Is Henry George (and Are Today’s Georgists) Wrong About Free Trade?

by Lindy Davies

(Remarks prepared for a debate with Dan Sullivan at the CGO conference in Chicago.)

Here are some arguments and responses:

1. George made a huge tactical error when he began to emphasize free trade.

Maybe he did, then. But today’s tactical considerations depend on today’s situation. We can learn from history, certainly — but we can’t simply transfer historical events onto a modern context.

2. We make a similar tactical error now, if we do that.

“Free trade” is unquestionably a loaded term. Many believe that “it” is wrong and harmful. Various problems are seen as part of this, such as loss of manufacturing jobs, deforestation and desertification, privatization of public services and other IMF-mandated “austerity programs”, WTO/NAFTA incursions on “sovereign” regulatory powers of nations, even rapid third-world urbanization. For lack of a better word, “free trade” has become the name most often given to this whole “death force thing”. It is identified with a blind faith in “free markets”, no matter what harm they might do to people and the planet. So I agree that we need to be aware of this term’s connotations.

Yet we certainly can’t trace all of these horrible problems to the mere lifting of import tariffs! That is, however, what the classic “free trade argument” is about. There may be many other questions that are really more fundamental. Yet this is a question that people constantly ask — as much in our time as in Henry George’s.

We can’t hope to address economic problems unless we can use clearly-defined terms. Are the folks who “rally against the death force” our natural allies? Well, we need all the allies we can get. But we cannot gain allegiance at the cost of clear analysis, because that clarity is our unique contribution.

Is it a tactical error for Georgists to advocate free trade? Maybe; it depends on our goals. Different situations call for different tactical approaches. If we’re building a coalition with New Urbanist Wal-Mart haters, to revitalize a city without resorting to corporate welfare, then the free trade issue is best left to another day. But, if we are articulating a system of political economy, is it an essential part of the conversation.

I might add that there are other groups, with whom we also seek dialogue and cooperation, who support the free trade position. If we run screaming from our supposed error of advocating free trade, we’ll lose credibility with them — and often they are academics with more carefully-constructed arguments.

3. The rich-poor gap widens if we have free trade.

Sure it does. It also widens if we have technological innovation, public education and increased population. Should we not have those things either?

4. George’s argument that “it’s better to have goods than money” is only true if we have debt-free money.

A nation’s money buys goods within that nation. If the nation’s money is unsound, for whatever reason (including that of its having been loaned into existence by a privileged banking industry), it will be less suitable in its role as a medium of exchange, and the aggregate result will be a greater overall cost of transactions. In that case, less trade will occur. This means that a nation’s monetary situation, good or bad, affects its general capacity to produce wealth. Trade is simply an aspect of production. If international trade shouldn’t be carried on under our current monetary system, then production of all kinds should be curtailed, to stanch the flow of tainted money.

If we run a trade deficit, we don’t owe our money — we owe their money. Whether our money is created by debt or fiat, backed by gold or bricks, doesn’t matter; we are obligated to give our trading partners something they will accept in exchange for the goods they have sent us. Currently the Chinese are willing to accept US government bonds in exchange for goods. The Chinese want to keep their currency undervalued, so their goods will be low-priced in the US, so their export industries will thrive, and their domestic asset values will increase. None of that has anything to do with how US money comes into existence. Meanwhile, US consumers compensate for their decreasing nominal wages by being able to buy cheap imported goods. The only relevance of US money to this process is that US merchants are willing to accept it in exchange for goods.

With a more just and efficient monetary system, international trade would be that much more efficient and profitable — and land rents would increase that much more.

5. There used to be a great relative difference in labor productivity in different countries — but, in today’s global economy, low labor cost can mean low production cost. Under such circumstances, free trade allows multinational corporations to prey on workers in low-wage countries.

Trade is a process that affects the production of wealth, not the distribution of wealth. Throughout history, labor has tended to become more productive, without wages increasing. That is just what happens when first-world technology is exported to a third-world nation, making labor there more productive and increasing that nation’s exports. But if labor has no better bargaining power, wages won’t increase. Labor-saving inventions tend to increase production. If this fails to benefit workers, it is a problem with distribution. Restricting imports will only affect production, not distribution. (In fact, some industries cannot be successfully “outsourced.” Labor in low-wage countries remains less productive, even with high-tech equipment.)

