John Kenneth Galbraith Prize 2008
Today at the Canadian Economics Association meetings, the PEF officially awarded the first John Kenneth Galbraith Prize in Economics to co-winners Mel Watkins and Kari Polanyi Levitt. We had a packed room for the event, which featured opening remarks by Jamie Galbraith, and a historical retrospective of their works by Jim Stanford.
Below is the text of Mel Watkins’ Lecture. Kari Levitt’s Lecture is being transcribed and will be posted when we get it.
Re-Imagining Trade: NAFTA and Beyond
I dedicate this lecture to the memory of Michelle Swenarchuk: a parent, a friend and political ally, a person of the left, a lawyer, an environmentalist, a feminist, a fervent critic of the NAFTA who died in February of this year just hours after Senators Obama and Clinton in the Democratic debate in the Ohio primary put it back on the political agenda of all three countries.
Sadly, she missed that. We miss her strong voice.
Homage to Galbraith
John Kenneth Galbraith was that rare person, a public intellectual, who never forgot where he came from, who was prepared to dissent from the â€œconventional wisdomâ€ of the profession â€“ he even coined the phrase – who unflinchingly spoke truth to power.
His example has powerfully influenced me. Like Galbraith I was born on a farm and, like him, I have never confused life at the university with real work. I am still amazed that one could do nothing but read for whole days in a warm and well lit office and get paid. Galbraith was loyal to his rural roots. Faithful to the oral culture of his childhood, he was a great story teller who retained his rural love of earthy humour. In his memoirs he tells the story of writing a speech for President Lyndon Johnson on the economy. Johnson read it, said it was great, but doubted anyone else would think so. â€œMaking a speech on economics is a lot like pissing down your leg. It seems hot to you, but never does to anyone else.â€1
Galbraith was, amongst economists, the great dissenter. In words that warm the heart of anyone who would emulate him, Galbraith wrote, â€œOne of the greatest pleasures in my writing has come from the thought that perhaps my work might annoy someone of comfortably pretentious position.â€ But he could not resist adding, â€œThen came the realization that such people rarely read.â€
Above all, Galbraith was a person who supped with the powerful but was not corrupted, and was willing to walk away from the table â€“ as he did over the War in Vietnam and over his deep commitment to the abolition of nuclear weapons.
The Sorry Story of NAFTA
It is tempting to argue that the most important fact about the impact of free trade with the United States on Canada is that, after two decades, the productivity gap by which Canadian manufacturing lags that of the U.S. has not closed, its closing being the precise promise made by the proponents of free trade and in the absence of which it is unclear that the exercise was worth the costs of adjustment. Now the elites – business, government, media and academic – that brought us free trade cite that productivity gap yet again as reason for removing any remaining restrictions on foreign ownership.
It is never â€œglobalizationâ€ that is at fault, but rather the incompleteness of globalization, a phenomenon noted decades ago by Karl Polanyi in his discussion of laissez-faire in The Great Transformation.2 It is unlikely, however, that a problem will be solved â€“ the productivity gap closed – by intensifying its causes.
Yet now we have the Security Prosperity Partnership (a.k.a. as Deep Integration) promoted by the Canadian Council of Chief Executives which was central in the selling of free trade with the U.S. under its previous name of the Business Council on National Issues. It deserves to make the shortest list of Orwellian phrases. It promises to deliver Prosperity and Security, Security being the add-on since 9/11. It means our buying into the utterly illiberal and immoral policies of the George W. Bush administration on Security â€“ remember Maher Arar – in return for that elusive Prosperity.
The recent C.D. Howe Institute study by Bill Dymond and Michael Hart on global value chains speaks of â€œan increasingly dysfunctional borderâ€ between Canada and the United States but does not tell the reader that it is the nationalist excesses of the U.S. â€œwar on terrorâ€ that are the cause of this; rather they actually rail against â€œCanadiansâ€™ exaggerated pre-occupation with ephemeral concepts like sovereignty and nationhood.â€
As I wrote this I realized that, incredibly, I needed a passport to fly to New York â€“ a historic first between these two countries, insisted upon by the United States, but it doesnâ€™t stop Dymond and Hart from pretending it is somehow Canadaâ€™s fault that the border is thickening. Their apparent political naivety, their curious innocence of power, makes a compelling case that a heavy seasoning of potent political economy, a.k.a. reality, needs to be added to the thin gruel of neo-classical economics which is the exclusive diet of right-wing think tanks.
