Edward S. Herman :
15 March 2002
 

     "FREE TRADE": THE SOPHISTRY OF IMPERIALISM
 

    "Free trade" continues to be a primary mantra of the New World
Order, used to justify the World Trade Organization (WTO) and the
drive to enlarge its jurisdiction, as well as to rationalize the
structural adjustment programs of the IMF and World Bank and
instruments like the North American Free Trade Agreement (NAFTA).
It is even being tied in to the "war on terrorism," with U. S.
trade representative Robert Zoellick stressing the post 9/11
urgency of adopting free trade to allow growth and relieve socio-
economic tensions. Those countries that fall short in making the
desired free trade moves may well be found to be "harboring
terrorists" or violating human rights and thereby bringing on
themselves some "humanitarian bombing."
 
    The phrase "free trade" itself is a masterpiece of deceptive
and Orwellian propaganda. Its use of the word "free" covers up the
fact that the work of all of those agreements and bodies very
purposefully REDUCES the freedom of Third World countries,
diminishing their sovereignty and the power of their democratic
institutions to shape their economic policies, to provide public
services, and to protect their environment. The word "trade" in the
phrase free trade obscures the fact that the agreements with that
label and the institutions enforcing them frequently focus more
heavily on INVESTOR RIGHTS than on trade. They are designed to
allow corporations to do business in foreign jurisdictions without
any threat that a democratic government might do them injury by
taxes, limits on repatriation of profits, rules on what businesses
they might engage in, labor practices, and other matters.

   In short, the NAFTA might have been titled The North American
Agreement to Limit Governmental Sovereignty, or the North American
Corporate Bill of Rights, or the North American Agreement to
Privilege Business Rights over Those of Individuals and
Democratically Elected Bodies. Obviously these alternative titles
would not have been helpful in selling the legislation, and
therefore neither our democratic leaders nor Free Press suggested
their usage.

"Free Trade" As Selective Protection of the Powerful

     Even with respect to trade, the phrase is deceptive. The drive
to protect "intellectual property rights" aims at restricting
freedom to trade goods without payments to the holder of those
monopoly patent or trademark rights. This monopoly restriction has
cost scores of thousands of lives in poor countries where AIDS
patients could not afford the $10,000 a year payments to the
pharmaceutical company patent monopolists, but could pay the $300-
400 a year charged by producers in a genuinely free-trading market.
The death of vast numbers and threat to millions more has forced
the big companies to give way in this case, but not on the
"principle" of their monopoly rights. (The recent Doha, Qatar,
meeting produced a statement allowing governments to ignore patent
rights in public health emergencies, but this was not formalized
into a legally binding rule, and the rights granted governments
were left vague.)

    It is a revealing fact that the Western spokespersons for the
advance of the WTO and "free trade" have been pushing for years to
get these monopolistic property rights recognized as legally
enforceable rights under the New--supposedly "free trade"--World
Order. This is the exception that proves the rule--namely, that
these spokespersons serve the dominant transnational corporations
of the First World. These TNC interests are the "world's interests"
for the Western establishment, just as domestic corporate interests
define the "national interest" (in contrast with "special
interests," that not surprisingly add up to a large majority of the
population).

   As regards tariffs and quotas and their reduction, the TNC
interests have been prepared to reduce their own only at a price,
and they bargain hard and with the advantage of money, expertise,
leverage over many Third World governments, and domination of the
bureaucracies of the international financial and trade
institutions. When the Third World countries gain tariff and other
trade concessions, the G-8 powers generally gain more in exchange,
and frequently fail to come through with their part of the bargain.
(At Doha, a regular refrain of the poorer countries was: before
more, let us see some of the promised benefits from our past
concessions.)  And although the economic position of the Third
World relative to that of the G-8 countries has deteriorated over
the past two decades, its members find that the rich remain
extremely stingy and continue to protect industries like textiles
and give massive subsidies to agriculture, both areas important to
the poorer countries and where their "comparative advantage" is
great.

   That transnational corporate interests control the push for
"free trade" is demonstrated by the role of these powerful parties
in the free trade campaign and its implementation. It is
representatives of the U.S. corporate community like Robert
McNamara and James Wolfensohn who have directed the international
financial institutions like the World Bank. It is the leaders of
the United States and other members of the G-8 that have pressed
for the WTO and its enlargement and tried to ram through the
Multilateral Agreement on Investment several years back. They have
done this in close consultation with business officials and
representatives, with other constituencies of the populace
completely excluded.

