Free Trade: Idea, Concept…Myth?
I have previously written an article on Fair Trade and some of the problems it poses for developing countries. I didn’t explore Free Trade then at least partly because because “Free Trade” is another one of those ideas, like human perfection, or Arsenal winning the Premier League; it is possible, but highly improbable. I also did not fully understand the practical difference between the two ideas. Real-world implementations of both seem to involve the usual uninspiring deal-making with an eye towards profit. Color me skeptic.
In any case, it’s come to the fore of my mind now because I have been reading about the potentially damaging effect it could have on affordable HIV treatment in the third world. “How?” you ask, a slightly perplexed look on your face. Once again, the devil is not in the idea; it’s in the execution…Free Trade Agreements. I shall return to this in a bit, so stay with me.
When I discovered this issue, I decided to really dig in and find out what I could about this Free Trade concept. I wanted to understand what it was all about, and how it could turn out to be negative. So, I put my excellent research skills to work (RE: Google) and came up trumps. Basically, Free Trade is a system that levels the playing field for anybody wanting to produce/trade a given product. At its core is the principle of making pricing a true reflection of supply and demand. This applies to domestic companies, international companies…everyone, regardless of country or location. Pretty simple.
It’s funny…I have always imagined this is how the world works, mostly. You put effort into producing something – time, money, etc – then you charge a certain price to reflect that. If said item is difficult to produce or rare, and in demand, you can charge more, within reason. I was right. This is how it does work…but only within a given bubble. A bubble, say, like the United States. Any given bubble will have rules in place to protect its “integrity”. The system functions to ensure that any external force that breaches it doesn’t easily cause harm to those inside. Usually, that means that if you are a producer in a given industry within, a producer in the same industry from outside cannot expect to come in and compete without some forced handicap (high taxes for them, tax cuts/subsidies for you etc).
The idea of Free Trade is to make the bubble irrelevant, or at least reduce it’s effectiveness drastically. No Government helping the locals out and making life more difficult for the outsiders. Like I said, a level playing field. It seems to have a whiff of fairness about it, afterall we all end up with a true reflection of prices, and the competition is fair. However, the world as we know it is way too complicated to allow such a principle be applied on a grand scale. Well, at least that’s what I think.
Most of the basis of Free Trade rests on the idea of Specialization, which is one I readily identify with, having run a business in the past (so what if it was a web development company when I was at University…it still counts). Basically, everybody is much more effective if they concentrate on things they are best at (even if you are capable of doing all things reasonably well) and leaving the other bits to people who are better suited. In an ideal scenario, a new web designer could hire a new accountant instead trying to do her taxes herself; and the new accountant could hire the new web designer to manage his website. They can both spend their time doing what they are best at. The system benefits from two people at their highest productivity level, who are also able to trade effectively with each other. Win-win.
The problem here is that societies today are not at a template level. They are filled with multiple examples of our web designer and accountant at multiple levels of complexity. Let’s say, for instance, that the land of Narnia is better at Wheat farming than Hogwarts. Let’s say that it is also cheaper to do it there than in Hogwarts. Now, let’s also say that the reverse is true for the manufacture of…I don’t know…Hawaiian shirts. The idea would be for Hogwarts to leave the wheat to Narnia, and stick with the shirts, and trade with the Narnians for wheat. Even though both Nations can do both, perhaps effectively, this is the optimum arrangement.
Now, in implementing this, the Narnian Government might remove protections in place for its local wheat growers…deregulation, really. These locals would quickly have to get creative in order to survive in this new landscape of “openness”. They would have to find a way to cut prices and compete with the potentially more effective foreign companies…or go out of business. There is more innovation, more co-operation between the nations; it’s all good…for consumers and the whole system at large. But there is a cost. A large chunk of locals who are in this industry will possibly be left without any livelihood. Also, any others who were working towards entering said industry would have to divert their efforts into something else.
