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The False Promise of Free Trade

07.31.2001 | POLITICS

Free trade means growth. Free trade means growth. Free trade means growth. Just say it fifty more times and all doubts will melt away.
--The New York Times, 12/15/93

It is almost impossible to write about free trade without also writing about the American media, because one can't examine a religion without also discussing its apostles. In the church of free trade, journalists are high priests, spreading the good word, assuaging the skeptical, belittling the adversaries, and snuffing out dissent. The New Economy and its aliases--free trade, globalization, "creative destruction"--has become an object of mysticism in the press, something to be watched but not questioned, lest it take its magical properties and vanish forever. Corporate mergers, like gamefish and prize pumpkins, are celebrated for their size, and the NASDAQ treated like the space shuttle, its every upward thrust considered a new pinnacle in human achievement. So glorious is the takeoff that the flotsam of its ascent--discarded booster tanks, space junk, choking vapors and other detritus--is rarely explored. The cameras rarely bring us the exhaust fumes of the New Economy.

But this doesn't mean they don't exist. In 1999, the planet saw over 400 riots against globalization. Most of these took place in the Third World, and were not reported at all. About a dozen took place in the Northern, or Developed, world, and their press coverage consisted mainly of damage tolls (property destroyed, arrests made, number of police deployed) and sneering derision. Those who attacked free trade were treated as malcontents and dimwits, men hitched to a wagon whose wheels were already coming off. Globalization would come regardless of their antiquated ideas, and they best shut up and climb board. It is inevitable.

These arguments are not convincing. Inevitability is a crutch for the logically hobbled, a tool employed by those who lack better justification for their positions. Very little of history has been inevitable, but much has been caused by those who profess that alternatives do not exist. Inevitability is the product not of fate but of narrow-mindedness, a refusal to entertain other ideas.

The trick to reading a newspaper has always been listening to what isn't discussed. An example: as I write this, a debate is taking place in Congress over whether patients should be allowed to sue their HMOs. The question has been volleyed back and forth for some time now, and the media has dutifully sketched out each side's pros and cons, interviewed think tank spokespersons and the presidents of trade associations, trotted out numbers, graphs and pleasing statistics. What is has not done is expand the debate. The question of whether I should be able to haul my HMO into court, fascinating as it may be, presupposes that I have an HMO, and is thus fantastically uninteresting to the millions of Americans who have no health insurance, and thus, presumably, no target for future litigation. Thus the current argument in Congress, for all its complexity and potential impact, actually obscures a larger, more fundamental question: in a nation riding an unprecedented wave of prosperity, shouldn't we be debating why some people have no health care at all, rather than why some people can't sue their health care providers?

Health care is only a useful example, however. Nowhere has the media more willingly swallowed the bromides and platitudes of Washington than in the case of the New Economy. George W. Bush may have entered office promising to be "a uniter, not a divider," but it is the opponents of globalization who have emerged as true bastions of bipartisanship: everyone, regardless of ideology, seems to hate them. When 50,000 protesters descended on Seattle and laid siege to a conference of the World Trade Organization in December 1999, the ultraconservative Wall Street Journal blasted them for being misguided zealots, attention-starved fools grandstanding "on the bodies of the world's poor." The staunchly liberal Boston Globe called them "Luddites," and lamented the futility of their cause.

But no one was more furious than New York Times, the Globe's parent and America's centrist newspaper, which unloaded a series of blistering tirades on its op-ed pages and read the protesters out in spades. Economist Paul Krugman (who has written in praise of sweatshop labor), found the WTO demonstrators ill informed and morally vacuous. Foreign Affairs columnist Thomas Friedman, a self-styled expert on globalization, hurled down a raft of invective, and called the activists "eco quacks" and "contemptible," and saying they "deserve to be given the back of your hand." They were little more than "a Noah's Ark of flat earth advocates, protectionist trade unions, and yuppies looking for their sixties fix.

