Free Trade, Protectionism and Proutist Trade

James Quilligan
July 1, 2018

Introduction

This narrative suggests how Proutist Trade can be explained in today’s world by comparing and contrasting it with Free Trade and Protectionism. The article describes (1) how global free trade has succeeded and failed during the past seventy years; (2) how the Trump Administration is undermining free trade though protectionism based on nationalist populism; and (3) how PROUT’s vision of trade includes characteristics of both free trade and protectionism, yet transcends them through its emphasis on economic decentralization, localism and democratic decision-making.

Liberal Free Trade

In 1817, the British economist David Ricardo proposed that if two different countries producing different types of commodities were to engage in reciprocal trade, each country would increase its overall consumption. He argued that as each nation produces something cheaply for export to another nation, each of them will export a good for which it has the comparative advantage and import another good which it has less capacity to produce or produces at a higher cost. Thus, when nations sell goods and services to one another using this strategy, free trade is mutually beneficial to all parties.

Several decades after Ricardo’s proposal, the idea of reciprocal trade was applied on an international scale. The earliest bilateral deal of this kind was the Cobden-Chevalier treaty, signed on Jan. 23, 1860 between England and France. Because it generated a higher volume and less costly form of trade, the arrangement was widely imitated during the next seventy years as other nations across the world negotiated hundreds of similar agreements. Through these reciprocal exchanges, two countries would reduce or eliminate import barriers with each other, and in many cases, grant its partner ‘most favored nation’ status. This bilateral practice generated great wealth and prosperity for a growing segment of the world’s population until the 1930s and 40s when the Great Depression and World War II exposed a significant weakness in the free trade convention. Since nations produce mostly for export rather than their own domestic markets, reciprocal trade agreements were entirely vulnerable to the calamitous effects of global depressions and foreign wars.

Some politicians believed that these impairments could be addressed through a global agreement or safety net for ensuring reciprocal trade. In 1948, the United States and other countries institutionalized free trade practices at the international level through a rules-based trading system. The General Agreement on Tariffs and Trade (GATT), history’s first multilateral treaty for trade, guided the first half of the postwar period and generated phenomenal economic growth across the free world. But during the 1980s and 90s, as globalization expanded and societies became more and more integrated, the GATT needed upgrading. In 1995, it was replaced by the World Trade Organization (WTO), which now involves over 95% of the commercial trade in 164 nations. The WTO has been praised for its capacity to

  • reduce uncertainty through predictable trade policies
  • make long-term decisions easier for producers and consumers
  • provide legal and credible policies which are clear to both allies and non-allies of a nation

But there are vast problems with the treaty-based global trading system. Everywhere it operates, the monolithic WTO has undermined national legislative authority, independence and sovereignty. Through its influence over national governments, multinational corporations have built up unregulated political power, which they exercise through unequal trade agreements and open financial markets. For these reasons, the negotiating leverage of richer nations has overpowered the interests of poorer nations.

In addition, the WTO allows corporate profits to be maximized at the expense of work safety and environmental protections. Workers’ wages and labor conditions have also stagnated significantly in most nations under the WTO. Except for the period of the Internet rollout from 1995-2000 when market valuations were euphorically overpriced, the WTO has failed to generate economic growth and higher-paying jobs in many regions of the world.

Since 2001, the WTO’s Doha Round of Trade Negotiations has stalled due to policy differences between advanced and emerging economies, mainly over agriculture. For this reason, progressive innovations in global trade have been at a stalemate for nearly two decades. Once celebrated for creating order and stability, the WTO is producing disorder and unrest by sending jobs abroad and hollowing-out vibrant local economies. It’s widely recognized that the WTO has eroded the democratic fabric of the international community.

Citizens have no voice in determining the trade policies which directly affect their lives and livelihoods, creating a deep political void across the world.

Trump’s Protectionism

American President Donald Trump has exploited the rising unpopularity of multilateral trade. Through his aggressive transactional approach to commercial trading, Trump has rejected the rules-based international order in favor of bilateral ‘deals’ between individual nations. He justifies these policies by accusing other nations of stealing America’s intellectual property, engaging in unfair industrial policy and sponging unfairly off the United States for their military protection. Yet Trump seems to have no strategic goal other than creating political disruption for his own personal interests.

Besides threatening to pull the United States out of the WTO and the transatlantic trade agreement with Europe, Trump has refused to join the Trans Pacific Partnership. By imposing real tariffs and raising further threats of tariffs, thereby challenging the predictability of global trade, Trump hopes to gain concessions from US trading partners through chaos and confusion.

His bombast on trade barriers has created deep uncertainty among US friends and foes alike, sending shock waves throughout the WTO member states.

When producers cannot predict the future costs of materials, they have difficulty both in pricing their products and in knowing if their customers will turn to outside suppliers who offer similar products more competitively.

Trump has thus undermined the postwar global system where it is most vulnerable — by exploiting the fact that the WTO operates as a de facto federation without a genuine democratic mandate. The globalist worldview  — Liberal Free — has produced wealth for a broad sector of traders and investors by liberalizing trade, deregulating financial flows and boosting privatization. But the anti-globalization opposition which developed among the political Left from the 1980s – 2000s has been outflanked by a new movement of insurgent populists who want to roll back globalization and the liberal policy of open borders. Their reactionary ideology of protectionism and nationalist entrenchment, which gathered steam since the Great Recession of 2008, has now spread across the US, Europe and elsewhere.

