Chapter 22. Equal Free Trade as opposed to Unequal Free Trade

With today’s educated populations and communication systems, it is possible to calculate the waste of past centuries and the current waste, calculate the earth’s sustainable development level, educate the world’s citizens to these realities, design a program for sustainable world development and elimination of poverty, and reach those goals.

Regional and Local Self-sufficiency

“A regime of global governance is needed in which world markets are managed so as to promote the cohesion of societies and the integrity of the states. Only a framework of global regulation—of currencies, capital movements, trade and environmental conservation—can enable the creativity of the world economy to be harnessed in the service of human needs.” —John Gray, False Dawn, p. 199

The developed and developing countries should be designed to be as regionally self-sufficient as possible in food and industry. Industries that require large-scale economies should be regionally planned and integrated with all countries within a balanced trading area.

Markets would be free within regions (both developed and developing) but with managed trade between these unequal regions, with protections to be lowered in step with the equalizing of industrial technology, capital accumulation, and labor skills. Thus the labor and industrial capital in wealthy countries would be protected from destruction by the low labor costs of impoverished countries, and the industries and markets of the undeveloped world would be protected from the cheap production costs of the developed world. This requires the development of balanced (yet competitive) economies within currently undeveloped regions. The necessary capital can come from equalizing surcharges and simplified and more equitable methods of capital accumulation (subchapters “Accumulation of Capital Through Democratic-Cooperative-(Super-efficient)-Capitalism,” “Creation of Money,” and “Investment” [Chapters 26 and 27]).

If wages paid in basic industry do not seriously exceed wages paid to the consumer of those products (Adam Smith’s concept of labor retaining the value of what it produces), this will create initial buying power and the expenditure of those wages on consumer needs will produce more buying power (the economic multiplier and development of a market economy). Once the internal market economies of impoverished nations are developed and a skilled labor force trained, those countries should be integrated with, and enjoy free trade between, other developed regions using the maximum efficiencies (comparative advantage) of each region.

“What is needed is a global regulatory framework for multinational corporations—a set of common standards for labor rights, tax and wage rates, and environmental protection—as well as the means, both national and international, to enforce them.”1 Instead of policies that bring well-paid labor down to the wages of the lowest paid, equalizing managed trade would be raising the wages of the poorly paid to those of the better paid.

Once control is wrenched from corporate imperialists, individual countries should allow access to their markets only to corporations that are good citizens working for the betterment of all societies. For the right to sell within that market and prevent tax and labor bidding wars between communities, a corporation can be required to meet basic standards of behavior. The developed world and the developing world

ought to reject any new trade agreements that do not include a meaningful social contract—rules that establish baseline standards for health, labor laws, working conditions, the environment, wages. The world economy needs a global minimum wage law—one that establishes a rising floor under the most impoverished workers in industrial employment.2

Developing Regions should be trading with Each Other

Whenever possible, countries in the underpaid developing world should be trading with each other. If trading countries pay roughly equal wages for production of the products traded, neither confiscates the wealth of the other and the efficiencies of trade can function honestly.

By trading with each other while building industry, developing nations with low-paid labor can develop their economies much more rapidly than when trading with a nation with high-paid labor. If labor is idle and the treasury empty (it always is in the dependent trading nation—that is the essence of a subtly-monopolized world economy), raw material or semi-processed goods can be bartered for industries (technology) as opposed to trading those resources for trinkets.

Regional Trading Currencies

A respected news weekly recognized that, “Under the Bretton Woods system, the Federal Reserve acted as the world’s central bank. This gave America enormous leverage over economic policies of its principal trading partners.”a No country is free when another country has such leverage over its entire economy.

Money is only the representative value resulting from combining resources (land), labor, and industrial capital. By peripheral nations using the currency of an imperial center as its trading currency, the imperial center can actually print money to own industry within those periphery countries. By forming regional trading blocs and printing their own trading currency, the developing world has all four requirements for production, resources, labor, industrial capital, and finance capital. The wealth produced provides the value to back the created and circulating money.

