Posts Tagged ‘democracy’

Free trade - 5

Every once in a while, a reader sends me the link to an article and asks me what I think of it.

The most recent one is Geoff Gilbert’s [ht: db] piece, “Who Plans the Economy? Imagining Fair and Free Trade.”

Clearly, at least in terms of U.S. presidential politics (but also, I think, in the United Kingdom and across Europe), the issue of international trade is “hot.” Donald Trump has certainly focused on the downside of U.S. trade details (such as NAFTA, which he has promised to “immediately renegotiate. . .to get a better deal for our workers”), as has Bernie Sanders (who eventually succeeded in pulling Hillary Clinton in that direction).

Gilbert, for his part, argues that

The way we talk about trade is all wrong. We’re told we have two options: the “free” trade status quo or protectionism. But many other possibilities exist, if we are willing to entertain different rules for owning and controlling capital both within and between countries.

I think he’s right. The free trade versus protectionism argument is exactly the way the debate has been framed across the history of capitalism and within mainstream economics. Capitalists and mainstream economists have been mostly in favor of free trade, which they then counterpose to protectionism, that is, one or another regulation of or barrier to free trade (such as national content legislation, tariffs, and so forth).

That’s it? Those are the limits within which we can discuss international economics? It’s just like the debate between markets and planning or export-led and import-substitution development—a false, narrowly circumscribed debate, and often a pitfall, especially for critics of free trade. Many times (as with Trump, Sanders, and now Clinton), they end up criticizing free-trade agreements because of their negative impact on workers but then moving in the direction of one or another kind of protectionism, as if that’s the only alternative.

And while Gilbert is correct in arguing that free trade is “corporate-managed trade for corporate interests,” he fails to recognize that protectionism is, too. Both Alexander Hamilton and Friedrich List sought to protect “infant industries” from foreign competition just as the U.S. steel and sugar industries did a couple of centuries later—and there many examples in between. They were all defending”corporate-managed trade for corporate interests,” but in the form of protectionism.

In fact, as I argued back in 2011 (in criticizing Harvard economist Greg Mankiw), the whole idea of international trade as trade between individuals (from which we all benefit, at least on aggregate) is profoundly misleading.

What Mankiw and other neoclassical economists refuse to understand is that, when international trade takes place, it has nothing to do with an individual in one country (say, the United States) buying a scarf from an individual in another country (say, China) as if they were just equal neighbors engaging in a mutually beneficial transaction. There are other economic processes involved. The consumers in the United States sell their ability to work to a corporation, and then use their wage or salary to purchase goods, some of which are produced in other countries. Some of those corporations have decided to produce goods in other countries, and thus to export jobs, while other corporations have decided to purchase the goods they sell either from their own subsidiaries in other countries or from corporations located in other countries. And in those other countries, the workers are not deciding to sell their goods to consumers in the United States; the corporations they work for are making those decisions.

Simply put, international trade doesn’t take place either between individual consumers and producers or between countries. International trade takes place between and, increasingly, within corporations located within different nations. They make the decisions about where and how goods will be produced, and where and how people will be employed.

What people who actually work for a living understand all too well is that both the much-vaunted freedom in free trade and the supposed unfreedom of protectionism are merely different ways corporations and their representatives have, at different times and places, chosen to structure international trade to advance their own interests.*

That’s certainly what Karl Marx and Friedrich Engels understood in the mid-nineteenth century, when free trade was being debated.

The question of Free Trade or Protection moves entirely within the bounds of the present system of capitalist production, and has, therefore, no direct interest for us socialists who want to do away with that system.

But if we refuse the narrow and misleading terms of free-trade-versus-protectionism debate (as both Gilbert and I believe we need to), does that mean we have nothing else to say or propose?**

Starting in the mid-1990s, George DeMartino has suggested another possibility: a fair-trade policy based on a Social Index Tariff Structure.*** The basic idea is as follows:

SITS is a multilateral trade regime that would promote benevolent means by which countries seek to improve their trade performance and growth while at the same time punishing countries that pursue export-promoting strategies that undermine human development, equality or sustainability. It does this through a multilateral system of social tariffs.

It can be thought of as a leveling-up, rather than a race-to-the-bottom, approach to international trade—a way of taking areas of economic and social life out of competition, rather than subjecting them to the competitive pressures entailed in both free-trade and the usual protectionist approaches.

Gilbert, in invoking the Mondragón Cooperative and targeted tariffs, makes a similar argument (although, to correct one point, that’s not what Raúl Prebisch and UNCTAD were attempting to do) :

The idea is to use tariffs to favor goods produced by democratically owned and controlled capital at home and throughout the world.

Any systemic solution to inequality and mass economic deprivation will need to expand the amount and types of people who get to make the investment decisions that determine where industry and jobs will exist and at what pay.

One can make exactly the same argument about free trade—to expand trade (either within or across national boundaries) by democratically owned and controlled enterprises.

What are we left with then? We can refuse the terms of the existing debate between free trade and protectionism and, at the same time, speak out in favor of either free-trade or protectionist policies as long as the goal is to build and expand institutions and spaces “capable of actually placing investment decision-making in the hands of the people.”


