Free Trade for Thee, but Not for Me

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An editorial in yesterday's Times looks at "free" trade and the Third World. Western countries talk a good game when it comes to trade liberalization, but aren't so keen, it seems, on implementing the policies they're urging on the developing world… at least not when it looks like domestic producers might lose out.

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  1. But doesn’t the theory state that the country that opens up to free trade benefits because their consumers benefit from lower prices and more choice? It is America’s (general) loss if it doesn’t open it’s market to others, only the specific local industry thrives.
    Or does this theory break down in the short run, given a country that is agriculturally dependent?

  2. B-
    This is an excellent point, and one that was much discussed in the course of my last big project back at Cato, editing a book on globalization. There are two points to be made here. One is that, while the developing countries may benefit from opening their own markets, there are still un-captured pareto optimizing exchanges that the developed world’s trade barriers prevent. So the fact that more open markets make those countries better off doesn’t change the fact that if we opened our markets, American taxpayers and consumers no less than third world farmers would benefit.

    The second point is slightly more contentious and tentative, but I’ll throw it out anyway, since it’s the argument I made while working on the book. The benefits of trade depend on comparative advantage. In an ideal market, it should be a boon to the developing world to flood them with subsidized crops from the West, because they’d just shift to some other sector in which they had a comparative advantage. The problem is, given the relative paucity of capital in the developing world, the transition costs are too high a hurdle there to enable an efficient production shift, at present anyway. So the short-term shock of the sudden flood proves more crippling than it need be. What’s optimal in the long term can still suck in the short term, and the developed world’s policies appear to be making it suck more than it needs to.

  3. B:

    That’s the rhetoric that’s used to sell ersatz “free trade” to consumers. But the form of “free trade” that’s actually adopted is designed to benefit mainly the TNCs. It includes a massive regime of intellectual property controls (vastly expanded even by the standards of those who recognize patents in their historic form) on dual-use or productive technology, that locks in Western control of production even when the assets are in foreign countries. It also involves large-scale collusion between TNCs and authoritarian regimes in the Third World where the state can be relied on for maintaining discipline on the labor force. That’s why sweatshops tend to gravitate either to workers’ paradises like China, or to banana republics with quasi-official death squads.

    It’s about as far removed from the genuine free trade of Cobden as the “Ministry of Truth” was from truth. A fundamentally statist and mercantilist system of privilege coopts libertarian and free market rhetoric as a form of packaging.

    Julian:

    We’re no longer even in a position, for the most part, where Third World agricultural producers compete with U.S. agribusiness. Rather, the remnants of native-owned agriculture are competing with Western agribusiness plantations in their own countries. And most of the plantations, like the land enclosed for cash crops in the West, are located on land robbed from its rightful owners, thanks to collusion between the local landlord oligarchy and Western capital.

    For that matter, the giant agribusiness farms in the U.S. exist because the State preempted access to vacant land, and then selectively distributed it to privileged classes. Compare the portion of “public” land that was opened up to individual landowners to that given away to land barons, lumber and mining interests, etc. And the nearly one-third of land currently in the “public” domain, when it has valuable resources, is leased to favored lumber, mining, and farming interests at far below market rates, at the same time individuals who might want to settle it are classes as “trespassers.”

    A real free market is free people voluntarily exchanging their products without let or hindrance by the state. What is called the “free market” today is a boot stamping on a human face. Bring on the free market, and the sooner the better. It will be the worst nightmare of our corporatist parasites.

  4. Just shows that when the theory rubber hits the road it often is found to be faulty. In fact, though, this one is working just as intended, i.e. suck wealth to the top. ConAgra is doing quite well.

  5. But doesn’t the theory state that the country that opens up to free trade benefits because their consumers benefit from lower prices and more choice?

    Yes, but the benefits are spread out over hundreds of millions of consumers, while the few industries that get hurt get REALLY HURT. So those industries fight a lot harder for protection than the consumers fight for cheaper stuff.

  6. This is why free-trade gets a bad name — bastards in the US, EU and Japan — they give the anti-globo’s life with such practices — it’s tough — Americans seem to love farms or the idea of them and its tough to cut them off — ‘screw you farmer and your donations’ but it must be done — it hurts us consumers too…

    Fight terrorism, free trade?

  7. Fight terrorism, free trade?

    You mean the Wahabis just want to grow some wheat? Aw, geez, I feel like such an idiot.

  8. The fact is that by and large American consumers do not suffer that much from American farm policy. America is blessed with large amounts of highly productive farmland, a rich agricultural tradition and a formidable infrastructure. Moreover, the amount of most food products’ cost accounted for by commodity prices is pretty low. Consumers might pay a little less for candy bars if we didn’t have sugar import quotas or the peanut program, but it wouldn’t be that much less.

    The consumers who pay more for First World farm policies are the ones in Europe and Japan. The United States would be a major player in the world market for most commodities (outside the tropical ones and maybe rice) if it did away with all of its farm programs tomorrow. Japan’s farmers and Europe’s are either vastly less productive, or farm land that without subsidies and trade restrictions would have a higher value if put to nonfarm use.

