A free-for-all advocated by powerful countries and corporations in their drive to dominate world markets.
Free trade is underpinned by the theory of “comparative advantage”, a primitive set of suppositions dreamed up by David Ricardo and John Stuart Mill in the nineteenth century. Essentially it says that if the United States can produce roses more efficiently than guns, whilst Iceland can produce guns more efficiently than roses, the US should stick to roses and Iceland to guns. That way each country concentrates on what it can do most efficiently (its “comparative advantage”) and sells its speciality to the other.What happens to dislocated workers - the ones who were formerly producing the “less efficient” product?
Labour is just a factor of production like money, machinery and raw materials, so it can be shifted around according to need. US employees in gun factories can become gardeners on rose farms, whilst Iceland trains rose-growers for a new life in explosives. The happy consequence is that everyone gets richer.
What if the US is more efficient in both products? Answer: it gives up the making the less efficient of the two so as to make more of the more profitable product.
To make this a little clearer, let’s suppose Europe has a comparative advantage in software over the US, but a comparative disadvantage in aircraft. According to trade theory, the solution is for Europe to stop making planes and to turn redundant aerospace engineers into computer whizzes. Meanwhile, the US should abandon software development and concentrate on jets. It goes without saying that neither Airbus nor Microsoft would want to stand in the way of trade theory and would happily retire from the market.
Readers will doubtless spot the cloud of flies in this ointment. David Ricardo with some support from John Stuart Mill hatched up trade theory as a simplistic mind-game in which two imaginary countries produced two identical products. Having satisfied themselves that the game worked in their heads, this pair of benighted geniuses - and countless economists after them - blithely applied it to the world. Incredibly, this balderdash - for that’s what it is - remains the core argument used by the powerful to force “Free Trade” upon the weak, even though, once forced, it paradoxically ceases to be free.
There are about 190 countries in the world. Here’s how the process might look for just a handful of them:
Note that under the theory of comparative advantage, every one of these countries would produce only the product in which it specializes and would import all the others. Trouble is, we all know that’s not how the world works - or is ever likely to work (See Ha-Joon Chang, “Kicking Away the Ladder, London 2002).
Far from being irrevocably fixed, “comparative advantage” changes. Hence why centres of production move incessantly around the world in pursuit of cheap labour, cheap raw materials, local subsidies, lax regulations, and low taxes. What about people? Free Trade chews them up and spits them out again when their relative price goes up.
How then do we distribute income-earning activities?
World demand for most products could be satisfied by a handful of countries; or, in a globalized world, by a handful of corporations. Industry concentration (fewer and fewer companies producing the same goods) has been increasing in all major sectors. Fifty years ago, there were more manufacturers of cars, farm equipment, bicycles, pharmaceuticals, beer, refrigerators, processed food etc. More major banks too. And they employed more people. Job insecurity has increased with the march of international trade; and the average wage bill of multinational corporations in proportion to their revenues has fallen (except for senior executives whose pay shows evidence of titanic greed).
So Margaret Thatcher was right, there's no alternative?
What about making as much as we can and importing only what we need?
"That would be inefficient” objects a scandalized economist. “Prices would go up.”
“Perhaps,” respond the insecure, the unemployed and the underpaid, “But we’d have jobs and be earning money. So for us prices would come down.”
“Chicken shit!,” returns the economist. “A price is a rose. If it grows, it blooms, regardless of whether you can afford it.”
“Not so,” says a bright member of the unwanted (a physicist and disciple of Einstein), “Prices are not absolute but relative. It’s a question of viewpoint. If you earn little or nothing, everything’s too expensive. Once you earn an income, some goods at least come within reach.”
Our economist doesn’t catch this last remark. He’s gone off to enjoy a glass of Japanese Scotch with a local politician. Japanese Scotch? Isn't that an oxymoron? Depends who you talk to.
