“The Free Trade Was Always A Myth, Became A Fraud After 1945, and Is Now A very Dangerous Slogan.” Harry Shutt
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“The Free Trade Was Always A Myth, Became A Fraud After 1945, and Is Now A very Dangerous Slogan.” Harry Shutt

Anwar Shaikh, heterodox economist, criticizes the orthodox liberal and neoliberal political economic principles particularly the free trade and comparative advantage theory for being foundationally, theoretically, and empirically deficient and flawed (Shaikh 2007: 5). He also condemns the western/developed countries for imposing liberalization and privatization agendas such as from Washington Consensus and Post-Washington Consensus on the developing countries as the only ways for development under the supervision of international apparatuses (ibid. p. 1). Moreover, the praxis of comparative advantage theory and free trade cannot assure development in the developing countries, and Shaikh argues that they will cause comparative disadvantage, deficit, indebtedness, and finally underdevelopment in such regions (ibid. p. 16). 

Shaikh first attempts to distinguish between the theories of comparative advantage and comparative costs saying that comparative costs in theory predicts the terms of trade of each state will automatically be re-regulated to harmonize global commerce (ibid. p. 4). Individual state will find its ‘chosen’ product(s) to specialize in according to its relatively/comparatively cheapest or least backward product(s) (ibid.). The Heckscher-Ohlin-Samuelson model of comparative advantage, Shaikh claims, keeps the comparative costs process along with the notion of full-employment and perfect competition as subtle truths (ibid). It concludes that capital-abundant states will specialize in capital-intensive industries, and Laboure-abundant states will specializing in Laboure-intensive industries. Consequently, liberal international trade will spontaneously equalize real wages and profit rates globally through fall in terms of trade which as a result improves trade-deficit countries without any sufficient job losses (ibid). Shaikh argues that according to the International Labor Organization, out of three billion global workforce, one-third is unemployed or underemployed, and the core-states themselves are included (ibid. p.  5). 

Furthermore, Shaikh defies the claim that terms of trade spontaneously harmonize the trade imbalances for the fact that when free trade is performed the deficiencies rather than advancements of comparative advantage are exposed over time within economies, and the theory falls short-handed in predicting trade patterns (ibid. p. 5&6). Meanwhile the traditional comparative advantage theory is fundamentally imperfect, there are two other alternatives to better explain the application of free trade. The new comparative advantage theory suggests that the essential defect of the standard theory is that it presumes perfect competition in the imperfect global market.  Subsequently, the new theory encompasses oligopoly, increasing returns to scale, and various strategic factors within the standard analysis (ibid. p. 7). 

The last theory is the classical comparative advantage approach which demonstrates that free trade functions as it is supposed to via promising comparative advantage for the developed countries and advanced firms on the expense of comparative disadvantage of the developing countries and small firms (ibid. p. 10). Additionally, it advocates the notion that real competition adjusts trade between states similarly as it does within countries; in contrary to the misconception of comparative costs approach where it is presumed that there are spontaneous mechanisms that equalize all regions/states (ibid. p. 8). It is worth mentioning that government intervention is apparent and needed in every mentioned theories above, with least intervention in the first theory to a great deal of  it in the last one respectively. Karl Polanyi famously said, “There was nothing natural about laissez-faire;…The road to the free market was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism (Martin 2013: 180).

Hereafter, Shaikh puts emphasis on the hypocritic tendency of the western developed states claiming that while these states administer the developing world to apply liberal structural-adjustment programs such as free trade, foreign investment, privatization,  and strong laws on intellectual property and patents, the hegemonic powers like Britain and the US drastically used trade protection and subsidies to emerge as economic superpowers. They only advocated liberal policies after they had reached the top in 1860 and 1945 respectively. The same protectionist methods and historical non-liberal processes are observed in the other developed countries such as Germany, Japan, Netherlands, Sweden, Switzerland, and South Korea during the economic pathology of liberal doctrines (Shaikh 2007: 11). 

Furthermore, Shaikh illustrates another essential aspect that why western states have emerged economically more developed than the rest of developed/developing countries. Colonization, plunder, slavery, systematic deindustrialization of the Third World, and globalization of capitalism allowed super-accumulation to happen in the Global North while inequality and poverty spread out in the rest of the world in the past five hundred years (ibid. p. 13-14). However, the developed states accuse the developing and underdeveloped countries for the absence of profound institutions particularly financial ones and uncomplete integration into the global market. In contrast, the Bank of England and other institutions came into being after 1844 in Britain followed by the US only after 1913 (ibid. p. 15). 

