What should we think of free trade?

“The closer the economy approaches the scale of the whole Earth the more it will have to conform to the physical behavior mode of the Earth. That behavior mode is a steady state—a system that permits qualitative development but not aggregate quantitative growth. Growth is more of the same stuff; development is the same amount of better stuff (or at least different stuff).”

The above quote by way of introducing the main thesis of Steady-State (i.e. no more quantitative growth) economist Herman Daly.

Below are his arguments against the current ‘free trade’ (as in unregulated) regime. However, I’m not sure I agree with his arguments about the inexistence of global community, and that only a ‘global government’ could represent it, though it seems acceptable to me that local and nationally bounded communities have interests that must be preserved.

Here are the excerpts, from an extensive interview in Developing Ideas Digest. For more, see his explanation of steady-state economics, and 10 policy proposals, here.

Herman Daly replies to the question: Why is free trade necessarily bad for the environment?

Daly: My problem with free trade is partly due to the environment – but it’s larger than that. I think it’s a bad social policy and bad environmental policy. By free trade, what I mean is deregulated international commerce. So the opposite of free trade is not autarky or no trade. The opposite is not state trade or total monopolization of trade. The opposite of free trade, which is deregulatory, is regulated trade. Trade which is regulated in the national interest by governments involved. And the notion that there should be no national interest [in] this trade across national boundaries, that the state has no interest in this, that this should be left entirely to the mutual benefit of the trading parties … I mean imagine if this logic were applied say to corporations – individuals within corporations just trade with each for their own mutual advantage – nonsense! … Every deal that corporation people make has to be vetted up through higher authorities to make sure that it’s really in the interest of the larger entity. And so I think the same thing is the case with trade across national boundaries. The reason again goes back to community because if you have the free flow of goods and capital and, increasingly, labour across national boundaries, then you really lose any possibility of policy at the national level. You can’t have an interest rate policy that’s different from your neighbour because capital is mobile. You can’t have environmental cost internalization standards that are different from other people because if you have higher standards that’ll raise your prices higher than your trading partners’, and you put your own people at a disadvantage. So you have to have some equalizing kind of tariff.

So the argument is not that there should be no trade. Trade can be very beneficial. But the argument is that trade should not be based on standards-lowering competition. You have to maintain certain standards. And standards-lowering competition can be weakening the environmental standards to give cheapness, weakening social insurance standards and safety standards to get cheapness. Weakening standards of child labour … throwing in prison labour even, [about] which even GATT says, ‘Prison labour is too much, we’ll retaliate against that.’ So I think maintaining these social standards which have been actually hard-won over many years – I mean the length of working day, that’s been limited; child labour, these sorts of things. You can make products cheaper if you lengthen the working day, if you employ children … and so I think there has to be this national community protection of basic standards. We can’t allow that to be competed away in the name of free trade.

Interestingly, the classical doctrine of free trade as it came from David Ricardo is much more in line with what I’ve just been saying because in that system, capital did not cross national boundaries. Capital stayed at home and labour stayed at home. The only things that were traded were goods. So you really did have a much more community/national orientation. You have national capital cooperated with national labour – albeit with class conflict, the national community was able to contain that class conflict. You had national labour and national capital cooperating to make national goods, and those goods that competed internationally with other countries and their teams.

Nowadays that’s all gone, nowadays you have free capital mobility and so you have a capitalist of one nation [saying] to the labourers of that nation, ‘Sorry guys, we live in a global economy, I can employ labour at one-fifth of what you want and I can bring the product right back here and sell it, so you guys are out of line, too bad.’ And the labour comes back and says, ‘Well gee you know, there are bonds of national community.’ ‘I just told you we live in a global community. All that stuff is over with. All that old national stuff that caused wars. We live in a global economy. Everything is going to be peace now. Don’t you want the Chinese labourer to be as rich as you are – are you a racist?’, and on and on. So this idea of mutual responsibilities in a national community [is] being dissolved by this idea of the global world economy. We have a global community now superseding the national community – that’s passé, now it’s global community. That sounds good if you say it fast enough and don’t stop to think about. But it’s empty. There is no global community. Where community really exists is at the national and subnational level where people take on mutual responsibilities for each other. Not at the global. Now maybe someday there will be a global community. But our view – of John Cobb and I – is we’re all in favour of global community, but it would have to be a federation of strong national communities – a community of national communities. And the present vision is not of a federated community of communities, the present vision is of a cosmopolitan world without borders in which you erase national community and replace it with this globalized single sort of tightly integrated world community.

More Information:

Also recommended related reading: this review by Dave Pollard of Short Circuit by Richard Douthwaite, a blueprint for a community-based economy. Dave also recommends The Logic of Sufficiency, by Thomas Princen.

3 Comments What should we think of free trade?

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  3. AvatarSepp Hasslberger

    Daly makes a very important point. We actually live in a global *corporate* economy.

    The implementation of “Free trade” removes community (national) interest and leaves the corporations to do as they please.

    That is how his last point makes sense. He says “There is no global community. Where community really exists is at the national and subnational level where people take on mutual responsibilities for each other.”

    What free trade policies do is to remove community from the equation altogether and leave the economic playing field to greedy corporate players.

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