And Seattle was only the beginning. When thousands of dissidents marched on the Washington headquarters of the World Bank and International Monetary Fund, the press responded with more uniform disdain. Likewise for the World Bank's subsequent summit in Prague that fall, and for the meeting Ottawa on the Free Trade for the Americas Act (which would expand NAFTA to all of the Western Hemisphere) that took place this April. The press has yet to give a verdict on the 100,000 protesters who swamped Genoa for the recent Group of Eight Nations conference, but can reasonably expect another round of eye-rolling and tut-tutting. On the final day of the Seattle demonstrations, Peter Jennings introduced a segment on ABC's World News Tonight by saying "The thousands of demonstrators will go home or to some other venue, where they'll try to generate attention for whatever cause that moves them." The sentiment was and is shared by his colleagues. Never have so few looked at so many and found them so useless.

To be honest, I've never been terribly enamored of the protesters. The one protest I attended seemed disjointed and overly vague, too quickly given to one-dimensional sloganeering and too easily hijacked by troublemakers who stole headlines by goading police and vandalizing property. The presence of anarchists, in particular, is a perpetual discredit to the movement. The historian Richard Hofstader said the defining trait of American extremism is a tendency to imitate all that it loathes, and anarchists are nothing if not brilliant proof of his hypothesis. They rail against the WTO for being faceless, destructive and unaccountable, but then don masks, destroy property, and disavow all laws. Few fruits taste so bitter as hypocrisy.

So there. It' been said. The hides of the protesters probably deserve some of the tanning that's been given them. At a certain point, however, it becomes incumbent on the press to see past the protesters' tactical flaws and evaluate their arguments. Whatever one may think of the demonstrators themselves, a number of reputable organizations--from the Sierra Club to the AFL-CIO--have objected to free trade, and one would think that the points they raise deserve some scrutiny. But the press is content to mirror the one-dimensional attacks with one-dimensional defenses. If the protesters mindlessly call globalization bad, then the press mindlessly calls it good. Like the health care bill, the debate about free trade stalls in the shallow end, always treading on the hygiene and IQ of the demonstrators themselves, and never moving into the deeper waters of whether they might actually have a point.

Trade gets this free pass in the press for two reasons: it is dull, and it is bipartisan. The fact that trade is less interesting than most of what ends up on TV (i.e., a special report on the amount of "Lead in Your Lipstick" that a station near me ran not long ago) was made abundantly clear in 1994, when Ted Koppel introduced a Nightline segment on GATT by warning viewers it would be boring. He compared GATT--which we will talk more about shortly--to the OJ Simpson Trial, which he called "high interest," but "low impact." "Our problem," he said, "is holding onto your attention with a subject that will have enormous impact on your lives, but is seen as being so complicated that we'd rather take the consequences than a close look."

It is this attitude that puts the protesters in a bit of a box: getting the media's attention requires a spectacle, but the spectacle will always threaten to become the story itself, particularly if it features broken windows, tear gas, and masked idiots. (Nothing hurt the credibility of the Seattle protests more than a widely distributed picture of three anarchists smashing the storefront of Niketown. They were black-clad and masked, and at least two of them were wearing Nike sneakers.) Between July 16 and 20, the Boston Globe ran three stories on the G-8 summit in Genoa, Italy, and all of the focused on the security measures being taken in anticipation of 100,000 protesters arriving in the city. None addressed what the G-8 would discuss, or why it was being protested. And as the intensity of each successive protest is elevated, and the violence worsens, it becomes easier for the media to justify covering the demonstrations alone, and discrediting the ideas behind them. (Three days after police shot a protester dead in Genoa, the New York Post ran a column by Rod Dreher saying the protester had deserved it.)

Trade's bipartisanship compounds this. Boredom alone, after all, does not preclude a story from becoming news--the debates over health care and social security privatization have no shortage of coverage, and they are hardly racy. The difference lies in the fact that they are matters over which politicians rabidly disagree. When Congressmen hurl epithets at each other, the press is honor-bound to take notice, and will plow into the most tepid, somnolent subjects. But if Washington's rhetorical guns fall silent, what is there to do? Trade has no partisan divide; it is politicians versus ordinary citizens, rather than each other. President Clinton overrode the labor unions that helped elect him when he won passage of NAFTA, and President Bush is eager to expand on his predecessor's work. In the year before the 2000 election, two American cities were plunged into chaos over free trade, but neither candidate mentioned it all. It wasn't discussed, and what wasn't discussed couldn't be reported.

