The Press & Free Trade

Over the last decades, mainstream journalists have essentially marginalized the anti-free trade position. All criticism of the global economy is labelled as "protectionist" and then promptly ignored. There is an elite consensus on trade issues, while the bulk of the population is unsure of trade's benefits but clear as to its costs. You can see something similar at work on immigration, which I'll talk about some other time.

As I understand it, the argument in favor of free trade is Adam Smith's Law of Comparative Advantage- a country benefits when it concentrates on what it produces efficiently, leaving the making of other goods to some other group. This way net efficiency is maximized. Stated in more concrete terms, if the world adopts free trade, then the creation of a middle class in the third world will both be an act of great humanitarian import (lifting millions out of poverty), establish the preconditions for stable popular government, and help us by creating new consumers who will buy our products. If you raise tariff protections, on the other hand, it increases the price of goods in the U.S., leads to efficiency losses, and reduces competitiveness in the protected industries.

You get all of these arguments in various forms in the mainstream media. What you do not hear is the equally plausible critique of free trade. First of all, the Law of Comparative Advantage ignores the fact that some goods are of higher value- countries the export raw materials are going to be poorer than those that create value-added goods. Second, the creation of a middle class requires that there be a link between productivity gains and wages, a link which has been cut in the third world AND the first world. You can see this phenomenon at work in the present recovery, in which GDP is rising, but the majority of income gains are being distributed in the form of corporate profits. So there is no prospect for the creation of a 3rd world middle class anytime soon. And how much does it help us if the U.S. middle class is undermined as a consequence? Third, the historical evidence on free trade is mixed: most countries that have industrialized have done so with protectionism, so they can protect their infant industries. Totally open trade has usually crippled underdeveloped economies.

But there are bigger problems with the so-called "Washington Consensus" in favor of unadulterated free trade. Labor has now been fully commodified, and with the large pool of skilled, low-wage labor in the 3rd world, we now face an international fire sale- this is the famous race to the bottom, where each country reduces its living standards in an effort to attract business. The South used to do this too- it was called "smokestack chasing" and after fifty years has yet to produce results. Without labor standards, living wages, and environmental policies, globalization does little to contribute to people at the bottom of the economic ladder, either in America or abroad.

So are the anti-globalizers right? I'm really not sure- this is an issue in which I am still persuadable. I see nothing wrong with embracing free trade with similarly constituted economies, ones that have large middle classes like Western Europe, Japan, and Canada. But developing economies? I'm just not sure. Obviously we should include labor and environmental standards in our trade agreements. But this will not solve the fundamental forces driving the race the bottom: the commodification of labor. We need to find some way guarantee a living wage for everyone in the global economy, or nobody is going to have one.

The proper position on this issue is probably a mixed one, in which we try to achieve the gains of free trade while minimizing its costs. We used to do this all the time- it was called the "mixed economy." But in an era of laissez-faire capitalism, this sensible and absurdly sensible policy has been abandoned in favor of proto-libertarian dreams.

Al Franken has suggested that the media doesn't give any credence to the anti-free trade position because their jobs are not at risk. I think there is something to this. And I think that the media will continue to be surprised at the success of populist economic appeals like that of Edwards. The American people are not fools- they know that there is something seriously wrong with our economy. And they're worried, not about today, but tomorrow. And candidates who speak to that concern are going to win elections, whatever the media thinks. You're not a demagogue if you're right.