In the matter of Free Trade, as with any ideology, there are none so zealous as the newly converted. Thus developed countries, who didn’t get where they are today without the judicious application of a trade barrier or two, preach the merits of open economies to developing nations. Conveniently forgetting their history, the implication, supported by an overlaid media narrative, is that restraints on trade have never been justifiable.
Note though that Free Trade per se does not exist. If it did Canada would not need 300 trade negotiators  or the EU 550 and the US 500 . Nor would ‘Modern trade agreements [be] incomprehensible to a person unfamiliar with them, written in a kind of legalistic code’ .If Free Trade is a thing at all, it is a direction of travel, rather than an arrangement that exists somewhere and can in due course be replicated everywhere.
But it is a dangerous direction of travel for three reasons. Firstly because Free Trade plays a role in the perpetuation and intensification of inequality; secondly for the way it prioritises specialisation and efficiency at the cost of much needed resilience; and thirdly because the free market cannot solve planetary-level crises.
Thus, working backwards from Armageddon, unless we reinsert a level of strategic economic guidance via (shock horror) planned economies we will be complicit in our own extinction; our journey to destruction will be punctuated by collapses of greater frequency and intensity as we become more and more efficient at doing the wrong things; and any small comforts – lingering interpersonal satisfactions – will become more difficult to enjoy against the backdrop of an irredeemably unfair society.
And, as we will see, the dysfunction of monetary and financial systems is an important underlying factor.
Pro market capitalism arguments are well known – a rising tide raises all boats, the transformational value-adding impact of the lionised entrepreneur and so on. It seems small minded to dismiss them all, but rather than having hit on the ‘special sauce’ that facilitates a sustainably progressive society, I think it is more likely that capitalism just happens to be the incumbent ideology during the golden period – the 100 years or so that we will eventually look back on as the ‘oil age’. Of course, our semi-castrated form of western market capitalism outperformed the bastardised form of socialism/ state capitalism of the USSR, but neither capitalism nor socialism has been properly implemented. So it’s best not to draw any ideological conclusions.
Whatever the historical truth concerning relative inequalities across the ages, it is clear that we have failed to share this one-time wealth harvest and its associated quality of life fairly. Furthermore this failure has become ever more evident – the world is a smaller place than it was. Inequalities are more visible and communicated about.
Worldwide, low paid workers depress each others pay levels, either by ‘getting on their bike’ (as Norman Tebbitt cheerily advised them to do in 1981) and migrating problematically to where the jobs are, or by contributing in situ to sweatshop economies producing cheap goods for export. Inequality increases as labour is more and more subservient to capital – a trend reinforced by the preferential allocation of capital to insiders, financiers and major corporates (at the expense of the productive economy, SMEs and the 99%). The results are over-financialised economies, corporate-controlled government policy and increasingly dispossessed and disconnected citizens.
Capitalist hawks see this trend as a natural development in driving costs down to the benefit of consumers, and rationalise it as part of a painful but necessary journey for developing countries. Were the effects of the resulting inter-cultural mashups not so disruptive, and the market externalities not so toxic, they might have had a point. As it is this acceleration into reductio ad absurdum capitalism will be likely fatal if left unchecked.
The economic attraction of comparative advantage remains a normative belief. Individuals, firms and nationals should specialise in what they are best at. The resulting division of labour results in the most efficient allocation of resources. In the process though, supply chains become longer, local economies are strip-mined their diversity and monocultures of all types become the norm. Nature does not select for efficiency – it selects for a mixture of efficiency and resilience, and monocultures are notoriously fragile. Economies have become dependent on the supply of stuff of life goods and services from potentially unreliable or otherwise deprecated sources in the pursuit of the free trade chimera. Add to this the doubtful viability of long supply chains post-fossil-fuel, and you have a strong case for the progressive relocalisation of production. It may not matter if the supply of Chinese plastic toys dry up, but having a degree of local strategic control over sources of food and energy would seem advisable.
It is worth considering the benefit of planned economies at the local and national (and indeed individual) level. At a national level, free-market thinking already incorporates the possibility of intervention, in the case of ‘market failure’. One accepted type of market failure concerns negative externalities- that is where non-participants in a market are significantly adversely affected. Typically, negative externalities – their existence, extent and cause – will be the subject of dispute because the market’s participants will not want intervention. Climate change denial is a good example of engineered controversy aimed at delaying intervention.
The power wielded by major corporations – over law, finance and the media – means that the dispute phase can extend over many years, even when good evidence is available. The damage of delay may be simply the premature deaths of a few million smokers . Or it may be existential, as climate change activists are warning.
The primary factor said to indicate a market failure is inefficiency – the idea that resources could be better allocated. We have already seen the limits to efficiency – being efficient at doing the wrong things is to no benefit. The question is when to apply the precautionary principle and at what level is action most likely to make an impact.
In recent times the free-trade direction of travel has been widely supported as has the unchallenged desirability of growth. The effort put into international trade agreements like TTIP and TPP prior to the Brexit/ Trump shocks is testament to that, as is the EU’s continuing commitment to globalisation. While opposition is growing and becoming more articulate, it is likely that disrupting the self-reinforcing groupthink of these discussions will take some time. Consequently actions at the nation state level are likely to be more productive, even if the insertion of some grit into the free trade machine means associating with some uncomfortable fellow travellers.
The best common ground with these fellow travellers is likely to revolve around the strategic prioritisation of targetted areas of the economy. The potential rebalancing of an economy – away from over-financialisation towards productive activity and especially stuff of life end product like food and energy – could create its own success story/ case study and encourage others. To achieve this we need to reinvent money.
Underlying monetary/ financial factors
Currently almost all money (bar cash) is created as credit by the commercial banks; is allocated into first use by them; and is repaid with interest.
By taking control over the amount of money issued and ensuring its first use mirrors agreed explicit national strategic priorities, nation states can procure behaviour change both industrial and social. This does not mean a USSR-style planned economy and need not remove all discretion from bank lending. But it can address the boom/ bust cycle caused by the herd mentality of the lending banks; it can reprioritise productive activity; it can encourage strategic change that cannot be addressed via pure market operations; it can strangle speculation; it can avoid asset booms and over time adjust house price levels; it can repatriate the unearned (and unwarranted) seignorage currently accruing to banks in terms of the interest they receive on loans they create ex-nihilo; and by spending a proportion of new money into circulation and loaning more debt-free there is potential for gradually unwinding national debt.
Without financial/ monetary policy changes it is likely that any engineered disruption of the free-trade direction of travel will be temporary, and that trade to oblivion will resume when the political wheel turns again. Policy changes are therefore fundamental in securing long term change and proper strategic control – part of reclaiming the policy space available to governments to intervene in the economy.
One of these quotes is from Feasta co-founder the late Richard Douthwaite  and the other from https://www.mtholyoke.edu/acad/intrel/interwar/keynes.htm”>John Maynard Keynes .
“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.”
“In the natural world a diversity of species tends to produce and maintain stability. It is the same in national economies. The more activities a country pursues the better, even if there is a financial cost, an ‘insurance premium’ attached to doing so.” (Personally I would extend this argument to local economies too.)
: Lord Price quoted at
: Proctor in BMJ: the tobacco industry managed to spin out denial for around 50 years
: John Maynard Keynes, “National Self-Sufficiency,” The Yale Review, Vol. 22, no. 4 (June 1933), pp. 755-769.
: Douthwaite, Short Circuit
Featured image source: https://ecoempire.files.wordpress.com/2013/03/piles-of-plastic-toys.jpg