The aforementioned Thomas Friedman, who has emerged as globalization's preeminent sherpa, contends that the two political parties don't argue over issues like trade because the dominant faction in each has realized that there is no alternative to the free market. In his book, The Lexus and the Olive Tree: Understanding Globalization, Friedman says that unanimity over trade is a byproduct of the "golden straitjacket"--the idea that nations today need to let the market rule them if they want to prosper. Only by putting on the straitjacket, and keeping its hands off the economy, can a government create wealth for its people. Friedman sees the straitjacket as a repudiation of the work of John Maynard Keynes, whose "Cold War" ideas of "taming capitalism," have now been discredited, and replaced by globalization, which seeks to "unleash capitalism."

The more you let market forces rule and the more you open your economy to free trade and competition, the more efficient and flourishing your economy will be. Globalization means the spread of free market capitalism to virtually every country in the world. Globalization also has its own set of economic rules--rules that revolve around opening, deregulating and privatizing your economy.

Friedman bends over backward to paint this in a positive light (Less politics! More money!), but for even the dimmest reader this idea should set off about a dozen alarms. Pulling economics out of the political equation is a rather drastic piece of surgery. The economy is not a gratuitous spleen, and a nation's political life cannot be simply stitched back up and told to roll along as usual in its absence. And the idea that Keynes' theories should somehow end with the Cold War is baffling, since much of Keynes wrote about dealt with the internal tension in capitalist countries, not the tension between capitalism and communism. Most of the last century's significant political movements have been Keynesian, in the sense that they arose from a desire to constrain the free market. Environmentalism, worker's rights, social security and consumer protection have all been premised on the idea that the market should in some instances be subordinated to the larger values of society. To simply declare, as Friedman does, that this idea is suddenly old hat, and in fact not just old hat but backwards, and that governments should subordinate themselves to the market, is to invite a drastic contraction of political thought.

And he admits as much. Voters, he notes, will find fewer differences between candidates--a complaint that should resonate with Republicans who watched in fury as Democrats co-opted their economic policies in 1995, or British conservatives who watched Tony Blair do the same thing. For that matter it should be familiar for anyone subjected to the pain of debate between Al Gore and George W. Bush, who quibbled over the impossibly inconsequential ("My health plan, if you'll look at these numbers, Jim...") while all large ideas eluded them.

The golden straitjacket fit best, however, on Bill Clinton, the great centrist himself. True to Friedman's model, Clinton espoused a liberalism with its economic component suspended. He crusaded for gun control, abortion rights and other social causes, but he embraced free trade, reveled in stock market euphoria, and eviscerated welfare. His Justice Department pursued Microsoft, but on the whole largely curtailed antitrust litigation, and on his watch American corporations to engage in an unprecedented orgy of consolidation. The stock market applauded his Presidency, the wealth of the nation went through the roof, and Democrats began feeding at the corporate trough with a gusto once reserved for Republicans. This tilted them still further to the center; the result has been a diminished political spectrum. The wealth of the New Economy has been purchased at the price of less democracy.

Friedman's work on the Golden Straitjacket is astute, but it also undermines the point he tries to make in the rest of his book: that globalization is ultimately a liberating phenomenon. To believe this, in light of what he has just written, would require a truly gymnastic mind. He argues that a "straitjacket" is the new path to freedom, that society with more money is better than one with a plurality of ideas, and that the only way the market can liberate a country is if the country first becomes its slave.

Does this make sense? And even if it does, does that make it not worth protesting?

