WHY ‘FREE’ TRADE DOESN’T WORK

Posted on August 29, 2004 by Dave Pollard

When I was younger, I was both a socialist and a supporter of ‘free’ trade. Both concepts make eminent sense in an ideal world. Take away the complexity of real world affairs and debate the benefits of either concept strictly philosophically, and the ‘no’ side doesn’t stand a chance. Unfortunately, or fortunately if you have an ideological opposition to either or both concepts, neither concept works in the real world — in fact, they both backfire and make things worse. The problem is that the elite wealthy and powerful who control the media and most world governments are violently opposed to socialism and selfish supporters of ‘free’ trade. So while the myth of the viability of socialism as a workable political system has been soundly and widely discredited, the myth of the viability of ‘free’ trade as a workable economic system is cynically perpetuated by the powers that be.

I’ve written at length about why ‘free’ trade doesn’t work: Why in a world of massive, hidden government subsidies it creates a hugely unfair playing field, how it leads to unaffordable prices for medicines in the third world and hence causes immiseration and death, why it leads to a ‘race to the bottom’ of social and environmental standards worldwide, how it encourages unsustainable agricultural and manufacturing processes at the cost of sustainable ones, how it leads to an inexorable deterioration in quality of products and services etc. But some of my readers still say that by advocating the repeal of ‘free’ trade agreements and replacing them with import duties on goods and services that cannot reasonably be produced domestically, I’m encouraging the continued impoverishment of the third world.

So here is an article, written late last year by Timothy White of Dollars & Sense magazine that shows that for Mexico, a country that has embraced ‘free’ trade openly and honourably, whose people have done everything they can to make it work, and whose government and people had such high hopes for it, NAFTA and ‘free’ trade in general have been an unmitigated disaster. If you want to know the real truth about ‘free’ trade, please read the article in its entirety — it is free of economic jargon and political rhetoric, and full of astonishing data on the cost of ‘free’ trade to that country.

Here is the synopsis at the end of the article, emphases mine:

NAFTA took effect in 1994, but the “neoliberal” experiment began in the mid-1980s following Mexico’s 1982 debt crisis. Ten years into NAFTA and nearly twenty years into neoliberalism, the track record, drawn from official World Bank and Mexican government figures, is poor:
Economic growth has been slow. Since 1985, Mexico has seen average annual per capita real growth of just 1%, compared to 3.4% from 1960 to 1980.
Job growth has been sluggish. There has been little job creation, falling far short of the demand from young people entering the labour force. Manufacturing, one of the few sectors to show significant economic growth, has registered only marginal net job creation since NAFTA took effect.
The new jobs are not good jobs. Nearly half of all new formal-sector jobs created under NAFTA do not include any of the benefits mandated by Mexican law (social security, vacations, holidays, etc.). One-third of the economically active population now works in the “informal” sector.
Wages have declined. The real minimum wage is down 60% since 1982, 23% since NAFTA’s inception. Wages in all sectors have followed suit.
Poverty has increased. According to Mexico’s most respected poverty researchers, the number of households living in poverty has grown 80% since 1984, with nearly 80% of Mexico’s people now below the poverty line, up from 59% in 1984. Income distribution has become more lopsided, making Mexico one of the hemisphere’s most unequal societies.
The rural sector is in crisis. Four-fifths of rural Mexicans live in poverty, over half in extreme poverty. Migration levels remain high despite unprecedented risks due to increased U.S. border patrols.
Imports surpass exports. The export boom has been outpaced by an import boom, in part due to intrafirm trade within multinationals.
The environment has deteriorated. The Mexican government estimates that from 1985 to 1999, the economic costs of environmental degradation amounted to 10% of annual GDP, or $36 billion per year. These costs dwarf economic growth, which amounted to only $9.4 billion annually.

This is a story that could be told and re-told in almost any third-world country. African and Asia agriculture has been devastated by heavily-subsidized European crops just as Latin American agriculture has been crippled by heavily-subsidized North American crops. The environmental destruction wrought by business in the third world, and the criminal, dangerous, inhumane working conditions of workers, mostly run by manufacturing and mining businesses owned by or dependent on Western imports, is a global disgrace. ‘Free’ trade is in fact a massive fraud designed to further enrich a small number of multinational corporations and the governments they control. There is a reason for the huge, spontaneous global demonstrations against ‘free’ trade and globalization: People around the world directly affected by it know it is a scourge, a power and wealth grab by those who already have far too much of both. The multinationals are attempting to get additional ‘free’ trade agreements signed before the rest of the world wakes up to the reality of their enormous cost and inequity. They continue to argue about the theoretical benefits of ‘free’ trade, and blame its failings on corrupt third world governments. This is a smokescreen, and White’s article eloquently shows the real motive for wanting ‘free’ trade agreements signed: pure greed.

The alternative to ‘free’ trade is not no trade, it is trade regulated for the benefit of the world’s people. Regulation is not a dirty word, no matter how aggressively neocons try to paint it as such. It is our only protection against corporatists who put profit before people.

