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Haider 1
Ali Haider
2017-02-0331
Rabia Nafees Shah
SS100-11 Writing and Communication
10 May 2014
Should free trade and labor mobility be allowed?
Why is Italy famous for making footwear and not silicon
chips? Is it simply because Italy looks like a long boot? Why do
we spend joules of thought before picking a shampoo or going for
a movie? How has the famous ‘Oscar selfie’ become popular so
rapidly among people all over the world? The carrier of this
gamut of change, which determines our economic well-being,
envelopes our social lives and is transforming global culture, is
free trade. Free trade is described as the unrestricted purchase
and sale of goods and services between countries without the
imposition of constraints such as tariffs, duties and quotas
(Free Trade Definition Investopedia). The notion of free trade
has its early origins in renowned classical economist, Adam
Smith’s 1776 magnum opus, The Wealth of Nations. It was written
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to upend the Mercantilist ideology, which was prevalent in Europe
since 16th century. Adam Smith promulgated the idea that rigorous
pursuit of self-interest and free interplay of market forces work
like an ‘invisible hand’, to determine optimum level of
production and consumption in the market, thereby rendering
interventionist discourse and practices unnecessary and adverse
(Adam Smith). Later, various theories dwelled upon Adam Smith’s
revolutionary idea and became founding principles for modern day
free trade. Proponents of Adam Smith’s invisible hand and strong
supporters of protectionism have had been engaging in various
diatribes over the issue. Over the course of history, it has been
observed that economies which have opened their borders to free
trade have enjoyed rapid and sustainable economic growth. China
has experienced a 10% GDP growth rate on average since it leaned
towards trade liberalization post 1978 (China). Free trade
policies and the resultant free mobility of resources have
debatably had detrimental impact on the diversity of cultures,
national security and have also contributed to marginalization of
developing economies. However, we cannot let the perfectionist
fallacy which protectionists and bourgeoisie espouse, often for
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their myopic vested interests, override the greater good which
trade liberalization carries. Free trade should be fostered for
the economic growth, higher incomes, and cultural harmony it
brings about, however, state authorities and global community
should oversee and regulate the trading process to curb market
failures and safeguard national interests and security.
Modern day free trade principles stand tall on a
revolutionizing theory propounded by David Ricardo in his 1817
book, Principles of Political Economy and Taxation. In this book
Ricardo vociferously condemned the 1815 Corn Laws, which were
protectionist and myopically nationalist in spirit, and advocated
the theory of Comparative Advantage (Comparative Advantage).
According to ‘Ricardian’ principle of comparative advantage,
resources are optimally allocated when economies produce those
goods in which they have the lower domestic opportunity cost
ratio. The mathematical illustration and the accompanying
technicalities have been forgone for the sake of focus and
brevity. In a trade arrangement based on Ricardian principles,
trading partners specialize in production of goods, which can
best be produced with their factor endowments. The specialization
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generates greater output and both trading partners have enough to
trade goods at a profitable exchange rate. It is established how
Adam Smith’s invisible hand and Ricardo’s principle of
comparative advantage induce a mutually-beneficial trade
arrangement, where resources are put to their best use. It is a
worrying fact that the population mark has crossed seven billion
recently. Pervasively, the problem of scarcity of resources is
growing grimmer. In view of the forgoing, channelization of
resources to their optimal use is critical for sustainability.