This political and cultural campaign is organized behind the libertine front of mercantilism, which asks: what good are soft borders when they allow jobs to flow out of our nation and entice immigrants to move in?

Rather than reduce the social inequality that Free Trade has created, this raging protectionist movement has made conditions worse. In the long-term, support for these extremist policies is impractical because their economic benefits extend to only a tiny oligarchy of elite traders who manage bilateral trade. The grassroots opposition to open markets and the protectionist claims for market rejuvenation have no roots in economic localism. Yet this factious crusade will continue to suppress local jobs, infrastructure and basic amenities through its zealotry, racism and xenophobia for it expresses a naive, yet not unwarranted, resentment against unequal globalized trade.

How Prout Includes Elements of Free Trade and Protectionism
Although the rejection of the international trading regime has come as a shock to many, it’s not entirely surprising. The demise of the postwar regime does not mean there is no need for a global system. What it does mean is that we have suffered a flawed global system for the past seventy years — one which attempted to create a centralized bureaucracy for trade, finance and monetary policy. It’s quite clear that a new international system must emerge.

But why is this rules-based international order, so enthusiastically created and supported by the United States after World War II, now under attack by the US itself? A prime reason is that America’s moral vision of democratic capitalism — which once rallied the free world to defeat Nazi fascism and Russian communism — has been shattered by the meteoric ascent of China and its instrumentalist brand of autocratic capitalism. In losing their principled confidence in democracy, America and its institutions for liberal internationalism are rapidly losing their reason for being. And if bilateral trade agreements and crushing tariffs become the new norm among nations, the global monetary system will very likely collapse along with the WTO.
What is PROUT’s solution to all this? First, it’s important to recognize that PROUT embraces some elements of Free Trade. For one thing, Proutist free trade would not involve duties on imports or exports because national currencies will be replaced with barter, leaving no financial losses for trading partners in an exchange. This is particularly important when one locality or region overproduces goods that are of benefit to another area which underproduces the same types of goods. Essentially, the goal is to shield community development before engaging in outside exchange. Then, as people’s needs are met through local production and self-governance, free trade is encouraged among trading regions to increase prosperity, equality and cooperation. Thus, Proutist free trade would not be an open door for speculation and profit-taking, but an opportunity for unequal regions to trade their surpluses with the objective of becoming more equal and cooperative.

This is also why PROUT embraces some elements of Protectionism. When local minimum necessities cannot be met and local industries cannot be developed within a community or region, local demand and consumption must be protected against external producers, speculators and investors. This is especially true with regard to the production and consumption of agriculture, raw materials and heavy industry. Only after the basic needs of local people are ensured would a local surplus be exported. Protection is therefore justified in building up local economies and guarding against exploitation from commercial forces which operate outside the region.

Protectionist forms of trade are conducted through barter-driven cooperatives rather than profit-driven markets. Again, capital surpluses and speculation are discouraged and outside investment is divested to benefit the community.

 

How PROUT Transcends Free Trade and Protectionism

PROUT thus shares characteristics with both Free Trade and Protectionism. But it should also be recognized that these two ideologies are based on centralized markets and hierarchical decision-making. Both destroy the vibrancy of local economies. Free Trade creates monopolies which devastate communities by siphoning off their money, while modern Protectionism is largely a rhetorical embrace of grassroots localism without substantial economic plans for addressing community self-reliance and sustainability.

PROUT proposes a different kind of globalism which is based on local and regional sovereignty, rather than national and global sovereignty. Unlike the centralized policies of Free Trade or Protectionism, PROUT is grounded in:

  • basic self-sufficiency
  • economic self-determination
  • social ecology
  • decentralized decision-making
  • economic democracy

Prout attempts to develop local production and jobs for local people to meet their needs. For this to work, each region must secure basic goods and services so that all of its citizens are self-sufficient. Commodities that are not produced locally would not be imported or exchanged on the local market, allowing the local economy to focus on the production of the peoples’ minimum necessities. These basic needs, which are largely dismissed by Free Traders and Protectionists as having little market value, include food, water, clothing, housing, education and healthcare.

After the requirements of local people are met, locally-produced goods may be exported to other regions which lack the potential to produce them. This trade would occur through a secondary, external market, leaving the nation’s internal market to focus on its own sufficiency. Thus, self-sustenance at home and abroad are the goal of Proutist trade. For this reason, PROUT rejects both the speculative profits of the marketplace and the tariffs and quotas created by governments. Cooperatives and social inclusivity must preclude capital markets and social exploitation by embracing cooperative advantage over competitive advantage and keeping economic power in the hands of the people. This is how Proutist trade transcends Free Trade and Protectionism.

Free Trade, Protectionism and Proutist Trade
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After the Jerusalem Embassy: What’s Next for the Palestinians and Israelis?

The United States recently moved its embassy to Jerusalem, a highly controversial move which was part of the pre-electoral promises made by Donald Trump during his presidential campaign. Widely condemned globally, this action led to an uprising in Gaza, where more than 60 Palestinians were killed by Israeli forces.

