Free Trade (noun): International trade, left to its natural course, without tariffs, quotas, or other restrictions. The term is almost universally understood and is ubiquitous in almost any colloquial conversation about economics and trade. The promotion of the benefits of Free Trade are not relegated to segments of the general public however. The reverence of Free Trade, and its benefits to society at large, indeed the world, has become a widely accepted mantra to academics who devote their lives studying and educating the rest of society on the matter. This article should be of interest to anyone that studies, promotes, or simply affirms the efficacy of Free Trade as an exemplary model in today’s complex world.
People interested in the creation of societal wealth have been earnestly studying the idea of Free Markets ever since it was conceived and committed to print in 1776 by Adam Smith, in his examination entitled An Inquiry to the Nature and Causes of the Wealth of Nations (more commonly referred to as The Wealth of Nations). For almost 250 years, people interested in societal wealth creation (Economics) have investigated and studied the workings of a Free Market system. With so much scholarly information, based on relatively unbiased, real-world case studies, it is no wonder why so many people accept the merits and lessons derived from the ideas first presented by Adam Smith. Unfortunately however, there has never been a trade agreement in recorded history without tariffs, quotas or other restrictions. We have not been studying the real world workings of economic systems, simply projecting biased preferences on free market dynamics that do not exist, and in some cases, barely resemble the systems Adam Smith envisioned. I intend to demonstrate that, if anything, economists have been studying and, inadvertently promoting, the benefits and merits of managed economies, not free market ones. It is therefore not unreasonable to propose that the accepted ideas, and benefits, of Free Markets might be more a myth than a reliable guide to the creation of societal wealth. More importantly, is the perpetuation of this myth constructive, benign or destructive?
In actuality, from the formulation of the concept of a Free Market system in the 18th Century until today, there has never been a market system that was not significantly directed, or dominated, by powerful overriding actors whose organizational interests were to limit the influence of other players in the marketplace, whether they be domestic or international, consumers or competitors. The Eighteenth Century was dominated by the British East India Company, a privately held company, established by Royal Charter, that granted it a monopoly of all trade between Britain and Asia. According to Nick Robin’s 2006 book The Corporation that Changed the World: How the East India Company Shaped the Modern Multinational, the company had “semi-sovereign privileges to rule territories and raise armies”. Obviously this is not an economy that is dominated by the interests of numerous, competitive players, each of which has equatable stakes and influence on market forces. The BBC presented Professor Kenneth Morgan’s findings that, with the driving force of monopolies like the East India Company, “the British became the largest and most efficient carriers of slaves to the New World”. This hardly resembles a Free Market where the interests of individuals are met via the ‘unseen hand’ of markets. Today, similar scenarios exists in various sectors in commonly accepted ‘Free Market Economies’. Eric Painin, writer for the Financial Times, disclosed that the US Congress and The Department of Agriculture spend more than $1.28 billion to subsidize crops that are used as additives for the food manufacturing industry. Such subsidies are, in practice, dictating the competitiveness of whole industries with global reach and worldwide ramifications. This in a country that is the world renown model, and self-promoted proponent, of laissez-faire economics. A Free Market simply does not, and never did, exist.
The creation of wealth in large societies and nations was cultivated exclusively in managed economies with various levels of controls and restrictions. Historically, economic influence has not been equitable or obedient to the sentiments of the general populace as is suggested by the Free Market dogma. It is undeniable that enormous amounts of wealth, along with the social benefits wealth brings, has been created exclusively by managed economies lead by governments and/or corporations resulting in an increase in the standard of living across the range of socioeconomic classes. According to Ha-Joon Chang, a Professor of Economics at the University of Cambridge England, managed economies were instrumental in the development of modern economic success stories like Japan*, South Korea and the United States (23 Things They Don’t Tell you About Capitalism). In certain cases, industrialists needed to be coerced into engaging in large industrial projects against their will, without international capital and limited access to markets that would encourage economies of scale. One such endeavor ultimately developed into the world’s largest steel producer POSCO**. There is also widespread evidence that highly managed economies are not exclusively adverse. On the contrary, some of the most highly protected economies in history, have been extremely effective in creating some of the most vigorous, robust, and dominant economies in history, the United States of America being one of them.*** Historically, the wealth of nations have been built by those who can most successfully identify, protect, and promote, their prevailing interests via negotiation, diplomacy and, at times, sheer force regardless of consumer sentiment which could often be hostile and thousands of miles away.