Therefore, the neo-liberal argument for free trade holds water
for its utilitarian ends. However, the naysayers tend to disagree
on the grounds that free trade damages national industry by
exposure of foreign competition. This refutation to the free
trade argument is valid to some extent. Detroit’s auto industry’s
decline is a classic example. Import of European and Japanese
cars in the US after mid-1950’s marked a watershed for the Big
Three (General Motors, Ford and Chrysler) and Detroit’s economic
structure. In 1956 sales of imported European cars doubled, while
demand for local cars fell. Subsequently, the Big Three fine-
tuned a part of their portfolio according to the consumers’
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preferences. Later in 1973, OPEC raised oil prices drastically
for political reasons which rendered the cars produced in the US
unaffordable since they were not fuel-efficient anymore. Soon
the exasperated consumers started importing Japanese cars, which
were highly affordable for their splendid fuel-efficient engines
and compact sizes (Detroit: The New Motor City). Japan played on
its factor endowment, i.e. cheap and skilled labor. Heavy flood
of car imports swept Detroit’s car industry away. The General
Motor’s Flint plant, which employed 100,000 workers in its
heyday, downsized to only 6000 in 2007. Detroit, which was once a
home to people with highest median incomes in the country, is now
called the poverty capital of the US (Schifferes). This tragic
account of Detroit’s fall puts spotlight on the horrid façade of
trade liberalization. However, it must be noted that rigid
adherence to utilitarian pursuit is not only justified on the
grounds of optimal resource allocation and sustainability, but
also for the fact that trade liberalization mechanism carries a
moral high ground since it champions consumer sovereignty and
liberty. State intervention and protection of incompetent
national industries violates the rights of the consumers, who are
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bigger stakeholders of the state than the business class. The
role of state should ideally be to monitor free trade and provide
an enabling environment for the industrial sector to grow, rather
than to protect it against competition. It has a key role to play
in inspiring innovation in an economy. It is astonishing to
discover that many of the profound technological breakthroughs
have been made by government assistance. Smartphones owe many of
their key features such as touchscreen, GPS positioning and
voice-activated virtual assistants to the US government which
assisted development of these technologies for the armed forces,
through research funding. The development of Google’s search
algorithm was also heavily funded by the National Science
Foundation in the US (The Entrepreneurial State). It is clear
that by stimulating innovation and setting up research
facilities, a government can allow a country to fully explore its
potential and utilize its factors of production, catalyze the
process of specialization and resultantly enable the economy to
reap fruits of free trade. The government can also enter into
partnership with micro-financing banks and fund growth of
promising and creative infant industries. In Bangladesh, the
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state has 25% share in the famous Grameen bank’s ownership, which
has empowered 8.3 million people and has $1.4 billion in its
reserves. These are a few of the areas where public-private
sector partnership can safeguard local industry, especially
infant industries, and protect them against free trade
competition in a constructive way (Wright). In summary, it can be
argued that specialization and free trade arrangement should be
provided a fair opportunity to flower by the state for the
economic growth and consumer welfare it promises. The state
should focus on addressing the possible harms free trade could
bring to national economy by providing an enabling environment
and constructive infrastructural support.
Trade between two countries has proved to be a critical tool
for diplomacy and creating cooperative relationships.
Specialization and adherence to principle of comparative
advantage engenders a relationship of mutual interdependence
between two countries. Renowned French political thinker, Baron
de Montesquieu observed that "Peace is the natural effect of
trade. Two nations who differ with each other become reciprocally
dependent; for if one has an interest in buying, the other has an
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interest in selling; and thus their union is founded on their
mutual necessities." (Boudreaux). This ‘reciprocal dependence’
creates a stake in trading partner’s economic stability, makes it
imperative and mitigates antagonism between two countries. A
research conducted by a political scientist at Columbia
University, Erik Gartzke, establishes this correlation between
peace and free trade. Erik ranked countries on an economic-
freedom index and scaled the countries from 1 to 10 (10 being
very open). The countries were observed over the time horizon
between 1816 and 2000. He drew some profound conclusions from
this effort. Countries which ranked second or lower on the scale
were 14 times more prone to political upheavals and military
conflicts. Erik accentuated importance of the role of state in
establishing a sound taxation regime, promoting growth of
businesses and deregulation of markets (Boudreaux). The détente
between US and China due to their growing economic relations is
one example how free trade can bring arch rivals together in a
diplomatic bond. Chinese exports to US stood at $252.3 billion,
while US made exports of whopping $224.7 billion to Chinese
markets, making China the third biggest market for US (Shian).
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However, this relationship of mutual interdependence based on
principles of free trade is looked suspiciously by critics and is
seen as static. Famous political economist Ha-Joo Chang in his
book, Kicking Away the Ladder, expressed his concern that the
developed countries like the US, the United Kingdom and Germany
unabashedly and unfairly exploit their power at the Bretton wood
institutes and tend to form a bastion to protect national
interests while preaching ‘Adam Smith’ and ‘David Ricardo’ to
the developing economies. Dependency theorists have traditionally
censured an arrangement which tends to divert wealth and
resources from the periphery of poor nations to core nations,
too. These allegations on free trade scheme are quite pertinent
if we observe how members of the OECD protect its agricultural
industry. Over time, while WTO has encouraged and managed to
remove trade barriers by controlling tariffs and bringing them
down from 40% to 4% over the past 50 years, but tariffs on
agricultural goods stay in the range of 40-50% astonishingly.
