August 3, 2008
The era of free trade may be coming to an inglorious endPosted in International Economy · 86 comments ·
The world is beginning to close its borders, and what follows will be seismic.
Are we seeing the return of protectionism, narrow gauge xenophobia and the end of the cosmopolitan force that was globalisation?
Are we seeing the first of many instances where the EU and the US are unable to force their will on the rest of the world because they are no longer powerful enough? If this is so, what will these trends mean for us?
Last weekend, China and India in particular decided to play hardball with the world, forcing the abandonment of the world trade talks. For India’s ruling party, this might have been an expedient political victory ahead of an election in which its farmers will have a pivotal say; but is it in the long-term interest of a country to get rich by playing ‘‘beggar my neighbour’’ with its friends?
For the first time in a generation, efforts to expand trade and increase the flow of information have been thwarted. While no one denies that China and India – ‘‘Chindia’’ – are big enough to be heard, there is something more than just trade talks going on.
It is possible that we are witnessing the beginning of a profound structural change in the way the world runs itself? Will we see globalism replaced by nationalism, and the financial good of the many being hijacked by the narrow interests of the few?
The collapse of the World Trade Organisation (WTO) talks is a serious blow to Ireland, particularly if it is followed to its ultimate conclusion. Irish farmers might be happy, but they have the most to gain from open trade in the long-run due to the simple fact that the price of food is likely to rise over the coming years.
The world needs more trade, not less. China and India, in particular, need trade if these pair of giants are to pull their billions of people out of poverty. It is a simple economic fact that no country ever got rich without trade. Trade is the cornerstone of modern economics and is based on the straightforward concept of comparative advantage.
According to this basic idea, it is smarter to concentrate on the things you are good at, become productive in producing this stuff and use the earnings you get from it to buy the stuff you can’t produce.
Furthermore, being open to trade exposes countries and companies to competition from abroad and new techniques, which must be copied and bettered at home if your goods are to sell. It is a discipline that tends to lead to best practice.
If you doubt this just examine the experiment that was East and West Germany. One people, one culture, two systems, one definitive result.
History is littered with examples of how countries thrived when trade was free – not just economically, but socially as well. Traditionally, when people can trade, they are free to mix, exchange ideas and technology. In the past, countries that embraced free trade also tended to be the most liberal, with the best social and human rights records.
However, history teaches us that there are moments of profound change where the people reject free trade and all that goes with it, usually for some utopian and undeliverable vision. This can lead to monumental social change. Could the world now be at such a tipping point?
One hundred years ago, a best-selling book in Europe was a tome called Degeneration, written by a Hungarian intellectual called Max Nordau. Nordau, who shot to fame as an author, went on to be a vociferous Zionist and one of the driving forces behind moves to create the state of Israel. Degeneration was translated into numerous languages, because the central idea in the book struck a chord all over Europe.
The thesis was simple: Nordau argued that open trade and the dominance of economics and finance in political discourse had led to a corruption of European nations. He contended that European elites were now degenerate.
They had become cosmopolitan and divorced from the people, from the soil and from everything that made European countries unique.
His central message was that these cosmopolitans had betrayed the ordinary people with their preening narcissism in art and literature, their internationalism in politics, their alliances and affectations and their willingness to exploit the people’s labour in order to create a deracinated elite.
Nordau’s solution was to call for a regeneration of the people from the bottom up. He suggested that patriotism could replace internationalism and that the people could be purified of this degeneration by going back to basics, moving away from free trade and the free movement of people, returning to the soil and self-sufficiency.
Nordau was the spiritual king of the many nationalist movements springing up in Europe at the time. His DNA can be seen in the politics of Eamon De Valera, Arthur Griffin and Michael Collins. Unfortunately – and ironically given his subsequent Zionism- his fingerprints are all over Nazism too.
What makes Nordau interesting in the context of the failed WTO talks, is that his message started with trade. Under the cloak of standing up for the little guy against some ephemeral elite, Nordau tapped into a discontent that was real.
The elite had become removed from the people, they seemed to swan around telling the masses what was good for them and their income had exploded to being multiples of the average worker.
These are many disturbing similarities between now and the turn of the 19th century. Many of the same arguments are resonant today, beginning with the argument here against Lisbon. It amounted to a coalition of rejectionism rather than a coherent political worldview.
Similarly, our farmers are driven by a narrow perspective on trade. They are possibly unaware that their stance on this crucial issue might put their best friends and neighbours out of work. It is easy to reject. It is much more difficult to construct.
The rejection of the WTO, although remote, is part of a rejectionist trend. Who knows, it might be positive. But a constructive alternative hasn’t yet been articulated. Like the vacuum Nordau left at the beginning of this century, God knows what might fill it.