Beyond Free Trade, Op Ed

The concept of ‘gains from trade’ is as old as economics itself and its logic embedded deeply into the operational framework of the global economy. Jones in Who’s Afraid of the WTO (2004) attempts to demonstrate that, despite the fact that there are ‘winners’ and ‘losers’ in a country when trade is liberalized, “the country as a whole tends to gain from trade (36).” Jones’s unshakable faith in free trade mechanisms to bring benefits to countries who engage in it is not all together misplaced and he makes some worthwhile observations about trade being an inevitable reality between states, with or without WTO facilitation. However, there is more to the picture than what Jones takes on. Trade liberalization as a concept has come to form part of very powerful set of economic values known broadly through the Washington Consensus, which have profoundly shaped the way international economic actors have conducted themselves in the last thirty years ­– with equally profound consequences for the countries who have adopted them. While the rapid development in China and other East Asian countries is often taken as an example attributable to export growth and the adoption of key aspects of capitalism, their assentation has been anything but prescriptive trade liberalization. In fact, contrary to the free trade logic, “most economies in East Asia did not start to liberalize imports until export growth was already well established. Taiwan and Korea [both] developed behind protective import barrier, […] generating a dynamic export sector before liberalizing imports (Oxfam; 61).”

In reality, the promotion of economic liberalization is underwritten by a complex agenda of interests. While the global economy does hold vast potential for human development, poverty reduction is not the primary function of trade liberalization as it is implemented today – despite some of the post-rationalization performed in its defense. It is, in fact, an incredibly one sided affair structured towards the retrenchment of an existing economic power balance tilted towards the Global North. Despite ardent free trade rhetoric from these countries, powerful private interests have been successful for years at keeping subsidies and import restrictions in place in key industries (such as agriculture, textiles, and steel) while strategically pressuring other countries to lift barriers to entry (Oxfam, 25).

A recalibration in this power relation is long overdue. As the Oxfam article illuminates, a deeply unbalanced trading relationship between North and South has been the status quo since the the mercantilist era. In fact, though we rarely like to admit it, Western industrialization was only possible through the extraction and exploitation of the resources of other nations, including the forced labor of its people. In today’s context, as we saw in the documentary Blood Coltan, the exploitation of both natural and human resources is still a significant problem. The integration of developing nations into the global economy is not a simply a question of ‘winners’ and losers’ but a complex process within system of imbalanced of economic and political power. The documentary serves as a reminder that the full complexity of the global economy cannot be accounted for by any model or theory, least of which, as even Jones himself argues, an anachronistic belief in Ricardian comparative advantage (36).

Thus far the United States and the European Union have both been totally unwilling to take on the true cost of free trade, as was evidence by the failure of the Doha Round of WTO negotiations. In fact, many of Jones’s arguments hinge on responding to certain WTO criticisms through reforms put forward in this Round. The cause of the failure, as it has been suggested by one prominent economics school, is that despite the fact that developing countries, “were right to say that their circumstances should give them special treatment, […] the political reality is that by offering nothing in return, they are a drag on the system (Centerpiece Autumn, 2006; 21).” This assertion is audacious, but unfortunately all to indicative of a hard truth; the fundamental intention of global trade is not the redistribution of wealth, nor economic development in the sense of poverty reduction, if it was, the Doha round would not have failed. It was a failure, because the trade liberalization agenda functions primarily to create a global economy for established multinational companies to lower their costs, expand their markets, and increase their profits (Oxfam; 6). This is not a question of not bringing anything ‘to the table’ – when 40% of the world’s population has access to only 3% of the global export market there is a bias in the system that needs to be corrected (Oxfam; 43). It is interesting to observe that, while there have been no shortage options proposed to narrow the divide between the developed and developing world, trade liberalization remains the most ‘feasible’ and regularly promoted remedy in the political toolbox. I can’t imagine why.

