Still a bit rough around the edges, but here's my opinion, albiet surrounded by essayness. IF YOU ARE A STAFF MEMBER SEARCHING FOR PLAGARISM, I ACTUALLY AM S. POLLARD AND I WILL BE HANDING THIS IN AT UWA ON 26/3/09. Just in case.
ETA: Hope my grasp of economics holds up. I've never studied it before.
Every day, around 25,000 people die of hunger, or its effects.* During pregnancy and childbirth, one woman a minute dies, or is left facing severe, life-long health problems.* With so many people suffering from the effects of poverty every day, it is essential that we find a way for people to live securely. Most people in the developing world simply wish to work hard and to earn a decent wage, on which they can support their family, but often the work isn't there. When jobs can be found, they are often very insecure, with the prices of products produced in the developing world often selling for less than cost. There are a great many arguments for and against the promotion of free trade policies as a way of helping the developing world escape the cycle of debt, insecurity, and poverty. Though these are generally well intended, it is provably the case that, more often than not, adopting free trade policies has failed, and is failing, the impoverished of these poor nations. Unless free trade can be fully and fairly enacted worldwide, and it is difficult to see how such a thing could happen, governments of states in the developing world will be more likely to enact protectionist policies in years to come. If the governments of the industrialised world wish to maintain the supply of cheap imports, particularly food, which is less widely produced in the industrialised world than it proportionately could be (Britain has not been even close to self-sufficient since the Second World War) then it would be in the best interest of said governments to ensure that maintaining trade links is in the interest of those nations upon which it is now reliant.
The concept of free trade was first expounded by Adam Smith, in his seminal The Wealth of Nations (1776). The basic principle of free trade is that deregulation promotes prosperity, allowing the market price to truly reflect supply and demand. Without tariffs and barriers, borders are opened up, allowing a more diverse and plentiful supply of trade where every trading partner may gain.
Smith argued that since industrial nations have a much greater output than their pre-industrial counterparts, it is essential, therefore, to specialize highly and trade greatly, in order to maximise the efficiency of labour. “A workman,†he wrote, “even of the lowest and poorest order, if he is frugal and industrious, may enjoy a greater share of the necessaries and conveniences of life than it is possible for any savage to acquire.â€* pg2
He was an unapologetic capitalist, who believed that through the attempts of the individual to improve their station in life that society as a whole gains. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.†WoN p10
Considering that 'free trade' is often spoken of as if it were a given good, there is a surprising amount of debate on the subject. It seems common for politicians from the developed world to speak of free trade optimistically, yet also to speak openly of their own protectionist policies. For example, the European Union frequently promotes free trade policies with outsider nations, including Mexico*, Turkey*, and Korea, with whom it is “currently engaged in negotiations,â€* but the continued existence of its protectionist Common Agricultural Policy results in payouts to EU farmers and landowners – up to and including the British monarchy* - which, in 2006, were over 45% of the total budget, or €43 billion.*
The original links between the developing and industrialised world came through contact from explorers and adventurers who wished to find countries to seize or to trade with. The discovery of the Americas brought an incredible range of products to Europe, from chocolate and tobacco to maize and potatoes,* as well as the trade in slaves, which should not be overlooked. From the very beginning, little attempt was made to hide the interest of the Old World in exploiting the resources of the New; the persistence of the legend of El Dorado, the city of gold, serves as a reminder of the greed and excitement felt by the first Westerners in South America.
Today, things are not so different. Despite the fact that most territories of the developing world have been independent for decades, very few countries have moved away from this trend of exporting raw materials and importing manufactured goods. This is encouraged by, and indeed, is often a contractual obligation in dealings with, the World Bank and IMF. Since capital is essential for developing nations when attempting to boost their industries, and many developing nations are heavily indebted, acquiescing to the demands of the World Bank, whether or not a government believes that its policies are suited to their citizens, is often unavoidable.
Free trade makes, in itself, a very neat theory. The concept of the market dictating the flow of supply and demand is an attractive one, and, at first reading, there are many positive points to be made. A simple, but key idea is the fact that states are very unlikely to find it in their best interests to attack a trading partner. Therefore, the more directions in which trade flows in and out of a state, the more stable it becomes.
Another positive argument would be that of efficiency. Greater specialization means that states can redirect their resources in order to produce a proportionately greater amount of products, the types of which are fewer in number. That, in a world where so many people regularly suffer from the effects of hunger, can be seen as a magnificent prospect.
Evidence that free trade is useful to the developing world is often given in the form of the Asian Tigers. These four economies – Taiwan, South Korea, Hong Kong and Singapore, moved from widespread poverty to great financial success in the second half of the twentieth century. These former farming nations invested heavily in education, fostering expertise amongst their citizens, and became world leaders in the production of high-tech goods.* The success which these nations achieved was not an isolated incident; they had a predecessor, in the form of Japan, and successors in the form of a so called 'second wave,' comprised of Malaysia, Indonesia and China.*
The libertarian line of argument concerning free trade is that governmental intervention is always antithetical to freedom. For libertarians, the consumer is sovereign, and it is an inalienable right for consumers to be able to purchase goods from beyond their home state. As Cobden relayed in his Manchester speech, as long ago as 1846, the National Anti-Corn Law League petitioned the government with the words
“Holding one of the principles of eternal justice to be inalienable right of every man freely to exchange the result of his labour for the productions of other people, and maintaining the practice of protecting one part of the community at the expense of all other classes to be unsound and unjustifiable, your petitioners earnestly implore your honourable House to repeal all laws relating to the importation of foreign corn and other foreign articles of subsistence, and to carry out to the fullest extent, both as affects agriculture and manufactures, the true and peaceful principles of Free Trade, by removing all existing obstacles to the unrestricted employment of industry and capital.â€
Sadly, the real world is rarely so simple. For instance, although the efficiency argument is sound from a mathematical perspective, in this case the clearest way to the truth of the matter is through an old adage. “Don't put all your eggs into one basket,†English-speakers are taught at their mother's knee. The problem with specialization in a competitive market situation is that supply and demand cannot be directly implemented in any haste. Though demand for a product may fall, farmers in the developing world cannot afford to simply plough up their crops and start again. A farm relies upon the seasons and the elements. Unlike the manufacturing industries of the developed world, where existing factory machinery can be constantly updated and altered to produce differing products according to their market value, farmers generally have to wait for some months to see the results of their labour. Furthermore, farmers are frequently not given the whole story by those who encourage them to stick to their old ways. In Kenya, for example, the World Bank has been encouraging reliance on tobacco exports, at a time when competition is low, and when governments throughout the developed world are attempting to discourage consumers from smoking – in the case of the UK, this is largely through the implementation of exceptionally high taxes on the shop-floor level. This keeps the price which farmers will receive for their products far below cost.
