Free trade, fair trade and protectionism

by Elias Blum

One of the great political battles of the 19th century was between ‘free trade’ and ‘protectionism’. Free trade won. It won so handsomely that it split the Tory party. ‘Protectionism’ has been a dirty word ever since, and ‘free trade’ has become an unchallenged pillar of economic orthodoxy.

The argument in the 19th century was centred on the Corn Laws: free trade meant free trade in (wheat) corn, which meant lower bread prices and lower profits for the landowners; protectionism mean protection for corn, which meant higher bread prices and higher profits for landowners. Free trade was a popular measure, because it benefited the poor against the ‘landed interests’.

What was then a pragmatic response on behalf of ordinary people has now become, however, a grossly distorted and inflexible dogma that serves mainly the rich.

Free trade, in the form aggressively pursued since the 1970s, has locked states into a global system that denies the state regulatory control over the conduct of economic affairs within its jurisdiction.This has cleared the way for multinational and transnational companies, who owe no allegiance to anyone but their shareholders, to dictate the terms of trade for their own benefit, and to hold countries to ransom: ‘raise taxes’, they say, ‘and we will pull out’; ‘enforce labour standards, and we will take our business elsewhere – and still sell the product back to you’.

The time has come to revisit the arguments surrounding ‘free trade’ and ‘protectionism’, and to reassess them against both empirical evidence and ethical reasoning. As Michael Sandel’s works have reminded us, there are – or ought to be – ‘moral limits’ to markets, and it is part of the function of the democratic state to express and defend those limits against the amorality of capital.

Until we cast aside dogmatic adherence to ‘free trade’, we will never get to the root of what is causing economic distress. The only way to end the ‘race to the bottom’ in wages and labour standards is to enable the democratic state to regulate commerce within its jurisdiction, and thereby to enable the people to impose certain limits on capital which are necessary for the common good and for the protection of workers, consumers and the environment.

This doesn’t mean we go back to ‘Protectionism’, however. Protectionism was largely concerned with the self-interest of rich, in-country owners of productive capital, who sought to further enrich themselves at the expense of others. The old nineteenth century critiques against those forms of Protectionism are still valid today.

Indeed,  various current trade agreements (most of which are negotiated under great lobbying pressure from corporate and financial interests, and approved with a minimum of democratic oversight) combine the worst of free trade with the worst of protectionism; only now, instead of protecting the interests of Tory landowners, they protect the interests of the corporate and financial powers. It is free trade for us, when jobs our outsourced to places with weak labour rights, and we are told to take wage cuts to ‘remain competitive in a global economy’, but it is protectionism for them, when they are given exclusive rights over intellectual property.

The answer, as many of us vaguely and dimly perceive, is not ‘free trade’ or ‘protectionism’, but ‘fair trade’.  Unfortunately, few of us have much idea of what, exactly, this means, or how it could be achieved.

Perhaps we should consider a system whereby trade restrictions are linked to the maintenance of fair wages, humane labour standards, and environmental protections. Regional trade treaties could specify that meeting these standards would be a condition for participation in a ‘free trade on fair terms’ bloc. This would be very similar to Jacques Delors’ idea of a ‘social Europe’ in which the protection of labour, social and environmental would be combined with a Common External Tariff (CET). However, rather than being a closed bloc, other nations which reached those standards would be exempted from the CET.

Another potential solution is to apply this not to countries, but to products. ‘Fair trade’ products would be exempt from duties, while exploitative products would be subject to import tariffs designed to make them uncompetitive.

Of course, such forms of fair trade would raise prices, since exploitative labour would not be able to undercut humane labour in the production of, say, bananas or clothing. This means higher living costs. This brings the domestic distribution of wealth into sharper relief.

Neo-liberalism works by cutting: the cuts in wages that are needed to remain competitive must be matched by cutting prices. The end producer, the woman toiling in the banana field, pays the ultimate cost, while the capitalist takes the benefit. It is the perfect system of oligarchy.

A fair trade system works differently. It raises rather than depresses. Higher costs on the shelves must be matched by higher wages; and these higher wages can be demanded, because exporting jobs to reimport the products is no longer an option. The ultimate beneficiary is the woman participating in the banana co-operative, while the capitalist takes the hit, in terms of having to settle for moderate rather than extortionate profits. It is a democratic system.

Moreover, enforcing fair trade standards also means more scope for domestic agriculture, a greater incentive to eat local produce when in season, and more scope for making, making-do, and mending. To place restrictions on trade is to slow down life a little, and to enable us to go from being consumers to creators. That’s got to be a good thing.