*Perhaps less understood is the fact that, as I argued three years ago, “much of the international trade that takes place these days does not occur through market transactions.” Instead, a great deal of trade occurs within corporations; it is intra-firm trade, transactions among and between different parts of giant multinational corporations, that is planned by the corporate directors.

**Marx’s own famous option was to speak in favor of free trade because, as Engels explains,

To him, Free Trade is the normal condition of modern capitalist production. Only under Free Trade can the immense productive powers of steam, of electricity, of machinery, be full developed; and the quicker the pace of this development, the sooner and the more fully will be realized its inevitable results; society splits up into two classes, capitalists here, wage-laborers there; hereditary wealth on one side, hereditary poverty on the other; supply outstripping demand, the markets being unable to absorb the ever growing mass of the production of industry; an ever recurring cycle of prosperity, glut, crisis, panic, chronic depression, and gradual revival of trade, the harbinger not of permanent improvement but of renewed overproduction and crisis; in short, productive forces expanding to such a degree that they rebel, as against unbearable fetters, against the social institutions under which they are put in motion; the only possible solution: a social revolution, freeing the social productive forces from the fetters of an antiquated social order, and the actual producers, the great mass of the people, from wage slavery. And because Free Trade is the natural, the normal atmosphere for this historical evolution, the economic medium in which the conditions for the inevitable social revolution will be the soonest created — for this reason, and for this alone, did Marx declare in favor of Free Trade.

***DeMartino has outlined that policy in a series of articles, including “The Social Index Tariff Structure: An Internationalist Response to Economic Integration (with Stephen Cullenberg), in the Review of Radical Political Economics (1994, vol. 26, no. 3, pp. 76-85) and “Achieving Fair Trade Through a Social Tariff Regime: A Policy Thought Experiment” (with Jonathan D. Moyer and Kate M. Watkins), in the Cambridge Journal of Economics (2016, vol. 40, pp. 69-92) (unfortunately, behind paywalls).


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If you’ve been following the Republican National Convention, however casually (and with whatever guilty pleasure or revulsion), you’ll know that tonight will highlight presidential candidate Donald Trump. It will also feature libertarian futurist Peter Thiel, co-founder of PayPal, first outside investor in Facebook, manager of the hedge fund Clarium Capital Management, and member of the elite venture-capital firm Founders Fund.

Recent stories about Thiel have highlighted his controversial goal to save capitalism from democracy or at least to weaken America’s attachment to democratic government, the extent to which his support for Trump runs counter to the rest of Silicon Valley, and his love of “creative destruction“—all of which are presaged in Thiel’s 2009 essay in Cato Unbound.

I remain committed to the faith of my teenage years: to authentic human freedom as a precondition for the highest good. I stand against confiscatory taxes, totalitarian collectives, and the ideology of the inevitability of the death of every individual. For all these reasons, I still call myself “libertarian.”

But I must confess that over the last two decades, I have changed radically on the question of how to achieve these goals. Most importantly, I no longer believe that freedom and democracy are compatible. By tracing out the development of my thinking, I hope to frame some of the challenges faced by all classical liberals today.

But it’s George Packer‘s 2011 profile for the New Yorker that remains the most thorough exploration of his life and views—of Thiel as a contrarian (one who always tried “to go against the crowd, to identify opportunities in places where people are not looking”) and as a trenchant critic of the establishment:

Unlike many Silicon Valley boosters, Thiel knows that, as he puts it, thirty miles to the east most people are not doing well, and that this problem is more important than the next social-media company. He also knows that the establishment has been coasting for a long time and is out of answers. “The failure of the establishment points, maybe, to Marxism,” he said. “Maybe it points to libertarianism. It sort of suggests that we’ll get something outside the establishment, but it’s going to be this increasingly volatile trajectory of figuring out what that’s going to be.”

That’s one thing Thiel is probably right about: the failure of the establishment, of existing economic and political elites, may point to Marxism—but, in any case, has put us on an “increasingly volatile trajectory of figuring out” what that something “outside the establishment” is going to be.

Vivek Wadhwa begins by quoting a former employee:

“The Soviet Union I left behind was a dictatorship but the workplace was a democracy; America may be free but the workplace is a dictatorship” said Len Erlikh after I hired him at First Boston (now Credit Suisse First Boston) in 1986.

He then goes on to defend corporate “enlightened dictators” and the absence of democracy in the workplace.

I know that dictatorship doesn’t sound nice but it is what business leadership entails. People love to follow strong leaders. They want to be led by people with vision, conviction and good values. They may not agree with everything the leader decides, but as long as ethical lines are not being crossed, employees will follow directions, work hard, and be loyal.

The alternative, of course, is a democratic workplace, where employees participate in making the major decisions in the places where they work. Major decisions such as how production is organized, how much surplus there will be, what should be done with the surplus—including what kinds of managers should be hired, how much power they should have, and so on.

Yes, “The job of manager today is to lead, articulate goals, inspire, motivate, and enable.” And, in a democratic workplace, the job of the other workers is to participate in the process of leading, articulating goals, inspiring, motivating, and enabling themselves and everyone else.

Democratic workplaces have no need for dictators, benevolent or otherwise.


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April 25, 2016

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