The bottom line is that morality, simple human decency alone, should cause us to want less rather than more by way of integration with American policy and that even the â€œpotentially enormousâ€ economic benefits that Dymond and Hart conjure up are no compensation for complicity in crimes against humanity.3
The deep contradiction of NAFTA from the outset was that it increased the mobility of everything but people. Washingtonâ€™s obsession with security has created a situation where the pressure to further increase the integration of the economies of the three countries continues in the face of increased impediments to the mobility of people. This defies any concept of community and turns NAFTA into a dead end.
The Brazilian economist and cabinet minister Roberto Mangabeira Unger â€“ my title borrows from his Free Trade Reimagined â€“ is scathing on this matter. â€œTo attribute to the movement of things the sanctity that properly belongs to the movement of people and ideas is more than an economic and political mistake; it is a spiritual perversion, tainted by idolatry, the confusion of living, transcendent, and embodied spirit with lifeless objects.â€ Economists who advocate free trade but not free labour mobility typically concede that the latter would be too disruptive of â€œcommunityâ€ but Unger â€“ as have others – makes the telling point that they are deaf to that argument when applied to free trade.4
This needs to be borne in mind when Statistics Canada tells us, from census data, that median income in Canada has not changed in the past twenty five years, while the share taken by the rich is up significantly and that of the poor is down significantly. While bank economist Don Drummond lays the blame on Canadaâ€™s lacklustre productivity performance â€“ forgetting that free trade was supposed to solve that problem â€“ he then becomes truly interesting. â€œ[A]s in virtually every developed country, corporations have seen an increase in their share. That is reflected in individualsâ€™ incomes through company ownership, capital gains and dividends. But these sources of income are disproportionately received by a fairly small number of the wealthiest.â€5 What I have not forgotten is that during the great free trade debate in the late 1980s our side insisted that the the Free Trade Agreement was in fact just such a charter of rights and freedoms for the corporations and the wealthy.
As for Partnership, it is the slippery word intended to mask the reality of the elephant in the room that the mouse pretends is its home.
Free trade was supposed to shock the Canadian business class into behaving like its American counterpart. A resource-driven economy would finally become a mature manufacturing economy.
Failure could have been anticipated and, indeed, was. In a Royal Commission report for the federal government, the economist Clarence Barber in the 1960s found a productivity gap in the agricultural implements industry in spite of free trade since 1944.6 In due course, with a little help from Conrad Black, the industry shuffled off to Buffalo.
Still, the problem with focusing on the persistent productivity problem in the manufacturing sector is not that it is not true but that it misses the larger point that Harold Innis taught us, that Canada was born a resource-based, resource-biased, resource-exporting economy and threatens forever so to remain, and that the manufacturing interest is marginalized economically and politically, its fate depending on its ability to ride a staples boom.
The questions remain whether Canada has escaped from the staples trap, and whether neo-conservative policies like the present free trade regime could be helpful in doing so. The answers are that we are in the trap, the happy, willed, Canadian version of the resource curse, and that free trade agreements that guarantee energy exports to the U.S. without regard to Canadian energy security, accompanied by the massive degradation of land, water and atmosphere consequent on oil sands exploitation â€“ we will resist all efforts by American environmentalists, including the state of California, to remind us of the latter – lock us in for as long as there is muck to be trucked and piped. Thatâ€™s good enough reason for welcoming the re-negotiation, even abrogation, of NAFTA.
Mexico and Canada are in the same free trade area only because each borders the United States. Each countryâ€™s percentage of the otherâ€™s trade is in the low single digits. A significant portion of that insignificant number, however, is vehicles and parts; one shudders to think of the effect on global warming of the trucks speeding back and forth. (The American economist Herman Daly tells the story of how Americans import Danish sugar cookies and Danes import American sugar cookies. The cookies must pass each other somewhere over the Atlantic Ocean. Daly wonders if it wouldnâ€™t make more sense to exchange recipes.7) The only certain benefit of free trade between Canada and Mexico is that Canadian and Mexican opponents of the NAFTA have developed good friendships.
