Politics and economics are inseparable. They are the medium through which countries have social relations. As economics is integral to politics - helping determine where power lies and how it is exercised - no account of world politics is adequate if it does not explore the economic dimension. Lenin took this one step further with his famed quote “Politics is the most concentrated expression of economics” , indicating that he viewed them as two parts of a single entity.
‘Free trade’, although not necessarily the most prevalent trade ‘ideology’, is certainly the dominant interpretation of trade in practice at the current time. The debate over ‘globalization’ is much concentrated on the globalization of free trade - liberalization of markets, global financial integration and neutral incentive trade (where the incentive to produce goods for the domestic market is the same as that to produce goods for export). The ‘fair trade’ campaigners see the globalization of free trade as a negative issue, whereas enthusiasts for contemporary globalization of trade and finance generally define these developments as part of the long term evolution towards a global society. They see globalization as part of a good process that will benefit everyone as the emergent world economy will apparently yield prosperity, liberty, democracy, and peace for all humanity.
Is free trade a reality?
Globalized free trade is far from a reality. Anti globalization campaigners often campaign for the elimination of ‘unfair’ free trade rules imposed by the WTO. However, the existence of the powerful WTO, whose stated functions are “handling trade disputes, providing a forum for trade negotiations, monitoring national trade policies and technical assistance and training for developing countries”; has not somehow instantly created a global free market. Such a global market entails not an extension of internationalism, but the progressive removal of official restrictions on transfers of resources between countries. In the resultant world of open borders, global companies replace international companies, global trade replaces international trade, global money replaces international money, global finance replaces international finance. From this perspective, globalization is a function of liberalization, that is, the degree to which articles, communications, financial instruments, fixed assets and people can circulate throughout the world economy free from state-imposed controls. There have of course been progressions towards free trade as a result of, and in tandem with, the General Agreement on Trade and Tariffs(GATT), General Agreement on Trade and Services (GATS) and subsequent WTO: floating exchange rates, free investment flows, regional trade areas such the Free Trade Area of the Americas (FTAA) and the European Union (EU). However, the number of participating countries in these systems is far from absolute, and capital controls still place restrictions on investment. Increasingly harsh immigration and migration controls mean that there is no free movement of labour, an essential component of neo-liberal free trade . Therefore, the actual existence of global free trade is a myth.
Free trade as an ideolgy
Although in practice it is non-existent, the concept of free trade is in everyday use. Neo-liberal policies have become accepted as the global norm to strive for in trading relations: the claim that this system benefits everybody has been so widely accepted that it has attained ‘common sense’ status. This level of acceptance, combined with organizations and agreements to sponsor the ideology – the WTO, International Monetary Fund (IMF) and so on – and the backing of the world’s richest countries, means that for a less powerful country to differ from the ‘norm’ is difficult, politically and economically. Much of the anti globalizationists’ protests against the free trade policies are directed at the way in which less developed countries are coerced into accepting the ideology which, unfortunately, the countries which proclaim it do not always adhere to. Much is made of the ‘hypocrisy’ of counties such as the United States who did not develop on the basis of the policies and institutions they now recommend to developing countries. However, this criticism is largely invalid due to the changed nature of global relations since the nineteenth century.
What is more problematic is the way in which the richer countries today do not adhere to the free trade principle whilst endorsing it for poorer developing countries. For example, the IMF’s Structural Adjustment Programs (SAPs) place conditions of liberalization policies and export led growth on desperately needed loans, yet in 2002 the United States enacted a 30% tariff on steel imports to protect the US industry, and provides its farmers with large subsidies. President Nyerere of Tanzania put this: “The US intervened in the market to give its farmers all kinds of support, but it subjected the developing world to the free play of economic forces, thereby operating a double standard.”
Kicking away the ladder?
The consequences of this double standard are severe: the adoption of neo-liberal policies by Third World countries has had a number of implications: spending on health and education has been reduced, they have been forced to rely more on the export of raw materials, and their markets have been saturated with manufactured goods from the industrialized world. The saturation with goods from the developed world is a result of the protectionist policies of the industrialized countries, such as the US steel tariffs and the EU’s Common Agricultural Policy – a Europe-wide farming subsidy system – which lead to overproduction and the dumping of surpluses on the world market, to the detriment of developing countries’ farmers.
