[Ed: continued from Part V which was published here on UKIP Daily yesterday, containing links to the earlier parts]
“Free trade” today
If “free trade” was a gigantic gamble for an industrially, commercially and politically dominant Britain in 1850, it is vastly riskier for any country now. Transport even after the arrival of railways and the steamship was still expensive, slow and cumbersome compared with now. The electric telegraph was the height of sophistication. Most parts of the world could not engage in international trade on their own terms because they were colonies, under the practical control of foreign powers or unindustrialised.
Today physical transport is fast and cheap. In place of the telegraph, we have the internet. Many countries have industrialised. The age of formal empires is over.
But there is more than political and technological change which makes a difference between our own time and the last outbreak of “free trade” mania. The “free trade” being advocated now is doctrinaire to the point of idiocy, namely the god of comparative advantage (the idea that each nation should concentrate on those products which are most profitable and forget the rest) is to be applied to everything, even (in the EU) to all public contracts, including those for weaponry. Childishly doctrinaire as they were as they played with their untried intellectual toy, even the most extreme “free traders” in the 1830s and 1840s saw that some parts of the economy could not be reasonably opened to competition for strategic reasons, military supplies being the prime case.
Let us suppose that we had a perfect “free trade” world now, a world in which there were no tariffs or quotas or embargoes or “standards” to meet; that all the artificial restraints on trade were removed; that no government subsidized productive employment in any way and all that remained to differentiate countries were market decided labour rates, carriage costs and the cost of nonproductive public works such as justice and the army. What then?
The consequences would be extremely dangerous for the West. Farmers in the First World would be on their knees and mass production of virtually anything in general demand would quickly become impossible because whatever a company’s efficiency, it simply would not be able to compete with labour which was a tenth or less of the cost of its own native workforce. All such countries could do is try to make high-value goods,
Even if the redundant working populations of the First World could find alternative employment, which is dubious, their countries would be left utterly at the mercy of those who now produced their food and most of the manufactured goods they consumed.
Does “free trade” deliver? The lessons of economic history
Free traders base their case primarily on the increase in prosperity which they believe will only come through increased global trade. The general answer to that claim is that Man does not live by bread alone. Moreover, even if there is a general rise in the global product at present, it does not necessarily follow that the same or better result could not be achieved by other means. The experience of all industrialised countries to date is that industrialisation is best achieved – perhaps can only be achieved by protecting the national economy. Indeed, there is a powerful logic in the idea that developing nations today require protection more than the early industrialising states because the early industrialising nations had little competition.
But even if it could be shown indubitably that the global product is increased more by “free trade” than by protection, it does not follow that it is in a particular country’s interest to adopt free trade. Consider the position in a national market which operates “free trade” within that market, but protects its trade and industry from foreign competition. Companies go bust if they do not compete. But successful companies take their place and continue to provide employment at broadly similar rates of pay. The logic of global “free trade” is that countries which cannot compete will go bust and not be replaced by others in the domestic market. There will be no replacement jobs within the bankrupt country because the successful competitor is abroad.
The most lethal ammunition to discharge at “free traders” is the fact that no country in the history of the world has industrialised successfully without very strong protectionist measures being in place. That includes the first industrial nation, Britain, which spent a couple of cosy centuries behind the Navigation Acts, the first of which was passed in 1651, before becoming a free trader. Not only that, but Britain only adopted “free trade” principles after she had become heavily industrialised and did so at a time when the country was still the dominant industrial power in the world by a long chalk and her exports were more or less guaranteed to sell in foreign markets.
Before Britain dropped her old colonial protectionist system in the mid 19th Century, she had industrialised in the modern sense from scratch and expanded her GDP massively. Perhaps most impressively she had managed to continue to largely feed herself without the price of corn going sky high, despite the fact that the UK population almost doubled between 1801 (the first Census) and the repeal of the Corn Laws in 1846.
[Ed: to be continued tomorrow with Part VII]
“Free trade” – rampaging law of the jungle, couched in terms as axiomatically benign as apple pie and motherhood. Another subject well reduced to its dispassionate essentials by Hilaire Belloc in “Economics for Helen”.