Japan has outrageous tariffs imposed on its rice import, i.e.
1000%. The member countries of the OECD justify this double-
standard on the pretext of food security and to maintain
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political harmony with famers. This adversely affects developing
economies’ current account balance because they are strictly
dependent on exports of cash crops and are likely to incur low
terms of trade (Patches of Light). However, if we observe
precedent, this argument does not hold enough substance to refute
the validity of free trade. We have China, Singapore, Malaysia
and India as paragons, which were agrarian economies initially,
but have successfully remodeled their economic structure by
introducing industrialization, trade liberalization, market
deregulation and investing in research and development. Today,
agriculture accounts only for 9.7% of the China’s GDP while
industry and services account for 90.3%, while in Malaysia, which
was a predominantly a raw material producer before 1970s,
agriculture has been restricted to 11.2 % of GDP (Central
Intelligence Agency). The developing economies, as earlier
suggested, constantly need to invest into research and
development to break free from shackles of dependence on low-
value goods. The state has an important role in facilitating a
structural change of this scale. The way OECD clings to its
vested national interests is not liberal in spirit and must be
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condemned. Also, the power structure in WTO is not solely
dependent on the economic power of the nations but also their
political influence. Therefore, the argument made by the
dependency theorists and Ha-Joo Chang fails to defuse the
proposition that free trade is ultimately beneficial for the
sustained development of world economy and is in mutual and wider
interests of all the parties involved.
The ambit of free trade does not only include
transportation of physical goods and services only, but also of
ideas and cultural practices. Manfred Steger calls this process
Cultural Globalization. According to Steger, Cultural
Globalization refers to the intensification and expansion of
cultural flows across the globe (Steger). Cultural practices
escape fixed localities, permeate other cultures, mold them and
embrace them. This element of congregating global cultural values
is central to free trade and reinforces peace and harmony which
it espouses. Language is one of the great barriers which impede
flow of information and restrict exchange of ideas and
innovation. Through free trade and the resultant cultural
globalization this barrier has been pushed far back. Steger notes
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that the users of English language have increased phenomenally
from seven million in British colonial era to 350 million in 1990
(Steger). On the contrary, this trend towards confluence of
global cultures is seen as erosion of cultural diversity by some
of the critics of free trade and globalization. George Ritzer, in
his famous theory named The McDonaldization of Society, explained
it as the process by which the principles of the fast-food
restaurant are coming to dominate more and more sectors of
American society as well as the rest of the world (The
McDonaldization of Society). Ritzer’s theory has far-reaching
implications. It looks at how the ubiquity of symbols of cultural
globalization, such as McDonald’s and Nike, has pervasively had a
dehumanizing impact on diversity of global cultures. The
criticism on free trade on these bases is not well-founded.
Although free trade and cultural globalization do have a tendency
towards molding global culture, but, free trade has also enabled
people to stay grounded with their culture. YouTube, Facebook and
the wide array of cooking shows bear testimony to the fact that
free trade and thus free flow of media is allowing people to stay
connected to their roots, irrespective of their geographical
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location. In addition to this, free trade has been a source of
enlightenment and has at times helped societies purify themselves
of taboos by creating awareness. “Consider, for example, Thomas
Cahill's description of ancient Athens after that city opened
itself to trade: As these familiar clustered settlements, known
to agricultural societies throughout the world, grew into cities—
with demarcated streets, temples and other official buildings,
marketplaces and other gathering centers, import-export
warehouses, and docks where exotic cargoes and even more exotic
foreigners were unloaded power shifted somewhat from landed
aristocrats to the better-placed urbanites, who controlled trade
and who in the diversity of their experience began to think new
thoughts” (Free Trade and Globalization: More than "Just
Stuff” ). The diversity and cultural enlightenment which free
trade brings accompanies, in addition to the huge economic
benefits, are the reasons why free trade should be promoted.
