Why free trade is not always an advantage ...

... and why protectionism can also mean protection

by Karl Müller

One of the “Establishment’s” “narratives” is that science and reason are on their side and their critics have no real arguments. That the critics are blind to reality and strongly biased by their feelings, seducible by “populists”, by “conspiracy theorists,” and by brokers of “fake news” (especially the Russian government). In particular, criticism of globalisation and its “basic law of the four freedoms” (worldwide unrestricted trade in goods, services and capital, as well as cross-border freedom of movement) is viewed as backward and as completely absurd and inadequate in the light of the present world, at best to be regarded as stemming from the anxieties and moods of so-called “globalisation losers”.
The columns of the mainstream media are full of “witnesses” to this “narrative,” and especially “selected intellectuals” are heard or there are reports on their “oeuvre” – to prove that spirit and brilliancy are on the side of the “Establishment”. Relevant publishers, for example Suhrkamp, encourage young “philosophers” to publish books in which they conclude that only absolutely open boundaries and total freedom of movement correspond “to the liberal commitment to the freedom and equality of all men” (see the hymn of praise to one of these books in the “Neue Zürcher Zeitung” of 27 January).

The second phase of globalisation

Did not the former Secretary-General of the United Nations, Ban Ki-moon, say that we are now in the run-up to the second phase of globalisation, namely the “age of mobility”? (https://www.unric.org/de/migration-presse/11270), and that now “As we enter the most recent age of mobility, people will move across boundaries in ever larger numbers. In their quest for more opportunities and a better life, they have the potential to break down the great inequalities characterising our time [...]” [Translation Current Concerns]
This sounds very humanitarian, but it is a tragedy of our time that so many “intellectuals” believe fine words, for whatever reason, and enrich them intellectually – words that will not withstand the test of reality.

Where does reason stand?

It is also a false assertion that reason is on this side only. Just read one or several of the following books: Hans-Peter Martin/Harald Schumann: “The Global Trap: Globalization and the Assault on Prosperity and Democracy”, 1996; Ge-rald Boxberger/Harald Klimenta: “Die 10 Globalisierungslügen. Alternativen zur Allmacht des Marktes” (“The 10 Globalisation Lies. Alternatives to the Omnipotence of the Market”), 1998; William Greider: “Endstation Globalisierung. Neue Wege in eine Welt ohne Grenzen“ (“End of the Line: Globalisation. New Ways into a World without Borders”, 1998; Edward Luttwak: “Turbo-Capitalism: Winners and Losers in the Global Economy”, 1999; John Gray: “False Dawn: The Delusions of Global Capitalism”, 1998; Manfred Ritter/Klaus Zeitler: “Armut durch Globalisierung. Wohlstand durch Regionalisierung”, 2000; Vivianne Forrester: “Die Diktatur des Profits”, 2001; Tanja Brühl/Tobias Debiel/Brigitte Hamm/Hartwig Hummel/Jens Martens (Ed.): “Die Privatisierung der Weltpolitik. Ent-staatlichung und Kommerzialisierung im Globalisierungsprozess”, 2001; Michel Chossudovsky: “The Globalisation of Poverty. Impacts of IMF and World Bank Reforms”, 1997; Joseph Stiglitz: “Globalization and Its Discontents”, 2002. In these books, authors of quite different political orientations conclude that globalisation is associated with many disadvantages and that it is not the result of rational considerations which are designed to serve the common interest, but that it is an expression of the interests of profit as well as of the policy of power and violence carried out by only a few. All these books are older than 10 years (and many more have been published since then) – so enough time has elapsed to take things seriously. But “Establishment’s” agenda was (and still is) a different one.

