Wednesday, October 04, 2017

In defence of Free Trade

For most of history it was the progressives who were in favour of Free Trade and the reactionaries who opposed it.

Free Trade has been one of the greatest engines of human progress ever to exist. And yet the case for it has to be made again and again - now more than ever. As Lord Macaulay wrote nearly two centuries ago,

Free trade makes everyone richer - but this is often harder to understand than the special pleading of vested interests who make a clear and simple case that they personally will benefit if their own industries are protected from foreign competition.

There was a superb article in the Times this week by Matt Ridley.

"The case for Free Trade has never been stronger."

Here are some extracts ...

The 'ultimatum game' is a fiendish invention of economists to test people’s selfishness. One player is asked to share a windfall of cash with another player, but the entire windfall is cancelled if the second player rejects the offer. How much should you share? When people from the Machiguenga tribe in Peru were asked to play this game, they behaved selfishly, wanting to share little of the windfall. Not far away, the Achuar in Ecuador were much more generous, offering almost half the money to the other player — which is roughly how people in the developed world react.

What explains the difference? The Machiguenga are largely isolated from the world of markets and commerce. The Achuar are used to buying and selling to and from strangers at markets. The same pattern emerges throughout 15 small-state societies all over the world, in a fascinating study done by the Harvard anthropologist Joe Henrich and his colleagues. The more integrated into the commercial world people are, the more generous they are. As one of the authors, the economist Herb Gintis, summarises the results: 'Societies that use markets extensively develop a culture of co-operation, fairness and respect for the individual.'”

 “Cobden said: 'Free trade is God’s diplomacy and there is no other certain way of uniting people in the bonds of peace.” He was right. Recent studies have confirmed that commerce is the main cause of peace. 'Within the developing world, economic development leads to interstate peace, whereas democracy does not,' concludes Faruk Ekmekci of Ipek University in Turkey. The evidence is overwhelming that markets do not just make people richer, they make people nicer too, less likely to fight and more likely to help each other.

So why on earth has it become accepted wisdom that every move towards free markets and free trade is towards selfishness, conflict and greed, whereas the state is the source of all kindness? ”

He writes that some critics of free trade argue that

“ ... it leads to lower standards of welfare provision, but this is demonstrably nonsense. Is welfare worse in free-trading New Zealand or protectionist Venezuela? In South or North Korea? In Singapore or Burma? The correlation between free trade and high living standards, including high welfare standards, is tight and causal. Government intervention in social policy goes hand in hand with economic development.”

“The astonishing enrichment of the world in the past 50 years, when extreme poverty has fallen from more than 50 per cent to below 10 per cent of the world population, could not have happened without free commerce and the innovation it delivers. No serious economist denies this. The liberalisation of world trade since the Second World War has been responsible for making the world not just wealthier but healthier, happier and kinder too. If that sounds incredible to millennials, then perhaps they should ask their professors to give them some less Marx-inspired reading matter.”

“The Conservatives cannot compete with Labour by offering pale imitations of its patronising paternalism. They should offer the young something more revolutionary, liberating, egalitarian, disruptive, co-operative and democratic than stale statism. It’s called freedom.”

You can read the whole article here.

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