|
The Free Trade Controversy
By Imad-ad-Dean Ahmad, Ph.D.
Minaret of Freedom Institute
28/04/2001
Now that the dust (and the tear gas) has settled in Quebec, apart from a "reservation" by Venezuela, the 34 world leaders who met there to discuss a plan for free trade in the Americas have agreed to a pact for 2005.
Proponents of free trade always note that countries that trade with one another are loath to fight one another; yet, the mere discussion of free trade seems to trigger riots. Somebody thinks their ox is being gored, or there would not be so much heat - not to mention fire.
There are really two different questions confuted in discussions of the free trade agreements. One, of course, is the dispute over the merits of free trade itself. The other is a collection of concerns over the particular trade agreements, which almost by definition constitute not free trade, but managed trade. After all, a true free trade agreement would be very brief: a set of nations would agree to no tariffs or limits in the trade amongst them. Thus, the most compelling arguments against the Free Trade Area of the Americas (for example, the secrecy in which it is conducted and its potential anti-democratic impact) are really objections to managed trade that are mislabeled as objections to free trade.
The general benefits of free trade are well known. They are, primarily, to the advantage of the consumers in the countries involved. There may also be benefits to particular industries in some countries, but these are offset by the burden of additional competition to those same industries in other countries. Similarly, there are potential benefits to the public treasuries of some countries although these are dependent on their internal tax structures.
It is consumers, however, who reign as king. The benefits to the consumer are unqualified. Increased competition promotes market efficiencies, lower prices and, sometimes, the variety and quality of goods available.
There are also secondary benefits in the increased opportunity for technological innovation from unexpected quarters, as the history of America's trade in electronics with Japan demonstrates. Initially, the Japanese merely produced cheap imitations of American electronic products (notably, transistor radios); however, Japan subsequently became a leading innovator in new electronic products.
Just as well known are the standard objections to free trade, which come from entrenched industries, labor unions and, recently, environmental lobbyists. The first two do not require much comment. Obviously, the owners of successful industries do not want new competition from developing countries. That concern raises no sympathy among Muslim observers, as Islam is completely opposed to restraint of trade. If an industrialist cannot compete in a particular area, he should shift his investments to a sector in which he can compete.
Similarly, well-paid workers in developed countries (whose wages are above the true global market price) don't want competition from poorly paid workers in underdeveloped countries (whose wages are below the global market price) because of artificial obstacles to competition. The shedding of crocodile tears over the "exploitation" of workers in the underdeveloped world should be seen for the cynical ploy that it is.
Competition will raise wages in underdeveloped countries for the same reason that it lowers wages in developed countries, and both will converge towards the true global market price. For example, if there were free trade between America and Bangladesh, some American textile workers' salaries would go down, but this loss for them (which would lead some of them to switch to employment in more lucrative sectors of the economy) would be more than compensated for in the eyes of the Bangladeshi textile workers whose wages and employment opportunities would rise. At the same time, American consumers (including the displaced textile workers) would benefit from lower textile prices.
Easier to sympathize with are the small farmers in underdeveloped countries threatened by the difficulties of competing against American agri-business. However, true free trade is only a short-term threat to them. The increased standard of living for the entire nation when their supply of food increases and costs fall will create a surplus of investment capital that can be used to create new industries or expand existing efficient industries. This would serve to replace the lost economic niches with new ones in which displaced farmers have the potential for even greater productivity. Many people may, for the first time, be able to obtain a standard of living above mere subsistence.
Of course, there are some who would find the greater urbanization of their societies objectionable; however, other than to the degree that such objections reflect legitimate ecological concerns, they are anti-progressive. Anyone who preferred subsistence living to a new way of life available through the expansion of trade could simply retain his farm and grow crops to feed his own family.
The most popular concerns over free trade are ecological. Competition between nations would seem to offer an incentive for laxity in environmental legislation. If Country A's tough environmental laws make it expensive to produce a particular good, might not Country B be tempted to forego similar laws in order to have a competitive advantage?
This appears to be especially true where environmental consequences are global rather than local. For example, while it is difficult to believe that a country would permit its water to be polluted in order to have a competitive advantage against the United States, it is less likely that they would allow concerns over global warming to affect such a decision. This is the standard problem with socialization of costs. If a few are benefiting at a cost that is imposed on all, there is often insufficient incentive for the "looted" majority to defend itself against the "looting" minority.
However, the real problem with free trade is one rarely mentioned by demonstrators: governmental structures typically allow freedom of trade among countries to accrue to the benefit of the ruling elites of certain countries at the expense of the masses. Two centuries ago, Montesquieu offered the Poland of his time as an example, "Some of the lords possess entire provinces; they oppress the husbandmen in order to have greater quantities of corn, which they send to strangers to procure the superfluous effects of luxury. If Poland had no foreign trade, its inhabitants would be happier" (p. 152). In other words, they would at least have their corn to eat, of which the benefits of international trade accruing only to aristocracy deprived them.
And therein lies the real problem for the Muslim world. Muslim nations can only benefit from free trade by ridding themselves of regimes that impose constraints on their internal economies, directing any benefits into their own pockets and those of their friends, instead of allowing it to be the impetus for prosperous new development that profits the entrepreneurs, workers, and consumers of their nations.
References
Charles de Secondat, Baron de Montesquieu. "The Spirit of Laws," translated by Thomas Nugent and revised by J.V. Pritchard in
Great Books of the Western World. Chicago: Encyclopaedia Britannica, 1952.
|