The developing world need only form regional trading blocs, manage their own trading currency, and utilize their money-printing power to build industries and develop an efficient economic infrastructure (roads, railroads, harbors, etc). The building of the industries and economic infrastructure will provide buying power to consumers, and that buying power will be the engine to maintain economic development. By tying their currency values to a basket of commodities (see below) all nations can gain the freedom and advantages of their central bank creating money. Once economic development is advancing rapidly, development funds will be generated by money flowing within the economy.

Each undeveloped region of Asia, Africa, or Latin America has at least one country that is quite well developed (India, China, Brazil, Argentina, Mexico, South Africa, South Korea, Taiwan, and Japan) that could serve as a center of development. China is large enough to develop industry and markets on its own and this provides the model for organizing regional economies. Each of those countries should be organized with their neighbors as one production/distribution region and balanced industrial capital should be distributed throughout each region. With managed trade equalizing wage discrepancies as the world’s natural resources are converted to consumer products, the employment of workers in balanced industries producing for their own societies will develop regional buying power and markets and capitalize (monetize) those values in those regions. Those regions will then have both natural and capitalized wealth.

It must be emphasized that when this capitalization is complete each country will have equal rights (within its region) to resources, industrial capital, and markets. Those rights automatically translate into job rights, buying power, and that nation’s share of social wealth. Nations that are poorer in resources need to be assigned a higher level of industrial capital. But the regional average should still be that all-important ratio of approximately one unit of industrial capital to 30 units of social capital (see next chapter, as efficiency increases that ratio lowers) and all capital should, on the average, be regionally and locally owned.

The Imperial Centers Understand Well the Importance of Equally-Paid Labor

The experienced imperial centers understand the need of equally-productive industry and equally paid labor well. When the relatively poor countries of Greece, Portugal, and Spain wanted to join the Common Market, the planners knew the low wages of those countries would drive down the wages of the rest of Europe. They therewith “implemented a 15-year plan which included massive transfers of direct aid designed to accelerate development, raise wages, regularize safety and environmental standards, and improve living conditions in the poorer nations.”3 The American Revolution led this battle for world freedom:

The Declaration of Independence sounded the first global proclamation of the fundamental equality of human beings and their consequent entitlements to “inalienable rights.” The Bill of Rights made many of those rights enforceable, especially for white men; yet it also acknowledged, in the Ninth Amendment, that the initial enumeration of rights was by no means comprehensive. A century later, the Reconstruction Amendments expanded coverage to all citizens regardless of race; and in 1920 the Nineteenth Amendment extended full citizenship to women. Following the atrocities of World War II, Presidents Franklin Roosevelt and Harry Truman sought to extend the concept of human rights worldwide. With Eleanor Roosevelt as chief U.S. negotiator, the Universal Declaration of Human Rights was adopted without a dissenting vote by the United Nations General Assembly in 1948.4

Those universal human rights include economic rights which can only be obtained if the rights of labor are equal to the rights of capital:

[With] the mobility of capital threaten[ing] to ratchet down living standards for the great majority; what is needed is a regulatory framework for multinational corporations—a set of common standards for labor rights, tax and wage rates, and environmental protection…. [All societies] need to be able to exert greater control over multinational corporate activity so that the human and natural resources they possess are not merely exploited for the benefit of others…. The United States … could alter the terms of access to its markets that corporations (domestic and foreign) now enjoy…. In this way a more level playing field would emerge and multinational corporations would find it more difficult to ratchet down tax rates, public investment, wages, and environmental standards … corporations could be induced to help realize, rather than undermine, national and community goals…. In the early 1960s, for instance, auto manufacturers wishing to sell cars in California were required to meet tough emission standards adopted by the state.5

Invisible Borders between the Imperial Center and the Periphery of Empire Disappear

Professor Lester Thurow addresses one-third of the world’s productive capacity being now idle. A substantial amount of that industry being on the periphery of empire is a change from past economic crises. Just trying to survive, those industries on the periphery will be pouring products into the imperial centers. This accounted for America’s great gain in wealth between 1992 and 2005. The steadily rising stock markets were creating wealthy people, thus creating buying power, and the masses in the imperial centers were receiving value (wealth) via those low import prices.

