9 maart 2010

Comrades, socialism and statism in trade cannot be blamed on the free market! (Vincent De Roeck)

Governments need to regulate world trade to prevent exploitation by large companies and to protect infant industries? It just ain't so!

Way too often, left-wing pundits criticize international free trade by referring to the deplorable situations in some poor countries where their domestic production of various goods is destroyed by cheaper imports from the developed world. I know that the Left and I would make very awkward bedfellows, but in this case, I tend to agree with them for almost one hundred per cent. The only difference is that I reject the notion of the current international environment being a free trade one. If these left-wing pundits would criticize the current international trade framework, the so-called Washington Consensus, instead of the broader concept of "free trade", I would stand on the barricades with them and clamor for anti-trade reform. But of course, this is not what is happening. The Left has a different agenda.

Free trade means that a producer in one country can make a certain good or provide a certain service, and sell this good or service freely, i.e. without any barrier, to any consumer with an interest to buy it. This means that the current international trade framework, as laid down in the World Trade Organization, is not a free trade framework. For as long as import tariffs hamper foreign producers selling their goods and services in another country, we cannot speak of free trade. It is only freeish trade. Furthermore, we cannot talk about free trade if one side is subsidizing its own exports, and that is exactly what is happening today. The international trade framework gives developed countries not only the right to subsidize its own domestic producers and their exports, but also the tools to stop Third World exporters selling their produce in developed countries. The rules and regulations imposed on the production of goods and services is a second, more hidden, way of hampering Third World exports, because they de facto outlaw goods and services coming from countries with less access to technology, capital markets and modern production processes.

The modern-day WTO steered trade schemes are not free trade. The Left manages to blame state-induced excesses on free trade, which ought to be voluntary and hence a morally superior way of exchange and interaction. If we take into account the huge positive impact of the statist trade framework, and if we look at all the benefits that trade brought along in the Third World, we can only imagine today how prosperous and free the world could have been with less government and no WTO interference in global commerce. Those who want to enforce protectionist policies in order to support the so-called infant industries don't understand economics. They want to condemn the people of the Third World to artificially elevated prices and a lower quality of goods and services, because that is exactly what will happen under infant industry protection laws. Poor people will be forced to pay more money for a not quite as good product, which will cause the same misallocations in the market place as any other government intervention in the economy and hamper economic growth for the country in question.

Finally, I would also add that it is very weird to hear the Left attacking big business while they are at the same time advocating big government. It is no accident that both are often intertwined at the detriment of individual liberty and economic performance. Without a big government enacting favourable legislation and imposing regulation on an industry, big business will always take care of its consumers and producers in a socially acceptable way. That is what markets do. Through competition and the permanent scrutiny by consumers, markets clear an economy and allow a society to get rid of the bad guys in a spontaneous way, with no need to appoint a bureaucrat at all. I would like to end this short essay with a quote that I heard from Kakha Bendukidze, a libertarian reformer in the Republic of Georgia, back in the summer of 2008, and that captures my message here in an exemplary fashion. "Government is at best useless and at worst counter-productive". If only the people on the Hill or those in the Berlaymont would understand...

Vincent De Roeck

(This short essay was initially written for the Institute for Humane Studies at George Mason University in Fairfax, Virginia.)

Click here for another short essay.


At 10/3/10 16:17, Anonymous Bruce Graeme said...

"the current international trade framework, as laid down in the World Trade Organization, is not a free trade framework. (...) we cannot speak of free trade.

De WTO was niet bedoeld om de vrijhandel aan al haar leden op te leggen, maar om hen te helpen bij het in slaan van het pad van de vrijhandel - elk op zijn eigen tempo, en ook om hen te helpen weerstaan aan het terug glijden naar het protectionisme. Vanuit dit standpunt is de GATT/WTO succesvol geweest.



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