England profited from protectionism and from free trade

What does a glance at the history books show? Britain owed its position as a world power to free trade, which it made use of when England was already militarily and economically dominant, but also to protectionism, when the country was still struggling with fierce competition. In 1651, for example, the English parliament passed the Navigation Act. The aim was to break the Netherlands’ supremacy on the world’s oceans and become the number one trading nation. In this act, the following is, for example, stated: “For the increase of the shipping and the encouragement of the navigation of this nation, which under the good providence and protection of God is so great a means of the welfare and safety of this Commonwealth: be it enacted by this present Parliament, and the authority thereof, that from and after the first day of December, one thousand six hundred fifty and one, and from thence forwards, no goods or commodities whatsoever of the growth, production or manufacture of Asia, Africa or America, or of any part thereof; or of any islands belonging to them, or which are described or laid down in the usual maps or cards of those places, as well of the English plantations as others, shall be imported or brought into this Commonwealth of England, or into Ireland, or any other lands, islands, plantations, or territories to this Commonwealth belonging, or in their possession, in any other ship or ships, vessel or vessels whatsoever, but only in such as do truly and without fraud belong only to the people of this Commonwealth, or the plantations thereof, as the proprietors or right owners thereof; and whereof the master and mariners are also for the most part of them of the people of this Commonwealth, under the penalty of the forfeiture and loss of all the goods that shall be imported contrary to this act; as also of the ship (with all her tackle, guns and apparel) in which the said goods or commodities shall be so brought in and imported.” And so on and so forth.
The English were, however, for “free-trade” when it served their interests. It was the English who launched the free trade ideology with David Ricardo, an economist living and teaching in England – when their country was already economically preeminent and able to force their products upon others – as they did at their most vicious in the so-called opium war against China. Other colonial powers from Europe, Asia and America acted in the same way – they also waged wars in order to “open new markets” and “open doors”.

Criticism of David Ricardo

Mathias Binswanger, Swiss professor of economics, pointed out the power aspect of free trade ideology in a contribution to the “NZZ am Sonntag”, 15 January 2017: “The book published by the English economist David Ricardo in 1817 was called ‘On the Principles of Political Economy and Taxation’. In this book, he developed the theory of comparative advantage, which soon became the cornerstone of future foreign trade theories and is almost unanimously shared in economics: free trade is good, protectionism is bad. But is this really always true? Interestingly, the historical example of a free trade agreement between England and Portugal used by Ricardo in 1817 already shows that this is not the case. We are talking about the ‘Methuen Treaty’ of 1703 [...]. According to this agreement, the Portuguese were obliged to abolish the import ban imposed on English cloth in order to protect their own cloth industry, while the English reduced the tariff on Portuguese port wine in return. This agreement played an important role in the economic decline of the then world power Portugal. This is not exactly what one would consider as more prosperity for both trading partners.” It goes on to say: “At the beginning of the 18th century, Portugal would have had every reason to defend itself against free trade. But the Portuguese had no choice but to sign the Methuen Treaty because they were dependent on the support of the English fleet in military conflicts.” [Translation Current Concerns]

The “specialisation trap”

David Ricardo’s “theory” edits out essential parts of reality – it was a false theory … and it became an ideology. In their book “Die 10 Globalisierungslügen”, on pp. 27, Gerald Boxberger and Harald Klimenta explain why Ricardo’s theory is “extremely problematic”, in particular Ricardo’s view that it is best for all countries to specialise in those fields in which they are the most productive in international comparison: “It is namely the real development of economies which have specialised that tells against the theoretical advantages of free trade, as mentioned by Ricardo. So for example, England was committed to the production of cloths in the 18th century, and was increasingly profiting from the industrial revolution, while no machinery was needed for the production of wine, so that Portugal did not undertake any efforts to advance technological innovations. England became an industrialised state, while Portugal was trapped in the “specialisation trap.” [Translation Current Concerns]This was true for Portugal in those times, and it still applies to many countries of the Third World of yesterday and today ... and now the revolution is probably even eating its children, and the states which specialised in financial transactions (and dollar domination) and at the same time deindustrialised, are before the abyss.