Market value has a relationship to use-value. Cheap resource imports are manufactured into valuable consumer products and those cheaply manufactured products have both high use-value and high market value. If imported product costs drop by half (those low wages on the periphery for equally-productive work), either the trader banks more value, the consumers gain more value, or both. If better materials and technology doubles the useable life or productive use of a product, the value to the consumer doubles. (Note: The productivity of computers doubles every few years while their price has dropped over 50% while cars which seldom ran over 70,000 miles 40 years ago now are in use 200,000 to 300,000 miles.)

When stock market values on the periphery start dropping and import values to the imperial centers (the periphery’s export values) keep dropping, the periphery of empire is losing value and buying power in both cases. But, so long as other values in the imperial centers (primarily stock markets and real-estate) hold or increase, the values to borrow against, and thus the buying power, will hold. But if the stock and housing markets in the imperial centers fall far enough, other values will start to fall and, at some point, the values to borrow against will not be there and buying power in those once-wealthy nations will fall. As buying power has already shrunken rapidly on the periphery, the buying power to keep the world economy afloat will have shrunk drastically, prices will drop, and more of the world’s productive capacity will have to close down.

The imperial centers can, and do, print money to provide buying power to their citizens and increase values. If commodity import prices to the imperial centers shrink, values will continue to be imported or produced in those imperial centers even as values continue to drop on the periphery. (Money creation power is seldom used to protect the periphery.) The balance between wealth in the imperial centers and wealth on the periphery can, within reason and depending upon the military power of the imperial centers, be held at either a high or low differential. Today it is being held at a high, and growing, differential. Poverty on the periphery is expanding while wealth in the imperial centers is, or at least was, still growing.

Siphoning from the periphery of empire to the imperial center at the rate of 25-to-1 through a 20% differential in pay for equally-productive labor will increase exponentially if currency values widen (Chapter one). If that wealth differential continues to grow as the wealth of the periphery pours into the imperial center, or if the citizens on the periphery of empire figure out why it is that they are so poor while it is their natural resources and labor that are producing the wealth for the imperial centers, a flashpoint will have been reached.

These invisible borders created by subtle-monopoly legal structures established over the centuries to protect power and wealth can be proven by simple mental exercise: All wealth is processed from natural resources (by labor utilizing industrial capital) and most the world’s resources are in the impoverished world. Pay labor on the periphery of empire the same for equally-productive work as labor within the imperial-centers-of-capital, permit them industrial capital (technology) to produce for themselves, allow them equal access to world markets, and soon all people will be equal as they build and produce for themselves and the world, not just producing for the wealthy world. Under democratic-cooperative–(superefficient)-capitalism invisible borders will disappear. The periphery of empire, previously a huge plantation system providing resources and labor to the wealthy imperial-centers-of-capital, will have gained control of their destiny. All people will have regained full rights to their share of the life-sustaining modern commons.

Returning Title to Natural Wealth to its Rightful Owners

Control at any one of several points (resources, technology, finance, markets, or figurehead governments) can gain effective control of a society’s wealth, which is a prerogative of ownership. Those mines, oil fields, forests, and fields could be returned to their rightful owners by a combination of equalization surcharges and society collecting the landrent as per Henry George’s philosophy (see chapter 24). The exposure of the current subtle monopolies protected by the Adam Smith philosophy and military force explains why the IMF/World Bank/GATT/NAFTA/ WTO /MAI/ GATS/FTAA/Military colossus insists on destroying the power of governments and privatizing all social wealth. Only strong governments and firm policies can take the world’s destiny out of the hands of the subtle monopolies of the imperial-centers-of-capital.

Tariffs to Equalize Equally-Productive but Unequally-Paid Labor

In neo-mercantilist world trade, one society’s security is another society’s insecurity. Where free trade as practiced by neo-mercantilists protected only the powerful wealthy world, the protection of both people and the environment starts with security for all people. Early tariffs were tolls for the right to cross or trade on land owned by lords and nobles. Such tariffs on exports confiscate a share of labor’s wages and capital’s profits in the exporting country, while tariffs on imports confiscate a share of the wages and profits of another country’s labor and capital.