  Periodically it is disclosed that corporate officials and
lobbyists were in on the advance preparation of agendas for WTO
meetings from which not only non-corporate constituencies at home
but officials of Third World countries were excluded. The Dutch
think tank Corporate Europe Observatory recently got hold of three
confidential documents from the WTO that included minutes of secret
meetings held by the "Liberalization of Trade In Services"
committee between April 1999 and February 2001. These minutes
showed that government officials negotiating on trade issues were
working hand-in-glove with the interested banking community
(Goldman Sachs, Prudential, Morgan Stanley Dean Witter and others),
sharing confidential negotiating documents with them, jointly
hammering out an agenda, and even together considering which
consulting firms and academics should be hired for answering the
charges of anti-corporate globalization critics (see Greg Palast,
"The WTO's Hidden Agenda," Nov. 9, 2001--
http://www.corpwatch.org/issues/wto/featured/2001/gpalast.html)
 

"Free Trade" As An Attack on Democracy
 
  It might be argued that since democratically elected leaders like
Bill Clinton, George W. Bush, and Tony Blair support these
agreements they are defensible as a product of democracy. This
argument is readily countered, however, by the fact that opinion
polls have pretty consistently shown the public opposed to such
agreements, so that their support by these leaders points rather to
the collapse of democratic substance in G-8 elections, and to an
inability of any elected political leaders to oppose basic
corporate interests under present institutional conditions. In the
case of Clinton, he had to bribe many of his own party members in
the House and Senate to get a large enough Democratic minority to
join the Republicans in supporting his NAFTA policy.

  It is also notorious that these agreements are not only done with
great secretiveness, avoiding public discussion as much as
possible, but that the meetings are increasingly isolated from the
public by vast police and armed force barriers and held in
appropriately undemocratic locales like Qatar to minimize the
possibilities of public protest. Undemocratic ends require more and
more undemocratic means.

  It is of the greatest importance that these agreements are
designed to insulate advancing corporate rights from any constraint
by electoral and democratic processes. They all enlarge investors
rights at the expense of the rights of political communities to
subordinate investor interests to community demands and needs.
There is never anything in these agreements imposing behavior or
performance requirements on corporations, only on governments, who
must forego doing things to corporations, and who must abandon
their own rights, such as their right to enter new economic fields
if they choose do do so (ended by the NAFTA) and the right to
impose special obligations on non-national corporations who want to
do business in their country.

   During the recent negotiations at Doha, one of the items pushed
by the "free trade" (i.e., TNC, G-8 government) community was the
desirability of bringing "public services" into the market and
under WTO jurisdiction. Now governments already have the option of
contracting out public service operations if they want to, so what
is the point of bringing this into the WTO orbit? The answer is
obviously that the TNCs want to take public service businesses like
education and public health away from governments, and are not
prepared to have their case decided in democratic polities--they
want to force communities to open these services to competitive
bidding by what amounts to external compulsion. The only interest
served by this push is the selling corporations, and the process
could hardly be more undemocratic.

  The antidemocratic thrust of "free trade" agreements as regards
the victim Third World countries was dramatically evident at the
time of the NAFTA passage and subsequent Mexican meltdown. Seven
out of ten New York Times editorials on NAFTA lauded the agreement
for "locking in" Mexico to the "reforms." The fact that the Mexican
president signing the agreement had won an election that even the
Times later admitted was probably fraudulent didn't make the paper
question has right to lock Mexico into this agreement. And
following the meltdown in December 1994, the media and the
economists exulted at the lock-in effect, which prevented Mexico
from protecting itself by imposing capital controls--instead it had
to deflate, causing mass unemployment. The anti-democratic quality
of this lock-in didn't bother either the media or the economists at
all. In the same period the U.S. Treasury and IMF arranged for a
bailout of Mexico, to the tune of some $40 billion, a large
fraction of which was paid to U.S. investors fleeing the peso. This
was actually a completely illegal use of IMF funds, as article 6 of
the IMF Articles of Agreement requires it to intervene to PREVENT
members from using IMF credits to fund capital flight. But this
tells us all we need to know about whose interests are pursued by
the U.S. Treasury, IMF, and leaders like Clinton, and are served by
"free trade" arrangements.

"Free Trade" As Poverty Creation

  For the ideologues of free trade, free trade means growth and
growth increases per capita incomes and wealth, hence reduces
poverty. But free trade hasn't meant "growth" over the past several
decades, if growth means faster growth than in the years of greater
government involvement and protectionism. Growth rates have
diminished: in their "The Scorecard of Globalization 1980-2000,"
Mark Weisbrot, Dean Baker, Egor Kraev and Judy Chen found that the
poorest of five groups of countries went from an annual per capita
growth rate of 1.9 percent from 1960-1980 to a decline of 0.5
percent a year, 1980-2000; the middle group, which was mainly poor
countries, suffered a decline from 3.6 percent to under 1 percent;
and the other three groups also suffered declines in per capita
growth rates. Economist David Felix has also shown that labor
productivity, which grew by 4.6 percent a year in the OECD
countries from 1960-1973, increased by only 1.7 percent a year
between 1973 and 1997. So growth has slowed up under the greater
rule of free markets.

