Free Trade: The Sophistry Of Imperialism

An Attack on Democracy

It might be argued that since democratically elected leaders like Bill Clinton, George W. Bush, and Tony Blair support these agreements they are defensible as a product of democracy. This argument is readily countered, however, by the fact that opinion polls have pretty consistently shown the public opposed to such agreements, so that their support by these leaders points rather to the collapse of democratic substance in G-8 elections and to an inability of any elected political leaders to oppose basic corporate interests under present institutional conditions. In the case of Clinton, he had to bribe many of his own party members in the House and Senate to get a large enough Democratic minority to join the Republicans in supporting his NAFTA policy.

It is also notorious that these agreements are not only done with great secretiveness, avoiding public discussion as much as possible, but that the meetings are increasingly isolated from the public by vast police and armed force barriers and held in appropriately undemocratic locales like Qatar to minimize the possibilities of public protest. Undemocratic ends require more and more undemocratic means.

It is of the greatest importance that these agreements are designed to insulate advancing corporate rights from any constraint by electoral and democratic processes. They all enlarge investors rights at the expense of the rights of political communities to subordinate investor interests to community demands and needs. There is never anything in these agreements imposing behavior or performance requirements on corporations, only on governments, who must forego doing things to corporations, and who must abandon their own rights, such as their right to enter new economic fields if they choose do do so (ended by the NAFTA) and the right to impose special obligations on non-national corporations who want to do business in their country.

During the recent negotiations at Doha, one of the items pushed by the “free trade” (i.e., TNC, G-8 government) community was the desirability of bringing “public services” into the market and under WTO jurisdiction. Now governments already have the option of contracting out public service operations if they want to, so what is the point of bringing this into the WTO orbit? The answer is obviously that the TNCs want to take public service businesses like education and public health away from governments and are not prepared to have their case decided in democratic polities. They want to force communities to open these services to competitive bidding by what amounts to external compulsion. The only interest served by this push is the selling corporations and the process could hardly be more undemocratic.

The antidemocratic thrust of “free trade” agreements as regards the victim Third World countries was dramatically evident at the time of the NAFTA passage and subsequent Mexican meltdown. Seven out of ten New York Times editorials on NAFTA lauded the agreement for “locking in” Mexico to the “reforms.” The fact that the Mexican president signing the agreement had won an election that even the Times later admitted was probably fraudulent didn't make the paper question his right to lock Mexico into this agreement. Following the meltdown in December 1994, the media and the economists exulted at the lock-in effect, which prevented Mexico from protecting itself by imposing capital controls—instead it had to deflate, causing mass unemployment. The anti-democratic quality of this lock-in didn't bother either the media or the economists at all.

In the same period the U.S. Treasury and IMF arranged for a bailout of Mexico to the tune of some $40 billion, a large fraction of which was paid to U.S. investors fleeing the peso. This was actually a completely illegal use of IMF funds, as article 6 of the IMF Articles of Agreement requires it to intervene to prevent members from using IMF credits to fund capital flight.

“Free Trade” As Poverty Creation

For the ideologues of free trade, free trade means growth and growth increases per capita incomes and wealth, hence reduces poverty. But free trade hasn't meant “growth” over the past several decades, if growth means faster growth than in the years of greater government involvement and protectionism. Growth rates have diminished: in their “The Scorecard of Globalization 1980-2000,” Mark Weisbrot, Dean Baker, Egor Kraev, and Judy Chen found that the poorest of five groups of countries went from an annual per capita growth rate of 1.9 percent from 1960-1980 to a decline of 0.5 percent a year, 1980-2000; the middle group, which was mainly poor countries, suffered a decline from 3.6 percent to under 1 percent; and the other three groups also suffered declines in per capita growth rates. Economist David Felix has also shown that labor productivity, which grew by 4.6 percent a year in the OECD countries from 1960-1973, increased by only 1.7 percent a year between 1973 and 1997. So growth has slowed up under the greater rule of free markets.