If the tariff is on imported oil or another commodity in which there is little labor or capital involved, that tariff is primarily a landrent tax (oil and other raw materials are land) confiscating the landrent of the exporting country. If the tariff is on a labor-intensive import item, that tariff is primarily confiscating labor values that properly belong to the exporting country. Landrent values and labor values of another society can be confiscated by importing undervalued commodities produced in dependent countries too weak to demand full landrent and labor values. Confiscation of weak societies’ wealth can be eliminated by Henry George’s principle of society collecting the landrent, pricing raw materials relative to the cost of mining the world’s poorer deposits and harvesting from its poorer soils and applying surcharges to equalize equally-productive labor values.

Pricing Commodities relative to the Cost of Mining and Harvesting the World’s Poorer Soils

Instead of mass privatizations that effectively transfer title to corporate imperialists, commodities should be priced relative to the cost of mining and logging (or substitute commodities) in the resource-scarce developed world. Labor values should be calculated, equalizing surcharges collected, and these funds used to pay for the needed renewable energy capitalization for the undeveloped, commodity-exporting countries. Through such incentives and disincentives, resources will be conserved, pollution reduced, and the environment protected.

A part of the surcharge on exported commodities—rebalancing the unequal pay for equally-productive labor and replacing the landrent historically going to the corrupt elite of impoverished nations with Henry George’s concept of society colleting the landrent—can be used to pay corporations for relinquishing subtle monopolization of industrial technology. There will be no debt trap. If industry and infrastructure are contracted to be built—as opposed to being funded by direct loans—there will be limited siphoning of wealth to Swiss bank accounts.

Currently the cost of minerals in the United States is only 1.7% of GNP and the cost of fuel only 2%.6 This demonstrates that there is plenty of room to increase the price of minerals and carbon fuels to a level that the lower grade deposits in the developed world can be mined and renewable energy utilized. The recycling of minerals would then be profitable and renewable energy would be competitive. Raising the price of carbon fuels and lowering the price of renewable energy can be accomplished quickly: simply transfer the current massive supports provided the carbon fuel industry to renewable energy.

With labor equally paid, initially through tariffs and resource depletion (landrent) surcharges balancing production costs, the world can then mine all deposits (rich and poor), maximize product life (because consumer products now appear expensive), and can recycle (because they are actually now cheaper) the consumed minerals, paper, plastic, and other materials. Though developing-world resources may appear higher priced under these rules, they are really cheaper. Far more people will be provided with the amenities of life (which is the proper measure of cost) even as the world’s resources and ecosystems are protected.

Once resources are no longer wasted producing arms—and social efficiencies such as those outlined in the classics of Thorstein Veblen, Stuart Chase, Ralph Borsodi, this author’s The World’s Wasted Wealth, and many others documenting the enormous wasted labor and resources—are instituted, the developed nations can afford to use their poorer deposits, develop new technology, or trade (equally now) with those who have rich deposits.

Equalizing Managed-Trade

Regions must have balanced integration of their industries and markets. The European Economic Community provides the model and experience. Long before becoming serious about a common market and against the rules of laissez faire development Western Europe integrated its production of steel and coal.7 With their borders guaranteed and resources integrated, once-dependent countries can stop worrying about being attacked and can concentrate on building the industrial tools, infrastructure, and social structure for a productive regional economy.

To develop the impoverished world to a sustainable level, we need to apply Friedrich List’s philosophies for developing powerful nations to the development of the world’s weak nations. If a country lacks natural resources, it should be permitted a higher level of industrial capital. This is what happened with the three miracle countries: Japan, Taiwan, and South Korea. With limited resources, they were given access to industrial technology, capital, and markets, they protected those industries and their home markets, and they became wealthy.