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10 Responses to WHY ‘FREE’ TRADE DOESN’T WORK

Harold Jarche says:

August 29, 2004 at 14:17

I always figured that the free movement of financial capital was acceptable only if you also allowed the free movement of labour. It’s a tad uneven if you don’t allow the latter.
mdog says:

August 30, 2004 at 13:17

Sorry I don’t have time to respond to it in greater depth, but that World Bank report “Building an Inclusive Economy” is, while interesting to read, reliant on some dubious assumptions, eg:1. rising cash income is allways a valid way to measure quality of life, even when it contradicts the judgements of rural people who wish to remain self sufficient outside of cash economies2. “previous waves of globalization” were good because they raised cash income levels, even if many people describe said historical periods as murderous and authoritarian colonialism3. following the washington consensus will occur side by side with moving a nation’s economy up the value added ladder, thus capturing many of the supposed benifits of liberalization. such is not the case in many places, for example in Chile, Washington’s darling but really just exporting more copper than ever before. it’s a compelling story regarding some countries, but not others.the basic arguement of the report is that globalization would work for the poor if they would only get with the program, those who have are doing better and those who are suffering have only their resistance to blame.
Dave Pollard says:

August 30, 2004 at 17:12

mdog: Thanks for the info, which does not surprise me given the right-wing ideological bent of the World Bank. Ken: I guess we’ll just have to agree to disagree, because I don’t see anything in your comments that in any way discredit White’s arguments or conclusions. I might be more persuaded if fewer than two million people per year weren’t risking their lives to get across the border, even though most of them know from relatives that life as an illegal immigrant in the US is no bed of roses, or if even a small proportion of the one million per year who succeed (and face a life of continuous flight from immigration authorities and exploitation from US companies that know they can treat them like dirt and they can’t complain) decided to make the trek back to post-NAFTA Mexico.
Ken Hirsch says:

August 30, 2004 at 21:48

Thanks for the info, which does not surprise me given the right-wing ideological bent of the World Bank.Thus you ignore a study which tries to control for relevant factors because you disagree with it politically.I might be more persuaded if fewer than two million people per year weren’t risking their lives to get across the border, even though most of them know from relatives that life as an illegal immigrant in the US is no bed of roses.What does that have to do with NAFTA? They were crossing the border before NAFTA, too. Nothing, I repeat, nothing in the article you cite gives any reason to think that things would be better without NAFTA. Summary of article: there are problems. Great, now would they be better or worse without NAFTA? There is no comparative methodology whatsoever.
Burkhard Kloss says:

August 31, 2004 at 06:55

>This is a story that could be told and re-told in almost any third-world country. African and Asia agriculture has been devastated by heavily-subsidized European crops just as Latin American agriculture has been crippled by heavily-subsidized North American crops. You’ve just completely destroyed your argument. The problem for agriculture in the thirld world isn’t free trade, it’s the lack of it. And the best thing that the U.S. and the E.U. can do for themselves and the developing world is to immediately scrap all agricultural subsidies and import barriers.I agree that ‘Free Trade’ is often used as a euphemism for corporate agendas, but actual free trade is of benefit to everyone.
Anthony says:

September 1, 2004 at 13:00

From http://www.j-bradford-delong.net/movable_type/ Tyler Cowen: Globalization and Its Contents: As many of my readers know, I visit a small Mexican village, San Agustin Oapan, one or twice every year. In the meantime, here are the new items I have noticed in the village this year: 1. Apples 2. Green beans 3. A much improved road. A four hour trip now takes less than an hour and a half. 4. Stoves. 5. Small shops with wrapped items from the larger city of Iguala. Shampoo and band-aids, for instance, are now easy to find. 6. The number of “retail” watermelon sellers has gone from one to at least three. 7. The number of pigs has doubled As far as I can tell, most of this does not show up in the growth statistics for Mexico. No one (except for yours truly) comes to the place to count anything. Most of the transactions occur in black or grey markets. It is commonly the case that consumption statistics, when we have them, measure changes in income better than do income statistics. Globalization does not make everyone better off, but its beneficial effects are commonly underestimated, and undermeasured by available statistics.fromhttp://www.j-bradford-delong.net/movable_type/2004-2_archives/000076.htmlPersonally I think there are benefits to trade that aren’t measured. International Military security for example – China and the US are less likely to go to war if their economies are totally interlinked.
Miguel Pancardo says:

September 1, 2004 at 13:37

Yes Dave, im back and angrier than ever, and yes im one of your readers who has told you that you want to keep impoverish the third world and ill show you:I haven
Dan says:

September 3, 2004 at 10:51

Great article.Thanks Mdog. Japan has free trade? Are there any historical examples of any country where free trade was practised? Or, as I suspect, is this is an experimental attempt at trade policy. How can globilization be reconciled with governing entities? If the interests of Communist China’s government counter the interests of corporations invested in China, which will prevail? I thought Communists were our evil enemies, not our big buddies in capitalism?
Andrew McGregor says:

September 4, 2004 at 14:48

Well, New Zealand tries very hard to practice free trade, and it cannot be convincingly said to have hurt. It is rather unclear if the commitment to free trade has hurt or helped the economy, and in terms of daily life it appears to have helped. Of course, it helps that there are a number of (principally agricultural) products that we’re really, really good at producing, so essentially noone can compete on price even when the stuff needs shipped halfway around the world and they get subsidised by their own governments. And then there’s tourism, about which I need say little, bar that that industry benefits greatly from free trade and cannot face overseas competition. Neither of these apply to most third world countries, although if they managed to clear up their personal safety and infrastructure issues, most could be attractive tourist destinations.
Dave Pollard says:

September 4, 2004 at 15:01

Dan: The two largest ‘planned’ (non-market-driven) economies in the world today are China’s and the Pentagon’s. China has never been a true communist country, more a totalitarian dictatorship masquerading as ‘government for the people’. They’re very open to corporatist philosophy and methodology — it’s very effective at keeping the masses under control and deluded that they’re living in a fair system. Corporatist oligopolies have room for a few more seats at the table, especially if they can deliver a billion naive consumers for their products and their dogma.