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In all due respect, those who try to disrupt and destroy and hurt are really defeating the cause. I think a lot of people in the world are sick of it. They hurt the cause of the poor when they argue against trade.
--President Bush, "G-8 Protesters Fan Security Fears", The Boston Globe, 7/19/01

One of Friedman's favorite phrases (he has used it in at least two columns, and also in one speech that I know of) is that Less Developed Countries "don't want less globalization, it's that they want more of it. Because they understand that without trade, without global markets they have no way to build their way out of poverty." He usually follows it up with a second favorite: those who protest trade, he says, should name themselves "the committee to keep poor people poor."

This is the reflexively-repeated mantra: free trade as spinach. It might not taste good going down, but it'll make you strong in the end. If you take it away from the Third World, they'll only regret it later. It sounds good, and it allows those who it use to treat skeptics as impudent brats, but is difficult to see where evidence can be drawn to support this bold assertion. Free trade theory is very old, dating back to Adam Smith, but free trade is empirically very young, and the idea that it will alleviate the plight of the world's poorest nations is based more on supposition than fact.

The modern era of global trade began in 1947, when a body called the International Trade Organization, or ITO, was formed under the aegis of the United Nations. The ITO's mission was to promote global trade within the context of the UN's Universal Declaration of Human Rights. Full employment was to be one of its prime considerations, as was social justice. The ITO died before its birth, however, because it lacked the support of the United States. (In contrast to its eager embrace of most trade treaties, the U.S. has always been suspicious of the UN's international compacts. Today America has ratified only four of the UN's 21 human rights agreements, and none of its 31 environmental agreements). The U.S. envisioned a less regulated regime of global trade, and to that end championed the creation of GATT (General Agreement on Tariffs and Trade), an autonomous entity whose purpose was to progressively remove trade barriers. Since 1947, when GATT was formed, its members have engaged in eight "rounds" of negotiations, with each round typically lasting over five years. The first six rounds focused almost exclusively on the elimination of tariffs; the seventh, which took place from 1973-1979, began to focus on other potential barriers to trade, such as the environmental and labor laws of individual countries. The eighth round of talks, known as the Uruguay Round, lasted from 1986 to 1994, and culminated in the creation of the WTO, a legal agency with the power to rule on trade disputes and enforce its rulings via sanction.

The WTO's creation took place the same year that NAFTA was passed, and these events set in motion today's brouhaha over trade. Both institutions provided a forum where "non-tariff barriers" could be challenged as illegal. It was in a WTO tribunal, for instance, that America's ban on non-"dolphin safe" tuna was overturned. When California banned the carcinogenic gasoline additive MTBE, the Canadian company Methanex, which manufactures it, was able to bring suit against the state under Chapter 11 of the NAFTA code for $970 million. UPS was able to sue Canada under the same code, for $230 million, on charges that Canada's government-run post office constituted an unfair trade advantage. Both of these cases were heard by NAFTA tribunals, rather than regular courts. For the labor unions and non-governmental organizations that had worked to implement many of these laws, the idea of a secretive judiciary overturning them was understandably nauseating, and the fact that NGOs had no voice in the WTO made that institution seem still more ominous. Critics saw the WTO as triggering a "race to the bottom," where countries would be forced to jettison regulations in order to remain competitive. The trade organization, for its part, did little to hold such impressions at bay. In every instance save one, when an environmental or labor standard has been brought before the WTO, the WTO has ruled against it.

Apologists for free trade dismiss all of this with their trump card: trade helps the world's poor. And it can. Few would deny that trade is an economic imperative. But modern history has few examples of impoverished nations trading their way into wealth. Protected and regulated markets have been the norm for most of history, largely because they have worked. One of the first acts of the United States' fledgling Congress was the passage of a tariff to protect manufacturing, and while America certainly pursued trade in the next 150 years (using gunboats to open Japan's markets in 1853) it was also no stranger to protectionism. In fact, the five fastest-growing economies of the last 200 years, which include the United States, Japan, South Korea and China, have all had the aid of tremendous government intervention. Japan, which spent two decades striking fear into the hearts of American financiers, built its meteoric rise to power on the back of ferocious tariff policies. The same can be said for other Asian "Tiger" economies. Europe, for that matter, was not resurrected from the rubble of World War II by deregulation and free trade, but by the Marshall Plan, a massive infusion of no-questions-asked foreign aid that helped the once-industrial continent reach a point where it could again produce trading partners. There was no expectation, after the war, that Europe would trade its way out of economic devastation; trade was put off until European industry was rebuilt.