There are few topics which raises more passionate opinions as the conflict between the Israelis and the Palestinians. Opinions are usually strong and set, and emotions run high. So what should be the Proutist view regarding this complicated conflict?

Before we can answer that, let us first take a step back in history and look at some of the background issues behind the conflict.

The Origins of Modern Israel

The kingdom of Israel can be traced back to the Iron Age (1200 – 500 BCE). According to the bible, Israel split into the kingdoms of Israel and Judea shortly after the reign of Solomon (estimated to 970-930 BCE).  Israel was destroyed around 720 BCE by the Neo-Assyrian Empire. Judea was later conquered by Babylonian, Persian and Hellenistic empires but remained an autonomous Jewish province. In 110 BCE, a successful revolt led to the creation of an independent kingdom, but the independence did not last long. In 63 BCE the kingdom was invaded by Rome and became a client state. After unsuccessful revolts between 66 and 136 CE, the Jewish population was disseminated and scattered throughout Europe. Since then, up to the end of the First World War, when Palestine came under British control, the area has been controlled by Muslim rulers, apart for a short period during the Crusades when it was under European control.

Towards the end of the 19th century, the Zionist movement was born. This movement was aimed at creating a Jewish homeland for all Jews effected by the diaspora. Large groups of Jews gradually returned to what was to become Israel, and they started to actively pressure Britain to hand over the territory to them. The struggle was partly political, and partly physical, and even included what we today would describe as terrorist acts. In 1943, Yitzhak Shamir, who later became Prime Minister of Israel, wrote in the journals of Lehi, the terrorist organisation he headed, that terrorism is a legitimate weapon. “Neither Jewish morality nor Jewish tradition can be used to disallow terror as a means of war,” he wrote. He continued, “We are very far from any moral hesitations when concerned with the national struggle… First and foremost, terror is for us a part of the political war appropriate for the circumstances of today.”

The attacks were very effective, and included some of the worst terrorist incidents in the 20th century. Shortly after the end of the Second World War, Britain declared its intention to withdraw from Israel, as it saw no hope of finding a solution that would satisfy both Jews and Arabs. On November 29, 1947 the General Assembly of the United Nations agreed to a plan to partition Palestine into a Jewish and a Palestinian state, and on May 14, 1948, the State of Israel was declared.

The local Palestinian population, as well as the Arab neighbours, opposed the creation of Israel. In the ensuing war with Egypt, Syria, Transjordan and Iraq, which Israel won, over 80% of the Palestinian population fled or were expelled, and Israel expanded the original territory the United Nations had allocated the Jewish population with 60%. The remaining territory, which was supposed to constitute a Palestinian state, was divided by Egypt and Jordan. The 20% of Palestinians who remained became Arab citizens within the state of Israel.

The tension between Israel and its Arab neighbours after the 1947 war was never resolved. In 1967, Egypt blocked the straits of Tiran, a crucial shipping lane and Israel’s only access to the Red Sea, to Israeli shipping. This led to the second Arab-Israeli war, known as the Six Day War, which was also won by Israel. After the war Israel controlled the Gaza strip, the entire West Bank, Sinai as well as the Golan Heights. The Sinai was subsequently returned to Egypt following the Camp David Accords in 1978.

Over the years, numerous settlements have been created throughout the West Bank, and in reality the Palestinian Authority has now lost control over much of what was left of the West Bank. This is the current territorial situation.

Palestinian Resentment

As the original plan to partition the country into a Palestinian and Jewish state failed early on, it left the Palestinians in a very difficult position. Israel in reality took over all the land, both that land which was supposed to constitute the land of Israel, and the land that was supposed to be owned and ruled by the Palestinians. With most of the Palestinian population today living as refugees in their own land, their desire to live and rule in their home land is very strong. Many different political and military movements has arisen among them, such as the Palestinian Liberation Organisation (PLO), Hamas, Palestinian Islamic Jihad and the Popular Resistance Committees. The aim of these organisations were to take back all land originally belonging to Palestinians, and, as Yasser Arafat put it, “the uprooting of the Zionist entity from our land and liberating it.”

As part of its struggle to regain Palestinian land, terrorist tactics were used by the Palestinians to attack the civilian population inside and outside Israel. The 1972 attack on the Israeli Olympic team in Munich, perpetrated by the PLO subgroup Black September, where 11 Israeli athletes were killed, was one of the most publicised attacks outside the Middle East. The violence has continued up to present time, with hijacking of aircraft, suicide bombings, stabbings, etc. Since the formation of Israel, it is estimated that close to 3,000 people have been killed by Palestinian terrorist attacks.

Israeli Response

The Israelis did not take these issues sitting down; they have used any possible means to fight back. The first hijacking of an airliner in the Middle East was orchestrated by Israel in 1954, in order to take hostages to negotiate the release of Israeli prisoners held in Syria captured on a spy mission. In 1973, Israel shot down a Libyan airliner on its way to Cairo, killing 110 people on board. The same year they attacked Tripoli in northern Lebanon, killing 31 people and destroying classrooms, medical clinics and other buildings. There was no pretext of self-defence, and the attack was justified as being pre-emptive.

Israeli rule in the occupied territories is also brutal. Based on the findings of the International Committee of the Red Cross in Geneva—which is mandated to oversee that the Geneva Convention is upheld in the Israeli Occupied Territories of the West Bank and Gaza—Israel has been violating almost every major provision of the Convention, such as deportations, destruction of civilian homes, assassinations, torture, kidnappings, etc.