Finally, I will focus on some essential critiques and further demonstration that Shaikh seems to ignore. Dani Rodrik believes that if we are heading towards international economic integration, we have to choose either nation-state with very narrow space for national democracy, or to choose democracy by giving up on nation-state in exchange for global federalism. Whilst Global Federalism still sounds like fiction, the options are restricted to choose in between globalization and nation-state along with democratic deficit, or to choose nation-state and democracy through deglobalization. It is obvious that democracy and the role of nation-state are declining in the developing world thanks to the Post/Washington consensus’ ten commandments (Rodrik 2000: 180). Although Shaikh explains the role of firms in shaping terms of trade and absorbing some of the wealth generated through commerce, Shutt claims that ‘it is the international corporations that reap the benefits from the low-wage comparative advantage in the developing regions, not local entrepreneurs or the countries’. Additionally, Shutt suggests that developing world should relocates its focus on enhancing local capitals rather than depending on foreign direct investment and aids as being suggested by many western economists (Dietz 1986: 905). Moreover, the standard models’ miscalculation in distribution of benefits through free trade is noticeably inaccurate by ignoring the risks of Laboure displacement, economic downturn, and increasing debt in the developing countries (Jomo & Arnim 2008: 12). 

Shaikh also neglects the role of free trade in accelerating deindustrialization occurs within petrostates and shrinking their economies to become less diverse. Additionally the effects of high quality control in the western states for importing products is worth mentioning because such non-tariff barriers also restrict developing countries’ choices to export agricultural products and raw materials instead of fostering their manufactured goods. Nevertheless, free trade is a delusion to deceive developing countries, globalization has its own Brightside under specific conditionalities. For instance, China opened up to the rest of the world gradually in accordance to its domestic conditions, pace and needs (Cheong 2011: 422). The Chinese leaders profoundly could deal with  globalization issues through policy choices such as choosing the process of partial globalization, in which they accepted liberal approaches in trade and foreign direct investment (FDI), while rejecting the global financial standards by having closed capital account and pegged exchange rate. These policies, in actuality, delivered China from the Asian Financial Crisis in 1997 and Global Financial Crisis in 2008 (Tiberghien 2014: 291). 

In conclusion, it is contested that liberal doctrines especially comparative advantage theory and free trade are foundationally inadequate, and when they are employed, they accelerate the development of underdevelopment in the Global South. Additionally, such a deception has been promoted and ‘realized’ by the developed states due to the mouthwatering wealth being generated through free trade and liberal policies instead of the ‘benevolent’ ultimatum for eradicating poverty in the developing world. Nonetheless, capitalism is irreversible and inventible global process, partial deglobalization and full (re)democratization are also plausible in the southern-hemisphere. Eventually, there are prominent examples of adequate policy choices in the developing world that enabled countries to handle the inevitable and negative actualities of global capitalism.


Arez Barzinjy 

Bachelor of Arts in International Studies and Law at the American University of Iraq, Sulaimani

Studies Master’s Degree in Global Political Economy and Development at University of Kassel, Germany 

arez.os.abdul@gmail.com 


References:

CHEONG, J. (2011). ASEAN Economic Bulletin, 28(3), 420-422. Retrieved July 6, 2020, from www.jstor.org/stable/41445404

Dietz, J. (1986). Journal of Economic Issues, 20(3), 904-906. Retrieved July 6, 2020, from www.jstor.org/stable/4225777

Jomo, K., & Von Arnim, R. (2008). Trade Liberalisation for Development? Who Gains? Who Loses? Economic and Political Weekly, 43(48), 11-12. Retrieved July 6, 2020, from www.jstor.org/stable/40278226

Martin, L. (2013). Polanyi's Revenge. Perspectives on Politics,11(1), 177-186. Retrieved July 6, 2020, from www.jstor.org/stable/43280696

Rodrik, D. (2000). How Far Will International Economic Integration Go? The Journal of Economic Perspectives, 14(1), 177-186. Retrieved July 6, 2020, from www.jstor.org/stable/2647061

Shaikh, A. (2007). Globalization and the myth of free trade. Globalization and the Myth of Free Trade, 50-68.

Tiberghien, Yves. "An Uncertain World: Rising Powers, Systemic Risk and the Role of Institutions and Entrepreneurship: A Response to Brantly Womack's "China's Future in a Multinodal World Order"." Pacific Affairs 87, no. 2 (2014): 285-93. Accessed April 14, 2020. www.jstor.org/stable/43590876.