Trade is good; all trade is good; more trade is better than less trade; maximum possible trade. This rhetorical progression has propelled policy discussion about US trade policy for at least two decades.
Ian Fletcher's new book, Free Trade Doesn't Work:
What Should Replace It and Why, takes a step back and asks an important question. Why have we chosen the freest possible trade as our policy goal? Surely, we should be more interested in the promised outcomes of free trade: mutual gain and improved standard of living for communities in America and abroad.
In remarkably readable prose, caustically funny in places, Fletcher challenges the prevailing wisdom that additional free trade agreements and greater global economic integration are inevitable and desirable. He starts by carefully cataloging the highly idealized conditions that must apply before the benefits promised by free trade will accrue. As he rigorously demonstrates, free trade theory is a very poor description of global commerce as it is practiced today.
Policymakers in China, Japan, Europe and elsewhere, who are not bound by free trade orthodoxy, can choose policy options that take advantage of our ideological blind spots. Our policy weaknesses thus become their opportunities.
Free trade remains our conventional wisdom, in spite of its weak foundations. If free trade economics were moved from the economics departments in universities to mathematics departments, it would be discredited on logical grounds some time during the first day. Similarly, its half-life in a physics, astronomy, or chemistry department would be a week or two--the time it would take to send graduates students to the lab to collect data. It is worth noting that conventional free trade theory is considered largely irrelevant in business schools, where students learn the practice of moving capital and production around the world.
Free trade theory sustains itself, not because of academic rigor, but because of strong political and economic interests it its favor. Fletcher acknowledges this reality, and he warns of the risks we run when we allow political and financial interests to distort policies in their favor.
Economists are careful to qualify some of their conclusions, which should give policy-makers fair warning. Trade theory acknowledges that inequality is likely to widen as barriers are removed. Millions of workers will suffer loss, while a small fraction of the population will gain. Economists predict gain overall, but their analysis is indifferent to how gains are distributed. Equity and fairness are concerns for policy-makers, so economists deny responsibility for failures in that area.
Free trade theory is also blind to the dynamics that are reshaping the economies of rich and poor countries. This may be Fletcher's strongest criticism of free trade policy. As we lose our electronics industry, China gains the advantage in developing solar panels, flat screen TVs and cell phone technology. We send aircraft manufacturing to China, and they build their own aerospace industry, using our capital, our technology and our expertise. Trade theory accepts that outcome in the name of efficiency, without assigning a value to future competitive advantage.
Free trade advocates accept closing a factory in Indiana, saying the closure frees up resources to invest in something better. We can innovate our way to prosperity through education and productivity improvements, and move up the value chain. In a perfect world, that would be so. In fact, as Fletcher notes, "America's share of 'sunrise' industries continues to drop."
While free trade advocates imagine that freed up resources could be invested in Indiana, the industrialists who closed the factory are more likely to create the new jobs in Shanghai or Honduras. Nothing in trade theory requires the freed resources to be invested in Indiana. Rather, global mobility of capital makes that outcome unlikely.
It is worth pausing from time to time to recognize a simple observation. No country in the world is pure free trade or pure protectionism. Every country finds its own balance point. Fletcher observes that China, Japan, Korea, England and America all enjoyed strong growth under protectionist policies. No country can show comparably strong growth under free trade policies.
America's history is instructive in this respect. When America industrialized, we structured our domestic economy under policies that expressed our democratic values and goals. We established the Environmental Protection Agency, we insist on clean air and clean water, we have strong child labor laws, workplace protections, minimum wage, subsidized public education, unemployment insurance, deposit insurance for banks, and other policies that helped build a strong middle class. We take pride in our own strong civil society.
For some reason, when we design rules for global commerce, we choose free trade policies that place highest priority on investor rights, and push the interests of civil society into the shadows. History and analysis show instead that better results come from a combination of industrial policy and protectionism.
Said differently, the "sweet spot" in trade, where the promise of mutual gain is actually realized, probably comes at a level of trade that is less than what we have now. Our pursuit of maximum possible trade seems to have taken us past the optimal level of trade. We can trade less and do better. Other countries have done better with a combination of industrial policies and protectionism. In our history, we have, too.
Once we are released from free trade ideology, we can see industrial policy as a desirable strategic tool.
Free market advocates raise a fundamental objection to industrial policy that can be stated in various ways. Markets are more efficient; special interests will distort outcomes; industrial policies will cling to dying industries; and government should not pick winners and losers.
Fletcher's response is also fundamental. "There is no such option as 'not having' an industrial policy. There is only good and bad industrial policy." Fletcher cites James C. Miller, Federal Trade Commission Chairman under Ronald Reagan: "Any discussion of industrial policy should begin with the recognition that we have one. The issue is what type."
