Confusion and Clarity in Cancun

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The breakdown of trade talks in Cancun, Mexico, has been rendered as a clash of rich vs. poor nations. If that’s all you knew, you might think that this is a conventional story, and the usual political drama would follow. The left would side with the poor on grounds that they are being exploited by the rich in a cruel system of capitalist global domination. The right would observe that the poor nations, rather than joining the global trading system, are content to demand aid and privileges that rich nations are reluctant to surrender for good reason.

But looking beneath the surface, we find a crazy mixed-up politics at work in Cancun, the culmination of counter-intuitive trends that have been building for some time. The World Trade Organization is supposed to be this great apparatus to push the world toward greater economic integration, a dream of the liberal school for many centuries. In reality, it was nothing but the resurrection of an old central-planning fallacy that world trade needs a central authority to manage it. In absence of an ideological consensus in favor of classical liberalism, the WTO has ended up politicizing trade by putting the stamp of officialdom on some very bad policies (just as many predicted).

Trade was certainly on the agenda, but free trade as traditionally understood was nowhere in the mix. From the beginning the WTO was based on the idea that spiffy industrialized nations need to find markets for their products among the sad-sack nations of the world — not that the poor nations might have something to sell that consumers in rich nations might want to buy. That’s why “intellectual property rights” (coercive monopolies for particular producers in rich countries) was high on the agenda but real-life free trade in agricultural goods was off the table completely.

Nor are the rich nations a monolith. US officials naturally assume that they have the right to exercise hegemonic control over the world economy, an assumption which makes EU finance ministers (embroiled in their own harmonization controversies) very wary indeed. This follows several years of unrelieved protectionist regulation by the US against anyone anywhere who would dare build a better mousetrap than is produced in the land of the free and the brave (which just so happens to be host to the largest, best-armed, most well-funded government in the history of the world).

Now, the problem here is obvious to anyone who knows basic economics. The comparative advantage that poor nations have in attracting investment and producing their own goods for exports is precisely their unregulated labor and environmental regimes. Given that their object is to become more competitive, not less, it would make no sense to legislate higher wages that would only drive out capital and lead to more unemployment. If they stand a chance for development, tighter regulations on production are not the answer. What they need instead is an open marketplace in which to compete using their comparative advantage.

In the past, the anti-WTO protestors have claimed to be standing with the poor nations of the world against capitalist globalization, but the reality is much more complicated. By resisting the trend to “upwardly harmonize” regulations, poor nations of the world have stood firmly with the free-trade tradition. What they were arguing for, in reality, is not less globalization in general but less political globalization in order to make possible more economic globalization. The two forces are at odds with each other.

Having been burned too many times in the past, this time, poor nations arrived at the talks with a set of demands of their own. If the rich countries are going to preach about “free trade,” they’d best start living up to it themselves. That rich countries export highly subsidized farm products to the third world, to sell at prices cheaper than these countries can produce, is notable enough. But to then turn around and refuse to accept imports of low-priced goods on grounds that this constitutes "dumping," is adding injury to insult. In demanding more open markets and fewer subsidies, poor countries arrived with something approximating a traditional free-trade agenda.

At the talks, each side tried to change the subject as much as possible until it became obvious that there was little point in talking. The legal and regulatory reforms that the US demanded were never seriously considered. The idea of cuts in subsidies and tariffs was ruled out completely. Indeed, the Bush administration is moving in the opposite direction, toward the dangerous idea of national sufficiency that Pat Buchanan promotes, even though it is a sure prescription for economic depression. Of course the whole scene was punctuated by hysterical protests from the throngs of activists that the WTO attracts like flies to a picnic.

Then there was the dramatic suicide of the South Korean farmer, done not in support of free trade but in protest of the demise of the South Korean farming industry. When will the world learn that there are better ways than stabbing yourself — or stabbing consumers — to achieve economic aims, namely, making a good product that is in demand and attempting to sell it at a good price?

As for the leftists who railed against globalization, they are right to have an inchoate sense that the WTO is up to no good. Beyond that, there is no agreement. If they are in solidarity with the poor nations of the world, does that mean they favor cutting agricultural subsidies in industrialized nations? That would mean job losses of course, and further hardship for their beloved “family farms.” You can’t stand with both the poor and oppressed agricultural workers in the US and the poor and oppressed agricultural workers in the third world; ultimately they are competition with each other, and should be. This reality underscores why Manichean frameworks are not very useful for understanding economics, which involves the study of trade offs.

What’s more, the left can’t simultaneously endorse the full panoply of phony and expensive “rights” in the charter of the International Labor Organization and link arms with the workers of the third world. The bottom line is that if the US labor unions get their way, the workers and peasants in the third world would find themselves without jobs and even more destitute than they already are. The same goes for foreign investment, which, contrary to the left, is a boon for all poor nations. As for environmental regulations, the developing world needs them as it needs more foreign debt.

Terence Corcoran of the National Post is right: “The idea that trade should be based increasingly on ‘rules’ and bureaucratic structures rather than free markets is now so entrenched that few people remember what the free trade agenda is all about.” The irony is that the WTO bears much of the blame, though there is plenty to go around. Somehow world trade proceeded apace for the entire history of civilization without this outfit serving as a sounding board for fanatics, protectionists, and would-be global regulators. When so many free traders supported the WTO’s creation, were they being naïve or were they being paid off? Regardless, the WTO is no friend of free trade (as Jagdish Bhagwhati, and even the NBER, have recently concluded).

Everyone says that the collapse in Cancun could mean the end of multilateral trade negotiations for the duration. For the cause of free trade, there could be a downside to this, especially if it means that the US will treat the issue of world trade with as much political finesse as it managed the Iraq situation.

But the upside is even more obvious. It means a setback in the movement to upwardly harmonize regulations. It means a setback for global government generally. It is all to the good if it means that businesses around the world work on striking up their own deals instead of relying on governments, and the organizations that governments create, to do it for them.

As a side benefit, it is now exposed for all to see, and possibly for the first time in our generation, that industrialized nations now represent the greatest threat to free trade. As Nagasaki University’s Dipak Basu explains: “High tariff against the exports of industrial goods from the poor countries cover 63 per cent of all export items of the poor countries. High tariff rates against the exports of agricultural products from the poor countries constitute 97.7 per cent of all agricultural export items of the poor countries. That is not all. Tariff rates escalate along with the amount of processing of a natural product.”

Given this, what is needed is not another round of negotiations. Let every nation, right now, do what is best for all citizens of the world: eliminate every form of intervention that would prevent or otherwise hobble mutually beneficial trade between any two parties anywhere in the world.

Llewellyn H. Rockwell, Jr. [send him mail] is president of the Ludwig von Mises Institute in Auburn, Alabama, and editor of LewRockwell.com.

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