Friday, 30 October 2009

Trading Freedom

A deficit of political will: Free Trade orthodoxy is but one of neoliberalism's many economic and political shibboleths. With the political elites of both the centre-left and the centre-right espousing the same dogma, Western electorates are seldom exposed to alternative explanations for, or solutions to, besetting global problems.

FOR ALL THEIR DIFFERENCES, on the subject of so-called "free trade", National and Labour continue to speak the same language. No matter which of them occupies the Treasury benches, Free Trade Agreements (FTAs) will continue to be signed and celebrated. Regardless of whether New Zealand’s trade minister is Tim Groser, or Maryan Street, the gospel according to Doha will continue to be preached. For the centre-right and the centre-left, "free trade" remains the last great bi-partisan cause.

And why not? New Zealand has always been, and remains, a trading nation. Since the late 18th Century, this country’s flora and fauna, minerals and farm-based products have been exchanged for all those elaborately manufactured articles that make for a civilised society.

In the late 19th Century, we perfected the art of placing high-quality foodstuffs on the tables of the world’s wealthiest consumers. It’s what we do best, and we’d like to go on doing it for as long as possible.

Not surprisingly, therefore, a world of tariffs, quotas and other trade barriers is the sort of world our Ministry of Foreign Affairs & Trade (MFAT) will do almost anything to prevent. What it seeks – the Holy Grail of New Zealand diplomacy – is an international marketplace into which New Zealand’s exports can flow without let or hindrance.

A world unequivocally committed to free trade is MFAT’s idea of Heaven. And, like Heaven, everybody want’s to go there, but nobody wants to die.

If New Zealand wishes to send its products to all the nations of the Earth, then it must allow all the nations of the Earth to send their products to us. As Shakespeare would say: "Aye, there’s the rub."

Next time you’re in the supermarket, try finding a can of apricots, peaches or pears sourced from New Zealand growers. Try finding a packet of biscuits made with New Zealand flour in a New Zealand factory. Try finding a light-bulb, or a tube of toothpaste, that hasn’t travelled thousands of kilometres to reach your supermarket’s shelves.

Our apricots, peaches and pears, grown for decades on the sunny river-terraces of Central Otago, were the best in the world. Our biscuit, light-bulb and toothpaste factories employed generations of New Zealand workers – as did the factories that produced our clothing and footwear.

No longer.

Now, the advocates of "free trade" will tell you that this is all for the best: that our local manufacturers were uncompetitive; that we paid "too much" for our T-shirts and toothpaste.

If other nations produce these things more cheaply, say the free-traders, then why not simply import them and lower the cost-of-living for all New Zealanders – especially the poor?

What they usually keep out of the conversation is exactly how other nations can produce T-shirts and toothpaste so cheaply. The answer, of course, is by paying their workers far less than even the most exploited Kiwi worker; by preventing them from organising into trade unions to reclaim some of the value of the products they make; and, by refusing to allow the democratic freedoms that would make such civic action possible.

When trade is "free", it’s all-too-often because no one and nothing else is.

The other subject the free-traders try to avoid is the delicate matter of relative economic strength.

Some nations – some economies – are simply much bigger and stronger than others. So big and so strong, in fact, that they can turn the whole "free trade" exercise on its head.

Ask the Australians who got the better deal in their FTA with the United States. (Here’s a hint: it wasn’t Australia.) Ask our own apple-growers if, in spite of CER, they have open access to the Australian market? (Here’s another hint: they don’t.)

The brutal historical fact of the matter is, that New Zealand has never been wealthier than she was when her trade was anything but free. And that, if we want to be as wealthy again, our best course of action would be to find another great empire to snuggle-up in.

Given the way the world is going, that is likely to be the Sino-Japanese Great East Asia Co-prosperity Sphere. The beginnings of which John Key, Tim Groser and Maryan Street witnessed last week in Thailand.

NZ Incorporated: Suppliers of ice-cream to the new masters of the world.

A trade to make us rich – but not free.

