Home > Uncategorized > Free to trade efficiency?

Free to trade efficiency?

from Peter Radford


The war in Europe is messing with some major preconceptions and exposing some as illusions that, perhaps, we would be better off without.

Take, for instance, The Economist magazine’s leader article entitled “Trading with the enemy.”  Here’s the key question the article poses:

“Is it prudent for open societies to conduct normal economic relations with autocratic ones, such as Russia and China, that abuse human rights, endanger security and grow more threatening the richer they get?”

You and I might answer in the negative with a certain ease, but for the Economist and its ilk the question is more nuanced.  After all aren’t freedom and free trade one and the same?  If you stop trading freely aren’t you surrendering your freedom?

The Economist goes on to present its case, which inevitably decries any diminution of free trade, and ends thus:

“Liberal governments need to find a new path that combines openness and security, and prevents the dream of globalization turning sour.”

All well and good.  And predictable.  We must not get in the way of free trade.  Must we?

Something niggles me though.  When the Economist talks blithely about trade between nations it overlooks the rather more complicated issue that trade is not actually between nations.  It is, more often, between private parties situated in different nations.  So the so-called American trade with China is not America doing the trading but private entities like Apple, or Google, or Microsoft etc.  Certainly the benefit of such trade, in the form of cheaper goods for American consumers to buy, can be thought of as a national advantage, but the truth is that there is a second and more potent incentive for the trade.  That is the profit going to the private enterprise shareholders.  The disadvantage to the far fewer workers who might have been displaced by the trade — with “trade” being extended to include the relocation of production offshore — also has to be included in the equation, but since this has been externalized away from the business doing the trade, it doesn’t show up on any private ledger.  It shows up in the social and economic costs borne by the areas whence the production was moved. 

We can go a bit further.  The entire trade relationship between, say, America and China, is predicated on and initialized by, private decisions and not democratically decided, public ones.  And yet national diplomacy follows the trade.  So subsequent diplomacy takes the form of protecting and extending where possible, private interests.  Trade wars begin with private incentives being exploited. 

In other words, the simpler conversation the Economist wants to pursue is more complex and involves questions that ought not be squashed into narrow concepts like “freedom” and “free trade”.  Whose freedom?  Whose fee trade?  Who benefits?

Now I am not anti-free trade,  far from it.  Lower prices provide a great advantage for consumers.  But the social cost, by being externalized tends to get lost.  It is why there has never been a proper accounting of and compensation for it.  The flow of profits that Apple, say, gets from “free trade” ought surely subsidize the social costs of offshoring production.  Does it?  Or does Apple play games with its profits so as to minimize the tax it pays and this renege on its responsibilities?

No one can be shocked at the answer to that query.  

And then the Economist rolls out another questionable concept.  Locked as it is within the walls of classical economics, the Economics bemoans the possible losses associated with less “efficient” production.  It says:

“The retreat by the West to cold-war spheres of influence or self-reliance would be a mistake.  The costs would be vast.  Roughly $3trn of investment would be written off for less efficient production that fuels inflation and hurts living standards.”

Efficiency is such a strange concept.  It always distills down to lower cost.  Here we are at the tail end of a pandemic that exposed the supposed efficiency of elongated supply chains as being a stark trade-off between lower cost and resiliency, and the Economist still hasn’t absorbed the lesson.  Efficiency is an illusion in a world of radical uncertainty.  Lower cost is demonstrably beneficial to shareholders in the short term.  But a cursory survey of the natural world will tell us that some form of adaptability, which is a costly luxury in the world of extreme efficiency, protects the profit over the longer term.  You just don’t know when the next pandemic or geopolitical crisis will pop up.  Just how efficient is the inability to adapt to a new circumstance?  What does efficient even mean in the context of constant change?  The lack of understanding of the costs associated with uncertainty continues to baffle me.  Lower costs in general are a good thing.  I get that.  But at the end of an attenuated and vulnerable series of links across the globe, the loss of any one of which destroys the integrity of the whole, such efficiency is a liability not an advantage.

Context is everything.  Efficiency is not.

So some retreat from the sort of free-trade that the Economist argues we need to protect is in the interests of the very private organizations that profit from such trade.  This is a lesson that both the pandemic and the crisis in Ukraine is teaching us.

And this, of course, ignores the perennial question of just how far national and private interests are entangled in free-trade.  If the national interest — in the name of efficiency — is to encourage and protect private free-trade, then the private interests thus protected have an obligation to help pay for the consequences of their pursuit of profit abroad.

Pay those taxes.


  1. March 23, 2022 at 10:34 pm

    The last comments imply taxes fund federal spending by sovereign currency-issuing govts. It is a variation in the tax the rich campaigns so that we can “pay for” the nice things we want or need. That reinforces indirectly that we need the rich oligarchs.