The cornerstone of Fletcher's proposal is a flat tariff in the range of 30%. This is close to historic levels of tariffs, and comparable in scale to the Value Added Tax used in Europe. The flat tariff would be combined with other public investments and industrial policies. A flat tariff is a compromise that recognizes political and practical realities, while approximating conditions needed for better economic performance.
Fletcher builds a case to rehabilitate use of tariffs. He considers objections, consequences and alternatives in some detail. He argues that the prospect of trade war is overstated. The starting point in favor of the tariff is that we consume more than we sell abroad. Net exporting countries do not want or need a tariff. Our trading partners have more to lose than gain in a trade war. Furthermore, one premise of Fletcher's proposal is that the optimal level of trade will be lower than it is, now. His goal is not maximum possible trade. We are looking for the optimal level of trade for growth, mutual gain, and prosperity.
Ian Fletcher's book serves two important functions. It breaks free trade's stranglehold on public discussion about trade and industrial policy. Secondly, it presents a strong argument for an alternative policy direction. We are facing the failure of neo-liberal policies. Fletcher's book is a starting point for refocusing our goals and designing new trade and industrial policies that move us toward economic strength and long-term growth. It is one of the most user-friendly introductions to this vital emerging controversy.
Last week, I posed the question that serves as subtitle for my book: who wins the war between states and corporations? The answer is pretty...
I'd say we are coming out on top.
until then, we will be told how well off we are and told to stop complaining ... work double jobs at ten to fifteen dollars an hour go home to your hovel which will cost three of those weeks pay to rent, grab a couple hours of sleep, shower in the street and do it all over again...
... we have been led to believe that hard work and education will equal a better life, and i suppose it all depends on ones definition of that standard.
Rarely have I read such self-centered hogwash.
The US is the richest country in the history of the world.
In 2005, 1,400,000,000 of your fellow humans were living on less than $1.25 a day. And you're complaining about earning $10 to $15 per hour.
Around 7,700,000 children under five die from diarrhoea, malaria, neonatal infection, pneumonia, preterm delivery, or lack of oxygen at birth.
Stop feeling so sorry for yourself.
I would rather the rest of the world grow to meet our standards.
the pure profit motive of the corporate free traders is not conducive to maintaining a decent standard of living.
Can you please let everyone know when the "killing" began?
(1) Money is an export. Money is a "thing." Money is something that you can literally create by claiming that you have it. Money is debt. Debt is money. Black is white. White is black.
(2) It is "efficient" and "safe" for what was once the mightiest industrial nation in the world to dismantle its own productive capacity while selling its technological secrets even to nations that were once its sworn enemies. There is no military or any other risk in so doing.
(3) Everything can be described in terms of the abstract flow of imaginary currency-units. The making and selling of material goods is immaterial. The outcome which optimizes the accumulation of currency-units in the bank account of a few thousand people is by definition proper for a nation of 309 million people.
(4) "Multi-national" means that the laws of no country on earth can be applied to it. However, crime will not flourish under such conditions. Of course it won't.
Were the railroads created in a "free market" in the 1800s? Hardly, not when the government granted them powers of eminent domain. Is the oil business a free market? Hardly, not when it is subsidized so heavily by military power and government-built Interstate highways.
Where, then, are we to look for an example of a free market?
And if we conclude by their invisibility that there are none, must we not conclude that the only difference between your imagined free market and my imagined free market is the name of the corporate power(s) that has control, or at least dominant interest?
Thus it comes down to power: Who has it?
Clearly the power is not with labor unions, nor with government agencies acting on behalf of "the little guy." It is with the capital class: the Goldman Saches, the BPs, the General Motors... the (now) too-big-too-fail class.
Educate me, please. Show me where I am wrong.
Next, you seem to argue that there is a "the power" that is concentrated in the hands of a few large companies instead of a fragmented power structure. Labor unions do have some power, as does the GSs, the BPs, etc. Whether one group has more power than another is a different discussion, but it is clearly false to argue that a few have monopolized power.
Many of the above firms you mentioned do clearly have what most would consider a large amount of power. Do realized that this is derived power, not power absolute. The power these companies have is largely derived from thier customers and not from thier lobbists, CEOs, etc. Feel free to discuss.
Bribery.
When Rumpelstiltskin waltzed into the room, he naturally had a lot of friends. And with his "endless gold" he filled the pockets of those who covet power for power's own sake. They never looked; they never asked questions; they never cared and still don't.
But even as an oil slick settles into the Gulf Stream on its way to Europe and beyond ... an oil slick that by the way is pumping out the equivalent of the Exxon Valdez every day and a half no matter what you're hearing on the news ... the nations of this planet have ample reason now to realize that Rumpelstiltskin has left the building. That what they have got now is international crime on the grandest possible scale, and every one of them are the victims thereof.
