Aviation Ghana

The Two Faces of Free Trade

- By Dani Rodrik

Few terms in economics are as ideologica­lly loaded as “free trade.” Advocate it nowadays, and you are likely to be regarded as an apologist for plutocrats, financiers, and footloose corporatio­ns. Defend open economic borders, and you will be labeled naive or, worse, a stooge of the Communist Party of China who cares little about human rights or the fate of ordinary workers at home.

As with all caricature­s, there is a grain of truth in the antitrade stance. Growing trade did contribute to rising inequality and the erosion of the middle class in the United States and other advanced economies in recent decades. If free trade got a bad name, that is because globalizat­ion’s boosters ignored its downsides or acted as if nothing could be done about them. This blind spot empowered demagogues like

Donald Trump to weaponize trade and demonize racial and ethnic minorities, immigrants, and economic rivals.

Nor is antipathy to trade the province only of rightwing populists. It also includes radical leftists, climate activists, food-safety advocates, human-rights campaigner­s, labor unions, consumer advocates, and anticorpor­ate groups. US President Joe Biden, too, has noticeably distanced himself from free trade. His administra­tion believes that building a secure, green, equitable, and resilient US economy must take precedence over hypergloba­lization. All progressiv­es, it seems, believe that free trade stands in the way of social justice, however understood.

It wasn’t always this way. Free trade was the rallying cry of nineteenth-century political reformers, who saw it as a vehicle for defeating despotism, ending wars, and reducing crushing inequaliti­es in wealth. As University of Exeter historian Marc-William Palen reminds us in Pax Economica: Left-Wing Visions of a Free Trade World, the era’s economic cosmopolit­anism encapsulat­ed progressiv­e causes such as anti-militarism, anti-slavery, and antiimperi­alism.

And it wasn’t just political liberals who supported free trade. US populists in the late nineteenth century staunchly opposed the gold standard, but they were also against import tariffs, which they thought benefited big business and harmed ordinary people. They pushed to replace tariffs with a more equitable progressiv­e income tax. Then, during the early part of the twentieth century, many socialists viewed free trade, supported by supranatio­nal regulation, as the antidote to militarism, wealth gaps, and monopolies.

These conflictin­g views would seem to pose a conundrum. Does trade promote peace, freedom, and economic opportunit­y, or does it foster conflict, repression, and inequality? In fact, the enigma is more apparent than real. Either outcome – or anything in between – depends on whom trade empowers.

Nineteenth-century liberals and reformers were free traders because they thought protection­ism served retrograde interests, including landed aristocrat­s, business monopolies, and warmongers. They believed economic nationalis­m went hand in hand with imperialis­m and aggression. Palen cites a 1919 essay by the economist Joseph Schumpeter, who depicted imperialis­m as a “monopolist­ic

symptom of atavistic militarism and protection­ism – an ailment that only democratic free-trade forces could cure.”

It was this vision that informed the post-World War II internatio­nal trade system. The American architects of the Internatio­nal Trade Organizati­on followed in the footsteps of Cordell Hull, President Franklin D. Roosevelt’s secretary of state, believing they were pursuing world peace through free trade. Hull was an economic cosmopolit­an and a devotee of the nineteenth­century radical free-trade advocate Richard Cobden. Unlike previous regimes, the postwar order was meant to be a system of global rules that did away with bilaterali­sm and imperial privileges. While the US Congress ultimately failed to ratify the ITO, some of its key principles – including multilater­alism and nondiscrim­ination – survived in the General Agreement on Tariffs and Trade (GATT), the precursor to the World Trade Organizati­on.

Buttradeca­nbeinstrum­entalized just as easily for authoritar­ian and militarist­ic ends. A particular­ly egregious example is Antebellum America, where free trade served to entrench slavery. During the drafting of the US Constituti­on in 1787, slave-owning Southerner­s ensured that the text would prohibit the taxation of exports. They well understood that free trade would ensure that plantation agricultur­e remained profitable and safeguard the system of slavery on which it was based. When the North defeated the South in the Civil War, slavery was abolished and free trade was replaced with protection­ism, which suited Northern business interests better.

The situation under British imperialis­m was similar. After the repeal of the Corn Laws in 1846, the British government nominally turned its back on protection­ism and led Europe in signing free-trade agreements. But in Africa, the Middle East, and Asia, free trade was imposed through the barrel of a gun whenever the British encountere­d weak potentates ruling over valuable commoditie­s and markets.

The British fought the infamous Opium Wars of the midninetee­nth century to force Chinese rulers to open their markets to British and other Western goods (opium chief among them), so that Western countries in turn could buy China’s tea, silk, and porcelain without draining their gold. The opium was grown in India, where, as Amitav Ghosh details in his new book, Smoke and Ashes, a British monopoly forced farmers to work under horrendous conditions that left long-term scars. Free trade served repression and war, and vice versa.

The post-WWII regime of multilater­al free trade under American leadership would fare much better. Under GATT, commercial diplomacy replaced wars, and many nonWestern countries – such as Japan, South Korea, Taiwan, and, most spectacula­rly, China – expanded their economies rapidly by leveraging global markets.

By the 1990s, however, the trade regime had become a victim of its own success. Large corporatio­ns and multinatio­nals, empowered by the expansion of the global economy, increasing­ly drove trade negotiatio­ns. The environmen­t, public health, human rights, economic security, and domestic equity took a back seat. Internatio­nal trade had yet again moved away from Cobden and Hull’s original vision, turning into a source of internatio­nal discord instead of harmony.

The lesson of history is that turning trade into a positive force requires that we democratiz­e it. That is the only way to ensure it serves the common good, rather than narrow interests – an important lesson to keep in mind as we reconstruc­t the world trade regime in the years ahead.

Dani Rodrik, Professor of Internatio­nal Political Economy at Harvard Kennedy School, is President of the Internatio­nal Economic Associatio­n and the author of Straight Talk on Trade: Ideas for a Sane World Economy (Princeton University Press, 2017).

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