Sovereignty of the citizens instead of a questionable “business model”

Up to date, “free trade” is still the “business model” of those who profit from it. But it has never been a matter for the peoples, never a matter for the citizens – even if, for example, a new kind of German “national pride” is to be established over being the “world champion of exports.” There is nothing to be said against trading freely with goods and services, wherever this can be done sustainably, i.e. long-term, taking into account all the values of a citizenry, and serving the common good. But the decision about this belongs with the peoples, and they should make the corresponding agreements.
A “business model” such as the German market, in which about half of the value added is used for the export of goods and services, is highly problematic. This business model is (still) working at the expense of others, but it might soon work very much at the expense of the German citizens (when the target balances can no longer be offset). Let us be honest: the shouts and screams at plans of other countries to take protective measures against a trade that has ruined entire economic sectors, and even economies, is neither honest nor fair.
To the sovereignty of every country it is necessary that the citizens of that country establish a regulatory framework for their national economy. The Swiss economist Peter Ulrich has made this the basis of his economic ethics (“Integrative Wirtschaftsethik. Grundlage einer lebensdienlichen Ökonomie”, 4. Auflage 2008; “Zivilisierte Marktwirtschaft. Eine wirtschafts-ethische Orientierung”, 2010). (“Integrative Economic Ethics, the Basis of an Economy that Serves Life”, 4th Edition, 2008; “A Civilised Market Economy. An Economic-Ethical Orientation”, 2010) This right must be granted to every country – and if a country decides to protect its national economy by means of “protectionism”, then that is its right, as long as it is not again a matter of striving for supremacy … as in 17th century England.    •

The first and the second phase of globalisation

km. Since 1987, the five German Institutes of Peace and Conflict Research have issued a joint report each year. In the Peace Report of 2016, the institutes are also discussing the causes of the worldwide migration movements and write in their press release:
“The fruits of globalisation are very unequally distributed. An unjust world trade regime can help to undermine the acceptance of political institutions. We do not need more free trade, but fair trade relations.“
The commentary of the editors of the report states:
“Globalisation has not only brought integration and growth, but with its neoliberal orientation it has also spread increased international division of labour and inequality, gross exploitation and destruction of habitats. World trade, with agreements such as the proposed Transatlantic Trade and Investment Partnership (TTIP), is decisively influencing economic and ecological conditions of existence: Numerous countries of the global South live by exporting their agricultural products and raw commodities. They can scarcely compete when the US and the EU lower duties on agricultural products in trade with each other. Developmental cooperation rightly champions the support of small farmsteads in order to reduce hunger. But without a more just world trade order, the interests of the Western export industry have priority over combating the causes of flight.”
What could also be meant by saying that the unlimited mobility of people has the potential to pull down the great inequalities, Karen Horn has now also made clear in a guest commentary for the “Neue Zürcher Zeitung” on 8 February. She speaks out for the unlimited border-crossing freedom of movement of persons, and very often uses very good sounding words. On this she goes into the assertion that well-developed social-states can exert a pulling influence on migrants, but objects: “[…] even where this slope is large enough to exert a pull, it does not yet follow on the other hand that the freedom of movement is to be sacrificed. Liberals have always expressed their preference for a containment of the socialstate.“ [Translation Current Concerns]
Karen Horn teaches economic history of ideas at the Humboldt-Universitity Berlin as well as at the universities of Siegen and Erfurt. As an economic journalist, she writes sporadic for the “Neue Zürcher Zeitung“ and for the “Frankfurter Allgemeine Zeitung“. She is the recipient of various awards, such as the Friedrich-August-von Hayek Foundation‘s journalism prize. From 2011 to 2015, she was chairman of the board of Friedrich A. von Hayek Gesellschaft e.V. Of course, she is also a member of the Mont Pèlerin Society and of many more such clubs. Then it is said of her, that she appreciates especially the works of Adam Smith, Friedrich August von Hayek and James M. Buchanan. The latter is a US-American and has put up an economic theory of the state. He wanted to understand the relationship between the citizen and the state within the model of Homo oeconomicus.