Equally important, what growth has taken place has increasingly benefitted small elite minorities, so that the negative impact on the great majority of the slowing of growth has been heightened by the worsening distribution. This has been true both within countries and between the G-8 countries and poor countries. Excluding China, the richest 10 percent of the world population had on average, 90.3 times as much as the world's poorest 10 percent in 1980, 135.5 times more in 1990, and 154.4 times more in 1999. (Including China reduces the change because of its size and rapid growth, but within China income inequality has increased markedly.) The rich got much richer, the poor failed to improve their economic position, and the poor increased in absolute numbers under the liberalization regime. The poorest 400 million, living on 78 cents a day in 1999, were worse off in 1999 than they were in 1980; the absolute number in poverty in 1998, slightly greater than in 1980, was 1.6 billion, using the criterion of $1.08 per day as the benchmark. Even the World Bank acknowledges, “in the aggregate, and for some large regions, all measures suggest that the 1990s did not see much progress against consumption poverty in the developing world.” The IMF also agreed that progress in alleviating poverty “has been disappointingly slow in many developing countries.”

The crocodile tears and hypocrisy in these expressions of concern and regret are notable. These results are precisely what should be expected when the “free trade” agreements and institutions implement programs organized by the governments of the major TNCs, are fixed in close collaboration with them, and clearly serve TNC interests. The TNCs want “flexible” labor markets, low taxes on themselves, low spending on others (including already poor people), and limitations on the ability of governments to help the locals, all of which the IMF, World Bank, and WTO strive for and all of which serve the rich and hurt the poor.

Trade liberalization and protection of investor rights have increased import competition and capital mobility, tending to depress wages. Financial deregulation and the removal of capital controls have increased the frequency of financial crises and reduced the ability of governments to cope with them. This has increased average unemployment, while the IMF and World Bank have helped reduce safety net protections for people in distress. So “free trade” sounds designed to increase poverty; and it is, in the sense that poverty is the well understood and acceptable “collateral damage” of programs that focus on making things good for TNCs. Any benefits to the majority are trickle-down benefits that may or may not offset the damage inflicted by the “free trade” programs that serve the TNCs, such as cutting social budgets and pushing for agro-exports in place of peasant agriculture.

Because of the power of the free trade interests, it is an established “untrue truth” that economic theory supports free trade as being in everybody's interest. The theory of comparative advantage does suggest that an international division of labor can increase global output, and it is obvious that a division between producing bananas in the tropics and computers in the North will be advantageous. But the theory assumes that both capital and labor are mobile and that full employment is maintained, otherwise the output gains may be non-existent and the distributional effects may be significant and regressive. The theory also ignores the dynamics of technological change, and the possibility that infant industries may be unable to compete with foreign companies that have a head start, that work far down the learning curve, and that have the resources to compete in innovation.

While the ideologues of free trade claim that this is the proper route to alleviation of poverty and to achieving sustainable growth, none of the Great Powers themselves relied on free trade in their formative years. Every one of them—the United States, Germany, Britain, France, Japan, and even the post-World War II Asian “Tigers”—protected their infant industries for lengthy periods. So now, having achieved their high wealth and domination to a considerable extent by centuries of exploiting and looting Third World peoples, they are now using their global power to further exploit those peoples, forcing on them a regime of “free trade,” which they themselves avoided in achieving sustainable growth, pretending that this is the route to prosperity, when in fact it serves their own narrow interests, or at least that of their transnational companies.

Elementary public relations requires that the World Bank, IMF, and WTO leaders, who have relentlessly pursued a transnational corporate agenda, proclaim their deep concern over poverty and plans to help reduce it. Sometimes the leaders of the corporate-serving agencies go farther and announce a new devotion to poverty reduction (as well as environmental protection), and urge the Great Powers to be more generous in their treatment of poor countries. But the poverty reduction efforts have been essentially token programs, unable to make the smallest dent in offsetting the pro-TNC interest and poverty creation bias that has contributed to a staggering growth of income inequality and a world of steady mass impoverishment in the face of enormous wealth and income growth in the G-8 countries.

It may be useful to point out what a real poverty reduction program might look like—what a set of international policies not designed to serve the rich and transnationals might entail and how they would differ from the offerings of the Western establishment.

