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Protect and survive

Martin Cook puts a case against the free marketeers from Marx to Chartist

'.. it's much cheaper down In the South American towns Where the miners work almost for nothing.'
Bob Dylan, North Country Blues, 1963

“The bourgeoisie has … drawn from under the feet of industry the national ground on which it stood. In place of the old local and national seclusion and self-sufficiency, we have intercourse in very direction, universal inter-dependence of nations.”
Karl Marx & Friedrich Engels, Communist Manifesto [Marx-Engels 1865]

The editorial in Chartist 237 speaks of supporting the 'non protectionist' wing of the Obama regime. Bizarrely, since Chartist is supposed to be a left publication, not a right-wing liberal nut sheet. The protectionists in Obama's regime are the left, the union/ social democrat/ pro-working class element. The anti-protectionists are the New Democrat types (Democratic Leadership Council, Summers, Rubin) who helped Clinton ram through the appalling NAFTA (North American Free Trade Agreement) and shred LBJ's Great Society welfare state (plus deregulating Wall St!).

I presume by 'protectionism', Chartist means (one sided!) trade protection by import controls or tariffs. This is a red herring since few new tariffs have been proposed lately. Right-wing tirades about protectionism reflect fear of social democratic intervention in the economy to regulate industry, finance, labour or markets. It must be the sin that dare not speak its name: despite talk of protectionist 'siren voices', apart from me and few other radicals, few admit to supporting it! On Facebook there is not one Protectionism group (just an anti-free trade one). Yet apparently, 17 out of the Group of 20 rich nations have brought in 'protectionist' policies lately. This means they have attempted, rightly, to prop up key financial institutions and wealth creators like motor industries. Horrors! What else should a competent government do, stand by as the economy crashes in ruins, like Hoover in the Slump?

Paradoxically, Chartist (I think) denounces free market fundamentalism and defends government intervention in industry and society green technology, labour protection, co-operatives and so on. You can't have it both ways. In a free for all, free trade economy you ALWAYS have a race to the bottom. Companies vote with their feet against laws on labour, environment, etc. They screw money out of us to salt away their profits in tax havens. Suppressing tax havens is protectionist, it avoids the 'tax competition' vaunted by marketeers.

This ideology stems from Smith and Ricardo, long dead economists whose simple-minded analysis got a lot wrong. In Ricardo's theory of 'comparative advantage', free trade is always best since all countries are better at some industries than others and we can all benefit from economies of scale. That some countries succeed in producing lots of things and others at virtually nothing escaped them, like the idea that capitalists might send their money to invest abroad and hollow out their own country's economy. (Where was Japan's comparative advantage, with no raw materials and scant agriculture?) Sadly, even Marx swallowed this wholesale, denouncing Germany and America for their inevitable protectionism. He fell for a dominant ideology, one more pervasive in the UK than anywhere.

The theology of a 100% 'invisible hand', market economy is as much a fantasy as a 100% autarkic (self-sufficiency) or non-market one. Protectionists like me are smeared with a straw-man 'North Korean' economy that no-one promotes. The reality of 200 years has always been a mixture of markets and protection globally, the argument of left v. right has been how far to move along the spectrum. Socialists/social democrats became relevant actors, instead of utopian sectarians, once they allied themselves with labour movement demands for protection from the HORRORS of unrestrained markets. Karl Polanyi, the brilliant Austro-Hungarian economist, understood this better than Marx. Though the intrinsic logic of capitalism reduces everything including land, labour and money to pure features of the market (Marx-Engels correctly analysed this) this could never work. Pure free markets destroy the non-market supports (social cohesion, environmental sustainability) that capitalism itself needs to survive.

Advocating a pure Thatcherite free trade model is fantasy island stuff, a parallel universe. It didn't happen in 30 years of neo-liberal dominance, and surely won't now. When it WAS applied, results were uniformly disastrous as in Eastern Europe, the 1997 Asian crisis, or the Latin American economies in the past 20 years. The statistics all confirm this. From the 1940s to the 70s, things went reasonably well globally. While in the past 30 years inequalities ratcheted up between the rich and poor worlds and within countries; overall growth slowed down; social cohesion was shredded; and environments were trashed. A few poor countries like China and the Asian tigers moved many citizens out of poverty and developed their economies. Yet, these successes rejected the free-trade dogma of the Washington consensus; they protected fledgling industries and restricted capital flows.

This fuss about protectionism is a hang-up about national frontiers, a 'post-imperial guilt trip'. The syndrome of companies shunning benign jurisdictions to cut costs and raise profits happens within countries e.g. from north to south in the USA or from coast to interior in China. Obviously, a country like Luxemburg will import most of its needs from 'abroad', while in the US or Germany local industry supply should be feasible in most cases. Most stuff we consume daily is hardly high tech specialist produce requiring economies of scale to exist. Suppose 10 European mega breweries are replaced by 100 or 1,000 ones supplying mainly local markets, is this bad for the economy? It may cost jobs among lorry firms, but create more among brewery staff. Scale economies aren't needed -- there is too much surplus labour globally.

