Monday, January 21, 2013

The Myth of "Free Trade"

Much nonsense has been written about the (mostly imaginary) glories of "free trade," with little mention of the fact that Adam Smith, supposedly the father of the doctrine, endorsed equality of outcome, was quite critical of joint stock companies (the impersonal stock exchange), and entertained business enterprises no larger than a pin factory employing two dozen workers. His critique of 18th century capitalism, far from being a justification for today's enormous centers of unaccountable private wealth, is actually an endorsement of self-organized, human scale markets accountable to the communities that host them, not vast impersonal "markets" dominated by transnational corporations and international banks. Furthermore, he did not sneer at moral judgment, as do today's champions of capitalist "freedom"; on the contrary, he felt that human nature contains a natural and appropriate concern for the well-being of others, and an obligation to not inflict harm on them. This led him to conclude that government had a responsibility to restrain those who failed to fulfill that obligation.

Much of what goes under the name of "trade" today would not be recognized as such by Adam Smith. A huge portion of it is composed of exchanges within the branches of individual transnational corporations, which is to say that it consists of individual corporations shipping components between its various branches. This is done primarily to get around market discipline, not to submit to it.

Transnational corporations shed taxes by overcharging themselves for “inputs” they transfer from “foreign” affiliates and escape government regulation by shifting production to high-repression, low-wage regions of the world, declaring less profits at “home” and more in tax havens abroad. Through publicly-financed merger mania, they buy off competition, mock social responsibility, bid down wages, and restrict consumer choice to those options that directly enrich them. With amazing chutzpah they then defend their monopolies as “rugged individualism,” demanding subsidies for their inefficiencies, protection against competition, guarantees of their credit, coverage of their losses, and bailouts for their bankruptcies. They devote more money and effort to manipulating people into compulsively buying than they do to making things worth purchasing. They borrow billions of dollars to finance mergers and leveraged buyouts, deducting the interest while eliminating the jobs of the taxpayers from whom they borrow. In spite of their pious rhetoric about the need to "support business," they make enterprising small business virtually impossible. As the U.S. Trade Commission noted back in the 1980s, the nearest thing to a Communist command economy is in the front offices of transnational corporations.

While sneering at the "Nanny State," no sector of society is more dependent on it than transnational corporations. Corporate managers in advanced industries like electronics, computers, and pharmaceuticals, insist that the government, which means the taxpayers, absorb the unprofitable parts of the production process, namely research and development. Furthermore, corporate elites require that the public, through the Pentagon, provide a state guaranteed market, which is needed for waste production if commercial markets don’t work, as they often don't. When something is commercially viable, it is sold, and when not, the public purchases it and destroys it. The public pays the costs and the corporation keeps the profit - that's capitalism. And Adam Smith would not have supported it.

One fundamental tenet of “free trade” theory is that public subsidies are not allowed. However, following WWII U.S. business leaders were convinced that the U.S. economy would collapse back into depression without state intervention. They warned that advanced industry, specifically aircraft, “cannot satisfactorily exist in a pure, competitive, unsubsidized, ‘free enterprise’ economy” and that “the government is their only possible savior.” (There are very few "Ma and Pa" aerospace firms - ed.) Corporate leaders also accepted that the Pentagon system would be the best way to shift production costs to the public. Social spending dedicated to promoting the general welfare could also have played the “pump priming” stimulative role, but that route would not have provided a direct subsidy to the corporate sector, and it also would have brought unwelcome tendencies toward public participation in decision-making about how best to invest public money. Military spending had none of these defects, and was adopted precisely for this reason.

Six decades later the private industrial sector continues to be heavily dependent on taxpayer help, with all key industries heavily subsidized: aerospace, automotive, electronics, agribusiness, automation, biotechnology, communications, pharmaceuticals, just about every dynamic sector of the economy.