A further disservice done to the farmers of the developing world can be seen in examining the actuality of creating their products for trade. If, following the old colonial patterns, farmers of the New World continue to produce only raw materials to be traded with manufactured goods, they will continue to be subjected to far greater physical volatility than the workers of the Old World. Adverse weather conditions; global warming, natural disasters, crop diseases; all are problems solely for the producer of raw materials. Industrialised farming can avert most of these problems, but the average producer in the developing world produces small amounts of food, tended to by hand, that must first feed their family and, only then may the remainder be taken to market.
To laud the achievements of the Asian Tigers is to tell only half a story. Economic expansion and a general increase in the standard of living for ordinary workers was indeed achieved, and it was achieved through increasing exports. But the exports were not of raw materials, as the World Bank generally advises, but of highly specialized, manufactured products. Stiglitz argues that, in the developing world, where major economic advances have been seen, this is almost always as a result of following a path entirely contrary to that suggested by the World Bank for its clients.**
Environmental degradation and unchecked capitalism are also generally know to go hand-in-hand. For example, it is fairly common practice for mining countries based in the industrialised nations to incorporate subsidiaries in resource-rich countries, extract resources, and then allow the subsidiaries to fall into bankruptcy, thus ridding themselves of the heavy cost of cleanup operations.*
Further problems in expanding free trade to the developing world are shown by Stiglitz, who argues that developing nations are at a natural disadvantage even if true free trade takes place. “It is easy,†he writes, “for those in the advanced industrial countries to seize the opportunities that the opening up of markets in the developing countries affords – and they do so quickly.†Lack of infrastructure, he asserts, means that it is frequently very difficult for nations to actually bring their goods to market, and even if this physical barrier is overcome, it is difficult for them to produce goods of the quality which advanced industrial countries demand. He cites these two reasons as major factors in the almost complete lack of new trade observed after Europe unilaterally opened up its markets in 2001.*
The North American Free Trade Agreement was enacted in 1994, as a trilateral agreement between Canada, Mexico, and the USA. Until the expansion of the EU, this was the largest zone of free trade in the world. Stiglitz reports that USA wages are six times those paid to the average worker in Mexico, and that 10,000,000 Mexicans – a tenth of the population of Mexico – are currently resident, whether legally or illegally, in the USA.* Therefore, one of the major aims of NAFTA was that in bringing greater prosperity to Mexico, the attraction of immigration would be lessened, thus stabilising the Mexico-USA border, and bringing down the figures for illegal immigration.* However, in the decade following the creation of the agreement, the difference in average income between the USA and Mexico actually grew – by 10%.* Growth did not increase to the extent that had been claimed, and risk to the poorest workers actually increased, thanks to increased competition from heavily subsidised US farmers. The problems with corn prices have continued in Mexico; as recently as 2007 consumers were forced to take to the streets in order to protest a quadrupling in corn prices. Corn is the staple food of Mexico, and poor Mexicans would ordinarily “expect to set aside a third of their wages for corn flour.â€* Protectionist policies were instigated to cap prices in an opt-out scheme, which seems to have averted crisis for the time being. However, it would be wrong to suggest that Mexico has emerged from the difficulties with any great gain; today the economy is decidedly pedestrian, with a growth rate of 1.3% recorded in 2008.**
In the little space in which I have been able to examine the subject, it has already been seen that free trade is a more contentious issue then one might initially think. Whilst the problems of the developing world are very real and pertinent, the most obvious solution may not always be the best. We have seen that attempts at bringing free trade to the global market have generally ended in the wealthier nations maintaining their colonial-style power and influence in order to dictate terms and conditions favourable to their own interests. However, staying with protectionist policies, although an attractive prospect to those nurturing their nascent industries, also generally allows the industrialised nations to take the lion's share, since this is a game which they are used to playing. While many alternatives have been proposed for each instance of economic unfair practice, it seems that the only thing which can help in every situation is equal trade. This may well mean Fair Trade, (which I capitalise for clarity) since most industrialised countries already have strong legislation to protect the interests of the worker, such as the minimum wage laws of the UK, or legislation preventing workers from discrimination, be it anything from a personal issue, to anti-union bias. Equally, equal trade could also mean free trade, when universally applied. Ideally, awareness of the issues surrounding development in the poorer nations will become more widespread, and consumers will be able to make more informed ethical choices in the future, leading to practices such as pollution and exploitation becoming economically undesirable for companies. There is already some evidence to suggest that this may be viable; Fair Trade has found widespread public support in the last decade, despite increased costs to consumers at the shop-floor level. Unless or until demand for products which satisfy the needs of the developing world becomes more widespread, the best way to keep trade fair at present would be to keep regulating heavy-handedly, in order to protect the delicate industry of the developing nations.