So, then, Who gets the power? You are correct: Power is diffuse. It is fragmented. And it is gathered over time (even earned). But that doesn't mean certain actors don't have massive power over a segment of the economy. So we debate the legitimacy of that power, limitation of that power in the public interest, and even the right to wield that power.
Power is derived from customers? I would need to see persuasive evidence of that. Evidence of massive lobbying by the financial industry right now is hard to refute (as in the day of Andrew Carnegie pouring money into Republican campaigns). It's not a new phenomenon, just gathering power.
More evidence: gas-drilling companies exempted from complying witht the Clean Drinking Water Act. It isn't euphemistically called the Cheney Exemption for nothing. It's called that because it derived expressly from a fount of energy-sector political power over that which clearly needs policing in the public interest, as witnessed by the BP mess in the Gulf.
Thus, I contend, we are indeed left with a fiction of a free market and a reality of a power struggle . . . the struggle over Who is the economy for? As Warren Buffet said, his side is winning.
In my academic tradition, theories are always subject to review, reinterpretation and replacement by new ideas. That is the message of Ian Fletcher's book.
He examines the premises and outcomes of trade theory, in a spirit of that is familiar in physical sciences. A theory is tested by degree to which its predictions match outcomes. In the physical sciences, deviation from the predicted outcomes can be seen as an opportunity to repair or improve the theory. Alternatively, the deviations may be fatal, justifying new and better ideas. Mathematicians are even more inclined to develop new results, by seeing what happens when assumptions and conditions change.
As you read the book, (or many other criticisms of free trade) you will see that free trade theory flunks the test of time. Even if Milton Friedman said it was true.
http://www.capitalgainsandgames.com/blog/pete-davis/1218/america-land-opportunity
Your argument is sloppy at best.
The US exports corn to Mexico. Some Mexican farmers may well have been put out of business. But Mexicans got cheaper corn. Some win, some lose. Of course, the corn is subsidised and so is artificially cheap. But that's got nothing to do with trade. Blame Congress and greedy US farmers for that one.
Trade has everything to do with the needs of the people. That's why you work for a living and use the money you earn to buy stuff. You trade your time for goods and services produced by others. Would you be better off trying to produce everything you need all by yourself?
Sure we need trade to be able to sell our work to buy other items but it will take a long time before we can be reasonably competitive with third world labor that makes $2.50 a day (2010 dollars). If you read the article you will note that US Corporations close plants that are expensive to run in the states and use that capitol to invest in Low cost countries and can bring the exact same products back into the us and sell them for about the same price. Funny how the price of these products are only slightly lower, wonder where all those savings go? Oh, they go to the top.
Over a million Mexican farm workers lost their jobs due to cheap subsidized American corn imports. These people lived a basic agrarian style life. But, your right there are winners and losers. However, subsidies have very much to do with trade and who wins and who loses. We've been fighting with the Europeans over their agriculture subsidies for 50 years purely because of the Balance of Trade.
I spent 10 years in Germany living in the Eifel farm country. Subsidies were often the evenings topic over beers at the local guesthaus. Of course they were in favor for themselves, not so much for us.
The World's biggest problem with China is their under valued currency, sort of a universal trade subsidy. But what are you going to do? As you said some people win and some people lose.
"I estimate that somewhere between 22% and 29% of all U.S. jobs are or will be potentially offshorable within a decade or two. (I make no estimate of how many jobs will actually be offshored.)"
How Many U.S. Jobs Might Be Offshorable?
Alan S. Blinder
Princeton University
March 2007
http://www.princeton.edu/~ceps/workingpapers/142blinder.pdf
And there were millions of illegal immigrants holding down jobs too.
The recent loss of jobs is due to the completely homegrown recession. It has absolutely nothing at all to do with outsourcing or trade.
Who do you work for? Someone is paying you to say these stupid things.
I work in IT and our jobs are being outsourced, as are jobs in manufacturing, customer service and accounts payable and receivable. Why pay a US worker a living wage when you can hire a worker in the Philippines along with office space for under $6 a day?
Quote the links all you want but I have seen the net changes in my little part of the world and you are wrong. The jobs we are gaining are not $50k+, but $30k-. The only jobs that are truly hiring are in the service industries. "Want fries with that?' and 'Welcome to Wal-Mart.' paying $10 an hour. People with these jobs need food stamps to make ends meet.
The 'recession-proof' market for teachers has dwindled drastically, the New York Times reports.
http://www.nytimes.com/2010/05/20/nyregion/20teachers.html?ref=education
Job Market 2010: Teaching Positions Scarce Yet Sought After
http://www.huffingtonpost.com/2010/05/20/job-market-2010-when-all_n_583314.html?show_comment_id=47773949#comment_47773949