Innis insisted that each staple left its stamp. The stamp of energy, of oil and gas, is the ever deepening integration of the provincial resource economies, indeed, the â€œDeepest Integration,â€ if you will, of the national economy into the American economy. Neo-conservatism, from Thatcher and the North Sea to Bush-Cheney and Iraq, floats on pools of oil. The impact is more crude than refined: we pipe the crude south to American refineries.
The U.S. Canada-Free Trade Agreement, and its successor, the NAFTA, are the revenge of Albertaâ€™s oil and gas industry for the federal imposition of the National Energy Program. Free trade was the guarantee that there could be no more federal meddling, that the issue of provincial or federal control over petroleum was settled and carved in stone. All of this passes under that simple sounding phrase â€œfree trade.â€
Trade has pervasive effects. As well as heeding Innis, we should take note of his successor, the economic historian W. T. EasterbrookÂ – who was also one of my mentors. Building on Innis on the staple-bias of the Canadian economy â€“ and in the face of the extraordinary vitality over the long-term of the American economy – Easterbrook distinguished between a pattern of transformation, which he saw as characterizing American economic history, in contrast with a pattern of persistence that was the Canadian experience. The American economy had developed, the Canadian economy had only grown.8
To think this way is to see that, for Canada, being a staples economy, a margin supplying resources to the centre in return for the manufactures of the centre, matters profoundly. In his 1993 Massey Lectures, the eminent economist and statesperson Eric Kierans insisted this was â€œnot trade but rather an in-house transfer ofÂ resources.â€ Kierans would have seen the FTA and NAFTA not as being about a free trade area but rather about what he called in his time â€œan imperial federation [where] the colonies and dependencies have no room to pursue the balanced growth of their own economies.â€9
At issue for Canada as dependency is the nature of the economic culture, both business and governmental. For both, what is evident is the love of empire, the pro-imperial bias, the flip side of which is a weak nationalism, bordering on the anti-nationalist. The American sociologist Liah Greenfeld makes a strong case in her The Spirit of Capitalism that, contrary to Max Weber, the true spirit that underlies economic growth is not religion but nationalism10 â€“ though it is admittedly hard to separate the two in the American case as they feed on each other.
Canada does not make Greenfeldâ€™s short list of case studies, but it is not hard for us to see that nationalism is exactly what the Canadian business class has not had historically, and does not have today, and is proud of itself and praised by economists â€“ and business historians like Michael Bliss – for that. This may even explain an anomaly noted by Andrea Mandel-Campbell in her Why Mexicans Donâ€™t Drink Molson11 that Quebec (which is nationalist) seems to have a disproportionate number of globally active companies relative to the rest of Canada.
The hallmark of government in Canada in the face of Washington is that, as befits a dependent margin, it frightens easily. With Reaganâ€™s election, Trudeau hastened to undo any economic nationalism and Mulroney completed the task. Convinced, wrongly as it turned out, that US was moving to protectionism, we pleaded for free trade and signed a bad deal. Our bottom line justification for this is that we are saving America from itself, better promoters of the American empire than the Americans themselves â€“ something we also imagined we did in the days of the British empire. We push free trade less because of its inherent goodness â€“ though our elites appear actually to believe in that – but because we have a recurring nightmare that a wall will go up around the metropolis and we will be on the outside.
Which goes a long way to explain how our masters responded to the prospect that a Clinton or Obama presidency might threaten NAFTA as it stands.
The Canadian media were full of bombastic talk about how we wouldnâ€™t let then push us around as our elites line up like dominos so one little push will do. Itâ€™s hard to think that any American viewer wouldnâ€™t see the fear in our eyes, the trembling of our hands, the cold sweat on our brows.