  Equally important, what growth has taken place has increasingly
benefitted small elite minorities, so that the negative impact on
the great majority of the slowing of growth has been heightened by
the worsening distribution. This has been true both within
countries and between the G-8 countries and poor countries.
Excluding China, the richest 10 percent of the world population had
on average, 90.3 times as much as the world's poorest 10 percent in
1980, 135.5 times more in 1990, and 154.4 times more in 1999.
(Including China reduces the change because of its size and rapid
growth, but within China itself income inequality has increased
markedly.) The rich got much richer, the poor failed to improve
their economic position, and the poor increased in absolute numbers
under the liberalization regime. The poorest 400 million, living on
78 cents a day in 1999, were worse off in 1999 than they were in
1980; the absolute number in poverty in 1998, slightly greater than
in 1980, was 1.6 billion, using the criterion of $1.08 per day as
the benchmark! Even the World Bank acknowledges that "in the
aggregate, and for some large regions, all measures suggest that
the 1990s did not see much progress against consumption poverty in
the developing world." The IMF also agreed that progress in
alleviating poverty "has been disappointingly slow in many
developing countries."

   The crocodile tears and hypocrisy in these expressions of
concern and regret are notable. These results are precisely what
should be expected when the "free trade" agreements and
institutions implement programs organized by the governments of the
major TNCs, are fixed in close collaboration with them, and clearly
serve TNC interests. The TNCs want "flexible" labor markets, low
taxes on themselves, low spending on others (including already poor
people), and limitations on the ability of governments to help the
locals, all of which the IMF, World Bank, and WTO strive for and
all of which serve the rich and hurt the poor.

   Trade liberalization and protection of investor rights have
increased import competition and capital mobility, tending to
depress wages. Financial deregulation and the removal of capital
controls have increased the frequency of financial crises and
reduced the ability of governments to cope with them. This has
increased average unemployment, while the IMF and World Bank have
helped reduce safety net protections for people in distress. So
"free trade" sounds DESIGNED to increase poverty; and it is, in the
sense that poverty is the well understood and acceptable
"collateral damage" of programs that focus on making things good
for TNCs. Any benefits to the majority are trickle-down benefits
that may or may not offset the damage inflicted by the "free trade"
programs that serve the TNCs, such as cutting social budgets and
pushing for agro-exports in place of peasant agriculture.

  Because of the power of the free trade interests, it is an
established "untrue truth" that economic theory supports free trade
as in everybody's interest. The theory of comparative advantage
does suggest that an international division of labor can increase
global output, and it is obvious that a division between producing
bananas in the tropics and computers in the North will be
advantageous. But the theory assumes that both capital and labor
are mobile and that full employment is maintained, otherwise the
output gains may be non-existent and the distributional effects may
be significant and regressive. The theory also ignores the dynamics
of technological change, and the possibility that infant industries
may be unable to compete with foreign companies that have a head
start, that work far down the learning curve, and that have the
resources to compete in innovation.

  In fact, while the ideologues of free trade claim that this is
the proper route to alleviation of poverty and to achieving
sustainable growth, NONE of the Great Powers themselves relied on
free trade in their formative years. Every one of them--the United
States, Germany, Britain, France, Japan, and even the post-World
War II Asian Tigers--protected their infant industries for lengthy
periods. So now, having achieved their high wealth and domination
to a considerable extent by centuries of exploiting and looting
Third World peoples, they are now using their global power to
further exploit those peoples, forcing on them a regime of "free
trade" which they themselves avoided in achieving sustainable
growth, pretending that this is the route to prosperity, when in
fact it serves their own narrow interests, or at least that of
their transnational companies.

 
Real Routes to Poverty Reduction

   Elementary public relations requires that the World Bank, IMF,
and WTO leaders, who have relentlessly pursued a transnational
corporate agenda, proclaim their deep concern over poverty and
plans to help reduce it.  Sometimes the leaders of the corporate-
serving agencies go farther and announce a new devotion to poverty
reduction (as well as environmental protection), and urge the Great
Powers to be more generous in their treatment of poor countries.
But the poverty reduction efforts have been essentially token
programs, obviously unable to make the smallest dent in offsetting
the pro-TNC interest and poverty creation bias that has contributed
to a staggering growth of income inequality and a world of steady
mass impoverishment in the face of enormous wealth and income
growth in the G-8 countries.

  It may be useful to point out what a REAL poverty reduction
program might look like--what a set of international policies NOT
designed to serve the rich and transnationals might entail and how
they would differ from the offerings of the Western establishment.

   (1) Honoring democracy and NOT "locking in" countries to the
"free trade" route. The Great Powers preach democracy, but do not
allow it to function in ways harmful to TNC interests. A first step
in poverty reduction is allowing local elected rulers freedom to
respond to the demands and needs of their electorates.

