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logo    Economic Globalization and Free Trade


When economists make a case for the principles of globalization and free trade, the argument we usually hear is this:

If a commodity can be made more cheaply in country A than in country B, then country B ought to purchase the commodity from country A and utilize its own resources to produce something else. Sounds cogent, doesn't it? The trouble is that this argument doesn't fit the real world.

Since the industrial and technological revolutions, commodities fall into two groups: Those that require specific geological or climatic conditions and those that don't.

Only some natural resources and agricultural commodities fall into the first group. Nations that want these commodities but lack the necessary conditions to produce them have no choice but to import them. In this situation, the producing nations have the upper hand. They can choose to trade at reasonable prices or not, and if they don't, the other nations have only two options. They can do without the commodities or engage in conquest, which is what the Western nations did when they ushered in the Age of Imperialism, an age which has had devastating consequences. Wars, vast amounts of resources squandered on armaments, human exploitation and degradation, and unbelievable cruelty. Most of the problems the world faces today have resulted from the practices of this age--all of the problems in the Middle East and Africa and many other places as well. How much wiser would it have been to simply do without the commodities.

The other group of commodities makes up the crux of the free trade and globalization debate. Since the industrial and technological revolutions, all of the products that fall into this group can be made by anyone anywhere. All that is required is a capital investment. But as the old saw says, the devil lies in the details.

Consider this case.

Country A can produce a product more cheaply than countries B, C, D, and E, so countries B, C, D, and E choose to purchase the product from country A. But what if country can't produce enough of the product to satisfy the needs of all five? Countries B, C, D, and E engage in a bidding war. But the bidding can only go so high, for once the bid price exceeds the cost of producing the product at home, buying it abroad makes no sense. So what, asks the free trading economist? We then produce the product at home.

But theres a fly in this soup. It takes time to gear up to produce a product. And suppose all four countries decide to produce the product domestically? Then the price that country A wants for the product drops, and it then no longer makes any sense to produce the product domestically, and at least some of the resources spent in countries B, C, D, and E to gear up for the products production is squandered. This is an un-resolvable economic paradox, and shifting purchases to say another country, F, doesn't change the logic any. It merely complicates it. In today's world, these free trading arrangements have become so complicated that they have become unmanageable, as international trade conferences demonstrate conclusively. The European Union wants to guarantee its access to certain agricultural products and subsidizes its farmers, a subsidy that violates the principles of free trade and is resented by the nations that can produce the products cheaper than the Europeans. Yet if the Europeans gave up the subsidy, there would be no mechanism to guarantee the availability of the desired products when shortages arose, and the time that it would take to regenerate the farming abandoned for free trade could result in catastrophic consequences for the Europeans. The Europeans realize that in this situation, free trade is a hazardous venture.

So far, I have described the problem solely in economic terms, but there's another side to the argument as well. There are countless stratagems that nations can use to make the products they produce cheaper, and none is morally neutral.

What if a country chose to produce products for export by using slave labor? Would it be acceptable for other nations to purchase these products merely because they are cheaper? Would you buy a car say from China if you knew it was produced by slave labor? Or would that violate our human sensibilities?

What if a country chooses to utilize prison labor, child labor, or merely exploited labor? Which of these would be morally acceptable? Where would one draw the line? Is prison labor okay, but child labor not?

Then there is still another quandary. What if the producing nation suddenly takes a dislike to or an offense at the purchasing nation? What if the Arabs get so angry at the Western world that they decide to sell all of their oil to only Asian, African, and Latin American nations or else charge the Western nations so much for it that they break the bank?

Globalization and free trade are ideal notions; however, they require a world that doesn't exist. They require a world that holds common moral principles about the treatment of labor as well as consumers and investors. They require a world where nations have a common trust of each other. They require a world in which the people of one nation have a common concern not only for the welfare of their own citizens but one for the welfare of people everywhere? In our world, people often lack a common concern for their own fellow citizens. How could we ever bring about the required concern for all of humanity everywhere?

The result is that the notions of free trade and globalization are unworkable. Putting them into practice will benefit some and injure others, will create animosities and conflict, and will perpetuate the misguided behavior of imperialists. No good can ever come of these notions, until some moral code for the governance of economic behavior is devised, adopted, and enforced? Until then, international economics will be nothing more than a form of violent warfare. And although there is always a nominal winner and loser in a war, in truth both parties are losers. For the resources squandered in warfare can never be retrieved. And it strikes me as noteworthy that laws exist that define the behavior of societies internally, that define the behavior of societies at war, but that we have none that define acceptable behavior in international commerce, and few even that define acceptable behavior within societies themselves. In America we have Christians that are fighting tooth and nail to have the Ten Commandments posted in public places, but who never even whimper at the economic practices that violate the ninth commandment. This schizophrenic human behavior is difficult to understand; yet human beings everywhere, not merely Christians, engage in it, especially when it involves economic endeavors. And that is our Achilles heel. (4/2/2006)

2006, John Kozy