Saturday, May 4, 2013

Free Trade or Foul

If there are any principles I have held consistently since I was a teenager, it is these: free trade and open borders.

The Socialist Workers Party (SWP) supported free trade when I was a member (1969 - 1977). They regarded protectionism as an effort to divide the working class, i.e., to put US workers and foreign workers in competition with one another. At the same time, the Party opposed any trade agreements (such as NAFTA) on principle, arguing that anything a capitalist was for had to be bad for workers. So they had it both ways--they supported free trade while opposing any free trade agreements. You can't win with these people.

Socialist Action (SA) has a similar position to this day, though they are now more inclined to emphasize their opposition to free trade agreements than their support for free trade. Unlike the SWP, SA cozied up to the Occupy Movement, which required them to radically oppose any trade agreements. SA's position is described here, among many other places.

Their argument is that trade agreements are never perfect, always leaving parts of the economy protected, and hence they're just horse-trading between various capitalists. They're not really free trade. In their view the corruption is so bad that in some articles the words "free trade" always appear in scare quotes. And of course they're right: there is horse-trading and corruption galore, but I remain convinced that trade agreements are generally very good. There is no question that NAFTA, for example, has greatly improved the standard of living in the US, Canada, and especially in Mexico. Despite the intense controversy at the time, today very few people oppose NAFTA in any of those countries.

The main problems that Leftists have with free trade agreements are lack of labor protections and lack of environmental protections. The extreme position (which I believe SA and the SWP both hold) is that free trade is fine as long as workers in both countries are earning equal wages. The somewhat more moderate view is the so-called fair trade model, popular in my college town and even subscribed to by my daughter! Indeed, it is a conversation with her this morning that brings this to mind.

There used to be a fair trade coffee shop in my town, until it went bankrupt. The fair trade model says that American consumers will pay a premium for their coffee, and that surplus will be passed along to coffee farmers in Uganda (or where ever) to enable them a higher standard of living.

It is easy to see how this does not work. The market price is the price that maximizes revenue for Uganda. At prices higher than market, fewer customers will buy coffee and Uganda's total revenue will decrease. At prices below market, they simply don't collect the money they could. So Uganda as a whole benefits by charging market rates.

However, the farmers who are members of the fair trade group will gain from the higher price they get for coffee. They successfully collect rents from being members of a cartel, so even though revenue for Uganda goes down, for that smaller group it goes up. The downside is pretty obvious: the country is poorer than it should be, there is greater inequality, and the farmers who are not in the cartel have drastically lower incomes.

By the same standard, American consumers benefit from market prices. If the price is too high, people will forego coffee. If the price is too low, there won't be enough coffee to meet demand. The market price is optimal for both consumers and producers. Fair trade advocates suggests that Americans should be more charitable and buy coffee even at the higher price. But as the bankruptcy of my town's fair trade coffee shop shows, this doesn't usually get very far.

The most successful fair trade cartel I can think of was OPEC. Members of the cartel made out like bandits, whereas everybody else was made poorer. Fortunately, increased oil production from non-OPEC countries has significantly clipped their wings (yay fracking!). Protectionism helps small groups of people, but mostly it just gums up the works. It makes most people--producers and consumers--poorer.

There are other ways to gum up the works, and you don't need to be a Trotskyist to come up with them. In yesterday's NYTimes, a certain Jared Bernstein--who calls himself an economist--has devised a solution for our unemployment woes. He says that our unemployment problem is because of rapidly increasing productivity--machines are replacing human beings. This is certainly partly true, and will ultimately lead to lower prices for a wide range of consumer products and services. It will increase our standard of living. And if history is any guide, the consumer savings will result in demand for new goods and services, leading to new jobs.

But Mr. Bernstein's solution is just nuts! He wants to lower productivity so that everybody can be employed. So, for example, instead of one guy operating a diesel earth mover, he'd have us hire hundreds of guys with shovels to do any excavating for us. Yes--they'd all have jobs! But it's easy to see that society is worse off.

So Mr. Bernstein wants the government to employ all the excess labor in make-work, charity projects that waste resources, are bad for the environment, and make everybody poorer. Honestly, I don't see how that helps. Oh yes, I know he'll say the new government employees should do something useful, like repair the much maligned infrastructure.

We're fixing infrastructure that way on my campus already--we're building all kinds of new buildings on the taxpayer's dime at union wages, that don't need to be built. None of the new construction will enhance any student's education by a single scintilla. In an era of declining enrollments and operating funds, the whole scheme is just crackpot. We'd be better off paying the union wages as welfare benefits, and at least save the other costs of construction.

These make-work projects do not help the economy. They just makes everybody poorer--except for the hundred or so people getting the union wages.

If the SWP had held today's SA position, I would never have joined. I couldn't have given a coherent argument as an 18-year-old, but in my gut I always thought protectionism was a form of xenophobia. I still think that. For me free trade is a matter of principle--for them it's just tactics.

Further Reading:


  1. You have a point, the biggest gains in the illegal immirgant population in Caifornia were pre-Nafta instead of post-Nafta. So, the left and some of the every white person should have a manufactoring job Buchnaan are wrong on this.

  2. You are an idiot. Prices will not necessary be lowered by more productivity. Earths dwindeling redources and Corporate Earths great profit demand to ensure this. Government projects at least keep the eork at home and not enrichen Chine oligarchs with their abuses at Foxxconn. FoxConn is a republican conservatives dream that you couldnt traet workers at home. We shouldnt encourage tax breaks for manufacturing in America if all their going to employee are robots