Furthermore, this underdevelopment of third world countries leads to a dependency on aid and unsustainable loans from the first world: for example, Mexico ‘recovered’ from its 1994 peso crisis, and was much praised in financial circles, however World Bank figures show that on average real income declined by 30% for the country by 1995. Clearly this is not progress for Mexico. Similarly, the creation of free trade blocs can be problematic when there is a dissymmetry in the economic standing of the countries involved, for example the FTAA: is is based on a model familiar to debt campaigners. The aims and methods of the FTAA are the same as the SAPs of the World Bank and International Monetary Fund; liberalise economies and eliminate all barriers to trade, thus improving access to markets for large foreign corporations. Such policies appear to be, in the words of nineteenth century economist Friedrich List, “kicking away the ladder” with which the developed countries climbed to industrialized, ‘modern’ society, so the contemporary third world countries cannot follow suit and climb it.
Does free trade hinder development?
Enforcing free trade policies on smaller, less powerful countries whilst continuing to enact protectionist policies means that the benefit of propagating the ideology is all for the richer country which does so: the reality is that while ‘free trade’ is very much in the interests of the hegemon - in this case most commonly the United States - (which, as the most effective producer in the global economy can produce goods which are competitive in all markets, so long as they have access to them), its benefits for peripheral states and regions are less apparent. Indeed, many would argue that ‘free trade’ is a hindrance to their economic and social development. Of course, the final piece of this interpretation that free trade itself is a hindrance to development should refer only to ‘free trade’ as it is now as a double standard ideology, rather than if free trade were actually in place, as with actual free trade there would be no protectionist policies within countries, and similarly none within the regional trade frameworks, as these would eventually become redundant. This consequently would invalidate the idea that the ‘hegemon’ would produce goods competitive in all markets: as a rational actor that country would only produce goods that were to its comparative advantage. However, it is conceded that as the situation stands today, ‘free trade’ does indeed hinder the development of not only third world economies through ‘kicking away the ladder’, but the global economy as a whole. The way in which the global economy is damaged is that protectionist policies such as tariffs and subsidies distort the market, and furthermore reactions to such policies, such as sanctions, prevent trade in total.
Consequently...
Clearly, as shown, ‘free trade’ policies can underdevelop third world countries. With regards to politics, therefore, the role played by free trade is that it is a tool to wield power. Due to financial globalization leading to the 'end of geography' , economic power is becoming increasingly prominent, to some extent possibly more so than military power. This is shown by the way in which the IMF forces supposedly sovereign national governments to change their policies and the way in which economic sanctions, bribes and other such measures are used in preference to other forms of coercive power. The ‘free trade’ ideology, accepted as much as common sense and something to strive for as, say, ‘democracy’, is used as an instrument in controlling third world countries development – maintaining their underdeveloped status as is beneficial to the developed countries. As economic power is so important in contemporary politics, to be able to nullify what economic power a lesser developed country may have of course increases the power of the developed country. This power exchange is also the case between different blocs of developed countries, such as between the EU and North American Free Trade Area (NAFTA) members. Cases such as the ‘banana wars’ show how these countries try to use their economic power to coerce the other set of countries to open their markets, to their benefit. As Lenin understood it, politics and economics are two sides of one coin, economic ‘free trade’ power fast becoming a vital tool in the political process.
Sources:
www.democracy.ru accessed on 13-11-03
news.bbc.co.uk/1/hi/business/1941631.stm accessed on 13-11-03
www.resist.org.uk accessed on 13-11-03
www.whirledbank.org/development/sap.html accessed on 13-11-03
www.worldbank.org
www.wto.org accessed on 13-11-03
Chang, H. “History debunks the free trade myth” from The Observer, June 23 2002. www.observer.co.uk
Hobden, S. & Wyn Jones, R. “Marxist theories of international relations” in Bayliss & Smith (ed) The Globalization of World Politics (Oxford: Oxford University Press, 2001)
Maddison, A. Dynamic Forces in Capitalist Development (Oxford: Oxford University Press, 1991)
Madeley, J. “Developing nations fight for level playing field” from The Guardian, Sept 6 2003, www.guardian.co.uk
Phillips, M. “The IMF, the WB and the FTAA: Why cancel the debt campaigners should oppose the FTAA” from www.oneworld.net accessed on 12-11-03
Scholte, J. “Global Trade and Finance” in Bayliss & Smith (ed) The Globalization of World Politics (Oxford: Oxford University Press, 2001)
Weiss, L. & Hobson, J. States and economic development (Cambridge: Polity Press, 1995)