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Wednesday, 13 April 2011 16:28

What "free trade" has cost the world?

In the capitalistic world it is believed that unilateral free trade is a winning proposition for globalization. Thus, there was no need to be concerned about things like subsidization of key foreign industries or loss of capability in these fields, and hence no need for trade measures that might upset delicate geopolitical relationships.

Setting workers against workers enabled a few people to get really, wealthy and powerful and use that wealth to become even more wealthy and powerful. The U.S is in decline, burdened by massive trade deficits because the ones with vested interests in cheap labor won't take on the mercantilists, because those vested interests have bought low taxes and government subsidies. Other countries also suffer from similar stresses. Out of this situation a new global elite has emerged, contemptuous of democracy and government and any power but the power of their own money. In country after country, these top few won't share the proceeds with their own, either, while they keep the world from approaching solutions.

It is dogma among economists and right-thinking members of the political and business elite that globalization is good and more of it is even better. That is why they invariably view anyone who dissents from this orthodoxy as either ignorant of the logic of comparative advantage or selfishly protectionist. But what if it turns out that globalization is more of a boon to the members of the global elite than it is to the average people?

Dani Rodrik’s famous book titled: ‘The Globalization Paradox’ demonstrates that those questions are more than hypothetical and that they describe the world as it really is rather than as it exists in economic theory or in the imagination of free trade framework. The starting point of Dani Rodrik’s argument is that open markets succeed only when embedded within social, legal and political institutions that provide them legitimacy by ensuring that the benefits of capitalism are broadly shared.

The Globalization Paradox’, as Rodrik sees it, is that globalization will work for everyone only if all countries abide by the same set of rules, hammered out and enforced by some form of technocratic global government. The reality is, however, that most countries are unwilling to give up their sovereignty, their distinctive institutions and their freedom to manage their economies in their own best interests. Not China. Not India. Not the members of the European Union, as they are now discovering. Not even the United States.

In the real world, Rodrik argues that there is a fundamental incompatibility between hyper-globalization on the one hand, and democracy and national sovereignty on the other.

In the capitalistic world it is believed that unilateral free trade is a winning proposition for globalization. Thus, there was no need to be concerned about things like subsidization of key foreign industries or loss of capability in these fields, and hence no need for trade measures that might upset delicate geopolitical relationships.

This economic doctrine has been based upon the assumption of Anglo/American economics that economies of scale either don't exist in most traded products and industries or are relatively unimportant. That this assumption is severely and obviously wrong and not accepted by most of the non-Anglo world has not deterred its application to the making of much American and its global trade policy.

(By Dave Johnson, political activist and columnist; Common Dreams)

 

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