Violence is obviously used to terrorize people on both sides of the conflict. But since Israel has more power at its disposal, its capacity for violence is greater than that of the Palestinians. According to the Israeli Information Center for Human Rights in the Occupied Territories, from 2009 to 2018, the number of Palestinians killed by Israelis outnumbered Israelis killed by Palestinians 27 to 1.

Where to Go From Here?

Some observers think that Israel will eventually annex the occupied territories and deny citizenship to the Palestinian population living there. This is obviously not a solution and would simply intensify the struggle. Conversely, the original Arab idea of ‘uprooting the Zionist entity’ and destroying Israel is also non-starter—it will never happen.

Apart from these two non-starters, there are three possible solutions for resolving the Israel-Palestinian conflict.

The Two State Solution

The original idea was to create two countries, Israel and Palestine, co-existing side by side and both having viable international borders. The PLO have in principle accepted this solution using post-1949 borders to demarcate two states. The United Nations approved this solution, but left the negotiations of the specific borders in the hands of the Israelis and the Palestinians. A two state solution is the outcome favoured by the majority of both Palestinians and Israelis.

The problem with this solution, even if it would be accepted, is that Palestine would in effect be split in two. The main portion would be land locked, and the Gaza strip would be too small to function as an effective economic unit. While the original borders set up for Palestine were viable, the existing ones are not. The Palestinians would in effect be totally dependent on Israel for its economic survival.

But it gets worse. While it is certain that Israel will never accept the original partitioning plan agreed to by the United Nations in 1947, they will clearly not accept the 1949 borders either. Israel have actively supported Jewish settlements in the West Bank, and they are now so widespread that they crisscross the entire occupied territory. Unless Israel is willing to abandon all these settlements, which is very unlikely, there is no unified piece of land left to form a Palestinian state. 

A Three State Solution

Since neither the Gaza strip nor the West Bank can become viable states, it has been suggested to let the Gaza strip return to Egypt and the West Bank to Jordan. But this ‘solution’ would probably create more problems than it will solve. The Palestinians would be deprived of a land they could call their own, and their fight for a homeland would continue. Even Jordan is unlikely to agree to this solution, as it has no interest in getting more deeply involved in the conflict.

The One State Solution

The one state solution advocates one single state comprising Israel, the West Bank and the Gaza strip, with equal citizenship and equal rights to all citizens regardless of ethnic or religious affiliation. While some rightist parties in Israel support a one state solution, others fear that Jews will become an ethnic minority in the only Jewish state in the world.

Still, this solution is attractive as it could create a modern, secular state not guided by religion, where all people living within its borders have full and equal rights. This is the solution proposed in the manifesto of Universal Israel, the Israeli samaj movement.

A Proutist Perspective

This is no doubt a very complex issue, and to come up with a simple solution is difficult. But looking at it from the perspective of Prout may help us to understand the problem better.

It seems obvious that both Jews and Palestinians can claim the land to be theirs, as they both have a long history in the region. Therefore, for a final solution to appear, the interest of both peoples have to be respected.

If we look at the area from the prospect of a Samaj, the respective socio-economic areas would need to be economically viable. The original division conceived by the United Nations made two viable nations. As the culture, language and sentimental legacy of Jews and Palestinians are different, two viable Samajas in the form of nation states would have been a good option.

However, with the current expansion of Israeli territories and Jewish settlements in the West Bank, no viable Palestinian Samaj could be created, regardless of the sentimental legacies involved. The current situation, where Palestinians live under Israeli occupation without any rights at all, is the worst possible solution. Unless Israel agrees to return to the 1947 borders, or at least cedes enough land to create an economically viable Palestinian state, a one state solution where all inhabitants, whether Jews or Palestinians, are equal citizens with the same rights seems the best compromised solution we can hope for in the region.

I will return to this topic in a later piece to expand on this idea.

While the relocation of the American Embassy from Tel Aviv to Jerusalem is, no doubt, a provocative move, it will probably have little practical effect on the final outcome of the conflict.

 

After the Jerusalem Embassy: What’s Next for the Palestinians and Israelis?
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Trade Wars

During his presidential campaign, Donald Trump promised to revive American industry by putting an end to ‘unfair trade.’ The way he wanted to achieve this was by tearing up free trade agreements and imposing selected tariffs on countries he felt were taking advantage of the United States. In February of 2018, he made good on those promises and announced a 25% import tariff on steel and 10% on aluminum.

Donald Trump in office

In retaliation, China has announced a 25% tariff on USD 3 billion worth of food imports from the United States. This is three times the trade volume of US steel imports from China, which is roughly USD 1 billion. In a tit for tat response, Donald Trump has now announced that he will impose a 25% tariff on 1,300 Chinese items imported to the United States at a value of USD 50 billion.

China rapidly retaliated, and announced a 25% tariff on 106 products including soya beans and chemicals. The value of these imports are also USD 50 billion. The EU is equally disturbed by this unilateral action, and has threatened to retaliate with tariffs on bourbon and blue jeans.

The latest news as of this writing is that Trump now threatens to impose tariffs on USD 100 billion of Chinese imports. If that happens, China is sure to retaliate.