    The problem with American farm subsidies is twofold. First there is the fiscal impact, which thanks to the last farm bill is again considerable. Second is their political impact — it is virtually impossible for us to make a convincing case that Europe’s Common Agricultual Policy needs to be reformed and Japan needs to stop protecting rice farmers when we throw so much money at American farmers. The overall number of American farmers, incidentally, has been declining every year since the late 1930’s. It has declined when farm prices were high and when they were low, when Congress passed new support programs and when Congress did nothing.

    Having said all that, there are some programs that are worse than others. The cotton program sends the vast majority of its spending toward about 25,000 farmers; the rice program toward many fewer than that. The cotton program depresses world prices for that commodity to levels at which certain African countries that can produce little else cannot sustain their farmers. The sugar program (an import quota scheme), which may be the single least defensible activity in the entire federal government, keeps out sugar from many countries that produce sugar at lower prices than American farmers can, including several that can produce few other commodities commercially. By contrast, the dairy program’s impact on international trade is much less; the only country seriously inconvenienced by it is New Zealand.

    This is a battle that has gone on for a while, and for the most part American administrations have consistently fought for freer trade and lower program costs, though often unsuccessfully against Congressional resistance. The Bush administration changed that; as in the case of steel tariffs, Bush made a beeline for the position that might help him with specific, though small, constituencies in the next election, and embraced a staggeringly expensive and irresponsible farm bill. Unfortunately we are well past the point where things like that are a mere irritant in our trade relations. Between the farm bill and France’s refusal to even consider meaningful reform of the CAP the whole future of trade liberalization is in doubt.

  9. The troubles of the Phillipines seem to be distributional. Ideally, filipino farmers would take that subsidized cheap US corn, quit farming, work in some other industry, and eat the corn.

    As julian syas, they can’t because substitution to some other industyr (like software design, or textile manufacturing) is difficult. They can’t do anything _but_ farm.

    But that’s just the corn farmers. I’m sure net consumers of corn in the PH are doing very well. The US taxpayer is subsidizing their dinner. It’s only the farmers that suffer.

    Should we care? I suppose yes.

  10. The case against the US and the rest of the developed world is a sound one; we are not truly encouraging ?free trade? in places like the Philippines. But, the PI?s problem in general as to why little boys can?t always afford ball point pens is not because of foreign governments. Their basic economic infrastructure is not a model of free market activity and thus their people suffer.

    This isn?t to distract from the basic point that the developed countries, the US in particular, are in fact not practicing what we preach. But, the gist of the Times article and the focus of these posts seems to infer that their economy is being singularly tripped up by American farm subsidies.

    Just one of the major obstacles to making a transition from an agrarian lifestyle is the government strictures forbidding many farmers from doing anything else with their land. It?s not like Jose could decide not to plant one season and put up rental property and a small garage instead.

    This isn?t to defend our own deceitful manner in presenting a ?free market? solution to developing countries but we mustn?t exaggerate the impact of a single economic factor either.

  11. Enough of this principle bullshit, which I have grown ever so tired of – get down to the pure competing interests of the matter.

    Fact is, I, and most of the people here, are not farmers. We eat food, not produce it. As such, any policy which favors producers over consumers, to the extent that their interests are mutually exclusive, will be opposed by those of us who’s interests are that of the Consumer. Producers are, obviously, differently inclined.

    And that’s about it. Some 99% of people in America would be made better off, at least a little, by having a free market in agriculture – so, of course, it is the fundamental nature of politics that there be no free market in agriculture. A significant percentage of Americans would be made worse off by a truly free market in labor, especially one where the harsh physical and economic constraints of marginally cost-prohibitive and undesirable nature of relocation have been generally “handled” – and, as such, it is the fundamental nature of politics that, should such a free market of labor be possible and arise, that it be illiminated by government mandate.

    Most, if not all, restrictions on international trade are _meant_ to screw the consumer – that’s the point, really. The problem is that we must all, at some point, produce, else we be made entirely unable to consume, and to be able to consume one less thing, or less things in general, is far less painful than to loose some individual current method of production.

    And thus the fundamentally tragic nature of the human condition – all our problems have been brought about through perfectly psychologically reasonable decisions, as controlled by natural laws. Mutually exclusive competing interests are not, and can not, be easily or simply resolved.

    As a matter of moral principle, there is nothing wrong with unfree markets – they are perfectly rational. As a young highly intellectually inclined individual, whos major interests and abilities are in skills and professions which will exist in any developed economy (generally anything having to do with the human condition, from interpersonal relations in sales and management to advertising, customer service, or near-customer product engineering), I engage in the fully rationally self-interested promotion of Free Markets – it would be remarkably unpragmatic for me to do anything else.

