'Free-trade' or deregulation? November 23, 1999
They're trying to play us with propaganda. But like Bob Marley said: "Don't let them fool ya, oh no!"
With the World Trade Organization summit coming up in Seattle next week, there's a lot of talk in the air about "free-trade." Most of the discussion you'll hear in the "liberal" media will be from "free-trade" cheerleaders who do little critical thinking because they are so enamored by Western economic "growth."
Just about every "liberal" and "conservative" politician and policy maker has swallowed whole the illusory arguments that the "free-trade" fad depends on for its justification.
By the way, it's not a new fad. The British Empire was all for "free-trade" after 150 years of protectionism had given it such enormous advantages over competitors that a "level-playing field" was an acceptable risk. But by the 1920s, England found that it couldn't compete with Japanese industry and all bets were off. It was back to protectionism.
It's hard to find a single exception. America did the same thing. And now we're on top of the economic pile and can't seem to find enough praise for "free-trade." What a "coincidence!"
First of all, not only is the phrase "free-trade" inexcusably imprecise, it's also a loaded term. I mean, who's against freedom? Last week, I referred to a 1993 U.N. World Investment Report that informs the interested reader that 40 percent of all "trade" is really intrafirm transfers. With the U.S. and Japan it's more than 50 percent.
A more accurate name for what's going on is deregulated international commerce. Deregulation? Now the critical thinking begins because one notes the failure of the savings and loan industry and the enormous amount of bank failures over the last decade.
The "free-trade" argument is grounded in the logic of something economists call "comparative advantage," which was first detailed by the early 19th-century economist David Ricardo. So the problem with "free-trade" is not the logic of the argument but the fact that it overlooks Ricardo's central assumption: the factors of production, particularly capital, are internationally immobile!
Former World Bank senior economist Herman Daly points out that in today's world, "where billions of dollars can be transferred between nations at the speed of light," Ricardo's essential condition for "free-trade" is not met.
"In short," Daly observes, "the free traders are using an argument that hinges on the impermeability of national boundaries to capital to support a policy aimed at making those same boundaries increasingly permeable to both capital and goods. That fact alone invalidates the assumptions that international trade will inevitably benefit all its partners."
Besides, for trade to be mutually beneficial, what is gained cannot be offset by what is lost. Once the specialization that "free-trade" agreements set up are in place, nations are no longer free not to trade. Isn't that a liability? Also, the cost of transporting traded goods must not annul the profits.
"Transport costs are energy intensive," Daly reminds us. "Today, however, the cost of energy is frequently subsidized by governments through investment tax credits, federally subsidized research, and military expenditures that ensure access to petroleum. The environmental costs of fossil-fuel burning also do not factor into the price of gasoline. To the extent that energy is subsidized, then, so too is trade."
This is just the tip of the iceberg. There's many more holes that can be punched into the "free-trade" argument - enough to make it begin to resemble Swiss cheese. But don't take my word for it. Check it out for yourself.
It's an example of what happens when you carry logical abstraction too far. You distort reality. The great philosopher and mathematician Alfred North Whitehead called this kind of reasoning "the fallacy of misplaced concreteness."
Brother Whitehead noticed that this began early in economics. "It is very arguable that the science of political economy, as studied after the death of Adam Smith (1790), did more harm than good. It destroyed many economic fallacies, and taught how to think about the economic revolution then in progress," he wrote.
"But it riveted on men a certain set of abstractions which were disastrous in their effect on modern mentality. It dehumanized industry....Its methodological procedure is exclusive and intolerant, and rightly so. It fixes attention on a definite group of abstractions, neglects everything else, and elicits every scrap of information and theory which is relevant to what it has retained.
"The method is triumphant provided the abstractions are judicious. But, however triumphant, the triumph is within limits. The neglect of these limits leads to disastrous oversights."
There are limits to economic thinking and wealth. And at those limits there is serious human suffering that needs overdue attention. The free-market god is not worthy of worship.
Sean Gonsalves is a Cape Cod Times staff writer and syndicated columinist. He can be reached via email: sgonsalves at capecodonline.com