The trade war has started, and nobody really knows where it will end.

If a full scale trade war actually breaks out, it will lead to a marked reduction of trade in the world. But what would this new economic situation look like, and would it actually be such a bad thing? To understand the importance of trade, we need to take a closer look into the history of trade, and also look at various forms of trade, including free trade, unequal trade, fair trade and what would happen if there was no trade, either between people or nations.

US_China_hand

Cooperation versus Going It Alone

It is a well-established fact that productivity is related to specialization. In other words, if one person were to do everything needed to survive all by himself, like some modern day Robinson Crusoe, his standard of living would be extremely low, and his level of technology, health care, etc. would be almost non-existent.

If, on the other hand, a group of one hundred people cooperate together, their chances of survival are much higher, and people will then start to specialize and cooperate. Some will hunt, some will farm, and some will build houses or tend animals.

The reason we today have advanced technology and that many people can afford a decent place to stay, go to school and get medical attention when sick is the result of billions of people specializing and working together in complex ways.

This is not controversial, and everyone from Marxists to Neoclassical economists understand this issue. The specialty of human beings is that we actually cooperate with each other to a much greater extent than we compete. To prosper, we need increased specialization and cooperation. 

Neoclassical Economics and Trade

Trade can be seen as an indication of both cooperation and specialisation. The reason people trade is that instead of making everything themselves, they make a few things and trade it for other things they want.

Based on this fact, neoclassical economics considers any increase in trade an advantage, regardless of any other circumstance. Consequently, all neoclassical economists would consider tariffs that reduce the volume of trade undesirable, and hence it would be hard to find an economist that would support Trump’s protectionist policies.

Free_trade_cartoon

PROUT and Trade

But what about Prout? Doesn’t Prout support self-sufficient socio-economic zones, a ban on export of raw materials before processing, and favor the assurance that all essential goods are produced locally?
Yes, that is true. For example, in the essay Decentralized Economy Part 1 (1982) P.R. Sarkar writes: [a] decentralized economy aims to develop local industries and create employment for the local population, those commodities which are not produced within the local area should be banished form the local market as far as possible.

But, paradoxically, Prout also favors free trade. In Economic Dynamics (1987), Sarkar writes that there should be a free trade system so that overproduction can be consumed by other countries or other economic units, and proceeds to give examples of this.

Further down in the same article, Sarkar says:

In the existing world structure, geo-sentiment is an obstacle to the implementation of free trade. Neither the capitalist countries nor the communist countries like the free trade system because it is detrimental to their respective self-interests. But there are some free trade zones in the world which are very bright examples of the success of this sort of system. Singapore is one such example. There was a good proposal to declare Calcutta a free trade zone, but it was not implemented for many reasons, including the failure of the concerned leaders. Bengal could have been greatly benefited by such a system. [Economic Dynamics, 13 September 1987, Calcutta]

So does Prout favor protectionism or free trade? How can this contradiction be resolved? To answer this, we need to understand why Prout wants economic self-sufficient economic zones, protection of local industries, etc. The simple reason is that free trade can only be fair between equal partners. If one country is highly developed and industrialized, and the other only has raw materials and agricultural products, free trade between the two will be unfair and unequal. The advanced country will become rich and the backward country will continue to be backward as it is made a supplier of cheap raw materials and labor, and an importer of expensive finished goods. If the economically poor country would try to develop local industry, foreign cheap goods would soon flood the local market and put its undeveloped industries out of business.

According to the classical economist Ricardo, this is a good thing as even the undeveloped country will be better off. He calls this the law of comparative advantage, and theoretically and mathematically he is correct, except, there is one important issue that is often overlooked by economists: this theory is based on everything being stagnant and that nobody learns by experience.

If a 5 year old boy would make more money polishing shoes in the street than going to school, the law of comparative advantage would say that he should polish shoes. This is true for the moment, but schooling is an investment in the boy’s future, making him able to earn more when he grows up. It is the same with countries. If they never develop their local industry and technology, they are condemned to eternal poverty. But in order to develop this technology, they would need protection while they are growing up.

We will not find a single example of an advanced economy that did not initially protect its budding industries until they were globally competitive. This is true of England, USA, Sweden, France, South Korea, Japan, and all other developed nations. Therefore, protecting and encouraging local industries is an absolute necessity for a country to become prosperous. Any country that prematurely opened itself up to free trade—with the notable exception of the Gulf states, which had huge oil reserves to pay for all their imports—suffered stagnation and poverty.

This issue can easily be exemplified by comparing Japan and the Philippines. At the end of the Second World War, Philippines had a GDP per capita equal to Japan. Now it has one of the lowest in Asia. While Japan, South Korea, Taiwan, and other successful ‘tigers’ talked about free trade, they did not practice it but were fiercely protectionist. The Philippines, on the other hand, which actually practiced free trade, and did very little to promote the development of its industries, is now one of the poorest countries in Asia.

Conclusion

While tariffs and protective measures are necessary and good for developing countries, once a country has become technically advanced with high productivity, it has to open up its borders.

The United States is not an underdeveloped economy, and will not gain by imposing new tariffs. To the contrary, starting a trade war can have catastrophic consequences for the very people the tariffs are supposed to help; for the nation as a whole; and for the world as a whole.

