Vol.4 No.13, 18 October 2004
Free Trade Loses its Sparkle
By Margaret Legum
The British political party conference season took place this year within an English countryside vivid with apples: green and yellow, cream, vermilion and russet; small and sweet, big as grapefruit; the trees gleaming singly from plush pastures, or in splendid orchard arrays. Apples are celebrated by an exhibition in Kew Gardens, displaying 150 different varieties.
So what? What have British political parties to do with multiple species of apple in 2004? Perhaps I stretch a point. But in politics there seems to be a new focus on local regeneration. And as we know, the globalisation of trade seriously threatened species variety everywhere. Ten years ago apple orchards were being destroyed, as global price competition homogenized the sale of apples, like everything else.
The new focus on localisation takes different forms. The recent success of the UK Independence Party (UKIP) shows popular reaction against perceived political impotence - attached by UKIP to the EU in Brussels. In fact political sovereignty is undermined more by the boards of multinational corporations, especially the financial sector in charge of hedge funds and footloose capital.
The Tory party plays foetsie with UKIP’s electoral base on Europe. In its ranks there is an uneasy sense that the party is out of touch with local feeling that people have little control over things that affect their lives. The LibDems are enthusiastic localisers and promoters of ‘green’. A survey of the biggest UK companies shows growing support for enforced compliance with the Kyoto agreement.
For New Labour, Deputy Prime Minister Prescott is preparing a Summit to be held in January 2005 on sustainable communities – what they would look like and how they could be supported. Inevitably sustainability involves looking at policies around jobs for local people as well as local materials, limiting food miles (the miles food travels before it is eaten), local renewable energy and recycling.
The trouble is that such localization contradicts the idea that efficiency requires global sourcing and sales of everything, and that there can be no synergy between the global and the local. Of course it is not true that the most efficient use of the world’s resources is in flying identical goods round the world. Or that it is more efficient to keep unemployed people alive through charity or the dole than to promote local jobs. But that ideology is in the gut of economists who advise governments, and will be hard to shift.
Meanwhile, however, the theory of global efficiency through global trade is being white-anted from within.
American Nobel laureate mainstream economist Paul Samuelson’s textbook has been staple to generations of economists. But at age 89 he published an article in the Journal of Economic Perspectives to show that the theory of comparative advantage no longer justifies free trade as a process advantageous to all. His work is elaborated by Paul Craig Roberts, Chair of the American Institute for Political economy, and a former Assistant secretary to the US Treasury. He demonstrates that the US economy is currently in an advanced state of decline, because that theory is outdated.
The theory of comparative advantage says in essence that if we all concentrate on what we do relatively better and cheaper than others - and then exchange our output - we will all benefit. But that holds between countries only as long as the things that go into production are more or less immobile. If people and skills and capital are transferable, there will be no advantage attaching to a country or area. So in the global market, where even high technology skills, as well as capital, moves between countries there is no such thing as comparative advantage. There is only absolute advantage, and the winners will take all.
That explains the disjuncture between economic theory and reality for three decades. Africa, Latin America, most of Asia and Eastern Europe have all clearly suffered when free trade was foisted on them, because the US and Western Europe had absolute advantage.
But that is changing: the developed countries are losing absolute advantage to the large Asian economies. According to comparative advantage, the American economy should do well by expanding employment in hi-tech as it loses labour intensive jobs. But hi-tech can now be done anywhere in the world, and the corporations are shifting out. Between 2001 and 2004 the US lost 2.6 million jobs in the private sector. That included 28.2% of all jobs in computer equipment, 36.8% of jobs in semiconductors and electronic components, nearly 40% in communications equipment, 38% in Internet publishing, 23% in electrical equipment, 24% in metals and 21.5% in machinery.
The outsourcing of these jobs has the same effect on the US economy as being out-competed by foreign rivals: hence the expanding trade deficit. All of the jobs that are being created are in poorly paid service areas that cannot be outsourced – domestic work, janitors, waiters, cleaners, fast food cooks, salespeople. The average American family is worse off than three years ago. Free trade is turning out to be seriously bad for the US.
© South African New Economics Network 2007. Page generated at 09:24; 22 September 2007