SOME COMMON MISCONCEPTIONS ABOUT FREE TRADE
By Venugopal, National Institute of Rural Development, Hyderabad. Feb. 2001
*Free trade is a practical concept based on fundamentals of Economics: There is no evidence to support that free trade is practically possible. Fundamental economics talks about demand and supply equilibrium, which is supposed to be brought about by the invisible hand spoken of by Adam Smith. But the essential assumption for such equilibrium is the existence of several buyers and several sellers. Unless you have many players, equilibrium will not arrive. Now in real world, there are not 'many players' actually playing the game. For example, see UNDP Human Development Report 1999, which estimates that top 10 pesticide companies in the world control 85% of the $31 Billion market. Top 10 telecom companies control 86% of the $262 Billion market. Similar point can be noted about top computer companies.Mergers are a fact of corporate life, which leads to monopolies or oligopalies, which are not characteristics of free trade. In my native village farmers can sell their paddy to only one miller agent and at most to two.
*Free trade leads to efficiency This is almost taken as a tautology. But if we see a little carefully as to how efficiency is actually defined in adopting this view, things will be clear. Efficiency is seen strictly with reference to costs or input as compared with income or output. This output is defined in the narrowest possible sense by referring to the particular industrial unit or enterprise. If the unit transfers its costs by passing on to others, it automatically becomes efficient by this definition. For example, a unit reduces its costs by discharging industrial effluents into a river. It may lead to much more social and environmental costs. Mostly it does. But the cost transferred to society is not considered in such analysis. Another example of how waste is encouraged in the name of free trade is the way advertisements affect the whole business. There are certain products where the cost of advertisement is more than 50% of the price. Cost of packaging is more than 50% of price. OK, it is good news for the packaging and advertisement sector. But if you see the society as a whole, surely it is a waste to have such high costs incurred in style rather than substance.
*Free trade is practised throughout the western world Nothing can be farther from truth than this statement. When it comes to the inter-relationships between exports and imports, there is always doubletalk. There have been several instances when the west has tried to impose tariff barriers on products that are considered threatening to domestic industry. Just examine why they have limit on number of H-1 visas in the USA. If free trade is the objective, why not allow every skilled person to offer his or her services to them, whether the person is from Asia or Africa or Europe. Why are ceilings put, if not to protect the domestic manpower within their own countries? Similarly the bogey of child labor is invoked when it means protecting domestic carpet industry.
*Free trade symbolizes democracy
*What is democracy? If we take Abraham Lincoln's definition of it being a government 'of the people, by the people and for the people', will free trade really fit into this definition? If new multistoreyed mega-supermarkets or shopping mals come up and if large number of people are excluded from entering those mals, not by display of any board like the one used at the entrance of clubs during the colonial rule, but by sheer lack of purchasing power, can it be called government for the people? If power is not decentralized but the villager is left almost entirely at the mercy of world market forces, can it be said to be government by the people? If elections continue to be increasingly influenced by money power, can it be said to be government of the people? Democracy does not mean just holding elections every five years, but it means enabling people to participate in governance in a number of ways. If the ability of government to intervene is increasingly eroded,because of various entities like WTO, globalization, so-called reforms and so on, how can ordinary people participate?
*Free trade is in line with Darwin's theory of survival of the fittest Society comprises of people who are inter-dependant. When minimum basic human needs are not fulfilled for animal existence by majority of poor people, not to speak of Meslow's theory of needs,do we really need luxury goods and services for a few? Does it require too much intelligence to note that poverty anywhere can be a threat to prosperity everywhere? Is there nothing to distinguish human civilization from animal kingdom? Is there nothing called justice? Is it not an intellectual challenge to the combined wisdom of mankind at the threshold of 21st century to be able to wipe out abject poverty and deprivation from this planet and lead to sustainable development? To persuade oneself that there is no point in addressing issue of poverty because the poor are destined to die... would be an attitude which could have perpetuated slavery. But history shows that mankind has evolved through various phases and the innate urge for a better society has been the reason for many epoch-making changes in the past. Why cannot the same principles operate now and lead to better changes towards a more egalitarian society? Why is it insisted that man should not use his brains and has necessarily to live like animals, by taking cue from Darwin? Man can surely live with hopes, aspirations, values of good and bad, values of justice, equality and be different from rest of the animal kingdom. It reminds to me a newspaper clipping some time back when a tiger in Nehru Zoological park at Hyderabad was skinned alive by an intruder who entered the cage and committed the ghastly act. After the event, the remaining tigers in the neighbouring cages, who were helpless witnesses to the event, refused to have food for a few days! They were so outraged at the injustice. If this could be the level of compassion which a tiger can show towards his brethren, why should not human beings have moral values and work towards a society which does not deprive basic needs to its people?