I agree with the Prout-oriented political economist James B. Quilligan who, on request for comments on Trump’s tariffs, wrote:

Yes, Trump’s tariffs will impact everyone — workers, manufacturing, Wall Street, banks, US allies and US foes. We can already see a credit collapse coming in the US, with corporations using their profits to buy up their own shares rather than investing this money back into production. Trump’s trade wars will just speed this up — it’s the most stupid thing he could do. This is, however, an opportune moment for Prout.

This trade war, therefore, has a silver lining. For the first time in many years, current free trade policies are being questioned, and has become a topic that can be discussed and debated. This is an ideal opportunity to introduce Prout’s balanced view on free trade, which would promote cooperation and the free exchange of goods, while still allowing developing nations to develop their full economic potentials.

Look Out for the Next Installments on Free Trade and Tariffs

In a short column like this, there is not enough space to deal with all the complex aspects of free trade, so I have decided to cover this important topic in three installments.

In the next column, A Dirty Secret: Why Capitalism Really Doesn’t Like Free Trade, I will look at the curious statement of Sarkar that capitalist countries do not really want free trade. What is the reason behind this comment? Furthermore, what is the difference between the concept of free trade in Prout and in the capitalist system?

In the third and final installment in this series, we will investigate what the impact of a trade war would be on global trade, and whether Trump really is the initiator of tearing up multilateral trade deals, or if he is simply following a trend that started years ago.

Stay tuned!

Trade Wars
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Why Capitalists Hate Free Trade

In my last opinion piece on current affairs, I discussed Donald Trump and his introduction of tariffs and how they might lead to a trade war with China and the rest of the world. In that article, I quoted P. R. Sarkar, who said that, “Neither the capitalist countries nor the communist countries like the free trade system because it is detrimental to their respective self-interests.”

I was aware that this statement might be confusing since free trade is supposedly one of the main pillars of the capitalist system. In this installment, I will clarify my views on this issue.

Protectionism to Protect Budding Industries

As has been clearly explained in Roar Bjonnes’ and Caroline Hargreaves’ book Growing a New Economy: Beyond Crisis Capitalism and Environmental Destruction, no capitalist country became advanced by opening up its borders to free trade. Whether it is Great Britain, the United States, Sweden, Japan or South Korea, they all protected their economies with tariffs, import quotas, and government subsidies until their economies became strong enough to compete successfully on the international market.

Friedrich List (1789-1846), a German economists living in the United States, wrote:
Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth.

Protectionism in Advanced Economies

Not only developing countries, but also advanced nations, such as the United States and the advanced economies in the European Union, are very much dependent on trade restrictions to remain prosperous.

Protection of Agriculture
First of all, these countries have tariffs, subsidies and quotas to protect agriculture, one of the few areas where a poor, developing nation actually could have had a competitive advantage over advanced economies. The European Union uses 50% of its budget to support the Common Agricultural Policy, which subsidises all farming in the European Union. Without this support, no food in commercial quantities could be produced inside the European Union—all agricultural products would have to be imported from third world countries. The United States has similar policies in place.

Intellectual Property Rights and Patents
The restrictions on free trade in agriculture is basically there to provide food security in times of conflict and war, and preserve the rural way of life in Europe. From the capitalist’s point of view, Europe could do very well without these subsidies. But there is one trade restriction that advanced economies are absolutely dependent on to survive, and that is Intellectual Property Rights (IPR) and patents.

Due to the rhetoric we hear in the news media, IPR and patents are not commonly considered restrictions on free trade. In reality, these restrictions are as powerful as tariffs and quotas. Both interfere with the market as it would react if there were no regulations. While tariffs prevent foreign goods to compete in the local market on the same terms as local goods, patents create a monopoly for the inventor to sell products based on the patent without competition.

In practice, this prevents local goods in developing countries to compete against patented imported goods, even if they have the capacity to produce them much cheaper than the imported goods. This is clearly a restriction on free trade, and originally the introduction of patents was controversial. Throughout the 19th century, both Switzerland and the Netherlands refused to protect patents as they argued it created artificial monopolies and went against the principles of free trade.

Patents secure a monopoly for the entity that owns the patent, and enables it to charge much higher for the product than it would have been able to charge in a free market where anyone could have produced it. This system enables companies who own patents to generate spectacular profits.

Pharmaceutical companies make hundreds of billions of dollars in profits selling drugs that cost next to nothing to produce, as they can set any price they like when nobody is allowed to compete with them. Kymira, a gene blocking cancer drug produced by Novartis, costs $475,000 per treatment. The company argues that the cost is justified due to the fact that the cost of developing the drug was very high, but in this particular case much of the research that went into the drug was done by the University of Pennsylvania at the expense of tax payers to the tune of $200 million. This is a typical procedure in the pharmaceutical industry. While the costs are socialised and paid by the tax payers, the profits are privatised and pocketed by the private company.

This is not an isolated example. Many cancer drugs cost over $100,000 per year per patient, while the manufacturing may cost a few thousand dollars. The hepatitis C drug Sofusbuvir costs $1,000 per pill, and a complete treatment costs $84,000.

Patents are naturally not limited to the pharmaceutical industry, but are present in almost every industrial, medical, and technology sector in existence today, and the profits these sectors enjoy are to a large extent dependent on IPR and patents.