It is possible to turn “win-lose” or “lose-lose” trade wars into “win-win” equalizing managed trade. A wealthy importing country should pay an equalizing surcharge based upon equitable landrent and labor values on imports from the region which has lost title to its resources and whose labor is underpaid. Surcharges on trades between regions would be only relative to inequality of wage rates for equally-productive labor and to equalize costs between rich and poor deposits of natural resources.

Those surcharges should not go directly to the typically corrupt developing world nation. They should go into a compensation/ development/ecosystem protection fund to pay directly for developing a region’s infrastructure, constructing developing world industries, developing renewable energy resources, developing environmentally sound products, designing and implementing ecologically sustainable lifestyles, rebuilding soils, and cleaning up and revitalizing the world’s ecosystems. Those surcharges should be lowered in step with industrialization and wage increases of the developing nation. Once roughly equal in technology and when labor is equally paid, surcharges would be eliminated and honest free trade would flow between those regions.

But yet remaining should be a resource depletion tax to fund ecologically sustainable lifestyles for rebuilding the soils, and for cleaning up and revitalizing the world’s ecosystems. Those regions would now have free trade and the world’s ecological health would be protected by what is essentially a worldwide landrent tax imposed upon depletable resources. As technological parity is being reached, the surcharge protecting labor values would be disappearing but the ecosystem protection taxes would remain (they go by many names, resource depletion tax, ecological tax, et al., but they are all essentially a collection of landrent.) and under Henry George’s philosophy of society collecting the landrent those developing societies will have adequate development funds.

Under a world development plan that maintained regional competition between societies of roughly equal industrial development and wage rates, while managing trade between unequally developed societies, the destruction of viable industries and communities would cease even as competition within regions increased. With the social savings of capital protected from low-wage competition but maintaining efficient competition, prices would fall and living standards would rise dramatically.

Conserving Hydrocarbon Fuels

Under an international program to conserve natural resources, promote the use of renewable fuels, and protect the ecosystem, the proper price of oil and coal should be assessed high enough to make wind, solar, and other renewable energy competitive and maintain the consumption rate of oil and coal at a level that would consume the world’s oil and coal both in balance and within the ability of the earth to absorb the carbon dioxide and other pollutants produced.

Besides moving the massive supports for fossil fuel production to renewable fuels, this can be accomplished through a resource depletion surcharge (note: oil, coal, minerals, forests—all natural resources—are land, and this is a collection of landrent). Using up the world’s oil in 50 years and moving to the coal fields when the oil fields are exhausted would only ensure waste of those precious fuels and, create further unbalanced world economies as well as increase the threat of the greenhouse effect.

These hydrocarbons are so valuable for fabrics, plastics, medicines, smelting of ores, and powering ships and airplanes that—long before they are exhausted—their price should be held above that of other fuels both to limit pollution and to conserve them far into the future. Equalization surcharges going into a development and ecosystem protection fund, title to their own resources, rights to the latest industrial technology, and elimination of arms purchases and wars will provide the necessary financial resources for the balanced industrialization of the developing world as well as for environmental cleanup, reforestation, replanting of grass, and other ecological protections throughout the world.

The Middle East and the Caspian Basin have possibly 80% of the world’s oil reserves, but that is expected to be depleted in 50 years. That is a very short time. Those desert regions have the advantage of solar energy being cheaper than in most other areas of the world, and it is imperative that they, along with the rest of the world, develop a sustainable energy policy.

The industrial nations should agree to provide industrial capital and technology to peaceful Middle East nations. If they were to give up their arms under guarantees of peace, inviolable borders, and access to capital and markets, they could no longer waste their wealth on wars, nor would they want to. Before these cheap hydrocarbon fuels became scarce, the world would be accustomed to non-polluting solar, wind, tide, and geothermal energy. This would both protect the ecosystem and save those hydrocarbons for other much more valuable uses for future generations.