*After the collapse of communism all over the world, there is no alternative to free trade Of course it is true that Eastern Europe underwent major upheaval and China has embraced market reforms. But these countries have started traversing the new path, after taking firm and decisive steps to increase the standard of living of general masses, not withstanding aberrations like famine of the 1940's in China. Of course, it was done at a great deal of social cost and violation of human rights. A useful lesson could be that human rights should not be trampled upon. But, it does not follow that free trade is the only solution. The solution is to explore avenues of increasing participation by the people and prevent human rights violations like the ones in Soviet Russia. Any real economy is basically a mixed economy with certain areas controlled by State and certain areas given over to markets. It is a matter of degree, rather than something fundamental, when one looks at the extent of control the state has. It is possible to work for a model of economy based on participatory democracy and aiming at fulfilment of basic human needs of all and which respects human rights.
*Anybody who opposes free trade is a communist and has been proved wrong by history History has not come standstill and the course of history has not pronounced any final verdict ever.Two or three decades of history is too small in comparison with the march of civilization. It would be juvenile to presume that there are only capitalism and socialism. There are many variations and many kinds of ideas at various dimensions.It is not a simple white and black issue, but reality is much more complex and has many shades. Many people have opposed free trade on the grounds of long term sustainability. Mahatma Gandhi has said 'the earth has enough for everybody's need, but not enough for everybody's greed'. Mahatma Gandhi has also said he preferred violence to cowardice. He was of the firm view that the tiller of the soil is entitled to as much remuneration as that of a lawyer. There are people like Baba Amte and Medha Patkar who have been inspired by Gandhi and are opposing construction of large dams at the cost of displacement of poor people and total ruination of their livelihoods. The President of India made a mention of these issues in his Address to the Nation on the eve of Republic Day, 2001. Surely all these people are not communists. After all, who is a communist? If we take the basic view of socialism as defined by Karl Marx meaning a society ensuring 'from each, according to his ability and to each, according to his need', most people have nothing prima faci against this concept. But the word 'communist' brings out notions of arbitrariness, or state monopoly or human rights violations or corruption to some. They can be rest assured that this writer is not supporting such notions. But if some people think the word symbolizes justice,egalitarianism, fulfilment of basic needs, concern for fellow human beings and concerted efforts to bring a better society that could produce human beings with a more humane character, I do not find any reason to oppose the label. But instead of getting bogged down with labels, one could examine whether free trade model can be sustainable at all. By compelling people to do only those things at which they have so-called comparitive advantage, the free trade model enforces mono-cropping in agriculture and leads to extraordinarily high doses of chemical fertilizers at long term costs to the soil fertility. Afterall, Nature prefers diversity. Increasing world trade leads to greater transporation costs and faster depletion of fossil fuel or non-renewable energy sources. And of course, it expects ordinary people to interact with world markets, thereby giving additional strength and undue advantage to the developed countries, who have already reached a stage of industrial progress with a major input by way of raw material from the third world countries in the initial days of industrial revolution. By concentrating on GNP, it ignores environmental, public health and other social factors. Let us note a simple fact to illustrate this point. A village has been protecting its forest over thirty years by concerted efforts of people. They may use firewood or twigs for various purposes but other than that, they do not fell the trees. They add nothing to the GNP in the free trade model. On the other hand, if a smuggler breaks the village unity and starts felling the forest and supplies to timber industry, then it gets counted in our national accounts statistics and GNP increases! When we do not trust the government officials for running our policies, how do we trust mechanism and treaties signed by the same people, under the same limitations, which will limit our sovereign ability and subordinate it to world bodies?
*Merit and efficiency can be promoted only by the apparent ruthlessness of market forces
*History has denied equal opportunities to large number of people. Suddenly it is declared that there is free trade and everybody is free to take part in it. It does not stand to reason that because governments declare supremacy of market, society automatically allows merit or efficiency to flourish. As distinct from State and the markets, we have society. Society has its own characteristics with different social strata and inter-relationships between them. Definitely not all are placed in equal position to compete in trade, considering diverse backgrounds, castes, hierarchy, social position, variations in self-esteem, variations in objective social conditions, variations in knowledge or education, differences in power and so on. The ruthlessness of market is not apparent. It is real. The markets are based on notion of profit. It can be argued that State is run through government officials who are corrupt. But we should note that there are always some government officials who are not corrupt and it is desireable to promote channels of public participation in order to increase operational space for good public servants. But market is by definition self-seeking, with profit as the ever-underlying theme. A society that cannot rely on government officials in a democratic framework has no logic to rely on markets, which are by definition, seeking private profit. Entrepreneurship is important but regulation through people's participation, with due respect to human rights, will be necessary to see that in the name of free trade, one does not lead to long term damage of environment, or increase long term social costs by depriving basic needs of people.
*Free trade leads to more choices
*If I am a poor woman having problems of collecting drinking water and finding it difficult to get two square meals a day, it does not really matter if the nearest city has ten night clubs or five shopping mals. If I am already marginalized by lack of purchasing power, whatever increased choices available in towns for those with fat purses are not available to me.
