Free trade has its limitations, writes Tim Hazledine.
If someone says they're worried about global population
growth, you wouldn't immediately accuse them of wanting to
ban babies. If someone is concerned about the damage done by
excessive alcohol consumption, you wouldn't at once label
them wowser prohibitionists.
At least, a reasonable person wouldn't. One of the most
reasonable, well-informed people I know is the political
commentator Colin James. Yet, in his column in the February
16 issue of the Otago Daily Times, reporting on the
Green Party's recent conference, his description of the
Greens' economic stance is: ''a rejection of free trade in
the belief that good can be done behind closed doors. That
rejection of the global economy doesn't exactly mesh with
their global environmental perspective predicated on there
being only one planet for all humans.''
Statements like this and the thinking (or non-thinking)
behind them are all too common, and not just from right-wing
ideologues, but from shrewd centrists like Mr James, and
trade and finance ministers of both major New Zealand
Query some extreme position called ''free trade'' and -
whizz, bang - you're catapulted in an instant to the other
extreme of isolationist autarky (''closed doors''), having
''rejected the global economy'' en route. Now, I've checked
out the Greens' trade policy on their website. You may like
it or not, but it is, of course, not a proposal for shutting
New Zealand off from the world.
It's as though the whole subject of a country's stance with
respect to the rest of the world has been declared not decent
for public discussion, politically incorrect, like
differences in IQs between races or the corrosive influence
of private schools on the social fabric.
Behind such positions is usually a fear of finding out
something uncomfortable; something that we've swept under the
carpet rather than confront. I can see this with racial and
other differences, but frankly wouldn't want to put free
trade in this fenced-off category.
So let's give it a go. How might a reasonable person approach
the trade/globalisation issue, in particular from the
perspective of our own small island economy? An open-minded
starting position could be that trade may be just like babies
and booze - that is, good things in themselves, but you can
have too much of them. I will suggest that New Zealand is
approaching or even past the point where we have too much
trade, the wrong sort of trade, and the wrong attitude to it.
First, some history. The modern free trade movement has
honorable origins in the great post-war Keynesian programme
to eradicate war, tyranny and economic slumps from the
Western world. The Great Depression of the 1930s had been
exacerbated by ''beggar-thy-neighbour'' trade protectionism,
increasing tariffs on imports to around 30% or more.
The 1944 Bretton Woods agreement, of which economist Maynard
Keynes was a key architect, set up international institutions
to bind nations into liberal, stable partnerships. These
would soon include the rounds of tariff-reducing negotiations
under the Gatt (General Agreement on Tariffs and Trade),
which, by the 1980s had basically succeeded in reducing
tariffs on most manufactured products to single-digit levels,
if not zero.
That's fine, but over the past quarter century, forces never
seen before have arisen in the world economy. It's not just
about the ''West'' any more. Poor countries in south and east
Asia, led by China, have begun industrialising at a terrific
rate, pouring out cheap manufactured goods for the world
market. The resulting boost to international trade is not
''efficient'' in any absolute sense - labour productivity is
lower in the new economies, and the supply chains are long
and cumbersome, but much lower wages have more than
compensated up till now.
Those cheap imports do come at a price for us. The shift of
manufacturing to the South and East is resulting in a welcome
decrease in economic inequality between countries, but also
an increase in income disparities within the developed world,
and this nowhere more extreme than in New Zealand. Increased
inequality can be directly linked to the hollowing-out of our
manufacturing sector - historically the most reliable,
large-scale provider of well-paid blue collar and skilled
Further, it can't last. Within a generation, the artificial
cheap labour advantage of China, Vietnam, Indonesia et al
will be just about wiped out by their economic growth, as it
was earlier in Japan and then Korea.
Then the world will be divided into two types of country:
those that have retained their manufacturing capability -
probably including the US, Germany and Korea - and those that
have forgotten how to make complex things. The latter group -
which will include New Zealand on current trends - will be
relegated to the status of ''hewers of wood and drawers of
water'', on terms that will be imposed on us by the economies
which can still produce all the other goods we need to
It's happening already, with forced-trade initiatives such as
the Trans-Pacific Partnership (TPP). You may be a bit
sceptical (I am) about what politicians can achieve, but we
want it to be our elected government, not the US or China,
that runs our affairs, surely?
Perhaps we should be trading less, but enjoying it more, with
a ''Clean, Green and Expensive'' strategy instead of
desperately thrusting low-value commodity exports on whomever
will take them. I don't know, but I do believe we need to be
thinking and talking about these things. That's not
unreasonable, is it?
- Tim Hazledine is a professor of economics at the
University of Auckland Business School.