Tuesday, September 27, 2005

Authentic Voice of a Classic Liberal

Razzen Sally, a lecturer at London School of Economics, has contributed an article, “Free Trade: old arguments, new threats” in Bombay’s Financial Express (India). A clearer statement of the viability of free trade for the eradication of poverty by the development of prosperity could not be made.

Congratulations to Razzen Sally for writing such erudite good sense in the Smithian mould, and to Financial Express for publishing it.

In a sample paragraph, one of many that could be quoted, we read

“The core arguments for free trade are as compelling today as they were when Adam Smith set these out over two centuries ago. These I characterise as the trinity of prosperity, freedom and security. The economic case revolves around a specialised international division of labour, unencumbered by artificial restrictions, that allocates resources more efficiently and leads to long-term productivity gains. All-round growth and prosperity are its results. The moral case for free trade centres on individual freedom. It is individual choice and entrepreneurship that drive international commerce and the resulting prosperity creates better life-chances. Finally, free trade contributes to a more secure international political environment. By forging commercial bonds among nations, it fosters better understanding among the peoples of the planet.”

That summarises superbly the vision of free trade. But there is still a long way to go. Modern protectionism is driven by a mixture of motives such as the anti-capitalist suspicions of anti-globalisation militants (including remnants of the old Marxist ‘Left’) and the hostility of those who suspect ‘western’ values affront their deeply felt religious beliefs. This is different from late 19th century protectionism, which primarily centred on crude nationalism.

The danger of the protectionism of the militants is that it denies the benefits of prosperity to those least protected from the horrors of their abject poverty. The dangers of the reactive protectionism of national states faced with the success of India and China (previously it was Japan and the ‘Asian Tigers’) is that it could stall the onward growth in prosperity (and political freedoms) that would benefit tens of millions of Asians and, in an extreme circumstances, it could provoke violent conflicts, including terrorism, among those aggrieved by their predicament, unable to share prosperity and excluded from sharing in political freedoms, and susceptible to domestic political and religious fanaticisms.

Raveen poses the crucial question:

“what about the future of free trade as an idea? It is vital that a rounded political, economic and moral case is presented, in the service of freedom, prosperity and security. In some ways, the post-1945 case for free trade has become too narrow and mechanical. It needs to burst these chains and return to its classical-liberal foundations in Smith and Hume. This throws up two points.

“First, the modern conventional wisdom has it that free trade abroad can be combined with Big Government at home. But free trade is part and parcel of free markets; it is part of a constitutional whole that includes limited government and laissez faire at home. Second, 21st century free trade should rely less on bureaucratic and cumbersome international trade negotiations and more on the 19th-century method of unilateral liberalisation. It spreads internationally by example and emulation. The WTO and other international trade agreements can be helpful auxiliaries, but their importance should not be exaggerated.”

LSE used to be a bastion of traditional classical economics (Lionel Robbins, for example) in the mid-20th century and it is great to read a spokesperson for the same tradition in the 21st century. His second point is particularly apposite for both India and China, both dominated by Big Government, with China further along the road to totalitarian forms of it than India (which is also a democracy).

Raveen’s bold point about spreading free trade by unilateral ‘example and emulation’ is really radical, especially for the major economies (USA and EU). Unilaterally abandoning protection in agriculture can be afforded, political opposition can be resisted and generosity can be justified in the great cause of creating global wealth (which is a creation of mankind) and eliminating absolute poverty (which mankind did not create and cannot eliminate by demonstrations and charity).

Raveen’s article concludes:

“John Stuart Mill remarked that it is “the word in season, which, at a critical moment, does much to decide the result.” It falls to free trade’s friends to spread their word in season with global political currents, anti-protectionist interests (such as exporters, downstream users of imported inputs, globally-integrated multinational firms) and (often unanticipated) events.”

That is the authentic voice of a classical liberal. Do what you can to spread it throughout the Blogosphere. Adam Smith’s legacy is safe in the likes of Raveen Sally’s hands.


Blogger Russki said...

this is the problem - free markets are a first-best solution but are only feasible in a distortion-free environment. As soon as you have distortions in the shape of mercantilistic or protectionist policies then unilateral liberalization of trade is a bad idea - primarily for the country that is bold enough to take the first step. I disagree strongly with the claim that multilateral institutions are second-best. In a situation where political constraints will ALWAYS impose distortions, free trade is a pipedream. Rather than making idealistic assertions regarding all-round benefits of liberalization, the author ought to face upto serious and valid objection that in the present situation unilateral liberalization on the part of
EU and the US is not feasible politically b/c these countries do not have social frameworks in mind to deal with the consequences AND because they are captives to the agricultural lobby.

2:32 pm  
Blogger Gavin Kennedy said...

I like your candour and accept that free trade is an ideal (Smith said so too: “Wealth of Nations”, IV.ii.43. page 471: “To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that Oceana or Utopia should ever be established in it.”). However, unilateral decisions on free trade in specific areas and instances are within the political power, if not the current will, of the European Union (collectively) and the United States of America.

Trade and exchange are non-zero sum events, except when corrupted by protectionism and mercantile policies and aspirations. Your point about the agricultural lobby is well made, especially in respect of some continental countries, and the political fact that it is not possible to undo the Common Agricultural Policy (CAP) without a negotiated consensus. This last process has begun with the British rebate v CAP debate that will ensure the termination and not the continuation of CAP when the current agreement is up for renewal or termination. The political challenge is to push the USA on its President’s offer to scrap subsidies if others do so too.

Let’s go back then to unilateral free trade on selected items and instances. This need not be a “bad idea”. If other countries produce as good or better products as the UK can domestically (and many do, e.g., textiles) the capital stock (as Smith called) expended in producing domestically that which others can produce more cheaply can be diverted to other uses in which Britain is better than others.

The dislocation domestically is manageable if a long enough transition period is programmed (if needed); the benefit of people purchasing goods cheaper raises their real wages. Rolling such a programme is politically possible, affordable and right. Cant about world poverty and its associated policies of subsidising corrupt expenditures of bad governments (invidious to name them) do not alleviate poverty; if anything it makes it worse in failed states, near failed states and those about to become candidates for failed states.

I am not an idealist (neither was Smith) and understand the realistic doubts of those who say it is too risky. But if the richest countries on earth cannot take the risks (they waste billions in ‘aid’ and protected trade, so there is plenty of slack around) then I would agree with you, except that it is worse than a pipe dream – it becomes a recipe for doing next to nothing. If politics is the ‘art of the possible’, political economy is the art of raising our vision to what is practicable, within, of course, known constraints.

6:02 pm  
Blogger Gavin Kennedy said...

The sentence: "If politics is the ‘art of the possible’, political economy is the art of raising our vision to what is practicable, within, of course, known constraints" should have read (of course):
"If politics is the ‘art of the possible’, political economy is the art of raising our vision beyond that which is currently, practicable, within, of course, known constraints"

6:54 pm  

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