So, clearly, trying get this to work on a large scale is difficult. That is why there are Free Trade Agreements (e.g. NAFTA). They basically lay down rules that must be followed by all parties to the agreement. They make sure that everything is set up correctly so things are fair, so all parties are treated equal. It’s deal-making, and someone always loses, at least in the short term. For instance, to “facilitate” this process, subsidies might actually be given to the foreign companies instead of local ones. If these locals are unable or unwilling to deal in the new environment, then it’s often tough luck for them.
Around the Globe, the issues are plentiful. For instance, NAFTA has been blamed for the loss of the United State’s manufacturing credibility (Mexico has grown their ability), while also being blamed for the difficulties local farmers face in Mexico (America wins here). When it happens between Developed countries and Developing countries, we start to see more problems. How much should Governments in less developed countries be allowed to influence prices to encourage entrepreneurship in their own economies while dealing with the much more advanced Companies from the Developed Countries? There’s a very thin line they have to walk.
Locals in Europe tend to have protections in place governing how many hours they can be made to work, how much they must be paid etc. I once worked – I use that term loosely…there was quite a bit of sleeping – for 24 hours straight as a Security “Officer” while I studied in England because the guy for the night shift didn’t show. My manager was extremely worried about all kinds of penalties the company might have to pay if it ever came to light. All of these protections are laughable on the farms and manufacturing plants in Developing countries. So, even though such conditions might not be created as part of any trade agreement, they already exist and are a major reason why business might be significant more expensive in Europe. How do European Governments factor that in when considering Free Trade?
I think that is where things start to get a bit sinister. Now, I am not a big conspiracy theorist – everyone knows the U.S. Government is covering up details of an imminent alien invasion – but my last point underscores part of this idea of framing arguments and deals as existing between Nations for the benefit of their peoples. From what I can see, that’s not the case. The parties that gain from all of these deals are companies, particularly the big boys. A company that would have had trouble being competitive in farming in Europe can move into farming in Jamaica because of a Trade Agreement or an “opening-up” of the markets. They are free of the constraints that would have existed on employee practices back home. At the same time they possess the clout and wealth to completely bamboozle – for lack of a better word – most other local companies. This idea of specialization benefiting even traders in that industry changes because some multinational firm is suddenly able to muscle their way into the game. Locals lose on both sides…the big companies win. I am having trouble seeing how this is good for everyone.
Global producers are…like…evil.
Now, back to how all of this affects affordable HIV treatment. This Article on GlobalIssues.org covers it in more detail, but the general idea is that Indian Companies have been able to make consistently cheaper versions of HIV treatment drugs because they only have to get patents for the “process” by which the product is made, not the “product” itself. That is going away as International Free Trade Agreement rules come into place. This could mean that international companies, attempting to make more money off these drugs, can bring Intellectual Property suits against the Indian Government around this issue. To stay out of trouble, Indian drug manufacturers in this area will have to be more careful. The potential result is a reduction in these sorts of drugs, and a potential increase in costs where available…because of “Free Trade”. Where do we draw the line?
Now, don’t get me wrong. I am not saying all multinationals are bad, or that globalization is wrong…or even that all of these agreements are wrong. It’s just that Free Trade could actually do more harm than good, particularly when looking at developing countries who just can’t operate at the same level as their peers from developed countries. Fair Trade has risen up in recent years to try to address the inbalance that can arise in these situations, but that idea has also been mostly usurped for profit as well.
I was hoping to find a solution when I started out on this path, but I have come up with nothing. At the end of the day, there isn’t a one-size-fits-all package that can be flogged to all parties. So, maybe in that lies the answer…I don’t think we can hope to apply the same principles (i.e. free and open trade) to all situations. We should consider the uniqueness of every situation, of every party involved; maybe even consider the positives of some protectionism. We also need to watch these globe-trotting companies because this is their show, mostly.
The offshoot of all of this might be a more complicated and drawn-out process; but whoever said life is supposed to be easy all the time?
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