The Wealth of Nature, Op-Ed

The tangible, existential risks environmental degradation poses to the global economic system have never been more clear: Unmitigated exploitation of the word’s natural resources poses tremendous risk not only to the economy itself, but to our shared future on the planet. Last year the World Economic Forum named climate change its number one economic risk factor, while the peer-reviewed journal Nature Climate Change has estimated that, by not taking into account the costs of environmental degradation, global assets were currently overvalued at anywhere between $2.5 and $24 trillion USD. The OECD, in a November 2015 report on the economic effects of climate change on GDP, estimated that even with mitigation policies in place, the potential loss to global GDP by century’s end will be between 2-12% and stressed that climate change now clearly represents “systemic risk to the global economy.”

Without hyperbole, this small snapshot represents big movement among mainstream economic institutions and their attitudes towards environmental risks. For the entirety of the history of capitalism as an economic system, we have privileged growth and development above all other considerations. Two-hundred and forty years ago, while philosophizing on the nature of pre-industrial economies in The Wealth of Nations, Adam Smith could hardly have grasped the impact his ideas would have on the development of economic thought, nor the magnitude of the today’s global economy. His emphasis on free-trade through comparative advantage between nations would have had more more to do with the emancipation the burgeoning capitalist class from the dictums of the monarchy, than the alleviation of poverty, or avoiding ecological disaster. So why do we continue to cling to these ideas to combat these issues today?

Partly, the unprecedented material prosperity that has developed under free-market capitalism has engendered a certain blindness to its externalities. Given the global domination of its advocates for centuries, the religious-like faith in Smith’s ‘invisible hand’ to deliver the best possible outcome for everyone, has been practically unassailable. Advocating the supremacy of this model justifies those who have made their fortunes exploiting it and therefore work to guard against any cognitive dissonance that would force a loss of faith in it. Furthermore, the natural intersection between money and power has allowed for the ‘rules of the game’ to be refined in such a way that, where ever there was money to be made, there was as little impediment as possible to doing so.

As holders of most of the world’s resources, the countries of the Global South have long argued that their experience with Western dominated, global capitalism is highly unequal and at times extremely violent. These countries have often made the case that, not only do they experience an unequal burden from climate change created through Western development, but that that the exploitation of their natural resources, so critical to this development, has excluded them from their own proper developmental ‘take-off’. In fact, the regions which are the most vulnerable to these changes – the Middle East, North and Sub-Saharan Africa, East and South-East Asia – are some of the worst equipped to deal with them, in particular the political fallout from forced migration, famine, and food shortages and the devastating consequences to the agricultural sector; an activity essential to the survival of the world’s poorest.

Dominate economic policies have always held ‘economic growth’ as a universal good and an end in itself, but in doing so have abstracted this growth from the essence of its wealth, the resources of planet and the environmental systems that sustain them. Mainstream economists have assured us that (despite stagnate wages, rampant inequality, extreme poverty and continuous ecological disasters) economic growth is still an unquestionable good. However, our economic model is no longer, if it ever was, in the best interest of humanity, yet we struggle to find a way to evolve the system to bring us into balance.

Through an examination some of the severe ecosystem collapse currently taking place across the globe – collapsing fishers, deforestation, desertification, climate change, over-pumping water tables, melting ice caps, and the loss of flora and fauna diversity – Gardner & Prugh (2008) and Brown (2001, 2011) make a compelling, if not shocking, case for the unsustainable nature of our current global economy. An economy which, they argue, pushes the beyond limits of the environment which it inhabits and puts us on track not only for economic decline, but civilizational collapse. This is also the warning made in The Age of Stupid, a 2009 documentary which offers up a bleak warning for humanity, should we not be able to bring ourselves back into balance. Brown in Eco-economy (2001) goes further and proposes a model for such a new economy, one which brings together ecology and economics and rebalances growth with ecological limitations. He argues for nothing short of a profound systemic change, a total “restructuring of the global economy,” into one which calculates the real cost of our activities and balances them with sustainability.

However, bringing the economy into balance with the environment is as much about living within the confines of our finite system, as it is about the need to confront the reality of the world today; a world where no one actor can impose global norms and where developing countries are demanding not only their fair chance at development, but fair compensation for the consequences of climatic change they will have to endure. These are not easy issues to overcome. It requires a radical shift in our collective growth paradigm in a way that brings together environmental and economic indicators. It requires reconnecting the ‘wealth of nations’ to the source of that wealth, the true nature of capital, nature itself.