By most accounts, the Marshall Plan worked very well. Yet foreign aid is now treated as a discredited doctrine in Washington, given lip service and little else. Despite a promise made by the world's industrial nation in 1990 to give .2 percent of their GNP to the world's poorest countries, the amount of foreign aid sent to Less Developed Nations has fallen 30 percent over the last ten years. Only five donor nations have met the .2 percent target, and the average donation is now .05 percent. Of all the rich nations, the record of the United States is the worst, as it provides .02 percent of its GNP, less than half of the already-paltry average. It is trade that is now touted as the cure for the Third World's ills, and with trade's ascendancy has come one of the great canards of the New Economy: that the industrial world is a bastion of free trade, and that the Third World must imitate it in order to catch up.

This is an inversion of reality. The North, as we have just mentioned, was built by protectionism, but the markets of the South have long since been forced open; the Third World's golden straitjacket is firmly fastened over its emaciated torso. For the poorest nations, deregulated, export-oriented economies are a way of life, because they are often mandated by the structural adjustment policies of the World Bank and the International Monetary Fund. Countries that need loans from the Bank and IMF are forced to cut public spending, deregulate their economies, and concentrate on trade at the expense of other investments. This is done partly because the loans are made in dollars, and only exports will yield the dollars needed to pay the loans back, and partly because the lenders' dogma holds that free trade will best fuel economic growth. For these reasons, Mozambique was forced by the World Bank to eliminate a tariff on cashew nuts as a condition for its loans, and in 1995 Haiti was forced to slash its tariff on rice by over 47 percent.

It would be an understatement to say these programs haven't worked. When Haiti knocked down its rice tariff, the island was immediately flooded by subsidized rice from the United States, which depressed prices and bankrupted scores of Haitian farmers. The country's rice output plummeted as a result; in 1980, the island produced 180,000 tons of rice per year, a number that by 1998 had fallen to 105,000. Over 50 percent of Haiti's rice now comes from abroad, and the massive surge of imports has depreciated the island's currency to the point where domestic rice would now be less expensive. With the local farmers gone, however, that option no longer exists.

Haiti's situation, sadly, is far from unique. Efforts made in good faith by the world's poorest countries have not been reciprocated, and free trade has become a one-way street, more a punishment than a remedy. While poor nations have eliminated tariffs and subsidies on the advice of rich ones, the rich nations have not done the same. And while trade advocates may try to dismiss cases like Haiti as the result of unfortunate hiccups in the global market, in reality they cannot be so easily written off. Oxfam, the British-based anti-hunger network, has uncovered disturbing evidence that the First World goes out of its way to punish the Third. Most goods coming into developed countries are subject to import tariffs of five percent. Goods manufactured in developing countries, however, are three times as likely as all others to be hit with tariffs of 15 percent or higher.

The institutions of "free trade" have not smashed these tariffs down. In fact, a close examination of the WTO, NAFTA, and similar agencies reveals that phrases like "free trade" and "protectionism," are little more than linguistic sorcery, meant to obscure an unrelenting self-interest on the part of the North. GATT may exhort all nations to drop tariffs and abandon subsidies, but its words only carry weight with the poor. In the years since the Uruguay Round the degree to which Northern countries subsidize their agriculture has actually grown, to the point where they now spend $1 billion a day protecting their own crops.

NAFTA, meanwhile, the supposed bane of protectionism, has provisions built into it that vigorously protect the U.S. biotechnology sector. It also protects Florida's shameful sugar industry, the government-subsidized swindle that has lined the pockets of politicians and slowly starved the Everglades. Absent protection, low-cost Mexican sugar cane would undoubtedly send U.S. sugar spiraling into the same oblivion as Haitian rice.