This essay was originally published in The Dominion Post, The Timaru Herald, The Taranaki Daily News, The Otago Daily Times and The Greymouth Evening Star of Friday, 30th October 2009.


Olwyn said...

With regard to free trade making us rich, I would question who is included in the word "us." So far, it seems to only involve those that pass for elites in this country, & their flunkies, whose job descriptions often amount to bewildering titles rather than recognisable activities. The rest seem to be required to peer out from their quiet desperation to applaud figures and percentages as if they were watching a rugby game. I do not see how any society can sustain this state of affairs indefinitely.

Phil Sage said...

Chris- I agree with you statements of fact, just not your conclusions. Those products being produced offshore are also helping to raise the living standards and development of workers all over the world. China has moved from a mainly agrarian society to a developing economic powerhouse in a few decades. The peasant farmer fathered children who have moved to the city and work in factories fathering children who get a formal education and form the middle classes.

As a progressive you should be glad that free trade is helping to grow the common good. India with protectionism and its growth now are a fine contrast of the difference between free trade and not. North Korea is a fine example of the problems with no trade.

I do not disagree that the rich nations have turned "free" trade on its head. French farmers and US rice and cotton farmers being the most egregious.

The answer is not less free trade but more. Free trade is the best way for those in genuine poverty to get out of it. Western consumer organisation holding Western brands to account for their sourcing methods is a fine example of harnessing the power of the consumer for mutual benefit.

There is an interesting article about recent growth in Turkey in the Economist and its changed attitude towards its neighbours and Israel that the government has wrought.

Anonymous said...

Thousands of jobs in this country have been destoryed, whole industries wiped out, wages slashed, and a whole generation of New Zealanders have been thrown on the scrap heap, with a whole raft of career options (such as shipping) closed off to them.

A large number of family owned retail firms have also been wiped out, along with decent wages, decent customer service and decent goods.

As for developing nations, if free trade was so fantastic for them, why are they still finding it better to work minimum wage jobs in developed nations and send money home to their families, than work in the factories that have sprung up on their door step...

Dont get me wrong, I am not advocating autarky, and I acknowledge that we are a country that relies on trade, I just think that sometimes free trade is seen as an end in itself, and I dont think that sacrifices borne by New Zealanders in the last 20 years, though the loss of jobs, wages and conditions, and the wiping out of industries and destruction of family firms have really been worth it.


Olwyn said...

I agree with you Millsy, it's not trade as such, but the raft of evil conditions that go with the ideology behind it, as the cartoon spells out so aptly. I don't think it evan qualifies as capitalism any more, just economic tyranny.

Libertyscott said...

Yes well Britain wont buy 90% of NZ produce unprocessed anymore, so let's start dreaming.

You cannot pick the one example of CER where there is not free trade (apples remains the sole major hitch) and say it's a failure, it demonstrably is not.

The idea that it is rational to have trade barriers between countries is nonsensical, as it would be to have trade barriers between the two islands.

The report to government on the cost of protectionism for the car industry, before it was abolished in 1999 stated that each job in NZ protected cost the economyover $135,000. You can be sure the workers were getting a fraction of that, and even applying multipliers to that spending, it didn't come close. After all if autarchy worked, North Korea would be wealthy.

Protectionism is the most appalling xenophobic belief that poorer people in other countries aren't entitled to make and produce goods for you. What they are meant to do instead is ignored. Presumably be dependent on aid. Look at the great success stories of Hong Kong, Taiwan and South Korea, they spent a generation with low wage industries, now these are all gone to China, Vietnam and Indonesia, but the economies thrive with knowledge and service based industries. In due course they too will move on into new sectors.

Economies evolve, and there are thousands of NZers now employed in creative and service industries, in smaller firms, or producing higher value goods like wines, beauty products and the like, without unionised labour, but with better incomes and far better work conditions that traditional industries.

What is needed is for the other developed countries to give up protecting their markets and sunset industries (agriculture being the key one) to let others trade there, and for developing countries to abandon protecting their traditional industries, and restrictions on import competition.

After all, if anything other than free trade worked, then shouldn't the South Island put tariffs on North Island goods and start making more of what it consumes?