It is said the 1930s depression was caused by import tariffs. Maybe I'm naïve, I think the problem was simple lack of demand for the products of the new factories -- workers globally couldn't afford to buy what they produced. This is exacerbated by the race to the bottom. -- if production relocates from a factory paying £10 or 10 euros an hour to one paying 10 pence or cents, this slashes spending power overall. Globalization cuts global demand, and thus growth/prosperity. The present balance is clearly unsustainable. The UK and US can't carry on buying stuff with money they haven't got; they must produce more, and consume less; while Germany and Japan, or China and India, must consume more. Their model of export-led development has run into the sand.

Everyone can't win the battle for exports, Chinese expansion killed off budding textile industries in several Asian and African countries (Sri Lanka, Zambia). A country can only consume as much as it can produce. If we must produce more of what we consume (as is inevitable), it doesn't matter if it happens by tariffs, import substitution, devaluation or slashing living standards through inflation/unemployment. The net result is the same we can buy less from abroad; exporters abroad must sell more of their produce to their own people. In future decades, energy shortages will mean many present imports will cost far more to transport, and a good thing too. Now, up-country African farmers find they can't compete with subsidized imports from Europe freighted to their capital cities.

Talking of farmers, without some protectionism, most current agriculture in Europe, the USA and Japan (especially) would collapse tomorrow. But in the future, we will need all that food due to rocketing global populations and climate change; all countries must shift to sustainable local food production. Globalizers echo the Anti-Corn Law League in complaining protection raises prices (makes it harder to pay crap wages). Well, cheap prices usually reflect cheap/slave labour and environmental devastation.

It is often alleged that us left and green anti globalizers lack any alternatives to the dominance of the Trans National Corporations. This is nonsense. There has been a whole series of critiques which propose alternatives and flag up moves in this direction by governments (e.g. Latin American), communities, environmental groups, co-operatives and so on. I have recently been reading an excellent example of this Colin Hines's Localization: A Global Manifesto (Hines 2000).

Hines's recommendations include the following aspects of 'Localization':-

  • Invest in labour intensive infrastructure renewal, and face to face caring;
  • Promote local businesses;
  • Farm for local markets;
  • Introduce import and export controls, quotas, subsidies, over an agreed transition period world wide [i.e. not one sided!]; tariffs could discriminate in favour of producers with good labour and environmental records;
  • Promote local not long-distance trade; replace WTO/GATT by World Localization Organization/General Agreement on Sustainable Trade;
  • 'Site here to sell here' policies; force the TNCs to be 'grounded';
  • Adequate company taxation to compensate for price rises;
  • Controls on capital flows, Tobin taxes, control of offshore tax evasion;
  • Promote civic bonds, local banks, credit unions;
  • Flows of money abroad should strengthen not undermine the countries invested in;
  • Competition policy should ensure a more level but local playing field, with better not worse social and environmental regulation;
  • Increase resource taxes, tax wealth and income; reduce taxes on employment; penalize short-term capital gains;
  • Wider democratic local control over the economy, maximum participation in deciding priorities and socio economic initiatives; a Citizens Income; pass power from corporations to citizens.

If the above sounds utopian, aspects of it exist all over the place. There are alternative models of course - more or less 'green', more or less 'socialist'. It's the overall direction of travel that's important.

In the end with 9 billion or more humans, we won't all be living like Beverly Hills millionaires. Living standards may stagnate at best as Africans and Asians consume a fairer share of global resources. In a world of unchecked competition, this process could easily assume catastrophic forms with millions suddenly unemployed and dramatic cuts in living standards; the rise of fascist or fundamentalist parties would be predictable. It could make the 1930s look like a picnic. Managed trade of some kind will be necessary and inevitable on all sides. If Chartist wants to join other ideological victims in complaining that life fails to conform to outdated 200-year-old dogma, it stays out of touch with reality.

Marx and Engels got it wrong, thinking Smith-Ricardo's vision was a reality not their utopia dream. The slogan 'workers of the world unite' is fine, but meaning what? In a material world, workers' unity stems from successful combination about bread and butter issues -- through a labour movement or whatever. This can only happen at a national or regional level. If TNCs rule the roost everywhere, there will be NIL effective labour movements anywhere, no prospects of proletarian victories. Workers unity presupposes effective democratic control of the economy within nations, not hypothetical abstract global consciousness. It means forcing TNCs back on the leash, making capitalism embedded into society. That is the project of democratic socialism. Protectionism against damaging and pointless excessive long-distance trade is not an end in itself, but an essential part of the policy mix.

References:

  • Marx-Engels 1965, Karl Marx & Friedrich Engels, Manifesto of the Communist party Peking: FLPH.
  • Polanyi 2001: Karl Polanyi, The Great Transformation, Boston Mass., Beacon Press.