Instead, U.S. sugar is bloated and rich, an artificial crop in an environment not suited to it, kept alive by a government and a corporate ethos that professes to disavow government aid. On the other side of the planet lies Bangladesh, one of the poorest nations on earth. It is estimated that if trade restrictions for Bangladesh were the same as they are for, say, Britain, it could export $700 million more dollars worth of textiles to the US and Canada. Instead, the combination of tariff peaks and diminished foreign aid has created a situation where Bangladesh gives the United States $7 for every $1 it receives in aid, and gives Canada every $36 for every $1 it receives.

It is not for no reason that Third World countries have made glacial progress in economic development. Like glaciers, they are forced to take three steps back for every one step forward. In 1980, the average income of the First World outdistanced that of the Third by a ratio of 87 to 1. Today that ratio is 98 to 1, and it will likely continue to grow.

At bottom, there is no such thing as free trade. There is only protectionism, in its most literal sense. Everyone looks out for themselves, and protects what is theirs. NAFTA and the WTO have "institutionalized the accumulated advantage of the North," in the words of activist Walden Bello, and they deny poor countries the very tools used to create that advantage in the first place--tariffs, public investment, laws that help develop competitive industry. "Free trade" may create wealth, but creating wealth has very little to do with alleviating poverty. The Third World is already wealthy. It owns the vast majority of the world's resources, an awesome repository of oil, diamonds, fuel and precious minerals. What it lacks is an infrastructure that allows those resources to benefit its sprawling underclass. Free trade agreements benefit the elite of Third World nations, who act as middlemen and grow rich by moving these resources to the North. Brazil liberalized is trade policies in 1990, and by 1998 its economy had grown a staggering 30 percent. But the top ten percent of Brazil's population benefited 19 times more from this growth than did the bottom twenty. Free trade meant growth, but growth meant inequality, because the free trade was set up by protectionists who took care of their own. "What you don't understand," a former State Department official told the Council on Foreign Relations in 1999, "is that when we negotiate trade agreements with these poorer countries, we are negotiating with people from the same class. That is, people whose interests are like ours--on the side of capital."

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Two final stories: one from Africa, one from Washington. The story from Africa has been ongoing. It is the story of Tunisia, a country that the World Economic Forum, in Davos, Switzerland, calls the most competitive in Africa. The World Economic Forum is, to put it politely, a cheerleader for global capitalism; it has named both Thomas Friedman and his partner on the Times op-ed page, Paul Krugman, "Global Leaders of Tomorrow," and it is very much a part of the New Economy. Which is what makes Tunisia so interesting. Tunisia has eschewed grandiose development projects, and thus has not had to borrow gross amounts of money, and thus not had to redirect its entire economy outward. In fact, it spends 25 percent of its GDP on education, and as a result has as a strong middle class with relatively small income inequality. And by investing in itself, it can now prosper through trade.

The story from Washington takes place in the year 2000, the same year that crowds surged against the World Bank, and contended that structural adjustment policies were torturing the Third World. That the forced disinvestment in education, public health and the environment had ended any hope of money ever reaching those who needed it most. Ravi Kampur, the Cornell University economist and lead writer of the Bank's Annual Development Report, examined the Bank's data and realized that export-oriented policies were not sufficient tools for fighting poverty. A significant number of his colleagues agreed. The Bank discouraged this line of thought, and after tense discussions Kampur resigned in protest. His colleagues took up the fight in his absence, and the Bank, long a bastion of intransigence, relented. The final draft of the 2000 Annual Development Report of the World Bank conceded that trade is not a panacea for the poor, and recommends instead that governments "make state and social institutions more responsive" to those trapped in poverty. Said, in other words, that public investment was needed, and that the Bank's much-abused critics had a point after all. This story received virtually no press coverage. Compared to the columns used reaming out the protesters, it was a non-event. Not that this should be surprising. In the Church of Free Trade, as in most churches, heresy is always silenced.

About the Author
Michael Manville's writing has appeared in a number of online and print publications. He lives in Los Angeles.
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