Note: In the course of writing this post I have contradicted something I’ve said previously. I am very inconsistent in my beliefs, and writing this has only made me more aware of how much I have yet to learn. This pro-trade post looks at free trade and globalisation from a very narrow point of view – that of the Common Agricultural Policy and the ‘dumping’ problem. I have a tendency to use human self-interest to explain everything – and this has made me aware of the glaring inconsistency in what I’ve written on this blog so far. In previous posts I lashed out at people who scorn government intervention; I criticize government protectionist policies in this one. I neglected the fact that governments are made up of normal human beings, who have, first and foremost, their self-interests at heart. I thought of deleting this post, since it is quite pointless, but decided to publish it in the end, because it’s important to record my thought progression throughout this project.
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Okay, I’ll admit this – I spend far too much time agonizing about poor jobless workers instead of using my brain to think about matters rationally. But let’s get something straight – the rational part of me (let’s ignore the emo-ing, menopausal part of myself) supports free trade. In theory. Why do I emphasize ‘in theory’? Because to me, trade with no barriers at all is impossible. It is politically impossible. Not everyone has studied economics, not everyone knows about Ricardo’s theory of comparative advantage. Some voters will always oppose free trade if it is in their interests to do so. Remember my previous post about how I oppose government price ceilings on roti canai but support government subsidies for multinationals, despite both price ceilings and subsidies being examples of market distortions? That’s exactly what I mean here. A dairy farmer in Europe will be delighted to buy cheap Dell laptops made in China (because he saves money), but will be incensed if the EU allows Australian dairy companies to export milk to Europe. You can’t expect him to sit back and say, “Oh yes, I must allow highly efficient Australian dairy farms to export milk to my country so that my fellow countrymen can enjoy cheaper milk, while I go out of business because I am less efficient than my Australian colleagues! I’m not worried because I can get a job driving a Fern-Leaf delivery truck! All hail the power of market forces!”
No rational dairy farmer would think like that, because as a profit maximiser (assuming he is one), his self-interests come first. You know what he’ll do? He’ll round up his fellow European dairy farmers, form a huge, powerful agricultural lobby and pester their politicians into introducing protectionist policies to prevent Aussie milk from ever reaching European shores. That’s the Common Agricultural Policy for you, which makes up almost half (or is it more than half) of the EU budget, and is one of the worst examples of trade protectionism around.
If we want free trade to work the way it should be, we should get rid of everyone’s protectionist policies. Not just those of the Third World countries, but those of the First World as well. But you see, it’s never going to happen as long as politicians are the ones determining economic policies. Politicians (well, the vast majority of them) always put their self-interests first. Just like normal human beings. It is rather unfair to expect anything more of them (of course there are a few exceptions, whom I fervently admire). The agricultural lobby is powerful and rich. They are some of the biggest political campaign donors out there. Do you seriously think politicians are going to bite the hand that feeds them? Get real. Yes, we know that free trade is not a zero-sum game. But as long as there are people who see it to be zero-sum, it will be. Why? Well, let’s take the Common Agricultural Policy again as an example. Under this policy, European governments set the minimum price for agricultural produce like milk, and it is illegal to sell produce below this price (not that farmers actually want to). When you raise the price of a good above its equilibrium price, you’re going to get a surplus – supply exceeds demand. Under normal market conditions, when a surplus occurs, the price of the good will automatically fall as farmers cut prices to sell more goods. Eventually a price will be reached at which supply equals demand – the market equilibrium price. All is at peace.
But under the CAP, governments guarantee that they will buy up any surplus produce from farmers at the artificially higher price set by them. For the farmers, it’s like winning the lottery. It’s no wonder that this encourages farmers to produce as much as possible, safe in the knowledge that all their produce will be sold, and for a handsome price too.
What happens to the surplus farm produce? That’s where ‘free trade’ comes in. The EU bullies hapless Third World countries into lowering trade barriers against EU farm produce so that the European governments can sell their excess produce to Third World countries – at a fraction of the cost price. This is called dumping, and it is responsible for driving many Third World farmers out of business. How can you possibly compete with EU farm produce that is sold below cost price? What’s worse, Third World countries are heavily dependent on agriculture – the effects of dumping can be disastrous for them, since their economies are mostly agriculture-based. At the same time, these poor countries are not allowed to export their produce to EU countries, because the EU imposes tariffs on them. Isn’t it nice to be a big and powerful country?
This is not a rant about how life’s a bitch and the world is so unfair. My point is that free trade as it is meant to be is impossible because the vast majority of humans have only their self-interests at heart. You could say that I have a fatalistic outlook on things. Not really. Perhaps if more people studied economics, if more people believed in the theory of comparative advantage, things will change. The key is to appeal to people’s self-interest – if people believed that free trade would benefit them directly, then they would support it. But there will always be losers from trade, and I’ll wager they’ll do everything in their power to stop it. What we could do is empower those who can benefit from free trade, give them a voice and hope they make more noise than the naysayers so that the politicians will sit up and take notice. Perhaps they know all about comparative advantage too – maybe even more than you and I. But they have an election to win, and that changes everything.