*Free markets lead to competitiveness and promote excellence
*There is no doubt that free market economy would promote competitiveness. But it is again defined within the broad limitations of outputs and profits, as already discussed. Therefore it is imperfect, as costs transferred to others in the economy are not covered. In any case, what happens at the end of this competition, in terms of one's contribution to the society and deriving inner, blissful and rational satisfaction within oneself? 'At the end of the rat-race, one is still a rat!' Regarding excellence,of course, some individuals will definitely shine in disciplines favorable to the markets. Let us note that any child has a great deal of creativity and it is through social conditioning that much of it is lost or controlled. A child is like a bud that can blossom into beautiful flowers of various shapes and fragrances. If an economy does not allow many poor children to live beyond the age of one year, obviously it does not allow creativity to grow. If state takes no responsibility for promotion of public health or for that matter, anything that does not pay, will it lead to progress? Most important intellectual pursuits of life do not pay well in monetary terms if they are left completely to the mercy of markets, the list ranging from archaeology,basic Research, classical music, sociology, study of astrophysics, pure sciences,social sciences,Mathematics and so on.Surely, everything that does not pay now is not useless. If this logic were to be applied in the past, many principles of science would not have been discovered and many great inventions would not have been possible. By promoting fields like Management, IT and Biotech at the cost of other disciplines, we would not be promoting excellence in general. May be, excellence is encouraged in some select fields. Therefore it does not follow that excellence is promoted in free markets, as some subjects are encouraged and some disciplines will be forced to fade away.
*People who talk of distributive justice basically want to distributes poverty No, there is historical evidence to show that trickle down theory has never worked in addressing the scale and kind of income disparities that we have. The logic that growth-oriented economic policies lead to bigger size of the cake and hence every one will get a bigger share of the cake has not been proved. Green revolution took place in India and has helped the country to achieve self-sufficiency in food grains. But it has not helped to increase food availability to the poorest of the poor. As Amartya Sen has pointed out, mere production of food does not mean that everyone got access to it. Nobody can distribute poverty or compel the rich to live like the poor in the framework of human rights that has been referred to before. What one is talking about it a fair degree of distribution of economic benefits and enhancement of opportunities for all on a sustained basis.
*There is no place for centralized planning any longer Yes, I agree with the statement here. Nobody is talking about centralized planning here. We are talking about decentralized, people-based participatory planning and execution. Rather than empowering State or Markets, I am talking about empowerment of the people at the grass roots level. I am exploring ways and means of people protecting and enhancing their own natural resource base and sustaining their livelihoods without being victims of either state or the markets. State could at best play a supportive role.
*Anyone who opposes free trade supports class struggle
*It is true that there are several classes in our society. It is also true that not all situations are 'win-win' situations and not all are 'zero-sum games' and therefore one cannot generalize it either way. There may be some local situation where people may be in a position to come together and form a good cooperative and economically compete with some big vested interest and win by combined strength. It is also possible that somewhere else, poor people are not able to stick together and their problems are exploited by others. All that one is advocating is that government institutions should play a 'pro-poor' role by taking up schemes, enforcing social legislations and giving support to the poor in the latter kind of situations. Locus standi for class struggle can be removed if state institutions perform roles actually supporting the poor.
*All this is alien to indian culture, as indian culture concentrated on the individual and society has no place in ancient indian traditions Indian culture had emphasized the concept of 'vasudhaiva kutumbakam' or treating the whole planet as one's family. Where is any contradiction? Indian culture has always emphasized concern to basic values of ecology or sustainability, whether these words were ever used or not. The tradition has always put emphasis on voluntary moderate habits. To help the poor was always considered as a noble cause, be it in Hinduism or in Islamic thought or in Christianity. Rather it is the culture of 'free trade' that has led to high incidence of sex trade in south east asian countries, leading to its concomitant problems. The fact of existence of diverse thoughts and approaches was widely recognized in indian thoought as can be seen by the saying, 'ekam sath vipraah bahudha vadanthi',meaning the same truth is expressed by the learned in various ways. It was Swami Vivekananda who declared that 'God cannot dare to appear in any other form to a starving person except in the form of food'. There were several schools of thought in ancient India including the materialist school, or the Lokayata school, who believed in the primacy of society. Be that as it may, if somebody wants to concentrate on the individual and explore avenues of self-purification or self-improvement through, that is welcome and is not contradicted in our approach based on individual liberty, alongwith all other human rights. Ultimately the objective is to produce a better society that could improve human nature. In the name of free trade, let us not sacrifice our cultural heritage. Let us all keep on expressing it, by imbibing the good in other traditions in diverse ways, including reducing poverty by targetted approaches, more transparent and decentralized government,better participation of public in various institutions, electoral reforms, research and use of herbal medicines, forest protection, preservation of tribal music, dance and other cultural traditions,promoting indian languages, leading a life based on simple living and high thinking aimed towards sustainable development.