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'Free' markets nothing but a dangerously flawed ideal
Dialogue, NZ Herald, 7 September 1999
The fallacy of this week's Asia-Pacific forum in Auckland is that all countries benefit when each can freely trade on its strengths, says MICHAEL GILCHRIST
While cynicism about the efficacy of the Apec forum has become a commonplace in New Zealand, there remains an assumption that a global free market is some kind of ideal.
New Zealand has a comparative advantage in a whole range of things, we say, from millennium celebrations to things to do with No 8 wire. And there are only a few of us so we could make pots of money doing these things for all the other people in the world, if only they would let us. We could scarcely be more deceived.
To begin with, every comparative advantage entails a comparative disadvantage. Indeed, in a world without trade barriers any comparative advantage creates a disadvantage somewhere else. Other people naturally resist the creation of that disadvantage and seek to correct it, both through trade barriers and the local industry they foster.
They resist, for example, having tonnes of lamb dumped on their market just when they have started to make a living from sheep. Maybe American farmers aren't as good at growing lamb as we are, but it may also be the best use of some of their land and its best development for the future. It's their country, isn't it?
The problem, of course, is that New Zealand has become very good at creating disadvantage in its own backyard. The most obvious example is in manufacturing.
In the year to June - a period when overall job numbers remained static - services and sales workers increased by 17,800, those employed in agriculture and fisheries by 6,800 and those in machine operation and assembly work fell by 11,800. There was a similar fall in the number of 20 to 24-year-olds in employment. No less than 75 per cent of the new jobs were in part-time work.
Are we so bad at manufacturing that we shouldn't be doing it? Before its plants were forced to close by the removal of all tariff protection in New Zealand, Toyota rated the quality of the assembly work here the highest of all its non-Japanese subsidiaries. Most of our new cars are now imported from Australia, which has significant protection in place for its industry.
The story is much the same in the clothing and footwear industries in which we have lately seen a fresh spate of closures in general manufacturing.
But the process occurring in New Zealand is small-scale compared to the damage that has been done by the imposition of free markets in poorer countries. Market liberalisation increases differences. It enlarges advantage and disadvantage, both within countries and between them.
Overwhelmingly now, that is a question of capital advantage - the power of the dollar over the dime. Few people in New Zealand are really aware that the reason for the explosion of poverty in Third World countries - and the expansion of the Third World in the past 20 years - is due to the dismantling of national economies and their conversion to export-led development.
Imagine the sort of tensions that would arise in New Zealand if, for example, over five years our GDP was halved. Yet that has happened in Yugoslavia and Russia. In South America and in Sub-Saharan Africa structural adjustment has devastated living standards, especially health care and food security.
This is a standard feature of the race to the bottom which ensues as countries are forced, through vicious cycles of conditional loans and deepening indebtedness, to join the global market.
None of these economic facts, how ever, is the fundamental reason free markets are such a misconceived ideal. To understand this, we need only ask what the word "free" stands for in the expressions "free market," "free trade" or the "free flow of capital."
What are these things free from? Democratic control. Is that our ideal? A world free from democratic control over all commercial transactions? A world free from nation states and their parliaments, from taxes and social services, from labour standards and environmental regulations - a world free from democratic choices about economic development?
It is often argued in New Zealand, for example, that tariffs on imported goods are a form of tax, as though this should discredit them.
But, of course, that is their virtue. They are a tax which, uniquely, people have a choice about paying, which the outside vendor always shares in some part and which encourage local industries.
So long as there are taxes in the world there will be tariffs. Pitched at what may be called a semi-permeable level, they go a long way to providing the necessary conditions for a viable democratic community.
Over 40 per cent of world trade takes place within transnational corporations: it is not international it is intra-corporate. That's 40 per cent, and growing. So the abolition of tariffs alone is very much about the transfer of political power.
In New Zealand, over 50 per cent of gross profits are now made by foreign-owned companies, the majority of that from assets formerly owned by the state.
Air New Zealand was right to hesitate when the amazingly naive guru Kevin Roberts suggested it paint one of its air craft all black to land like a pirate ship in England for the Rugby World Cup. The best we could have hoped for was that they wouldn't have taken us too seriously.
Michael Gilchrist is secretary of the Trade Union Federation.