On Free Trade
In my prior essay, I discussed how creating greater, more efficient transport links aided in specialisation and, therefore, comparative advantage helping the overall ‘economy’ of the Minecraft server I partook in. While economically, it undeniably benefited everyone apart from those who did not have access to it (arguably therefore showing that transport, unless all encompassing, is not pareto efficient); however, looking at it through a more diversified lens, considering the political and social implications I would argue that complete free trade, or at least the notion of ‘comparative advantage’ aiding ‘everyone’ as many economists claim is one only true in a vacuum and that many recent strives in free trade have, while benefiting some people greatly, has negatively affected many others and that the process of globalisation, which we are undergoing, should aim to strike a balance between protectionism and, aforementioned, free trade.
To begin with, I must admit that as a Georgist I am, for the most part, in favour of free trade, and Henry George puts it ‘If to prevent trade were to stimulate industry and promote prosperity, then the localities where man was most isolated would show the first advances of civilization.’. This of course points out that, historically, those areas with most access to trade have almost always been the ones that succeed the most; however it is this exact same quote that displays the inequality and unfairness around free trade ‘Where man was most isolated’ tells us that it is those in isolated communities who do not benefit from free trade and, developing it further, could be harmed by free trade as the industry of their small community could very easily be overrun by foreign imports, which I will now give several examples of, showing how although being a net positive to the economy on paper, socially (and in terms of economic diversity) complete free trade is often a negative in many aspects.
Economists commonly praise ‘comparative advantage’, this already has issues such as certain countries having ‘comparative’ advantage, but producing goods of lesser quality and therefore it would, in certain cases, be negative for said country to specialise into that good, as well as the fact that comparative advantage is often taught by comparing just 2 goods, rather than factoring in the wider economy as, for example, in David Ricardo’s example of Portugal / England’s comparative advantage, Portugal only had such a comparative advantage thanks to its slave trade (As Cahal Moran argues in his most recent video: ‘The Death of Free Trade - Unlearning Economics).
Another point made by Moran, which I will now further develop, is that specialisation and comparative advantage assumes a perfectly dynamic work force, an example used by him are the manufacturing workers in the US, with the US now specialising in services and high-tech industries, there is an obvious skill gap and, to an extent, impossibility for these manufacturing workers to move to this new specialisation. To build upon this point, even if these manufacturing workers did transition into the technical services industry, the area in which they live likely provides no opportunity for this employment, and thus, the economy would become more centralised in these hubs of employment and therefore more at risk of recession if any particular market fails.
Linking back to the Henry George quote, it is these people in isolated areas who, once, benefited from exports of their particular industry that are now overrun by specialisation and causing mass employment in these once thriving areas that are now overrun by foreign industries from free trade. These areas of high unemployment lead to high crime rates and, therefore, cost the economy in both unemployment benefits, lost productivity and extra money needing to be spent on the police force (or money transitioning to the shadow economy from stolen goods).
Yes, the economy as a whole benefits from cheaper imports, and often, industries arise in order to offset the imports lost; however, the social cost of the higher crime rate, lost industries (that often are generational and therefore dear to said employees) and the secondary results of the xenophobia caused by foreign industries replacing what people once knew are undeniable. Globalisation and in extension, free trade, has undeniably enabled right-wing populism as those disenfranchised to their once ‘secure’ careers turn to the ‘obvious’ enemy rather than taking the more nuanced angle and understanding, both comparative advantage and the net benefit to the economy (although this ‘benefit’ is, as established, questionable).
How can this issue, which is seemingly unavoidable with free trade, be addressed? Firstly, a government job guarantee scheme would massively aid in the transition from old industries to new, these jobs wouldn’t strictly have to specialise in the countries comparative advantage, all they would do is provide a ‘safety net’ for those disaffected by industrial transitions. This would have implementation issues in and of itself as some people wouldn’t want to do these new government jobs or, simply, the government may fail to find any areas where jobs can be provided; for this reason, I feel devolution of the government would hugely help, allocating more responsibility to local councils, with all the pre-existing funds that the government allocates to these services, would allow local services to be tailored towards local needs and therefore avoid the ‘centralising’ effect of free-trade and globalisation I mentioned earlier. It can be these same councils, with greater funding and a larger scope of services that can provide the aforementioned job guarantee schemes as, unlike on a national level, they will understand local industries that are both rising (a source of providing employment) and falling (a source of employees). The main issue here is, of course, the vast cost to this scheme, however, taking an MMT approach, assuming the jobs themselves produce some form of output to offset the inflationary effects of the wages being paid, it could come at absolutely no cost to anyone and, otherwise, some form of progressive tax (whether that be a wealth tax, land value tax or severance taxes on non-reproducible goods).
To conclude, while globalisation, and the free trade that follows, is a huge net positive to the overall global economy, without the implementation of counter measures that factor in people's social and political situation (which mainstream economics so often overlooks) it will continue to spur regional issues from those ‘isolated areas’ that fall into the two speed economy of ‘core’ and ‘periphery’ areas (as postulated by John Friedmann).