6. With free trade, we get all manner of wasteful and unsustainable “production” — such as food trucked cross-continent when it could be grown locally, or goods produced in dangerous sweatshops.

We have to remember that in the aggregate, the production of wealth does not simply mean the knocking-together of new stuff. If fashioning the new stuff creates more overall harm than satisfaction, it amounts to a diminution of production. Although the harmed are often quite far away from the satisfied, both are part of the global economy. The wasteful over-transportation of goods a pervasive phenomenon, and its causes are complex — but it isn’t new; George discussed it in Protection or Free Trade (chp. 16). It is exacerbated by corporations growing and swallowing up ever-larger shares of consumer markets. Although we might want consomers to demand other things, producers seek to satisfy what they actually do demand — and that reflects incentives that are distorted by many forms of monopoly and subsidy.

A huge example of this kind of distortion today is protectionism disguised as free trade — as in sanctions against safety and environmental regulations, or in NAFTA’s “investor protections”. These rules are often agreed to by small nations under the threat of punitive tariffs — which would throw their economies into chaos. They provide multinationals with rent-grabbing opportunities, and have nothing whatsoever to do with free trade.

Many people see these problems and seek to establish a market for goods that are produced sustainably by well-paid workers. Niche markets for such “fair trade” goods have emerged. What happens, in effect, is that having been produced in a fair and sustainable manner tends to increase the value of a product. Its buyers, then, are relatively few in number, and “fair trade” markets never achieve the economies of scale needed to bring their prices down. In an economy where there is permanent unemployment and declining real wages, the market for “fair trade” goods (like all manner of high-quality products) cannot grow beyond a relatively small niche. Consumers will demand more of these goods when they have higher wages to spend on them.

7. If we are seen as advocating free trade, potential allies will lump us in with reactionaries and corporate shills.

Perhaps some will. But if we jump headlong on the anti-free-trade bandwagon, other potential allies will dismiss us. We can choose to stay out of free-trade conversations in cases where it wouldn’t benefit our cause. But when we are called to articulate what we’re trying to say, we have to recognize that things that only serve to increase aggregate production are not things to run from or be afraid of. The set of problems that tends to come with increased productivity — the fundamental problem of “progress and poverty” — can be solved by collecting rent for public revenue.

8. Even if free trade isn’t harmful, it is still only one of the many processes that enhance production; it doesn’t deserve special status as a major movement goal.

It is not always advisable to wear one’s ideological heart on one’s sleeve. However, to the extent that there is a list of “fundamental tenets” of the Georgist philosophy, I think the principle of free trade should be on it, because of the sharp relief in which it sets questions of ideology. The degree to which society ought to trust “the free market” is an ideological touchstone, and the question of international trade relates directly to that. Henry George refuses to leave the free trade issue where the standard “market capitalist” leaves it, for without more fundamental reform, free trade merely serves to intensify existing inequities. However, Protection or Free Trade argues powerfully against “socialist” thinking, showing how protectionism (or “industrial policy”) is really a form of socialist market control — which always tends to diminish productive efficiency. George’s analysis shows that this trade-off is unnecessary; it is possible to achieve fair distribution of wealth while simultaneously increasing production.

9. Free trade also means free immigration and free access to land: True Free Trade is what we ought to teach, and we shouldn’t talk about free trade until we’ve made that point.

That’s a good point, and in fact that is just what the Henry George Schools have always done. In the traditional curriculum, Protection or Free Trade has been taught in the second course, after Progress and Poverty. The second course is usually called “Applied Economics”, and seeks to use the insights of P&P to elucidate topical economic issues. The issue of free trade vs. protection remains stubbornly topical. But students are only exposed to it once they have digested the basic Georgist thesis.

The protection vs. free trade debate is useful to us pedagogically because it is a widely-debated question that focuses entirely on symptoms. When we examine it, we have the opportunity to model for our students how fundamental economic analysis can make sense of such seemingly perplexing questions. The very fact that this debate still rages, 120 years after George published Protection of Free Trade, shows its suitability for this teaching task.

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