Thursday, March 19, 2009

Free Trade 11: Global Petition, Keynes

Yesterday, I wrote this:

There is an on-going global campaign against the wave of protectionism. An international coalition composed of individuals and institutes or think tanks, explicitly free marketer or not, will be formed. This campaign and coalition has been initiated by the International Policy Network (IPN) and the Atlas Economic Research Foundation, two of the closest friends of MG Thinkers.

May I encourage readers to sign this petition, below.

This petition will be presented in London during the G20 summit (2-3 April).

Free trade is freedom to trade and exchange.
Zero coercion or restriction.


Nonoy Oplas


Free Trade Is the Best Policy

The specter of protectionism is rising. It is always a dangerous and foolish policy, but it is especially dangerous at a time of economic crisis, when it threatens to damage the world economy. Protectionism’s peculiar premise is that national prosperity is increased when government grants monopoly power to domestic producers. As centuries of economic reasoning, historical experience, and empirical studies have repeatedly shown, that premise is dead wrong. Protectionism creates poverty, not prosperity. Protectionism doesn’t even “protect” domestic jobs or industries; it destroys them, by harming export industries and industries that rely on imports to make their goods. Raising the local prices of steel by “protecting” local steel companies just raises the cost of producing cars and the many other goods made with steel. Protectionism is a fool’s game.

But the fact that protectionism destroys wealth is not its worst consequence. Protectionism destroys peace. That is justification enough for all people of good will, all friends of civilization, to speak out loudly and forcefully against economic nationalism, an ideology of conflict, based on ignorance and carried into practice by protectionism.

Two hundred and fifty years ago, Montesquieu observed that “Peace is the natural effect of trade. Two nations who differ with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and thus their union is founded on their mutual necessities.”

Trade’s most valuable product is peace. Trade promotes peace, in part, by uniting different peoples in a common culture of commerce – a daily process of learning others’ languages, social norms, laws, expectations, wants, and talents.

Trade promotes peace by encouraging people to build bonds of mutually beneficial cooperation. Just as trade unites the economic interests of Paris and Lyon, of Boston and Seattle, of Calcutta and Mumbai, trade also unites the economic interests of Paris and Portland, of Boston and Berlin, of Calcutta and Copenhagen – of the peoples of all nations who trade with other.

A great deal of rigorous empirical research supports the proposition that trade promotes peace.

Perhaps the most tragic example of what happens when that insight is ignored is World War II.

International trade collapsed by 70 percent between 1929 and 1932, in no small part because of America’s 1930 Smoot-Hawley tariff and the retaliatory tariffs of other nations. Economist Martin Wolf notes that “this collapse in trade was a huge spur to the search for autarky and Lebensraum, most of all for Germany and Japan.”

The most ghastly and deadly wars in human history soon followed.

By reducing war, trade saves lives.

Trade saves lives also by increasing prosperity and extending it to more and more people. The evidence that freer trade promotes prosperity is simply overwhelming. Prosperity enables ordinary men and women to lead longer and healthier lives.

And with longer, healthier lives lived more peacefully, people integrated into the global economy have more time to enjoy the vast array of cultural experiences brought to them by free trade. Culture is enriched by contributions from around the world, made possible by free trade in goods and in ideas.

Without a doubt, free trade increases material prosperity. But its greatest gift is not easily measured with money. That greatest gift is lives that are freer, fuller, and far less likely to be scalded or destroyed by the atrocities of war.

Accordingly, we the undersigned join together in a plea to the governments of all nations to resist the calls of the short-sighted and the greedy to raise higher the barriers to trade. In addition, we call on them to tear down current protectionist barriers to free trade. To each government, we say: let your citizens enjoy not only the fruits of your own fields, factories, and genius, but also those of the entire globe. The rewards will be greater prosperity, richer lives, and enjoyment of the blessings of peace.

Sign the Petition

Today, I received a comment from a Filipino friend based in Europe. He wrote,

I just read an interesting passage from John Maynard Keynes on his 'National Self-sufficiency' , which could be interpreted as his proposition that 'de-globalisation' (or a certain degree of protectionism) or national self-suficiency or nationalisation of finance - and not free trade actually promotes peace and development. Keynes wrote:

I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel – these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national. Yet, at the same time, those who seek to disembarrass a country of its entanglements should be very slow and wary. It should not be a matter of tearing up roots but of slowly training a plant to grow in a different direction.

'For these strong reasons, therefore, I am inclined to the belief that, after the transition is accomplished, a greater measure of national self-sufficiency and economic isolation among countries than existed in 1914 may tend to serve the cause of peace, rather than otherwise. At any rate, the age of economic internationalism was not particularly successful in avoiding war; and if its friends retort, that the imperfection of its success never gave it a fair chance, it is reasonable to point out that a greater success is scarcely probable in the coming years.' (Keynes 1933/1972).