It doesnâ€™t even take that much by way of imagination on our part â€“ just some backbone â€“ to envisage a better NAFTA or no NAFTA at all. The clause in which we give away our energy security to enhance that of the US makes slight sense in a world of increasing energy scarcity and escalating risks of climate change. Nor is it tolerable, in the simple name of democracy, for us to live with a Chapter 11 which permits foreign companies to sue us if our governments act, say, to protect the environment and cause those companiesâ€™ profits to decline. This is a stunning example of how a free trade regime has been turned into the reification of corporate rights. How did it happen that â€œfree tradeâ€ has come to mean this?
Pity those Ohio workers, feeling the pain of globalization, and hope that they have not heard the gratuitous insults to them of the Canadians who were involved in negotiating this deal and will tolerate no embarrassing truth. Polanyi noted the propensity of liberals in an earlier time and place to complain of â€œthe blindness of the working people to the ultimate beneficence of unrestricted economic freedom in all human interests, including their own.â€12
Let this veteran Canadian nationalist, so often falsely accused of anti-Americanism, come to the defense of those American workers. Where is the empathy, to say nothing of the solidarity, which would show the free trade area was in any way a community? Echoing Polanyi, Daniel Drache, and his co-editors of an issue of Canada Watch on North America post-Bush, label as â€œutopian economic thinkingâ€ the notion that â€œfree trade was a solid platform on which to build a North American community.â€13
Consider the telling comment of the American heterodox economist Robin Hahnel: â€œMutual concern, empathy, and solidarity are the appendices of human capacities and emotions in market economies â€“ and like the appendix, they continue to atrophy.â€14 The spread of free trade, contrary to what is sometimes thought, may only increase our indifference to the fate of others: we want to be winners and canâ€™t waste time sympathizing with losers. Stephen Marglin fears that â€œThis world, our â€˜developed world,â€™ has no place for community, except for national communities, and as globalization proceeds, less and less place for national communities as well.â€15
We need to develop a language and a practice that is inclusive rather than divisive. We need to understand â€œprotectionâ€ in the manner of the Ohio worker, as â€œsocial protection,â€ as a human right. As Unger would put it, there is slight connection between free trade and human liberation and empowerment. The last sentence in his stimulating book: â€œWe shall not shackle humanity to free trade.â€16 Amartya Sen writes of â€œdevelopment as freedom.â€17 We should speak not of â€œfree tradeâ€ but of â€œtrade as freedom,â€ that is, as means to enhancing freedom, and devise a trade regime that gives effect to that.
The final word on the NAFTA is that it went nowhere and is going nowhere. It has failed totally, as has already been noted, to deepen into a communal arrangement. It has likewise failed to evolve into a Free Trade Agreement of the Americas. Instead, an increasing number of Latin American countries have moved in the opposite direction, toward economic nationalism; it is Canada that is out of step. The problem with the NAFTA is that it imposes not just â€œfree tradeâ€ in some narrow sense but is part of a neo-liberal package that disarms the Canadian government in an efficacious pursuit of the Canadian national, or public, interest.18
To be an economist and not to worship at the shrine of free trade is to risk being charged with heresy, stripped of oneâ€™s degrees and reduced to an object of ridicule. I suppose we dissenters should count ourselves lucky not to have been burned at the stake.
