notes-freeTrade

(note: i'm actually a proponent of free trade, but here are some notes on the other side of the argument)

from an article in Harper's May 2003 called "The Economics of Empire" by William Finnegan on the failure of free trade:

• World Bank cannot name successful projects
  • "When Catherine Caufield began reporting for her book on the World Bank, Masters of Illusion, she asked the Bank to direct her toward some of its most successful projects. The Bank's press officers made repeated promised but produced no list. Finally, they came up with One Project, the South Bassein Offshore Gas Development Project -- a gas field in the Arabian Sea in which more than a third of the loan was ultimately written off "due to misprocurement".
• A "recent study" found that the IMF programs have had an overall negative effect on economic growth in participating countries
• Argentina
  • Did everything Washington told it in the 90s
    • Privatization, deregulation, trade liberalization, tax reform
  • Was a much touted example of neo-liberalism
  • But collapsed in 2001 and has terrible economic crisis now
• Bolivia: followed free trade, didn't do well
  • 17 years of structural adjustment, but is poorest country in Latin America
  • Foreign investment but not prosperity
    • Modest economic growth but benefits concentrated among the wealthy
  • Mass transportation decaying
  • On the upside, though, prices were stabilized
• Haiti: does well on IMF's trade-openness rankings, but is poorest country in western hemisphere
• Asian tigers: South Korea, Taiwan, Singapore, and to a lesser extent Thailand and Malaysia. Did not follow free trade, did well
• South Korea, Taiwan
  • Had protective tariffs for fledgling industries
• South Korea, Taiwan, Singapore
  • Local content laws (requiring that investors buy locally produced components when possible)
  • "Consistently cut better deals for the transfer of technical skills
• to their own workers than, say, Mexico did"
  • "This, when the multinationals moved on to Indonesia and Vietnam in search of cheaper labor, Taiwan and South Korea were ready to let the sweatshops go and to assume a higher position in the global production chain."
• Capital controls good
  • "The IMF, in particular, was determined that the newly prosperous East Asian countries liberalize their capital markets, and its success in prying open those markets contributed to the devastating regional economic crisis of '97-'98.
  • "In the crisis, only Malaysia seriously defied the stern -- and in retrospect, disastrous -- advice of the US Treasure Dept not to impose capital controls. By no coincidence, Malaysia emerged from the wreckage more quickly and less scathed than any of its neighbors."
  • "Chile, which has made more progress against poverty under neoliberalism than any other Latin American country, also uses capital controls."
• China, India: did not follow free trade, did well
  • Both use capital controls
  • India protects domestic industries
• Multinationals decrease employment
  • Between '80 and '95, total assets of 100 largest multinationals increased by 697%, but total direct employment decreased by 8%
    • (I don't think this figure means much b/c it is only direct employment)
• Free trade effect on Latin America
  • '60s and '70s, per capita income rose 73%
  • Compare: last two decades, with trade expanding rapidly, per capita income rose <6%
• Free trade effect on US
  • '47-'73, economic growth averaged 4%, non-managerial wages rose 63%
  • Compare: '73-now, much more trade, real wages fell 4%, econ. growth averaged 3%
• Aside: low taxes also don't aid growth
  • US history shows no correlation between tax rates and growth
  • Studies of other countries show randomly mixed results
• Economic growth is a bad metric for this discussion anyway; biased towards supporting free trade
  • Economic growth does not count social costs
  • Does not count increase in inequality costs
  • Does not count environmental costs
  • I.e. resource extraction increases GDP, but resource depletion is not subtracted; strip-mining, clear-cutting, overfishing, are all net losses for a country but increase GDP
  • Medical bills and legal bills add to GDP -- Ted Halstead and Clifford Cobb: "the national's economic hero is a terminal cancer patient who has just gone through a bitterly contested divorce".
  • Also, if goal is to reduce poverty in poor countries, the country may have a high GDP but little median income growth (b/c the rich are getting the spoils), in which case the GDP would be only loosely correlated to the real goal.
• Aside: FTAA is bad
  • Multinationals could sue governments over health, labor, or environmental laws that could be shown to impede profits
  • Disallows preventative actions which have (above) been shown to be desirable
• "Free" trade is rigged against poor countries
  • In disputes over free trade agreements, rich countries win more b/c they can afford the lawyers
  • Tariffs in rich countries are higher against poor countries than against other rich countries (b/c other rich countries have more negotiating leverage)
  • Even if true free trade would be beneficial to poor countries, free trade only in those commodities where rich countries want to may be injurious
  • Example: "tariff peaks": import tariffs go up with the increase in processing of the good, i.e. if tariff on peanuts is x, tariff on peanut butter is (x + 132%). Prevents poor countries from adding any value to their raw commodities, i.e. from moving up the value chain and developing.
• Net transfer on moneys each year actually runs from poor countries to rich, mainly in the form of corporate profits and government debt servicing.