These inflated profits from patents and IPR are, in part, what keeps rich countries rich. They have absolutely no reason to encourage free trade of any of these products, as it would jeopardize their monopoly standing and open them up to global competition.

The ways patents are granted is also troubling. Invariably, patents build on existing knowledge that has been created over centuries, so no one individual or company can claim to be their sole owner. The fact that it is possible to patent such things as the active ingredients in traditional herbal medicine and other properties of nature, such as the human genome, makes a mockery of the argument that IPRs are needed to promote innovation.

As IPRs are so valuable, most advanced economies have shifted to producing ideas and left the dirty work of actually making things to poorer countries. In areas where other countries could compete, such as knowledge and knowhow, they create barriers to prevent competition, and in areas where they know nobody can compete, they promote free trade. To accomplish this, they insist on IPR protection in free trade agreements and, in Orwellian fashion, brand it as a being an indispensable part of free trade, when in reality it is quite the opposite.

As the Norwegian economist Erik Reinert comments, “Protecting imperfect competition in the rich countries is accepted, but not in poor.”

>From this it is clear that capitalists do not want free trade. Far from it. They want to impose free trade on others when it is to their advantage, and avoid free trade at all costs when it is not to their advantage. I believe that this is the logic behind Sarkar’s quote that neither “capitalist countries nor the communist countries like the free trade system”.

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Intellectual Property in a Proutist Economy

Free trade is a double edged sword, and under the right circumstances it can bring about maximum utilisation of global resources and benefits for all parties involved. Under the wrong conditions, it can impoverish poor nations and make them exporters of cheap raw materials and importers of expensive manufactured goods. Therefore, while Prout supports free trade, it does this conditionally, and only during the appropriate circumstances when it will bring about prosperity for all parties.

Hence, while Prout supports the free flow of ideas and intellectual wealth, which in a sense is the basis for free trade, some restrictions on ideas and invention, or psychic pabula as Sarkar calls it, would be needed even in a Proutist economy. Society may have a legitimate reason to limit certain information, such as creating poisons and bombs, to protect itself. Likewise, if an artist creates a song or a work of art, he or she should definitely be able to protect so it is not copied and sold by others.

However, there is a strong case to ensure that scientific knowledge that is beneficial to humanity should have as few restrictions as possible. The argument that patents are needed to promote innovation is simply not true. Most of the people who invent things do not personally benefit from the innovations; rather, the company they work for is the financial beneficiary. And if private companies would limit their investment in innovations, then the state could easily step up and provide a conducive environment for creativity to flow. Here are few suggestions for rational patent policies within the framework of a Proutist economy from the book Growing a New Economy:

  • Patent laws and treaties should benefit society as a whole.
  • Where there is a conflict between the interest of the patent holder and the interest of society, the interest of society should prevail.
  • Medical patents for common ailments should not be allowed, as that could prevent sick people the possibility to afford a cure.
  • No patents should be granted for existing traditional knowledge, such as herbal medicine, or for things that already exist in nature, such as the human genes. Allowing these kinds of patents is a mockery of common sense, and is only a backdoor to allow individuals to monopolise knowledge and wealth given freely to us by our ancestors and by nature herself.

For more ideas about a rational approach to intellectual property, see chapter eleven of the book Growing a New Economy.

 

Why Capitalists Hate Free Trade
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A Ticking Time Bomb: Proxy Wars and the Tragedy of the Kurds

Since the Arab Spring, the armed conflicts in the Middle East have escalated to a point where they pose the greatest risk to world peace in our times.

While the media is focusing on the threat posed by North Korea due to its nuclear weapons, the chances for an all-out escalation are small, for the reasons I outlined in a previous article. If we accept the premise that Kim Jong-un is a shrewd, calculating politician (and all signs indicates that he is) it does not matter if he is ruthless, cruel, and self-serving. Whatever nuclear arsenal he has, it is just a fraction of one percent of the size of the arsenal of the United States. Hence, he knows that he cannot possibly win a nuclear war with the United States.

By developing proven nuclear capabilities his negotiating power has vastly increased, and insures that nobody can take North Korea lightly. The timing of his recent diplomatic overtures towards South Korea has buttressed this point. He waited until he had proven that he had intercontinental missiles capable of striking the United States. He then turned down his aggressive rhetoric and instead turned up his charm. This is not the act of a madman. It is a clever political game.

Middle East Tinder Box

The situation in the Middle East is not so simple. We are not dealing with one regime in complete control over its armed forces, but rather a host of unstable states and armed groups of a number of persuasions and interests. In addition to this, the two most powerful countries in the world are actively involved in the war on one side or the other. While Russia has combat troops on the ground in Syria, the United States is actively supporting groups that are directly fighting Russian and Syrian government troops.

If we add the powerful regional powers, such as Iran, Israel, Turkey and Saudi Arabia, who all have their own strategic reasons to fight, we have a truly explosive mix. At present there is seemingly no way all parties can be satisfied. The region has become a battle ground for political influence and power.

Even though the conflict started out as a proxy fight, today the main protagonists are directly involved in the war. The United States has since decades had troops in Iraq and Afghanistan, and Russia now has a strong military presence in Syria. Depending on how the situation develops, the United States may increase its number of troops in Iraq, and may even decide to put troops on the ground in Syria to protect its strategic interests.