Even as light bulbs are being invented that require one-fourth the electricity—and similar efficiencies are being obtained for electric motors, refrigerators, and other equipment—electricity generated by windmills and solar energy through photovoltaic cells is becoming competitive with fossil-fuel-generated electricity. When a substantial share of electricity is generated by these relatively nonpolluting and limitless energy sources, the well-known efficiency gains of mass production will lower their costs, enabling society to make the decision to radically reduce consumption of fossil fuels. That decision can, and should, be made in the near future. Automakers plan to have cars fueled by hydrogen that emit no pollution and highly efficient electric/gas hybrids on the market in the first decade of this Century. As hydrogen is one of the most plentiful elements on earth and mass-produced fuel-cell-powered cars are expected to be priced competitively with gas powered cars, the world does not have to abandon cars.

Build them Industries Instead of giving them money

With the record of corruption within impoverished countries, people will question giving them money. That can be handled by building their industry directly by contract, not giving money. To build a balanced economy, provide consumer buying power, and develop arteries of commerce that will absorb the production of these industries, contractors and labor in those countries should be used. Legitimacy and security of contracts is the basis of any sound economy. Engineers know what those costs should be and, if cost overruns start coming in, the contractor who has proven incapable should be replaced—just as any good contract would require.

Once the industry is built, shares should be issued to managers and workers. Shares should be paid for out of wages and profits and as that money is repaid it can be used for building social capital (homes, roads, libraries, et al.). The development of consumer buying power and arteries of commerce would require a protective period equalizing the pay of equally-productive labor between regions. Once the region is economically viable, with adequate social capital and local buying power, the industry would then be on its own to sink or swim. With workers owning a share of the industry, the potential of gains through good management, the certainty of loss through poor management, the ability to regulate their own wages to stay competitive, and all this within an organized plan to develop a balanced economy, one can safely say most will succeed.8 When provided the industry, as opposed to the money to build industry, those people will have physical capital. The only profits to be made then are in production; there is no development money to intercept and send to a Swiss bank account.

With care taken to organize homes and markets around jobs, and computers and modern communication permitting much work to be performed at home, the transportation needs of a well-planned, secure, well-cared-for society could be but a fraction of that currently seen as necessary in the developed world. A trend toward smaller homes—such as are the norm in Europe—could be fostered, consuming much less of the Earth’s stored capital (timber, minerals, and fossil fuels).

Footnotes

1. People and nations all over the world hoard hard currency. Until those hoarded dollars, pounds, marks, euros, or yen are spent in their country of origin, they are interest-free loans to the powerful imperial centers. Money spent to purchase outside the imperial center may be a debit to the person purchasing but so long as that money circulates outside the imperial center the only cost to the money-creating nation is the cost of printing and accounting. Depending on the current interest rate, that interest-free loan properly invested will accumulate that value to the imperial center every 5-to-15-years. Back to text

Endnotes

1. Gerald Epstein, “Mortgaging America,” World Policy Journal (Winter 1990-91), especially pp. 37, 53. Back to text
2. William Greider, Who Will Tell the People? (New York: Simon and Schuster, 1992), pp. 402-03. Back to text
3. AFL-CIO Task Force Bulletin on Trade, 1992. Back to text
4. Andrew A. Reding, “Bolstering Democracy in the Americas,” World Policy Journal (Summer 1992): 403. Back to text
5. Gerald Epstein, “Mortgaging America.” World Policy Journal (Winter 1990-91), pp. 52-56; see also p. 47. Back to text
6. Herman E. Daly, Steady-State Economics (San Francisco: W.H. Freeman, 1977), p. 109. See also Brian Milani, Designing the Green Economy: The Postindustrial Alternative to Corporate Globalization (New York: Rowman & Littlefield, 2000). Back to text
7. Dean Acheson, Present at the Creation (New York: W.W. Norton, 1987), pp. 382-84. Back to text
8. Roy Morrison, We Build the Road as We Travel (Philadelphia: New Society Publishers, 1991). Fawzy Mansour, Professor Emeritus of Political Economy at Ain Shams University, Cairo, Egypt, has a philosophy for Third World development quite similar to these last two chapters. Fawzy Mansour, “A Second Wave of National Liberation?” Monthly Review (February 1999), pp. 19-31. Back to text

This is a chapter from the book, Economic Democracy; The Political Struggle for the 21st Century. Visit that link for more information about the book.