As the Canadian-born economist the late Harry Johnson wrote: â€œThe proposition that freedom of trade is on the whole economically more beneficial than protection is one of the most fundamental propositions economic theory has to offer for the guidance of economic policy.â€19 Trade theorist Ronald Findlay calls the law of comparative advantage the â€œdeepest and most beautiful result in all of economics.â€
Nor should we ever underestimate how deeply the passions run on this matter, as Douglas A. Irwin reminds us in his most informative book Against the Tide: An Intellectual History of Free Trade. In 1828 the British economist Nassau Senior wrote: â€œThe question of free trade is, next to the Reformation, next to the question of free religion, the most momentous that has ever been submitted to human decision.â€ It is claimed that Richard Cobden, the ardent advocate of free trade in Britain in the mid-nineteenth century, on his deathbed castigated John Stuart Mill: â€œI believe that the harm which Mill has done to the world by the passage in his book on Political Economy in which he favours the principle of protection in young communities [that is, the infant industry argument] has outweighed all the good which may have been caused by his other writings.â€20
The powerful message of Irwinâ€™s book is how utterly impervious the pure theory of international trade has proven to any attempt to lessen the force of its pro-trade message. Infant industry arguments, terms-of-trade arguments, the counter-arguments of Keynes when there is unemployment and wage stickiness, strategic trade arguments, the very recent Samuelson argument that when high-wage America trades with low-wage but high-innovation China, the AmericanÂ real income could fall with increasing inequality in its distribution to the particular disadvantage of the lower middle class21 â€“ they keep coming but they invariably are discredited as bad theory, as curiosities or, as a last resort, impractical as a guide to policy, though the latter is outside the scope of the theory itself, and is a matter on which trade theorists, with their notorious disinterest in history, lack competence to generalize. Irwin notes how slight is the appeal to empirical evidence and concludes: â€œfree trade commands respect among economists largely because of its continuing theoretical attractiveness,â€22 though he might have added that when we look at the names of dissenters â€“ J.S. Mill, Keynes, Samuelson â€“ we see how the best are bothered.
For the disconcerting fact is that history repeatedly has given the lie to the theory. Listen to David S. Landes, an economic historian whose economic analysis tends to the relentlessly orthodox, in his acclaimed book The Wealth and Poverty of Nations: â€œThe later record of British commitment to free trade (more or less mid-nineteenth century to 1930) has tended to obscure the earlier and much longer practice of economic nationalism, whether by tariff protection or discriminatory shipping rules (navigation acts). Economic theorists have argued forcibly, even passionately, that such interferences with the market hurt everyone. The fact remains that historyâ€™s strongest advocates of free trade â€“ Victorian Britain, post-World War II United States â€“ were strongly protectionist during their own growing stage. Donâ€™t do as I did; do as I can afford to do now. The advice does not always sit well.â€23 Nor, presumably, should it.
We must not glide over this point for its implications are deeply disturbing to our profession. There is a lie at the core of economic theory masked by the elegance of the geometry. The â€œbest and brightestâ€ of trade theorists write social science fiction.
The disregard of history as a proper component of economics has been fatal to scholarship and to policy. Our only hope lies in heeding less the neo-classical economics of Britain and the United States and more the heterodox economics of the German historical school, the long-standing tradition of American institutionalism (but not the new institutional economics which so neatly emulates neo-classical economics itself), the old and the new Canadian political economy with its rich and eclectic mixture of nation, region, class, gender and ethnicity.
The Canadian content in this story, as adumbrated by the economic historian Harold Innis, is that the commodity matters, specifically, that the impact of the export good on both the exporting country and its development prospects – and the importing country and the health of its citizens – varies with the good. An obvious case in point would be the contrast between wheat and sugar, where wheat is grown on family farms and sugar on slave plantations, and wheat improves diets and sugar addicts. Yet the abstractness of the theory of international trade precludes consideration thereof.
We are stuck with bad theory for the present and must be constantly on our guard. The much worshiped law of comparative advantage quickly becomes the prophecy of mutual benefits from trade, thereby obscuring the reality of winners and losers â€“ not only between countries but within countries between scarce and abundant factors as shown by the Heckscher-Ohlin theorem – a language otherwise privileged by economists. The inability of orthodox economics seriously to grapple with â€œimperialismâ€ and â€œcolonialismâ€ may in part be because trade takes place within empires and the assumption of mutual benefit precludes a different reality. We must insist on the right of the losers, who are rarely compensated as economists advocate when pushed, to be heard, to be listened to by everyone, including economists.
Nor did this theorizing properly prepare us for the reality of present day free trade regimes: the guaranteed mobility of the corporation, a right granted to an artificial person but not to real people; the entrenchment of intellectual property rights, not your ideas or mine no matter how clever and useful, but the monopoly rights of patent holders, like pharmaceutical companies whose products may spell life or death for poor people; energy sharing commitments. Herman Daly writes that â€œfree tradeâ€ should be called â€œderegulated international commerceâ€24 and if it were it would not get the good press it gets.