  12. Not that I necessarily disagree with Plutarck but it is an irony worth pointing out that in the same sentence he pronounces himself an intellectual (implied actually) he manages to spell badly and run one sentence on until it is quite a lengthy paragraph.

  13. Good point.

    Here’s a random observation: against the reality that the vast majority of Americans are consumers only of farm products there is the factor of inertia. Farm programs have been around for a very long time; they mean a great deal to their supporters and very little, at least directly, to their critics. For both these reasons they are very difficult to understand, and more difficult still to explain in a way that makes sense to people who are not farmers or USDA employees. I know how milk marketing orders work, but there are not 10 people within 10 miles of me that can say the same.

    And yet, the question of free trade in agriculture is of considerable importance to American foreign policy and — because of its relations to trade liberalization generally — to the American economy as well. Its implications for liberty worldwide are certainly significant. But because it doesn’t involve getting high, getting laid, amassing a private arsenal or the legal bribery of politicians it is a footnote to the things libertarians are most concerned about. I realize this is unfair to the handful of libertarians who have studied aspects of this subject, of whom Julian Sanchez is one. It is however very strange to note that on a really vital matter the banner of liberty should be carried highest by the editorial page of The New York Times.

  14. Plutarck’s post is not only poorly spelled and composed, it’s nearly incomprehensible. What in the world is he trying to say??

    Also, I hate to be one of those grammar goobers, but good God — Plutarck needs to learn the proper American English use of “which” and “that.” He bumbles it mightily a couple of times (“policy which favors,” “professions which will exist.”)

    Another smart guy who does this at an exasperating frequency is Steven Den Beste.

    Yes, I’m on a which-hunt.

  15. I think the situation Zathras & Plutark both describe, is due to the inherent permanence of inane evils. The American public, for all its collective ignorace, will not tolerate gross outrages of evil such as the stuff Stalin or Hitler did, but we will tolerate small evils that in total reduce our quality of life and freedoms because in most cases it isn’t worth it to us to fight it. Sure, we all pay more for food because of bad farm policies, but food is usually not the biggest item in most people’s budgets and probably many Americans, if asked, would be willing to pay extra (or extra taxes) to keep small time American farmers around out of nostalgia for the lifestyle. It’s the same reason most Americans favor the government’s support of Amtrak yet are apparently not lining up in droves to take the train. Now, if we can successfully recast this issue (correctly) as a threat to world security and a motivator of terrorism, maybe we’d see some movement on the issue.

  16. Actually, I’ll amend myself on that last comment. I do think the drug war is a gross outrage of evil – a whole class of people being oppressed by the government with the public’s willful assent. That is why it usually seems to get more attention from libertarians than equally important but less-obviously-evil issues.

    But to the average, non-drug using American, even if the ideas of police forfeiture and unreasonable search and seizure bother them, these things mostly effect marginalized people in our society (the very poor and the drug users) so the average person isn’t much motivated by their plight. Start arresting a lot more middle class college kids for pot smoking and sentencing them with actual jail time (as opposed to mandatory rehab) and you’ll see a sea change in the public on this issue.

  17. One of the reasons that I do not comment on Reason’s ‘Hit and Run’ is that it is responder unfriendly. Cannot allow ‘copy and paste’, and loses comments left and right (no pun). As a 30 year (yes!) subscriber to “Reason”, you will not get any input from me – ever again. I christen you a ‘shit’ site. (DELETED NASTY COMMENTS). G

  18. In other words, you have to show them that yes, indeed, not standing up for someone else’s rights – especially when the violator of those rights is in a position to violate yours as well, and is not some distant evil – neccessarily and inevitably imperils their own.

    It’s not a matter of mere principle – it’s a matter of upmost pragmatism.

  19. I admit it – I shall fully own my behavior. I knew precisely when I was posting it that my grammar would, in all likelyhood, be absolutely attrocious. One of the features of my unedited writings is extensively long highly-nested complex sentences – which I’m actually not nearly as bad at as I use to be. If braces and brackets were introduced as a normal part of the English language I would surely abuse the living hell out of them, nesting concepts and asides and points so deeply it took ten or more readings to figure out what in the nine rungs of hell I was trying to say. I use to nest comments three parens deep, use multiple semi-colons, colons, and dashes in the same sentence.

    It’s true, I willfully chose to torture the poor readers of my comment(s) by a lack of editing, conceptual and argumentative planning, bad laying-out, and generally stream-of-concious scrawling.

    It’s like my English Composition teacher said: “It doesn’t matter how smart you are, because if you don’t speak or write well everyone will think you’re an idiot”. Just look at George Bush – it doesn’t matter that he has a [], because all it takes is a few hearings of “is our children learning” to make one thing he’s an outright moron (which he may or may not be, but it is perception that dictates opinion, not reality).

    I shall strive to do better next time…starting with some post in the future, because I’m thinking this is going to be a pretty good example of what I just said.

  20. Did I mention my sppelengs’ not su gud ider? Jeezus.

  21. Gerry:

    Actually, you can copy and paste by right-clicking on the text.

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