  2. Edward Ross
    March 24, 2022 at 12:05 am

    “Then the private interests thus protected have an obligation to help pay for the consequences of their profit abroad,” Viewing this from the real world everyone in the real world is aware that the rich oligarchs are expert of hoarding their ill gotten gains regardless of who it hurts.Ted

  3. John Jensen
    March 24, 2022 at 1:40 am

    Fortunately we are now in the age of robotics. So now anyone with robots can produce it cheaper. Cheap labour is not enough reason to off-shore supplies any more. But, China now has more engineers (and America more lawyers) but also less incentive to switch to robotics since they have more hands to keep busy. So, if we make everything by robots in each country then all the externalities will be suffered and have to be managed internally. Using robots needs more engineers and more education and employs fewer people which in turn means fewer consumers. Which in turn means that prices have to rise within each national economy to pay the unemployed to produce less but continue to consume. Obviously a few wrinkles to iron out before everything becomes sourced locally.

    • March 24, 2022 at 2:36 am

      Note that paying the unemployed to produce less is just a policy choice. (Check out “Job Guarantee”

  4. John Jensen
    March 25, 2022 at 2:22 pm

    A “job guarantee” is not just “Paying the unemployed to produce less”, it’s a policy to provide meaningful work for everyone. For example, Training and hiring caregivers to keep you alive after retirement might seem useless in terms of “producing more for the economy” but I’m pretty sure you feel it’s a worthwhile job for someone – ad not “paying the unemployed to produce less”.

    • Edward Ross
      March 26, 2022 at 5:30 am

      reply to John Jenson Re” paying the unemployed to produce less” but isn’t this what we are already doing by paying the dole to many that should be working so that they can enjoy their drugs and terrorise the good people in the community.
      Throughout my working life i have enjoyed the challenge of the various jobs i have had. after working as a farm hand i got a repetitive job in a large saw mill. After a short time i was offered a job in the power house as fireman where we had two large boilers to produce steam and electrical power. i was only there a few weeks when the engineer had an accident and disappeared. the result was i was left to do the job of both fireman and engineer under marine department permits and i was only eighteen.
      Then my wife and i spent 12 years as un paid volunteers in PNG where we looked after the sick village people and i developed a farm school project to alleviate the severe lack of protein the people experienced. Thus as you write there is plenty of meaningful work that can benefit the community and give a great deal of satisfaction to both the giver and the receiver. Ted

      • March 26, 2022 at 5:55 am

        Congratulations on your hard work and community spirit. However, please note that paying the dole is the opposite of a job guarantee. The JG assures that the jobs are there for those who want them, and I presume you want others to have the same opportunity to work as you have had, and to be able to contribute to society as you have done.

      • John Jensen
        March 26, 2022 at 3:26 pm

        “but isn’t this what we are already doing by paying the dole to many that should be working so that they can enjoy their drugs and terrorise the good people in the community.”

        I don’t know who is doing that. And if they are members of a community guided by a government they are just being blind to the fact that they are not offering enough training opportunities to self organize a local economy. Having people wander around looking for stuff to do while billionaires sock away their profits from privatized jails is obviously one of the last signs of a dying economy. You say that you “volunteered” which is admirable but also points out that you must have been either one of the rich or yourself on the “dole” – how else would you survive? The “dole” meaning that people are paid to do nothing and nobody in local government is responsible enough to find a way to organize a responsible and productive economy.

        If PNG means you were in Papua New Guinea I understand that’s a pretty primitive economy, which means that 90% of the population is working either full or part-time in the barter system – with a currency back up for greater barter ease. That also means you were part of a self-sustaining community – not a volunteer. My wife is from the Philippines and we still have a house there so I understand how that community works. Everyone learns from one another, everyone shares, has food giveaway/parties, there is no “dole” and virtually nobody receives proper training as we know it in Canada. There are public schools but nothing like in Canada where we have formalized grade by grade standards eventually leading to apprenticeships, training colleges and actual 4-year Engineering degrees. The engineering you did was what we call a stationary/steam engineer or millwright which is one of the 40, or so, formal apprenticeships we have here in Alberta, Canada. A “dole”, as you explain it, is just a way of not properly organizing an economy.

        A job guarantee means an the economy is sufficiently formalized to sort people out by skill interests and to train them appropriately so that they will be capable and find their work satisfying and also paid a living wage. With a Job Guarantee there is no “dole” with people running around hunting for drugs and terrorizing people.

  5. March 26, 2022 at 4:04 pm
  6. Ken Zimmerman
    April 16, 2022 at 11:10 am

    “Liberal governments need to find a new path that combines openness and security, and prevents the dream of globalization turning sour.”

    Why are ‘liberal governments’ or even liberal societies charged with this duty. If involved with autocratic or other forms of illiberal societies, do these not-liberal societies have an equal responsibility to find this ‘new path?’ If not, then it’s unlikely a path will ever be agreed upon. The situation is made more problematic by the structure of illiberal societies. Openness is often not a positive value in such societies. Neither is globalization if it impedes national goals or interferes with strong nation-building. Hating one’s neighbor happens. Whether the neighbor is next door or on the other side of the world.

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