More generally, so-called “free trade” is dependent on the efficiency of logistics (shipping, rail, air freight, road haulage – substantially all being oil-dependent) whereas we are lambasted constantly with fears over the need to contain co2 to contain anthropogenic “climate change” aka “global warming” aka “greenhouse effect”.
Incidentally, the presenters at UK Column News in their edition of 14 August (they’re now away on 2 weeks’ annual leave as per Civil Service terms /satire) featured an interesting section on the question of housing and urban reconstruction (“there’s going to be a massive building programme” – next screen features a Sun newspaper article extract reading “Home Secretary Sajid Javid was urged to ‘close a loophole’ allowing nearly 60,000 non-EU workers a year to bypass a migration cap”) – around 28m 31s onwards. A good illustration of another artfully described “freedom”, freedom of movement, which is prejudicial to the UK population in as much as it drives down wages, stresses the environment, atomises society further etc etc.
By the way Robert, A seriously considered series. I would have thought this would be the subject of a chapter in an economics text book, Or are the ramifications wider and higher. Whatever the case any serious future policy decisions to be put by UKIP should be competent on this, before the rest of the pack starts running over the cliff.
The problem is that economic history is largely ignored by modern economists most of who have a religious belief in the god Market which would have shocked Adam Smith. It is very rare indeed that economists in the UK will argue their corner if someone refuses to bow down before the laissez faire altar and suggests free markets and free trade are not the most wonderful thing on earth. .
When I was at university I seriously considered reading economics but decided against it because I could see that it was moving away from actually looking at the effects of economic policy towards a world of models bolstered by maths to make i economics n the eyes of its proponents a true science.
Anyone who takes the trouble to read a good deal of economic history will see that the modern Anglo-Saxon interpretation of economics is in its way as shot as Marxism, for both fail the acid test, namely, does experience bear out the ideology or not.? Manifestly it does not in either case.
In the end any society has to be about far more than economics. The problems with the laisssez faire quasi-religious aconites is that even if they are ultimately successful in raising GDPs far to much damage to too many people has been caused in the process.
Hello Robert,
thank you for your work.
I’m looking for a way to show up GDP as a meaningless term unless you’re a Davos regular.
For instance our GDP makes us the 5th or 6th largest economy in the world. GDP is currently growing due to new arrivals and skint Britons using credit or welfare to buy imported goods.
That’s a massive GDP cake but when shared using GDP per capita the UK sits between 18-32 In the world according to who’s cutting it.
Is there a better way of closing down the grandstanding of GDP and creating a better argument regarding our average standard of living ?
There is only two things needed to understand GDP, the per capita figure and the distribution of wealth.. It is possible for a country to have a high GDP but for it to be very unevenly distributed with much of the population being poor. , Suppose the total wealth of a country is £96 and the population is 12. That would give a GDP per capita of £8. Suppose that 4 of the people had £20 each of the total GDP and the other 8 only £2 each, the less fortunate 8 would not take comfort in knowing they were part of a country where the per capita GDP was £8.
This is an interesting well written article so thank you for it. However as my knowledge of history, although good for broad trends, does not include the specialism of global economic history, it is difficult to comment. But my knowledge of rudimentary and practical day to day economics allows me to confidently say that the arguments make much sense.
Robert, I feel that this is where it all becomes fun. Nobody actually wants or say they want universal free trade. At least I don’t. I see it as meaning every country is free to make it’s own decision to anyone it wants to. Is that called something else? Anything else leads to the flight of capital, workers,money and so on, to the percieved top dog. Eg in EU to Germany, or in England, London. There are a thousand such examples. Perhaps there should be a name for this.POWER DEFENCE. or Capital equilibrium or summat. Or am I wrong. Anyway, whatever, we will need some UK protection not EU. s. But please do not let it be ruined by Governments or their civil servants.. There has to be an automatic regulation beyond predators.
Sadly, your definition of free trade is not the definition which the laissez faire gentry use. The most fanatical of them mean a borderless tariff free, quota free world in which labour , goods and capital flow unhindered
@Robert,
I tried to get into the IEA’s offices but they were locked and security were on hand to remove trespassers.
It did surprise me that their borders were tightly shut.
I Just read a good deal of economic history David. Also, please see my response to TG Spokes.