Economists have contributed to a vast confusion by supporting any free trade agreement because it is automatically said to be â€œfree tradeâ€ – and to be opposed to free trade is to be at best a protectionist or an economic nationalist, which are pejorative terms, at worst an advocate of autarky who should be sent to North Korea. As long as the issue is framed this way, there is little hope for informed dialogue amongst economists or of economics with other disciplines.
Economists have developed their own historical narrative about free trade and have themselves become the priesthood which vouches not just for the goodness of free trade but, much more insidiously, for its necessity. In short, Ricardoâ€™s Law of Comparative Advantage has mutated into an ideology. Findlayâ€™s thing of beauty has become a club which the powerful are only too happy to let economists wield on their behalf. In the process the circle is closed and creativity contained. The Nobel prize winning American economist Joseph Stiglitz has written: â€œIdeology provides a lens through which one sees the world, a set of beliefs that are held so firmly that one hardly needs empirical confirmation.â€25
It bears repeating that that free trade regimes have become charters of rights and freedoms for the corporation. Free trade becomes one part of a package which includes privatization, deregulation and everything else on the wish list of big business â€“ this in spite of the fact that as John Ralston Saul puts it, â€œThere was â€“ and is â€“ no necessary or even natural link between ideas of international economics and an ideology that distrusts governmentâ€™s role in the development of the public good.â€26So it is that free trade agreements are the size of urban phone directories â€“ now so large they can only be accessed on line. In Polanyiâ€™s vastly revealing words: â€œLaissez-faire was planned; planning was not.â€27
Economics teaches that â€œtrustâ€ reduces transaction costs and facilitates the efficacy of markets but it is clear that the message of the real world of trade is â€œput it in writingâ€- and get ready to litigate.
â€œFree tradeâ€ becomes code for globalization and the whole neo-liberal agenda, while the size of its external trade becomes the measure of any countryâ€™s success. The media endlessly cite the increase in Canadian trade â€“ sometimes just the increase in exports – as proof in itself of how much Canada has benefited from the NAFTA, thereby confusing means and ends and assuming that trade is inevitably beneficial. â€œ[I]t seemed as if the movement of goods across borders was the purpose of civilization. To produce goods for local markets was somehow old-fashioned, inferior, uninteresting.â€ (John Ralston Saul)28
The consequence on the ground is institutional convergence, a phenomenon that should indeed frighten anyone who cares about diversity, and is committed to choice not simply as a consumer, to creativity not simply as an entrepreneur, to experimentation not simply as a scientist, but to all of these and more as a citizen. Unger warns: â€œThe trading regime will be a straight jacket â€“ according to its supporters, a golden straightjacket, necessary and even providential â€“ but a straightjacket neverthelessâ€29 We risk what the Canadian philosopher George Grant called â€œthe tyranny of the universal and homogenous state,30â€ the actuality of going to hell in a basket of tradable goods. The words of a Confederate clergyman about slavery, that â€œWhatever is universal is natural,â€31 could be applied to free trade today.
Canadian proponents of free trade, the better to preach its virtues, have rewritten the story of the tariff in Canadian economic history without having even read the original story. The tariff of 1879 increased the size of the multiplier from exports in the context of highly elastic supplies of labour and capital – that is, a tariff in an export-led economy and with high mobility of both capital and labour – all the while generating the revenue essential for the government support for the building of infrastructure needed for trade.32 In short, there were big economic benefits relative to any economic costs. Given the extensive growth that resulted, given that labour mobility is a much more important freedom than free trade, to call this â€œprotectionismâ€ in the pejorative sense of that term is simply absurd.
Nor do free trade advocates appear to understand that Canadaâ€™s national policy was a close copy of American national policy, including the so-called Tariff of Abominations of 1828 behind whose high walls America rapidly industrialized. The economic historian Paul Bairoch has labeled the United States nothing less than â€œthe mother country and bastion of modern protectionism.â€33 Now that America as imperium has gone free trade, our free trade friends cheerfully insist that Canada copy that. How profoundly confused they are.
