew by 23% and added $2.1 trillion to its coffers. She also managed to throw a carrot to America’s partners, “Free trade helps to spread the value of freedom, reinforce the rule of law, foster economic development in poor countries”. Well, I suppose the poor should be grateful for some titbits. Or was she hinting they should adopt American culture?
What has become clear is the impact of NAFTA on America’s partners:
- Family run farms in Mexico are fast disappearing.
- Increased dependency of Mexico on imported food.
- USA and Canadian companies could dump their waste products in Mexico bypassing their own national laws.
It has been argued that over one (1) million Mexican farmers have lost their jobs since the introduction of NAFTA. Texas, on the other hand has benefitted from the import/export flow of trade as has America as a whole. A major consequence has been the doubling of immigration into America in that period.
An eminent economist, Ha-Jong Chang, ranked among the world’s top thinkers in 2013 has stated clearly, “The free market does not exist”. He can be bold in his statement, without contradiction, because nearly every country operates some form of tariff, tax or subsidy to protect a specific industry. From, 23 Things You Didn’t Know About Capitalism (2011) cited by www.truth-out.org/news/item/
Read about Ha-Jong Chang at: www.wikipedia.org/wiki/Ha-Jong-Chang
Chang’s argument is that the developed nations have had a long period of gestation, and with the extensive use of protective tariffs, taxes and subsidy to build their economies. A further point raised by Chang is the productivity gap between the developed and developing world is still quite wide. The technology available to the big boys far outstrips anything the locals can muster.
In today’s world of multinationals and with internal markets satiated the need for expansion is obvious. What better way and with competitive advantage to forward the concept of free trade? “…competitive advantage is a key determinant of superior performance and it will ensure survival and prominent placing in the market”. Multinational companies have substantial resources and can badger and bully when occasion arises. The big boys can bring economies of scale and can undercut any competitor until they have secured the market.
For a detailed economic explanation see: www.en.wikipedia.org/wiki/Comparative_advantage
We have the story in the UK whereby, Google, Starbucks, Amazon etc. operate openly making ££billions but have their offices sited elsewhere to avoid the payment of tax. Wringing the last drop of blood from the stone is obviously their motto, as this serves to boost the top dog’s bonus. Could the government of the UK tell them to politely leave, perhaps, but the President of the USA would be on the phone so quick and his roar so deafeningly loud, it would initiate a swift change of direction.
However, Steven E. Landsburg suggests, “Free trade creates winners and losers, but theory and empirical evidence show that the size of the winnings from free trade are larger than the losses”. The statement has a semblance of truth to it, but who are the winners and losers and how much is ‘theory’ and how much ‘empirical’. If we look again at the consequences of NAFTA, the small family farmers were definite losers and the big agricultural companies of America the beneficiaries.
To overcome the perceived difficulties of whoever wins and who loses some economists have come forward with a scheme whereby developing nations should look to specializing, to focus on one or two crops or particular raw material. The problem with that scenario is that dependency on single elements of trade can be a hindrance, as the country would need to import all other requirements. A crop can fail and extraction of raw materials may have to be given over to a multinational company who have the means but who would set the scale of return. Any such scheme creates too big a dependency gamble.
The multinationals have the power to set up anywhere, use local labour, including child labour to maximize their return (profit).They easily circumvent the moral aspect by outsourcing to sweatshops and thus are one step removed from the work and pay conditions. If they were to follow labour law implicit in their home country that would make a substantial difference to the local population, as hinted at by Bruce Arnold. However, there would be no point in them being there!
Alas the name of the game is to grab what you can while you can – tomorrow’s another day. On news reports we can see kids wearing T shirts in war zones advertising US brands even if the conflict is anti-American. There is no moral or ethical code in the capitalist handbook, so there is little purpose in reading the book to find a hidden grain of empathy.
Meanwhile, major supermarket chains are clambering over each other to distance themselves from the horror story of shrimp/prawn fishing in Thailand. A report by Annie Kelly 30th July 2014 for the Guardian has highlighted a story of the slavery of fishermen, “who are bought and sold like cattle and kept on ships for years”. The blind eye syndrome has worked until the hell was exposed. The chain stores are cancelling contracts with CP Foods fast as the consequence could be the loss of custom through bad publicity. People power! Will it improve the lives of the fishermen; only as long as the spotlight remains beamed on the situation!
While the big boys are having a ‘jolly’ abroad, back home thousands may have been sacked and been forced onto welfare. The cost is borne by those still in work through their taxes, and not counting the social cost of divorce, separation, repossession etc. Many will be forced to work zero hour contracts, not knowing if they are getting a full wage and able to pay their weekly bills.
Doing business abroad is all about finances. The average wage in China is around 10% of the US. In India it’s a mere 2% of the American wage. I would love to believe in the altruism of the big boys but it looks like their wallets are telling a different story. Capital and Moral will never be lovers!
What they are doing is spreading Western culture. Japan is unrecognisable from the period before the Second World War. We can see the same departure taking place in China through the distribution of wealth. There are thousands of shabby factories throughout China employing millions of cheap or virtual slave labour.
An example of conditions faced by the workers in China was brought about by an explosion at a factory close to Shanghai, which polished wheel hubs for the likes of General Motors. Seventy –five died and 185 were injured. An examination of the factory found: safety facilities were poor, the working environment was terrible and production methods were illegal. Reuters, 4th August 2014 Contrast that with the emergence of a new super rich class and all the bling money can buy. Why is a so called Communist country allowing free reign to a gang of nihilists who oppose the regime? This is a first, a welcome mat for colonialists!
In December 2013 the WTO met in Bali, Malaysia, this was a continuation of the Doha Development Round initiated in 2001, with the aim to spread the uptake of free trade agreements. Twelve years and still no firm decisions would suggest that not everyone is in favour of free trade. At the meeting several delegates sought a reduction of subsidies in operation in the developed countries. India demanded to keep their subsidy which America opposed. A number of South American states demanded that the USA should end its embargo of Cuba. The USA is viewed as the architect of free trade, but acts contrary when the policy interferes with the nation’s political stance.
The case of India’s subsidy was left in abeyance and will be discussed and clarified within the next four (4) years. India mirrors China in its dichotomy of wealth distribution and with the use of cheap and slave labour. They are merely doing what Europe and America did while building their economies.
If we add the situation of Europe’s Common Agriculture Programme (CAP) which is heavily subsidized to that of India’s subsidy we end up with quite a distorted picture of free trade. If free trade is so wonderful why are countries not in a stampede to join the get rich quick game? Politics will determine the fate of free trade and that’s how the people can have an influence. Use your vote but use it wisely!
The notion that free trade helps poor countries is hogwash. Free trade was conceived by business for business to gain an automatic entry ticket into countries that might otherwise have blocked them or placed severe restrictions on their products or intentions. Business is all about competitive advantage and the maximizing of returns.
Free trade amounts to the multinationals coming and taking over whatever industry that exists be it technological or agricultural. Also, the big boys have wares to sell and they can sell more than anyone at a price that their competitors can’t match. In that way the big boys sap the energy, the ingenuity, initiative and thus the motivation out of a country.
It is not about the law of supply and demand as demand can be created artificially; that’s what advertisements help with. Find a product that gives a sense of individuality and you have a winner e.g. smart phones, cars, fashion and bank cards none of these are essential items but don’t tell the baa,baas.