Free Trade: The Sophistry Of Imperialism


S. Herman


Free trade continues to be
a primary mantra of the New World Order, used to justify the World Trade
Organization (WTO) and the drive to enlarge its jurisdiction, as well as to
rationalize the structural adjustment programs of the IMF and World Bank and
instruments like the North American Free Trade Agreement (NAFTA). It is even
being tied in to the “war on terrorism,” with U.S. trade representative Robert
Zoellick stressing the post-September 11 urgency of adopting free trade to allow
growth and relieve socio-economic tensions. Those countries that fall short in
making the desired free trade moves may well be found to be “harboring
terrorists” or violating human rights and thereby bringing on themselves some
“humanitarian bombing.”

The phrase “free
trade” is a masterpiece of deceptive and propaganda. Its use of the word “free”
covers up the fact that the work of all of those agreements and bodies very
purposefully reduces the freedom of Third World countries, diminishing their
sovereignty and the power of their democratic institutions to shape their
economic policies, to provide public services, and to protect their environment.
The word “trade” in the phrase free trade obscures the fact that the agreements
with that label and the institutions enforcing them frequently focus more
heavily on investor rights than on trade. They are designed to allow
corporations to do business in foreign jurisdictions without any threat that a
democratic government might do them injury by taxes, limits on repatriation of
profits, rules on what businesses they might engage in, labor practices, and
other matters.

In short, NAFTA
might have been titled The North American Agreement to Limit Governmental
Sovereignty or the North American Corporate Bill of Rights or the North American
Agreement to Privilege Business Rights over Those of Individuals and
Democratically Elected Bodies. Obviously these alternative titles would not have
been helpful in selling the legislation, and therefore neither our democratic
leaders nor Free Press suggested their usage.

 


Selective Protection of the Powerful


Even with respect to
trade, the phrase is deceptive. The drive to protect “intellectual property
rights” aims at restricting freedom to trade goods without payments to the
holder of those monopoly patent or trademark rights. This monopoly restriction
has cost thousands of lives in poor countries where AIDS patients could not
afford the $10,000 a year payments to the pharmaceutical company patent
monopolists, but could pay the $300-400 a year charged by producers in a
genuinely free-trading market. The death of vast numbers and threat to millions
more has forced the big companies to give way in this case, but not on the
“principle” of their monopoly rights. (The recent Doha, Qatar, meeting produced
a statement allowing governments to ignore patent rights in public health
emergencies, but this was not formalized into a legally binding rule, and the
rights granted governments were left vague.)


It is revealing
that the Western spokespersons for the advance of the WTO and “free trade” have
been pushing for years to get these monopolistic property rights recognized as
legally enforceable rights under the New—supposedly “free trade”— World Order.
This is the exception that proves the rule—namely, that these spokespersons
serve the dominant transnational corporations of the First World. These TNC
interests are the “world’s interests” for the Western establishment, just as
domestic corporate interests define the “national interest” (in contrast with
“special interests,” that not surprisingly add up to a large majority of the
population).

As regards
tariffs and quotas and their reduction, the TNC interests have been prepared to
reduce their own only at a price, and they bargain hard and with the advantage
of money, expertise, leverage over many Third World governments, and domination
of the bureaucracies of the international financial and trade institutions. When
the Third World countries gain tariff and other trade concessions, the G-8
powers generally gain more in exchange and frequently fail to come through with
their part of the bargain. (At Doha, a regular refrain of the poorer countries
was: before more, let us see some of the promised benefits from our past
concessions.) Although the economic position of the Third World relative to that
of the G-8 countries has deteriorated over the past two decades, its members
find that the rich remain extremely stingy and continue to protect industries
like textiles and give massive subsidies to agriculture, both areas important to
the poorer countries and where their “comparative advantage” is great.

That
transnational corporate interests control the push for “free trade” is
demonstrated by the role of these powerful parties in the free trade campaign
and its implementation. It is representatives of the U.S. corporate community
like Robert McNamara and James Wolfensohn who have directed the international
financial institutions like the World Bank. It is the leaders of the United
States and other members of the G-8 that have pressed for the WTO and its
enlargement and tried to ram through the Multilateral Agreement on Investment
several years back. They have done this in close consultation with business
officials and representatives, with other constituencies of the populace
completely excluded.

Periodically it
is disclosed that corporate officials and lobbyists were in on the advance
preparation of agendas for WTO meetings from which not only non-corporate
constituencies at home but officials of Third World countries were excluded. The
Dutch think tank Corporate Europe Observatory recently got hold of three
confidential documents from the WTO that included minutes of secret meetings
held by the Liberalization of Trade In Services committee between April 1999 and
February 2001. These minutes showed that government officials negotiating on
trade issues were working hand-in-glove with the interested banking community
(Goldman Sachs, Prudential, Morgan Stanley Dean Witter and others), sharing
confidential negotiating documents with them, jointly hammering out an agenda,
and even together considering which consulting firms and academics should be
hired for answering the charges of anti-corporate globalization critics (see
Greg Palast, “The WTO’s Hidden Agenda,” November 9, 2001—
www.corpwatch.org/issues/wto/featured/2001/ gpalast.html).

 

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).