   (2) Allowing them to serve their citizens basic needs as first
priority. The design of the "free trade" regime has been to turn
Third World countries from serving their citizens first to
integrating into and--given the power imbalances--serving the
global corporate community. This has entailed getting the poorer
countries into debt, forcing them to push for export-oriented
agriculture to pay those debts, leading to a massive exodus of
peasants from the land and from producing agricultural goods for
local consumption. There have been many other modes of "free trade"
diversion of priorities from local needs to global service.

   (3) Allowing them to choose their own development paths, which
is very likely to call for significant protectionism, as it did for
the G-8 countries in their earlier years. They may want to protect
their infant industries and diversify their economies away from raw
materials supply in the interest of economic stability and
potential long-term growth; they may wish to stay out of debt
dependency and heavy involvement in global finance in the interest
of greater economic stability; they may want to protect a peasant
agriculture in the interest of social stability and to assure
supplies of basic necessities at home.

   (4) Allowing them the right to protect their cultures and
environments. It may be in the interest of the TNCs to be free to
advertise and sell without restraint everywhere, but there is no
reason why each society should not be free to protect itself from
unlimited commercialization that serves the powerful. It is
possible that such protection might be abused, but the abuse of
compulsory entry is also extremely clear. Peoples should have a
right of refusal and a right to constrain, without external
impediment. Furthermore, even if Larry Summers believes that "the
economic logic behind dumping a load of toxic waste in the lowest
wage country is impeccable" (World Bank memo of 1991), democratic
leaders of low wage countries should be permitted to defend their
peoples against this and the many other abuses of the powerful that
"free trade" brings with it.

   (5) Making amends for massive abuse in Western "primitive
accumulation" by "reparations." G-8 growth and prosperity rests to
a substantial degree on centuries of exploitation of what is now
the Third World, by literal robbery, forced labor, slavery and the
slave trade, and controlled production and trade. If there was the
slightest degree of genuine morality operative among the G-8 elite
they would recognize an obligation to take positive actions to
"level the playing field" that is today radically unequal because
of this historic massive looting and exploitation. They would be
granting large-scale aid to the heirs of their victims; and they
would be granting large unilateral trade preferences to the Third
World countries, instead of giving concessions only in trade-offs
providing net gains to the already rich.
 

"Free Trade" and the Iron Fist

   But the United States and its G-8 allies not only reject such a
real poverty reduction program, and continue to serve themselves--
or rather their elites--and create poverty, they also do not stint
at using armed force and subversion to keep amenable leaders in
place.

   Preventing people from trying to reduce poverty directly by the
use of violence has a long history. The "real terror network" of
National Security States in Latin America in the 1960s and 1970s
was constructed with close U.S. supervision and aid, and was
designed to prevent even social democratic governments from holding
power. It was the fruit of a deliberate policy of building and
training Latin military and police personnel as de facto U.S.
agents, to fight governments trying to meet the "increasing popular
demand for immediate improvement in the low living standards of the
masses," to oppose "anti-U.S. subversion," and to "create a
political and economic climate conducive to private investment" (as
a 1955 NSC document explained). Note the explicit hostility to
attempts at "immediate improvement" in the condition of the poor--
as under current "free trade" schemes the poor can't be helped
immediately, only by a theoretical trickle-down from gains to the
rich.

  In earlier years the use of force to serve Western elite
interests could rest on the cover of the Soviet Threat. Nothing has
changed in substance since that cover has faded away, except the
disappearance of the modest element of containment that the Soviet
Union provided. The United States is armed to the teeth, and with
9/11 and the new open-ended "war on terrorism," it has a perfect
substitute for the old cover for opposing governments that
mistakenly attempt to meet popular demands for immediate benefits
to ordinary citizens (and for allowing penetration into new natural
resource-rich areas, and for distracting the public's attention
from "immediate improvements" in the condition of oil companies,
etc.).

  In one of his rare moments of truth-telling not helpful to the
imperial project, Thomas Friedman acknowledged that "The hidden
hand of the market will never work without a hidden fist--
McDonald's cannot flourish without McDonnell Douglas, the designer
of the F-15, and the hidden fist that keeps the world safe for
Silicon Valley's technologies is called the United States Army, Air
Force, Navy and Marine Corps" (NYT, March 28, 1999).

  But where is the freedom of choice of those attacked by "the
hidden fist" as their societies are readied for the entry of those
Silicon Valley entrepreneurs? Friedman let's the cat out of the
bag--we are talking about a system of coercion, not freedom.
Furthermore, the U.S. military establishment's operations are not
the true "hidden fist"--that is to be found in the meetings,
institutions, and rulings of the apparatus of "free trade" that is
hugely coercive, but secretive, undemocratic, misrepresented as
consentual, and built on the more open threat and application of
military force.
 

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