The Debate Over Free Trade

Even as Jean Chretien and George Bush prepare for this April’s summit of the Americas in Quebec City, they’re hardly bothering to defend and explain the benefits of trade.

But, the anti-trade team will be out in force at the summit. The streets will be filled with protestors, property will be destroyed, police will be attacked, fires will blaze, and spokespeople from dozens of groups will denounce trade and globalization.

The response of free traders will be virtual silence, mixed with confusing comments about inclusion. The opponents of globalization – which really is nothing more than an ominous sounding name for free trade and the forces it unleashes – will claim another victory and continue their misinformation campaign.

They will complain loudly about the growing gap between rich and poor, a true fact, but one misrepresented by the protestors. Those nations which have opened their borders to trade and instituted free markets domestically have experienced unprecedented growth in income, which has benefited rich and poor alike, a fact recorded data sources from the national to international level.

The nations which keep getting poorer are those that follow the advice of the anti-traders and keep their markets closed and their economies government-managed. The growing gap between rich and poor is actually an argument for free trade. The governments that deny their people the opportunity to trade increase their impoverishment.

What about inequality within developing nations that adopt market policies? About half these nations have seen an increase in income inequality, about half have seen a decrease. But in all cases, the income of the poor has risen. It’’s just that in about half the nations, the income of the rich grows faster.

In the longer term, the news is better. For a number of complicated reasons, income inequality is most likely to increase in fast-growing nations – though again it’s important to emphasize the poor are still becoming less poor. Nations with mature market economies have more equal distribution of income than developing market economies and far more equal distribution than those nations that shut themselves off from the world.

The anti-trade advocates will also ignore the astonishing growth of democracy over the last 15 years as free trade has taken hold. The democratic wave has spread from Taiwan and South Korea in Asia – both hardly democratic nations only a few years ago – to the nations of Central and South America. It has largely skipped the government-dominated, anti-market nations of Africa, the Middle East, and parts of south Asia, where poverty and income inequality remain the greatest.

It’s no accident that democracy has grown in nations with free and open markets. In a nation where government controls the economy, it also controls the fate of individuals. Your ability to make a living, support your family, or advance in your job are all controlled by government. Government has powerful tools to keep citizens in line.

A market economy liberates. Your employment is no longer dependent on the will of government. Power is diffused to unions, private businesses, trade associations, and, mostly importantly, individuals who now have less reason to fear government.

Free trade reinforces this process. When a nation closes its markets, domestic companies don’t have to be competitive to succeed. They can be run by friends of the government, no matter how inefficiently. With free trade, only competitive companies survive. Those run by government friends wither. Government control over everyday life shrinks. No non-market economy has ever – ever – maintained democratic institutions.

The anti-traders have no response to this. What tools would they use to build prosperity and democratic institutions? We’ve already tried massive foreign aid and government directed economic development. This resulted in dismal human tragedy. Now, poverty is decreasing and democracy increasing in all nations which have embraced market reforms.

The danger developing countries face comes not from trade but from the misleading rhetoric of the anti-globalists and the complacency of western leaders.