Protectionism vs. Free Market

The election of Donald Trump has thrown up serious questions about the commitment of the future US government to free market policies. Trump has repeatedly voiced his concerns about free trade agreements such as NAFTA and has indicated that negotiating other free trade agreements is out of the question. This does not bode well for the Brexiteers who find themselves in the awkward position to have advocated leaving the largest free trade zone (the EU) with the hope of engineering new ones with Britain as the driving centre. Given the preference of current populist leaders for protectionism, Britain could easily find herself in a free trade zone of one.

With public opinion increasingly favouring protectionist policies in the US and elsewhere, it may be worth reminding us of the rationale for free trade. The prime example of tariff and customs union remains the European Union which has underpinned the free trade agreement with a contractual framework ensuring that all participating countries implement the same standards of products and environmental protection. The idea was that free trade can only work for the benefit of all if everybody has to adhere to the same level playing field, hence free trade has to be supported by the same trading and production standards. How the Brexiteers will pull off a similarly comprehensive agreement with China, Australia or the Asian Sub-continent within the next couple of years is difficult to see. Although they have been critical of the pace of negotiation by the EU with Canada on the (finally agreed) CETA free trade agreement (it took the parties 7 years in total), the reason is less a unwieldy Bruxelles bureaucracy then to buttress the sustainability of any free trade deal with a comprehensive deal of similar standards on customer and environmental protection. Free trade is not worth the name if it only extends to exchange of goods. Those goods also need to comply with the same standards to ensure producers are on the same level playing field. Otherwise competition between free trade partners won't be fair.

The second issue relating to free trade concerns the movement of people. Brexiteers have been highly critical of the fact that free movement of goods and capital is linked in EU law to the free movement of people. They paint free movement of people as an anachronism in times of high geographical mobility. Where the world is on the move, countries need to regain control of their borders to steer migration.

The four freedoms of movement (capital, goods, services and people) are however linked within EU law for a specific reason, one that features less in the Brexiteers argument. It is one of equity between employers and employees, between capital and labour. To grant capital the right to move wherever it wants within a free market zone yet deny people the same right establishes serious imbalances between the two forces that shape our economic life. It is a question of equity to ensure that people have the same rights as capital.

The sum total of the Brexiteers case thus amounts to a muddled bag of inconsistencies. They would like to leave the largest free trade area to establish their own. They criticise the slowness of the EU's negotiating practice but fail to acknowledge the complexity of free trade agreements based on similar agreed product and protection standards which contribute to the protracted nature of these negotiation. They want more competition but trade agreements without similar standards will decrease the chances of fair competition between future trading partners. In addition, they want free movement of goods, services and capital (City of London) but deny the same right to people, therefore enshrining an imbalance in opportunities and freedoms between capital and labour. They want to boost free trade on a world wide stage at a time when the electorate in their ideologically closest ally (US) has given the strongest signal yet that protectionism is the word of the day. Britain may find itself in a world of its own, in a trade zone of one very soon if the Brexiteers' wish comes true.

The pace of change ...

As everyone is scratching their heads wondering how we got here (The UK, a large economic power, leaving a single market and the US, the main superpower, having a president who would like to erect walls and impose tariffs) it may be useful to remember the following words.

'Nowhere has liberal philosophy failed so conspicuously as in its understanding of the problem of change. [Its] common sense attitude toward change was discarded in favor of a mystical readiness to accept the social consequences of economic improvement, whatever they might be. ... It should need no elaboration that a process of undirected change, the pace of which is deemed too fast, should be slowed down ... so as to safeguard the welfare of the community.'

'The rate of progress have turned the process itself into a degenerative instead of a constructive event. For upon this rate, mainly, depended whether the dispossessed could adjust themselves to changed conditions without fatally damaging their substance, human and economic, physical and moral.' (The Great Transformation, p.37ff)

Karl Polanyi wrote this in 1944. His words remind us of the destructive character of change if we do not mitigate its worst consequences on communities through governmental intervention. Whilst he wrote this about change that came in the wake of enclosures in England, it equally applies to today's transformation by immigration, globalised markets and rapid technological progress. The liberal case for unfettered change depends in large measure on tarnishing everyone who struggles with the speed of change as a reactionary, or worse a racist and xenophob. Karl Polanyi was none of that. But he did recognise that communities cannot survive unless the moral, social and economic fabric is altered gradually rather than being torn apart in the name of economic progress that only benefits a small professional elite.