How could this have happened? Whatâ€™s missing throughout in the mainstream story is politics: the geopolitics of trade, the imperialism of free trade. Politics matter deeply with respect to trade: how else do we explain the underdevelopment that is the characteristic feature of colonialism? As already noted, but it bears embellishment, free trade is the policy of the powerful after they have become powerful. More than a century ago the German economist Friedrich List dubbed this â€œthe kicking away of the ladder.â€ Economics as a discipline in its own right resulted from draining the political, as well as the historical, out of political economy. Our best hope lies in undoing that double error.
Consider the case of the first great industry, cotton textiles. â€œThe free trade origins of the cotton industry are a myth. Freedom from regulation in the sphere of production was all the industry wanted; freedom in the sphere of exchange was deemed a danger.â€ (Polanyi) The triumphant cry of Manchesterâ€™s cotton goods manufacturers came later, and was built on the profound unfreedoms of slavery in the cotton plantations of the Americas, of the deindustrialization of India with its long tradition of calicoe production by the forcible imposition of â€œfreeâ€ trade,34 of the blockage of industrialization in Egypt which was deemed by its European masters to have its â€œcomparative advantageâ€ in cotton picking35.
None of this stopped Canadian economists from playing the huge role that they did in bringing free trade to Canada. Gregory Inwoodâ€™s excellent book on the Macdonald Commission documents how the economists on the research staff of the Commission made free trade with the U.S. the centre piece of its Report36 â€“ which Prime Minister Mulroney then seized upon. When orthodox economists have such power it becomes essential to inquire as to their reliability. In fact, as Jim Stanford has recently observed â€“ and for which I can personally vouch – â€œNothing better exemplifies economistsâ€™ know-it-all attitude than debates over free trade.â€37 That wise economist Albert Hirschman wrote: â€œafter so many failed prophecies, is it not in the interest of social scienceâ€ â€“ and I recognize that all economists, including dissidents, and political economists, are social scientists â€“ â€œto embrace complexity, be it at some sacrifice of its claim to predictive power?â€38
Free Trade Utopia and the Shame of Economics
The fundamentalism of free trade, as in â€œgetting the fundamentals right,â€ is the discourse of religion, and bad religion to boot; it should have no place in social science. We should have known we were being sold a bill of bads when the influential royal commissioner and former economic nationalist Donald Macdonald described his conversion to free trade as â€œa leap of faith.â€ At the heart of the package in which free trade is imbedded is the utopian fantasy of the self-regulating market, and Polanyi powerfully demonstrated how it became the terrible real world dystopia of the 20th century.
In the mid-nineteenth century, John Stuart Mill, Cobden notwithstanding, wrote in his Principles of Political Economy: â€œIt is commerce which is rapidly rendering war obsolete, by strengthening and multiplying the personal interests which are in natural opposition to itâ€¦the great extent and rapid increase of international trade, in being the principal guarantee of the peace of the world, is the great permanent security for the uninterrupted progress of the ideas, the institutions, and the character the recent race.â€ It is sad that we must insist that the 20th century dramatically demonstrated the contrary.
It is discouraging that we failed to learn from this and mostly stood on the sidelines for the past quarter-century as American neo-conservatives conned us one more time with the fantasy of the wondrous working of free markets, this time with the transient use of war to get them up and started. The British philosopher John Gray writes of â€œneo-conservative groups mesmerized by fantasies of creative destruction,â€39 but as economists we can only wince as we see the nakedness exposed of Werner Sombartâ€™s phrase made famous by Schumpeter which is so central to how economists think and talk and which, whatever its intention, is so profoundly amoral and devoid of humanity.
The murdering, torturing, thieving, lying, smirking, thugs of neo-conservatism have hijacked economics by expropriating its right wing propensities (as manifested by monetarism, rational expectations, public choice, supply-side economics) for the purposes of American hegemony with its militaristic tendencies. There have been solitary voices of protest from within the mainstream of the profession, notably Joseph Stiglitz, but there has been no chorus. It has taken the Canadian journalist Naomi Klein to blow the whistle and show the blood on the hands of our profession.40 Terrible crimes are tolerated by those who think that the worst that is happening is the result solely of an excess of zeal by a few. Who amongst us has denounced Milton Friedman â€“ one of the gods of the profession – for advising General
Pinochet in the midst of his murdering and torturing?
