FREE TRADE THE GREAT DESTROYER By David Morris Illustrations by Chris Fieber and David Hwang 28 Clinton St. Quarterly—Spring, 1988 Free trade is the religion of our age. With its heaven as the planetary economy, free trade comes complete with comprehensive analytical and philosophical underpinnings. Higher mathematics are used to prove its basic theorems. But in the final analysis, free trade is less an economic strategy than a moral doctrine. Although it pretends to be value-free, it is fundamentally value driven. It assumesthat the highest good is to shop. It assumes that mobility and change are synonymous with progress. The transport of capital, materials, goods and people takes precedence over the autonomy, the sovereignty and, ultimately, the culture, of our local communities. Rather than promoting and sustaining the social relationships that comprise a vibrant community the free trade theology uses a narrow definition of efficiency to guide our conduct. The Postulates of Free Tradie For most of us, the tenets of free trade appear almost self-evident. • Competition spurs innovation, raises productivity and lowers prices. • The division of labor allows specialization, which raises productivity and lowers prices. • The bigger the production unit the greater the division of labor and specialization and thus the greater the benefits. Today this adoration of bigness permeates all political persuasions. The Undersecretary of the Treasury proposes creating 5 to 10 giant U.S. banks. “ If we are going to be competitive in a globalized financial- services world, we are going to have to change our views on the size of American institutions,” he declares. The vice chairman of Citicorp warns us against “ preserving the heartwarming idea that 14,000 banks are wonderful for our country” . The New York Times editorializes against aiding struggling small farmers because “ that would only retard the transition to efficient farm size.” The liberal Harpers magazine agrees, “True, farms have gotten bigger as has nearly every other type of economic enterprise. They have done so in order to take advantage of the econom ies of scale o ffered by modern production techniques.” Democratic presidential adviser Lester Thurow criticizes anti-trust laws as an “ old Democratic conception (that) is simply out of date.” He argues that even IBM with $50 billion in sales is not big enough in the global marketplace. “ Big companies do sometimes crush small companies,” Thurow concedes, “ but far better that sma ll American compan ies be crushed by big American companies than that they be crushed by big foreign companies.” In These Times, which until recently called itself an independent socialist weekly, concluded “ Japanese steel companies have been able to outcompete American steel companies partly by building larger plants.” • The infatuation with large scale systems leads logically to the next postulate of free trade: the need for global markets. As Adam Smith, the 18th century Scottish economist and father of free trade, observed in his classic book Wealth of Nations, “ Specialization is limited by the extent of the market.” Anything that sets up barriers to ever-wider markets reduces the possibility of specialization and thus raises costs. Which makes us less competitive. • The last pillar of free trade is the “ law of comparative advantage.” Comparative advantage comes in two forms: absolute and relative. Absolute is the easiest to understand. Differences in climate and na tura l resources suggest that Guatemala should raise bananas and Minnesota should raise Walleyed Pike. Relative comparative advantage is a less intuitive but ultimately a much more powerful concept. As the 19th century British economist David Ricardo, the architect of free trade economics explained: “ Two men can both make shoes and hats and one is superior to the other in both employments; but in making hats he can only exceed his competitor by one-fifth or 20 percent, and in making shoes he can exceed him by one-third or 33 percent—will it not be for the interest of both that the superior man should employ himself exclusively in making shoes and the inferior man in making hats.” Thus even if one community can make every product more efficiently than another it should specialize only in those items it produces most efficiently, in relative terms, and trade for the others. Each community, and ultimately each nation, should specialize in what it does best. What are the implications of these tenets of free trade?
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