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Blupete's Weekly Commentary


December 5th, 1999.

"Free Trade."

Today, many influential conservatives and liberals alike claim that trade is a threat to jobs, our economy and even national security -- and must be further restricted. But experience shows the less commercial contact people have with the outside world, the worse off they tend to be. Nations which restrict themselves in respect to trade tend to suffer stagnation, decline and backwardness. Today's poorest regions -- such as Afghanistan and Tibet--have had, due mostly to geography, little contact with the west. The same might be said for vast regions of Africa and of South America. The fact is that people are enriched in myriad ways through commerce. Peaceful commercial contact with the west has been a source of prosperity in Southeast Asia and the Middle East. The west's taste for tea, rubber, and cocoa has brought great benefits to India, Malaya and Ghana. In the beginning, it was through enterprising traders that brought prosperity to the Mediterranean. More recent historical examples can be had by looking to the islands of Japan and Great Britain. Can there be any doubt, -- that it was the traders on these relatively small island nations that raised the living standards for millions, everywhere.

It is not possible for one country to trade with another where it is subject to excessive government intervention in its domestic market and its would be trading partner is not. It is not possible for a country operating under a collective or socialistic system1 to involve itself in free trade with other countries.2 This is because, as history clearly shows, a truly free domestic market will throw up the best prices, not only for its own citizens, but to all the potential buyers in the world (ever so important in this e-commerce age). The result -- and this has had the effect of crushing socialism worldwide -- is, the freer a national economy is, the more worldwide business it will capture. The only answer for an overly governed country is to unleash its domestic market by the removal of depressive tax and regulatory laws; suffer through the beginnings of the "J-curve"3; and, bring long term prosperity to the nation through greater efficiencies and better prices.

Notwithstanding the views of misdirected environmentalists who get our children to go rushing about in a reckless or riotous fashion, free trade is easier on the environment then when it is restricted. Economists 4 have shown that there is, after an initial negative impact ("J-curve" again), a positive relationship between economic development and environmental amenity. In poor countries the population in large numbers have little money to spend on anything but the bare necessities in life, and often not enough for those. They certainly have no money to save (capital investment) and none to give to government for public programmes. As the country industrializes there is a corresponding increase in affluence generally among the people, and an increasing demand (coupled with the wherewithal) for environmental amenities such as human waste management, water treatment and pollution abatement. Further, affluent societies generate groups who come forward and assert themselves in regards to their particular interests, including such interests as they may have in property rights and environmental concerns.

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NOTES:

1 As Bruno Leoni wrote, "a characteristic feature of free-trade systems seems also to be that they are compatible, and probably compatible only, with such legal and political systems as have little or no recourse to legislation." [Freedom and the Law (Indianapolis: Liberty Press, 3rd Ed., 1991) at p. 103.]

2 I might add, neither can an open door immigration policy exist where a country, such as Canada actively pursues socialistic policies such as the universal gifting of education and medical services.

3 The "J-curve": Every one is familiar with the common phenomenon of how a change in the way of doing things usually, at first, brings about disruption and confusion, such that, for a short period of time one is worse off then they were before the change; but, a worthwhile change after the initial upset or reversal, will, with perseverance, bring about the better situation contemplated by the change. This, like so many things is true with the introduction of free trade. There is at first an initial deterioration in the balance of payments; but this is followed by a more-than-offsetting improvement as the volume of exports responds over time to the gain in price competitiveness.

4 Dr. Larry Summers, et al. at the World Bank.

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Peter Landry

December, 1999 (2011)