The Crises of Globalization
â€œWith free trade the new and tremendous hazards of planetary interdependence sprang into being.â€ (Polanyi) The evidence is everywhere of the present crises of globalization, in the short-run and the long-run. The fantastic ability of masses of money to be moved at the speed of light has pushed the world economy to the brink of financial implosion. Economic growth, which was to lift all boats and solve all problems – in the long-run, of course – has led to exponential growth in carbon emissions and global warming and a catastrophic future for our children and grandchildren. Canada as staple exporter has an abysmal record environmentally, to a degree that few Canadians seem to realize, but the worst is yet to be as we increasingly develop oil from the tar sands as the new staple.
The selling of free trade for Canada as presently packaged is the selling of more global warming and extreme climate change. It is an idea whose time is past.
It is now mostly forgotten that in the midst of the great economic crisis, and crisis for economics, of the Great Depression of the 1930s, Keynes argued that goods should be â€œhomespunâ€, as he quaintly put it, and, above all, finance â€œprimarily national.â€ All this was ignored as economists, led by Keynes himself, built the international institutions to manage capitalism. We are now paying the price of going that route.
The modern world was born in an excess of commerce out of the barrels of guns. Not surprisingly, the reality on the ground from the asymmetry in weaponry was not the creation of a global community which might somehow have made what happened tolerable but the wholesale destruction of aboriginal and indigenous communities at the margins of the world. The American writer Russell Shorto in his book on the Dutch â€œdiscoveryâ€ of Manhattan, tells us: â€œItâ€™s ironic that immediately upon entering the watery perimeter of what would become New York City, these two things take place: trade and violence.â€41 In that great burst of commerce that characterized the 16th century, there were four Anglo-Dutch wars, and each one of them was about trade.
As for the imperial centres, Giovanni Arrighi reminds us in his fascinating book Adam Smith in Beijing,42 that Smith, the father of us all, thought the â€œnatural progress of opulenceâ€ was agriculture, industry and commerce; the priority of commerce was for him â€œunnatural and retrograde.â€ Daly makes the same point for today when he says â€œthe domestic economy should be the dog and international trade the tailâ€ though business commentary in this country overwhelmingly assumes the opposite to be necessary and desirable. The extraverted economies of the Netherlands, of Spain, of Portugal, did not pave the road for any of them to host the first Industrial Revolution, but rather, for the latter two, brought stagnation at home and for all three horrific suffering abroad.
Capitalism having been born badly is no reason why we should now wither and die for the same fault. There is good reason to think that we should pay more attention to agriculture, to food and its availability locally, and less to commerce and finance. It would not have been news to Gandhi that there is slight prospect that all of the world could live as those in the rich countries now do, which means that the present globalization project – the package in which free trade is so central â€“ is almost certainly not viable. That we can be done in by a humungous market failure â€“ the failure to hold polluters accountable either in monetary terms or by regulation – makes nonsense of the claim of a self-regulating global market.
Ecologists so minded, like the American Bill McKibben, call for a â€œdeep economics,â€43 free of reductive assumptions, informed by history, holistic, nurturing of the humanity imbedded in the economy, respectful of community and of nature.
We should find solace and hope in the manifest failure of Americaâ€™s imperial project and the widespread questioning of neo-conservatism. Out of contradiction comes creativity. As the world around us changes, so will economics.
Having taken my title from Unger, let some closing words go to him: â€œthe specialized place of a national economy within the world economy can be chosen rather than discovered. It is not a fate; it is a project, forged in the face of constraint and on the anvil of contests of interest and of vision.â€
Two decades ago the radical economist Samir Amin called for delinking domestic development from the world system â€“ not autarky but the â€œrejection of blind surrender to the demands of international competitivenessâ€ and of â€œthe subjection of external relations to the logic of internal development,â€ so as to permit of â€œâ€™alternative developmentâ€™ based on expanding the scope for non-commodity and self-management activites.â€44 The catastrophes to which the present system is leading us would seem to give fresh urgency to Aminâ€™s advise.
Trade has transformed economies and societies. It is time that trade itself was transformed.