Purely Free Market systems are not found in reality, and merely are a quintessential abstract used to simplify the intricate, chaotic, and evermore complex, globalized economies in which we are inter-twined. Asymmetrical, inequitable and, at many times, inhumane competitive practices remain the rule of the day as they have throughout recorded history. At it’s core, the creation of wealth is directly linked to the ability to identify, promote and protect vital interests, regardless of political climate or influence. Even the most revered economies are shaped, developed and, in a significant way, directed by the self-serving interests of powerful actors, not by the general populace or consumers. Is the persistence of a Free Market ideal harmful however? Surely the perpetuation of such beliefs has a benign effect at worst, with countless beneficial derivatives to provide at best. Unfortunately, this is untrue. The concept of a Free Market ‘unseen hand’ has an inherent supposition that reduces the desire to promote on one’s own interests, to such an extent, that it renders consumers impotent. The economic landscape has, throughout human history, been shaped by coordinated groups of people that could recognize their vital interests and had the vision, drive and dedication to effectively protect and defend those interests in a highly competitive and, often, hostile world. The notion that the Free Market will somehow satisfy personal needs, interests and aspirations of anyone who merely consumes goods and services is absolute folly. Governments do not merely trust the markets, they engage in difficult diplomacy. Corporations do not let the markets make decisions for them, they plan, strategize, seek out partners, and frustrate competitors. Why then should consumers trust that markets will make appropriate adjustments in their favour merely because they are consuming? History has chronicled, time and time again, that the economic landscape is competitive and shaped by highly determined, and deeply engaged, actors that work tirelessly to influence outcomes and not by believers that defer personal action to an ‘unseen hand’. The conviction that Free Markets can satisfy personal needs leads individuals away from required contemplation and action, relegating them to merely waiting expectantly for vital needs to be satisfied with a minimum of personal involvement. The explicit trust in an ‘unseen hand’ eliminates personal accountability, investigation, education and, most importantly, action in the spheres of economic interest and wealth creation. Trust in Free Markets therefore, has a propensity of rendering believing consumers impotent when it comes to shaping economic landscapes in their favour.
I do not suppose that individuals who trust markets (Free Markets or otherwise) are somehow foolish or naive. On the contrary, it is my belief and experience that the vast majority of people who engage in economic discussions are not only intellectually capable, but are highly moral with noble aspirations for society as a whole. Many people, myself included, simply themselves adopting ideas they are most often exposed to. Religion and cultural norms are two such examples. The title of this article references dialog, organizing individual aspirations and shaping democracy. Economic and market discussions are wide-spread. This is presumed to be true, observable and self-evident. Unfortunately, the organization of individual aspirations has, far too often, taken the form of relegating those very aspirations to an unseen force commonly referred to as ‘the market’. Such a deference, no matter how small, effectively omits individuals from participating in fundamental, vital, and life altering negotiations such as personal livelihood and economic survival. Blind trust in markets therefore, subsequently impoverishes democracies more than it enriches them. People should not defer to markets but instead mimic those most successful in creating wealth. Like successful governments and corporations, people should focus their intellect and desires in identifying their own vital interests, aligning themselves with others that have congruent interests, promoting those interests, and vigorously frustrating opponents. Surely, even Free Market proponents must agree that, the world would be better off if all aspirations were freed from the confines of nebulous dogma and belief and placed back in the proactive hands of intelligent, moral citizens with noble intentions.
T. Turi
*Japan (Chapter 12: Describes how government involvement, motivated by overall societal objectives, was instrumental for development of key industries in Asia)
**South Korea (Chapter 18: Outlines the history of POSCO, a South Korean steel company founded in 1972 during a dictatorship, lead by a CEO who was a Military General without education or experience in business, incubated in an environment with hefty protective tariffs, that has become one of the worlds largest corporations) In 2010 POSCO was the largest steel manufacturer in the world based on market value.
***United States (Chapter 14: US industries were protected from more developed countries just over a decade after its founding. Alexander Hamilton argued that “‘industries in their infancy’, like the American ones, need to be protected and nurtured by government before they can stand on their own feet. Hamilton’s report was not just about trade protectionism – he also argued for public investment in infrastructure (such as canals), development of the banking system, promotion of a government bond market – but protectionism was at the heart of his strategy” and enacted policies .)
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