• (1) Honoring democracy and not “locking in” countries to the “free trade” route. The Great Powers preach democracy, but do not allow it to function in ways harmful to TNC interests. A first step in poverty reduction is allowing local elected rulers freedom to respond to the demands and needs of their electorates.
• (2) Allowing them to serve their citizens basic needs as first priority. The design of the “free trade” regime has been to turn Third World countries from serving their citizens first to integrating into and—given the power imbalances—serving the global corporate community. This has entailed getting the poorer countries into debt, forcing them to push for export-oriented agriculture to pay those debts, leading to a massive exodus of peasants from the land and from producing agricultural goods for local consumption. There have been many other modes of “free trade” diversion of priorities from local needs to global service.
• (3) Allowing them to choose their own development paths, which is very likely to call for significant protectionism, as it did for the G-8 countries in their earlier years. They may want to protect their infant industries and diversify their economies away from raw materials supply in the interest of economic stability and potential long-term growth; they may wish to stay out of debt dependency and heavy involvement in global finance in the interest of greater economic stability; they may want to protect a peasant agriculture in the interest of social stability and to assure supplies of basic necessities at home.
• (4) Allowing them the right to protect their cultures and environments. It may be in the interest of the TNCs to be free to advertise and sell without restraint everywhere, but there is no reason why each society should not be free to protect itself from unlimited commercialization that serves the powerful. It is possible that such protection might be abused, but the abuse of compulsory entry is also extremely clear. Peoples should have a right of refusal and a right to constrain, without external impediment.
• (5) Making amends for massive abuse in Western “primitive accumulation” by “reparations.” G-8 growth and prosperity rests to a substantial degree on centuries of exploitation of what is now the Third World, by literal robbery, forced labor, slavery and the slave trade, and controlled production and trade. If there was the slightest degree of genuine morality operative among the G-8 elite they would recognize an obligation to take positive actions to “level the playing field” that is today radically unequal because of this historic massive looting and exploitation. They would be granting large-scale aid to the heirs of their victims; and they would be granting large unilateral trade preferences to the Third World countries, instead of giving concessions only in trade-offs providing net gains to the already rich.
   

  “Free Trade” and the Iron Fist

  But the United States and its G-8 allies not only reject such a real poverty reduction program, and continue to serve themselves— or rather their elites—and create poverty, they also do not stint at using armed force and subversion to keep amenable leaders in place.

  Preventing people from trying to reduce poverty directly by the use of violence has a long history. The “real terror network” of National Security States in Latin America in the 1960s and 1970s was constructed with close U.S. supervision and aid, and was designed to prevent even social democratic governments from holding power. It was the fruit of a deliberate policy of building and training Latin military and police personnel as de facto U.S. agents, to fight governments trying to meet the “increasing popular demand for immediate improvement in the low living standards of the masses,” to oppose “anti-U.S. subversion,” and to “create a political and economic climate conducive to private investment” (as a 1955 NSC document explained).

  In earlier years the use of force to serve Western elite interests could rest on the cover of the Soviet Threat. Nothing has changed in substance since that cover has faded away, except the disappearance of the modest element of containment that the Soviet Union provided. The United States is armed to the teeth and with September 11 and the new open-ended “war on terrorism,” it has a perfect substitute for the old cover for opposing governments that mistakenly attempt to meet popular demands for immediate benefits to ordinary citizens (and for allowing penetration into new natural resource-rich areas, and for distracting the public's attention from “immediate improvements” in the condition of oil companies, etc.).

  In one of his rare moments of truth-telling not helpful to the imperial project, Thomas Friedman acknowledged, “The hidden hand of the market will never work without a hidden fist—McDonald's cannot flourish without McDonnell Douglas, the designer of the F-15, and the hidden fist that keeps the world safe for Silicon Valley's technologies is called the United States Army, Air Force, Navy and Marine Corps” (NYT, 3/10/99). But where is the freedom of choice of those attacked by “the hidden fist” as their societies are readied for the entry of those Silicon Valley entrepreneurs? Friedman lets the cat out of the bag—we are talking about a system of coercion, not freedom. Furthermore, the U.S. military establishment's operations are not the true “hidden fist”—that is to be found in the meetings, institutions, and rulings of the apparatus of “free trade” that is hugely coercive, but secretive, undemocratic, misrepresented as consentual, and built on the more open threat and application of military force.        Z

  ---

  
   

  Edward Herman is an economist and media analyst. His most recent book is Degraded Capability: The Media and The Kosovo Crisis (Pluto Press).