Free Trade and Jobs

by Lindy Davies

eroom“Free Trade” is blamed for all kinds of bad things, these days. There is a notion out there that the Free Market cannot be trusted, that left unfettered, it will enable Greedy Corporate Capitalists to plunder and exploit workers everywhere. That’s a very tempting bandwagon to jump on, because the One Percent do seem to be rather having their way with things.

But what is free trade. really? If we think about the basic meaning of the words, free trade seems innocuous. What’s wrong with buying something from the person who offers it for sale at the most attractive price? If that seller happens to be across an arbitrary political border, does that matter?

Things do tend to get complicated, though. “Free trade” basically sounds sorta OK, but since 1994 the United States has been operating under the rules of a “North American Free Trade Agreement” which, according to its legions of critics, is all kinds of nasty.

It’s worth mentioning that some provisions of NAFTA legitimately support unharmful, unmonopolistic, international trade that benefits all the parties who engage in it. The Big Corporate Players who got NAFTA fast-tracked through the ratification process had no objection to getting rid of needless punitive tariffs; they were bad for business. If a thing confers an across-the-board benefit, then those acting in naked self-interest will tend to favor it.

But, alas, if that were all there was to it, NAFTA wouldn’t have needed to be over 300 pages long. One would think that an adequate free trade agreement would be pretty much covered in wording such as “We undersigned nations agree to stop charging import tariffs on each other’s goods.”

The “FT” in NAFTA, critics say, is Orwellian. Deep in the heart of NAFTA lie many “investors’ rights provisions.” These allow for penalties against nations that make any substantial changes to the investment climate that existed when the treaty was adopted — changes such as laws protecting worker health and safety, or the environment. (Such laws, you see, were already part of the investment climate in the richer nations.) The accidents, disease and pollution caused by those unregulated industries are external costs, borne by the workers, and the children, in those countries. If we grant the obligation of governments to secure such protections for its citizens, then we must realize that if NAFTA — these parts of it, at least — is against free trade.

Georgists believe that the rent of land and natural resources is created by the activities of the entire community, and therefore should be collected for public revenue. For them, the implication of NAFTA’s “investors’ rights provisions” is even more sinister. Say a foreign investor purchases real estate in a country whose economy is about to grow rapidly, partly due to NAFTA-stimulated development. The nation collects little or no tax on real estate. Sounds like a good investment! But, if the nation did as Georgists want and started raising public revenue from the rent of those lands, the investors would sue — and under NAFTA rules, they’d win!

This implies that Free Trade and Georgism are steps in the same direction. Henry George concludes his masterful book Protection of Free Trade by saying that true free trade is more than just the elimination of tariffs; it is the elimination of all taxes that penalize production, and ending the private taking of rental values that truly belong to the whole community.

The landowner, George says, is “the robber that takes all that is left.” There are, of course, lots of other robbers. If we get rid of graft, government goes about its business of providing infrastructure, and raising land values, more effectively. If we have a stable, transparent monetary system, commerce flows more efficiently and there is greater demand for real estate. If import tariffs are eliminated, consumer prices go down, and domestic producers won’t waste their time making stuff that foreign producers make more efficiently. All of these effects tend to raise land values!

Someone will raise the “jobs” objection. If domestic producers don’t keep running their rusty old, OSHA-inhibited production lines employing union workers paid three times the wages (plus benefits) of their foreign competitors, they will all lose their Jobs and the USA will become a pitiful struggling mess.

Well, I wouldn’t argue that the USA hasn’t become a pitiful struggling mess, but it most certainly isn’t because “they” took all of “our” jobs. Everywhere one looks, in every sort of American landscape or neighborhood, one sees unused productive capacity. Why are people not using these fields, factories, prime urban lots?

Various straw men will be trotted out, such as banking fraud, over-regulation or partisan gridlock — but the real reasons are the dead weight burdens of taxation and land speculation. These omnipresent, structural impediments are what make it impossible to eliminate unemployment, and they are what fatally wounds our industrial competitiveness. This is the Elephant in the Room in every discussion of our economic future — let’s not lose sight of it.

These ideas are explored in depth in the Henry George Institute’s course, “Applied Economics: Globalization and Trade.”

 

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