On Why Free Trade Isn’t Always Free

There’s a lot of talk these days about free trade, market forces, and so on. Even I’ve talked about it. How can we not? The world is changing, has changed, and unless we change with it, we’ll be left behind.

Half a century ago, when colonies were becoming countries and the world’s leaders were no longer exclusively of European descent, becoming a nation was the most important step you could take. Gaining a voice on the world stage, being able to apply for membership to international bodies, being able to create and express one’s sovereignty — these were the things people fought for, these were what nations celebrated.

Half a century ago, though, the greatest forces were not economic, but ideological. The world was divided into two major groups. On the one side were the communist countries; on the other, the so-called “free” world.

Now these titles come loaded. Many people who don’t know any better tend to assume that communism embodies all that is evil: totalitarian government, atheism, state-controlled production. By the same token, they assume that the opposite of communism is democracy, rule by the people, and that democracy incorporates freedoms of every kind — of speech, of religion, and of the markets.

But it’s not as simple as that. The communist ideal is fundamentally democratic; the democracy practised by the Soviets in Russia was not hugely different from the Electoral College system that elects American presidents. Nor was totalitarianism a necessary condition for communism, although the fact that most communist states were established by revolution meant that totalitarianism was often the result.

No. The true difference between the communist world and the “free” one was not ideology; it was economics. The proper opposite of communism is not democracy; it is capitalism. Communism was Marx and Engels’ answer to the capitalist ideas outlined by Adam Smith and others.

You see, communism claims that the labourer is the owner of his or her labour, and that he or she ought to have some control over saying what that labour is worth. (If that sounds very much like union talk, it should; almost all early trade unionists were Marxist). Capitalism, on the other hand, proposes that the person who puts up the capital sets the price. Capitalism, moreover, proposes several fundamental rules that have governed global economic theory for centuries. They are as follows: one, prices are affected by supply and demand; the shorter the supply, the more the demand, and the higher the prices. And two, if given the chance, the market will regulate itself.

It’s these last two assumptions on which the ideology of free trade in this era of globalization rests.

Free trade, we are told, is the hope of the future. If and when barriers to trade are removed, the best products will flourish, prices fall, poverty will diminish, and national borders will no longer be barriers to human interchange. Competition, not regulation, ensures consumer choice and quality control. The freer the markets, the greater the choice for the consumer; and the more powerful and happy the world will become. And in order to create the environment in which free trade can flourish, governments must enact fewer controls.

Now there is some truth in all of this economic Darwinism. There is little doubt that in many cases, increased competition means more choices for consumers. There is also little doubt that increased competition brings about lower prices. However, there are a few things missing from this scenario for my liking.

In the first place, there can be no such thing as a free market when a minority controls the infrastructure on which the market rests. To put it in more concrete terms: say there’s a market that takes place every Monday, Wednesday and Friday in a building downtown. Vendors can come freely to the market and trade. The ones who will be successful will be those who have balanced supply and demand with their own pricing. The competition between them all will regulate what those prices should be. Fine. But they all have to pay for the space in the market that they take up. In this way, the owner of the space is taking less risk than they are, but is assured of an income every time they come, even when they don’t make any money. Now when the owner is also a competitor, that gives him or her an extra edge. Compare that to the hardware and software — the technology, the computers, the telephones, the satellites and the programmes — that enable the global market to exist. If your economy is not a producer, of these items, you have begun at a disadvantage, and your trade can’t be free.

On another level, too, neither supply nor demand is random. Despite economists’ dearest wishes, politics (the exercise and balance of power) cannot be removed from economic transactions. Take the example of Venezuelan oil. In a truly free market, the supplier with the best prices and the most favourable deal ought to be able to negotiate directly with consumers. Trouble is, there are two categories of players in the oil scenario. One category consists of economic entities — the oil conglomerates, most of them multinational with a strong US base. The other consists of political entities — regional governments. Once again, if the market is truly free, both categories should have equal access to the supply. However, the political category is subject to political pressure in a way that conglomerates are not.

And then, there’s the issue of demand. Free trade advocates speak as though demand is the result of human action, not of design. But this is not entirely true. Suppliers don’t leave the purchasing of their products up to bare chance. Instead, they invest sizeable portions of their operating capital on the creation of demand — a practice more commonly known as advertising. Demand can thus be manipulated to benefit suppliers. Once more, those people most able to flood the market with ads are those who are more likely to succeed.

When we talk about free trade, then, it’s important to keep all the issues in mind. It’s important not to be fooled by the rhetoric of the power-brokers in the marketplace and believe everything they say. To me, the concept of “free trade” is akin to the concept of equality in Orwell’s Animal Farm. All trade is free; but some trade is freer than others.