Free movement of goods and services which free trade
motivates includes free movement of labor, since it is a factor
of production. This free movement is fundamental for optimal
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resource allocation, economic growth and development. In 2013,
the developing world remitted around $414 billion dollars back to
their homelands. Some of the developing economies such as
Tajikistan have 48% of their GDP composed of remittances (News.).
Pakistan, which has been enjoying considerable inflow of foreign
exchange through remittances, has recently received a total of
$14.9 billion from its nationals working abroad. Clearly, free
flow of cheap and skilled labor, which is highly demanded in
developed countries, is an essential determinant of economic
growth at home. Moreover, free flow of professionals across the
globe enhances productivity as larger numbers of ideas are
shared. For example, the Japanese have introduced lean production
techniques, such as ‘Kaizen’ and Just-in-time production to
western producers and have helped them cut costs in various
industries. Dell Inc. now employs the JIT technique earlier
employed by Toyota motors. Free flow of labor is thus
developmental and productive. However, free mobility of labor is
often disapproved by anti-globalization campaigners and
nationalists on the grounds that it leads to flight of
intellectual capital and professionals from a country. This is
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informally termed as ‘Brain drain’. The United Kingdom has been
facing this grave problem recently. In 2012, it was studied that
an estimated 4.7 million people in Britain moved to other
countries (Travis). The exodus of young population, especially
professionals badly affects the productive potential of the
economy, and leaves the aged population behind, which increases
burden of dependency on the rest. The problem is more serious
because public funds are heavily employed in funding scholarships
for students graduating in professional degrees. These students,
upon acquiring professional degree tend to move towards developed
economies in pursuit of lucrative careers prospects. While the
issue of brain drain is relevant and valid, what needs to be done
is that the state should enforce a well-planned migration scheme.
Why? In the absence of a state-regulated migration scheme and use
of stringent laws and regulations by state to hamper labor
movement, even more grave issues might arise. In addition to that
the state would be unable to keep a proper record of migration.
Also migrants without proper documents fail to avail to health
care facilities abroad, in addition to huge suffering. This
problem has quite exacerbated in areas like Botswana, Zambia and
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Kenya where unavailability of proper logistics causes serious
problems (Border Point Queues: A Curse for Truck Drivers in
Africa – Video). On a principle level, everyone has a right to
freedom of movement according to the Article 13 of the Human
Rights. An individual must be free to pursue his economic well-
being and also since this pursuit of self-interest is essential
to working of free market forces and optimal allocation of
resources, it should be encouraged. Concisely speaking, although
the issue of brain drain can have dire consequences for a
country, an establishment of a regulated process for migration
can allow a state to have a clearer picture of the situation,
curb issues such as, human trafficking and proliferation of
contagious diseases etc. The state must incline towards
incentivizing the local population, binding students studying on
public expenditure in contracts which prevent exploitation of the
public expenditure and also provide fair opportunity to
individuals to pursue their self-interests.
In view of the forgoing effort, some profound conclusions on
the subject and dynamics of free trade can be made.
Interestingly, no matter which position we take on the issue, or
Haider 17
which degree do we pick on the wide spectrum between free trade
and absolute protection, the process of free trade and the
ensuing globalization is ongoing and so deeply embedded in our
lives that we cannot extricate ourselves from it. Not only that,
we are actually participating in it or endorsing it in one way or
another even if we claim ourselves to be radical and stalwart
protectionists. Free trade, as established above is a fount of
economic growth and development, because it adheres to principles
of free market and ensures optimal allocation of resources.
However, there are certain dimensions to the phenomenon which
pose threat to the best interests of a nation, culture, certain
groups such as developing economies, and so on. As far as the
criticism of the economic disparity which free trade entails, is
concerned, the role of state is critical. The state needs to play
a mildly paternalistic role in monitoring markets, addressing
market failures, and channelizing resources to promote free
trade, mobility and industrial growth. The issue of cultural
globalization which free trade inspires is beautifully addressed
in words of a famous Indian economist, Amartya Sen that, “Even
though contemporary attacks on attacks on intellectual
Haider 18
globalization tend to come not only from traditional
isolationists but also from modern separatists; we have to
recognize that our global civilization is a world heritage- not
just a collection of disparate local cultures” (Sen 85).
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