Following on from the recent announcement at the APEC Summit of yet another major push for free trade, I was disappointed to note that the Australian public has once again been largely let down if they were hoping for some critical discussion around this issue.
Both Labor and the coalition are apparently united in the depth of their belief about free trade, pursuing it with an almost religious zeal. While the Greens have expressed some concerns about wanting to see definite outcomes, they can hardly be seen to be challenging the juggernaut. Adding to this, there is also something of a tendency within the media to report on free trade with the assumption that it is entirely positive.
But is free trade really all that good? Apparently not all of us think so.
The Courier Mail recently reported (16th Nov) that Bob Katter's Australian Party, which actively advocates protectionist policies, may do as well in the upcoming Qld election as One Nation did in 1998 when they secured 11 seats. "That is just parochialism and xenophobia!" I hear you say, "North Queenslanders are famous for it."
Here is where I warn you not to be too quick to judge. I am certain that there is at least some genuine, well thought out concern amongst these voters; concern that somehow government and big business have been steadily pulling the rug out from under the little person.
The idea of free trade is of course based primarily on David Ricardo's 1817 theory of 'comparative advantage'. Comparative advantage is a lovely little mathematical proof that even if one party is better at producing everything, the greatest efficiency in production can be attained, and all parties can benefit, if each trading party focusses on producing what they are relatively best at, and they trade freely with one another for the rest of what they need.
With a little teasing out, however, we can discern some serious problems with this theory:
While the maths is correct, the equation does not take into account all factors. Specifically, comparative advantage does not take into account the costs associated with shifting a regions productive infrastructure from where it is now to producing what it is relatively best at producing. Is getting a cheaper banana worth reinventing a whole region's economy? You might recover the cost over time but in a shifting global economy, economic restructuring will be a continual process.
Neither does comparative advantage take into account the costs of trade; the ports, the ships, the rail lines, the petrol. As well as the economic costs, we can also look at social and environmental costs in relation to both this and the above point.
David Ricardo himself recognised that the theory only works if capital is immobile. In other words, if foreign investors are able to purchase a region's productive assets, whatever benefits may be due to that region through comparative advantage will be reduced or potentially eliminated.
Free trade encourages large scale, export-oriented production processes. This means that it tends to concentrate wealth, with an increasingly high percentage of any benefits from free trade accruing to the already wealthy.
Free trade will in some circumstances trigger the so-called 'race to the bottom', where in their efforts to compete successfully with one another, various nations go on a cycle of lowering wages as well as workplace and environmental standards etc.
Discuss in our Forums
See what other readers are saying about this article!
Click here to read & post comments.
12 posts so far.