Most recently Turkey has launched a full scale offensive into Syria, attacking the Kurdish guerrilla fighters which are supported by the United States. This creates an unprecedented situation where two NATO allies are coming in direct military conflict with each other. The long term consequences of this is hard to foresee, but it could potentially destabilize an institution that has been the main military force in Europe since the Second World War.

Why is Turkey so keen on attacking the Kurds? To understand this, we need to take a look back in history.

A Brief History of the Kurds

Like the Rohingya, the Kurds are a people without a country. They emerged as a group in Iran during the Medieval Period, and are presently constituting a sizeable minority in Turkey, Iran, Iraq, and Syria. They have a distinct language that has strong similarities with Persian and Baluchi, suggesting a common ancestry. The first recorded military clash involved Arab Commander Utba ibn Farqad, who in 641 AD conquered a number of Kurdish forts. Since then the Kurds have throughout the centuries participated in many revolts, but although they managed to establish a number of Kurdish Principalities, mainly in the mountains, they never managed to get a state of their own.

Apart from wars, they have also been subjected to massacres, including the Massacre of Ganja in 1606, when all men, women and children of the Sunni Kurdish tribe of Jekirlu were killed.

Kurdish nationalism emerged at the end of the 19thcentury, and since then they have been striving for nationhood. The problem is that the Kurds are not in majority in any country, and to form a nation they would have to carve out a territory from Syria, Iraq, Turkey, Iran, and other nations, and none of these nations would allow something like that to happen. Hence, the Kurds have few friends in the region. Yet the Kurds are a sizeable minority, and so they cannot be ignored either. A minority group of 1% can be marginalized and even exterminated, but with a minority population close to 20% in Iraq, Syria and Turkey, this is not possible to achieve with the Kurds. For example, 19% of the population in Turkey is Kurdish, some 5 million people.

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In the past 50 years, the Kurds have been fighting for autonomy and independence. While they managed to create an autonomous region in Northern Iraq, and recently had substantial military success in Syria and managed to carve out a sizeable territory there, they have had little success in Turkey. The Kurdish Workers’ Party, PKK, has for a long time been fighting for autonomy in Turkey, and from 1984 to 1999, and again from 2004 to 2012, the Turkish military engaged in open war with the PKK.

Fearing that the Kurds will use their newly gained territories in Northern Syria as a spring board to launch fresh guerrilla attacks across the border, Turkey has now decided to invade the Kurdish controlled areas of Iraq to create a buffer zone to prevent the PKK to operate from Iraq. This is a serious escalation in the conflict, as it is the first time in recent history a country in the Middle East is directly invading a neighbor state. This is naturally seen as a threat by the Syrian regime, so while fighting the Kurdish forces in other places, they have tacitly allowed the Kurdish YPG (“People’s Protection Unit”) to pass through government controlled areas to resupply the areas attacked by Turkey. It seems everyone is fighting everyone and nobody really knows who is an enemy and who is a friend.

Western Support for the Kurds

While the vast majority of Kurds are Sunni Muslims, there are also Shiites, Christians and even Jews among them. They are one of the few cultural groups in the Middle East which practice religious tolerance. For example, the Kurdish Regional Government in Northern Iraq rejected Islamic teachers from Bagdad, and declared that their schools should be religiously neutral. The bonds that keep the Kurdish nation together is cultural, and not religious. The Kurds have all the hallmarks of a distinct Samaj.

Kurdish women have generally a better standing in society than that of other women in the Middle East. They have actively taken part in both political and military struggles. ISIS fear the female Peshmerga and the YPJ (“Women’s Protection Force”) forces more than any other enemy, since being killed by a woman would send their souls to hell!

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These characteristics have made them the ‘ideal’ partner for the Unites States. The civil war in Syria, has enabled the Kurds to capture much territory, and their clear intention is to hold on to it and create a Kurdish nation.

Unfortunately for the Kurds, the support from the West is purely tactical, and probably none of the Western powers would be happy to see the emergence of a Kurdish nation. A Kurdish nation would be fiercely opposed by all countries in the Middle East that have Kurdish minorities, and the West could politically not afford to back such a scenario.

The Endgame

While we can hope that the conflict is localized to the Middle East, there is no guarantee that it will not escalate to a worldwide conflict. But even in a best case scenario, the suffering in the region is far from over and millions more will die or be made refugees before it will get any better.

The Middle East, with its vast resources of oil and strategic location between Europe, Asia and Africa, has become the main theater of conflict of our time. There is simply no short term or easy solution to these intertwined conflicts, and a final resolution would require a revolutionary change in the entire region, which would probably include a major change in the role and position of Islam as well.

So where will all this end? The short account outlined above is a simplification of the enormous complexities of the Middle East conflicts, leaving out many essential parts, such as the Israeli Palestinian conflict; the war in Yemen; the increased dominance of Iran; the conflict between Saudi Arabia and Qatar, to mention just a few. We have also not covered the motivations behind the involvement of Russia and the United States. Even a brief overview of the situation would require a full length book.

So while the situation in North Korea may sound scary, the conflict in the Middle East is a far more serious problem for the world.

 

A Ticking Time Bomb: Proxy Wars and the Tragedy of the Kurds
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