My friend added, "I think your ranks or 'the big names' themselves should come back debating the ideas of Keynes, especially that this crisis moment when 'we all seem to be Keynesian now' as the Financial Times put it a few months ago."

It's good that Keynes recognized the internationality or globalized character, of knowledge, science, travel, etc. I think if he were alive today, he will also recognize the globalized character (hence, must not be "caged" in any national boundary) of sports, culture, music, adventure, online networking (facebook, friendster,...).

So why would he propose to "cage" goods to national territories and not be internationally exchanged and traded freely? Is it wrong for my HP laptop, your (probably Nokia) cellular phone, someone's Ford expedition or Toyota Avanza, other people's gadgets, appliances, cars, shoes, salmon, Australian beef, etc. to be traded internationally? I cannot see any point why it is wrong.

Protectionism for me, is dictatorship.
The protectionists are dictating us to whom we can sell, to whom we can buy, at how much quantity, at what price and tax rates, when we can buy or sell, etc.

Under free trade, there is zero restriction, zero coercion.

A Finnish cell phone manufacturer can offer us their best models, but we can say "No, we're not buying from you, we prefer Korean or Japanese cellphones, or we want Taiwanese or Chinese copycats..."

A carinderia (streetside foodshops) owner can say "it's good to patronize onions and vegetables from the Cordilleras (mountain provinces in northern Philippines), but my customers are ordinary folks and jobless people who want the cheapest food possible, and imported onions and vegetables from Taiwan or Vietnam are a lot cheaper than those coming from the Cordilleras..."

A free trader ideologue (like me) can theorize from that carinderia owner's statement that "free trade of onions and veggies will help enable the poorest of the urban poor in the Philippines to deal with the current global economic turmoil and high unemployment. "

Talking about "free trade = peace", maybe the best examples will be Hong Kong and North Korea. HK being the epitome of free trade in Asia, has zero external threat of war (even if one will remove the "China's army" factor). The biggest banks, the biggest clothing and apparel manufacturers and distributors, the biggest hotel chains, the biggest food chains, etc. of the US, Europe, Japan, Canada, Korea, etc. have offices in HK. Any country that dare invade and attack HK will face the most modern fighter planes and armies of those countries mentioned.

In contrast, North Korea, autarkic except limited trade with neighboring China and S. Korea, is suspected by many countries around the world, in Asia especially, of possibly starting a war, or inviting a war, partly because of the absence of free flow of goods and services across its borders, absence of the internationality of the wwweb and the information it brings, etc.

"We're all Keyneysians now" were uttered by people who love more government, more borrowings and taxes, more intervention and regulations, more politicians and bureaucrats. I dont think the owners of yahoo, google, facebook, linux, etc. would ever desire and hope for such kind of a business environment. And yet these are among the companies that make lots of money with almost zero government subsidy and "support".

See also:
Free Trade 1: Estonia's Free Market, Globalization, May 09, 2006
Free Trade 2: Unilateral Trade Liberalization, May 17, 2006
Free Trade 3: Protectionism Perpetuate Poverty, September 05, 2006
Free Trade 4: FTA in APEC, July 09, 2007
Free Trade 5: Business , Rock Music and Cycling Globalization, July 17, 2007
Free Trade 10: More on Unilateral Trade Liberalization, July 15, 2008

1 comment:

mark said...

I'm disappointed that the person merely posted an opinion of Keynes rather than actual arguments from Keynes. How can we argue against an opinion? The argument is guilty of the logical fallacy of appealing to a higher authority. Keynes maybe a great man but that doesn't excuse him from making an argument.

Anyway, the fundamental argument for free trade is comparative advantage (as well as people's self-interest is more reliable than their altruism).

Paul Samuelson gave a great example of comparative advantage.

"...should a lawyer who can type twice as fast as his secretary fire the secretary and do his own typing? If the lawyer is twice as good a typist but five times as good a lawyer as his secretary, both he and the secretary are better off if he practices law and the secretary types letters."

The other reason for free trade is, of course, political. People will reliably pursue their own self-interest more than be other regarding (unless an individual chooses his self-interest to other regarding e.g. philanthropist). It is better to have a system that limits an individual's ability to satisfy his own self-interest by making other people better off. That is the free market. That is voluntary exchange. You cannot force someone to accept your services and terms unless it makes them better off. For politicians, their self-interest is best served by forcing you to accept their terms by limiting your choices. Example, bribe me 1% of the value of your goods or pay 2% tariff. I wonder if anyone noticed the amount of smuggled oil that entered the country increased by a lot when GMA instituted the 2% tariff? HA! reforms my ass.