Interestingly, American political attitudes very much contradict the “devil-take-the-hindmost” philosophy of “free trade," which favors those best situated to win the competition, namely large, transnational corporations. Overwhelming majorities of Americans favor federal guarantees of public assistance for those who can’t work, unemployment insurance, subsidized prescription drugs and nursing home care for the elderly, at least minimum health care, social security, and federally guaranteed child care for low-income working mothers. The persistence of such attitudes in the wake of massive corporate propaganda repeatedly announcing the “death” of the New Deal is striking.

Because monopoly and public interests diverge, corporate expenditures on the systematic manipulation of public attitudes are huge in the United States. They reached one trillion dollars annually by the late 1990s, and have continued to climb since. Many of these expenditures are tax deductible, so that the American people pay for the privilege of being indoctrinated by corporations sucking at the public tit while denouncing ordinary Americans for depending on the “Nanny State” when they receive far more modest help from their government. The main thrust of this propaganda offensive is that liberty is the right to waste, over-consumption is impossible, and poverty is self-inflicted.

Internationally, "free trade" elevates “property rights” to Divine status, superseding every other established right among nations of the world. In many ways it is simply a bludgeon used to force the poor to subsidize the rich, as all of the industrialized nations got that way through disciplined protectionism, not market discipline, which is the only way known to enter the competition against better established rivals. By now the more powerful states have elevated transnational corporations over the sovereign power of nation states, which have the defect of being occasionally responsive to democratic demands. As political scientist Michael Parenti observes, “free trade” arrangements like the World Trade Organization (WTO) and the General Agreement on Tariffs and Trade (GATT) represent a kind of global coup d’etat by the giant business interests of the world.

Free trade agreements grant anonymous international trade committees the authority to overrule any nation-state laws that are deemed a burden to the investment opportunities of transnational corporations. Meeting in secret, these all-powerful trade panels often have investment stakes in the very issues they are seeking to adjudicate - and they have been elected by no one. Their function is simply to grant carte-blanche to transnational corporations headquartered in countries all over the world. Governments are commanded to reduce tariffs, terminate farm subsidies, treat foreign corporations the same as domestic ones, honor all transnational corporate patent claims on natural resources, and obey the rulings of the WTO's permanent elite bureaucracy. Should a country attempt to resist changes to its laws designed to accommodate the lords of “free trade,” the WTO may impose fines or international trade sanctions, depriving the resisting country of needed markets and materials.

What kind of government policies face "free trade" sanctions? Michael Parenti writes: “The WTO has ruled against laws deemed barriers to free trade . . . has forced Japan to accept greater pesticide residues in imported food . . . has kept Guatemala from outlawing deceptive advertising of baby food . . . has eliminated the ban that various countries had imposed on asbestos and on fuel and emission standards for motor vehicles . . . and . . . has ruled against marine-life protection laws and the ban some nations imposed on the importation of endangered-species products . . . The European Union banned the importation of hormone-ridden US beef . . . a three-member WTO panel decided the ban was an illegal restraint on trade . . . The WTO overturned a portion of the US Clean Air Act banning certain additives in gasoline because it interfered with imports from foreign refineries, along with a portion of the US Endangered Species Act that forbade the import of shrimp caught with nets that failed to protect sea turtles.”

All of these rulings promote minority interests over the general public interest.


Smith, Adam, "The Wealth of Nations," (Random House, 1937)

French, Marilyn, "Beyond Power - On Women, Men, and Morals," (Ballantine, 1985)

Chomsky, Noam, "Chronicles of Dissent," (Common Courage, 1992)

Chomsky, Noam, "Profit Over People," (Seven Stories, 1999)

Barnet, Richard J. and John Cavanagh, "Global Dreams: Imperial Corporations and the New World Order," (Simon and Schuster, 1994)

Harrington, Michael, "Socialism: Past and Future," (Mentor, 1992)

Korten, David C., "Agenda For A New Economy - From Phantom Wealth to Real Wealth," (Berrett-Koehler, 2009)

Parenti, Michael, "The Face of Imperialism," (Paradigm, 2011)


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