Jonathan said...

I see you mentioned South Korea there in your ode to free trade liberty scott. You however fail to mention that had South Korea chosen to implement the policies you propose as opposed to protectionist led development, they would still be fulfilling their 'comparative advantage' in exporting raw fish and wigs. I would advise you to read some Ha-Joon Chang before you start using South Korea as an example when preaching the gospel of free trade in future.

Anonymous said...

This is an excellent discussion.

Personally, I can't see that there is any alternative to free trade for New Zealand. We simply can't substitute for most of our imports and we need to export to pay for them.

May I add that I first arrived in NZ shortly before the dismantling of most of our tariff barriers in the 1980s and was deeply unimpressed by the quality of most locally-made products.

It is shameful to make everyone dependent on shoes that cut their feet to ribbons, clothes that dispolay wear and tear after they've been worn a few times or furniture that's beyond the pockets of most families.

I also think that Phil Sage is correct to point to the role of free trade in lifting millions out of poverty in Asia, although I would add that free trade also tends to deepen the poverty of the millions that it doesn't lift out.

However, there is little point in signing FTAs if the government then adopts a hands-off policy to the economy.

John Key is currently bathing in the reflected glory of Labour's efforts to negotiate FTAs with our major Asian markets. Yet one of his government's first acts was to abandon tax incentives for R&D, without which we'll never be anything other than a small-scale commodity producer.

Another caveat I have is that we are moving away from a global free trade agenda to a regionally -focussed one, as part of a revived 'East Asia Co-Prosperity Sphere', under Chinese leadership.

This has political dangers that are only partly obviated by the mooted inclusion of India in the mix.

Moreover, experience suggests that one of the few strengths of our economy is our ability to switch focus from one market to another when the necessity arises. We saw this during the 1997 Asian Meltdown, when Kiwi entrepreneurs suddenly started sprouting up across Europe and elsewhere. Moral: we shouldn't be putting all our eggs in one basket (however huge and currently promising)


Anonymous said...

"The brutal historical fact of the matter is, that New Zealand has never been wealthier than she was when her trade was anything but free."

I'm not making this comment about the merits of free vs unfree trade, but New Zealand had 2 million fewer people back then and much the same export base.

john said...

LibertyScott, I'd be rather wary of using Taiwan as an example of the success of "free trade" if I were you. I would say that receiving some 15% of its GDP in US aid alone (NOT including military aid) from 1950 to 1965, may have something to do with the country's economic growth. Not to mention the fact that the KMT, which ruled the country from 1949 to 2000 and now from 2008 on, is probably the richest political party in the world, and owns a good chunk of the Taiwanese economy...and it is much more Socialist in its outlook (and Marxist-Leninist in organization) than it is a free trade party. Furthermore, Taiwan only acceded to the WTO in late 2008, and had a pretty high wall of tariffs and informal 'trade barriers' prior to that.

In larger context, I would agree with 'anonymous' above; I think it is VERY important to note that in 1984 NZ had a population of 3.26 million, now it is 4.32 million. One of the most interesting conclusions I took from Michael King's History of New Zealand, is that NZ is not in fact a particularly resource rich country (arable land of only 5% for example), and sooner or later (in fact looking at the state of our waterways thanks to the dairy industry, I'd say possibly right now) we have to face the fact that all the free trade in the world will not save us from hitting the wall in terms of exploitable resources with which to buy the imports we desire.

Anonymous said...

I'm sorry but comparisons with the days when Britain was able and willing to buy everything New Zealand produced are neither here nor there.

Prior to Britain joining the EEC, Commonwealth countries had a Common External Tarrif, which was used to raise the cost of imports from non-Commonwealth countries.

In consequence, 'Anchor' was a much cheaper butter brand for UK consumers than 'Wheelbarrow' (from the Netherlands), Lurpac (from Denmark) or Kerry Gold (from guess where?).

This, rather than product quality, entrepreneurial flair or skilled marketing , was the basis of New Zealand's prosperity.

There's no way back to that happy land of subsidised incompetence. "The past is another country".