All the controversy over free trade has raised interesting questions about the kind of world we want. What are the trade-offs between community control and a global culture? What’s the connection between trade and sustainability?
We asked David Morris to share his perspectives on trade. He is vice president of the Institute for Local Self-Reliance, a 19-year-old organization that promotes humanly scaled, environmentally sound economies and institutions. The author of four books and several dozen monographs, he is a consultant to business and government in the US and abroad. His most recent reports include: The Carbohydrate Economy, The Mondragon Cooperative, and The Trade Papers.
Sarah: Can you tell me what you mean by self-reliance and how you differentiate it from self-sufficiency?
David: Self-reliance is the capacity for self-sufficiency, not self-sufficiency itself. Self-reliant communities are self-conscious and self-confident. They extract the maximum value from local resources – labor, capital, materials. Their diversified economies are characterized by a substantial locally owned productive capacity. They satisfy a significant proportion of their needs from their own resource base.
Self-reliant communities also possess the collective authority to make the rules that influence their futures, and their members have access to the information necessary to write these rules wisely.
Sarah: Why is self-reliance preferable to a system in which every community specializes in one or two products that are traded and consumed elsewhere?
David: Classical economists like David Ricardo and Adam Smith – the fathers of free trade theory – were absolutely correct in their belief that efficient and innovative economies must rely on a division of labor. A division of labor demands a system of exchange or trade.
But these 18th and 19th century economists also were clear that the benefits of trade must be balanced against the need for security and community. They did not believe, for example, that we should make ourselves defenseless by becoming totally dependent on distant resources even when we might make money by doing so. They opposed foreign ownership of key resources or productive capacity.
The fathers of free trade lived during an era in which capital was not very mobile, transportation systems were primitive, and advanced communications systems were non-existent.
Today all resources, except for land, are mobile. The heirs of Adam Smith now seem to argue that the most efficient and perfect economy is one in which the productive capacity of communities is absentee owned and everything produced in these communities is exported while everything consumed is imported. And the authority of citizens to regulate commercial behavior is extremely limited.
Such a future has many hidden costs. For one thing, it heavily depends on physical transportation systems, which, by definition go through somebody else’s backyard. Within this country, the government has the authority to seize private property to build roads, ports, airports, and it does so regularly. Interestingly, this is the only governmental authority both liberals and conservatives stoutly defend.
Outside of the country we don’t have a legal right to seize property, but we do so anyway. The US invasion of Panama in the beginning of this century and the repeated invasions since have had as their sole purpose the construction and defense of a short-cut canal between the East Coast and Asian markets. The Gulf War was fought to protect our transportation routes to Middle Eastern oil. When you build economies that depend on long-distance physical transportation systems, you build economies that depend on invading someone’s territory.
Physical transportation systems not only invade our space with their bulk but also with their pollutants. Transportation is the single most polluting sector, and the use of heavy trucks and highways is the most polluting system of all.
Another cost of the planetary economy as currently envisioned is that it separates the producer from the consumer, the employer from the employee, the investor from the investment. The end result is undemocratic and inefficient decision-making.
Consider what might happen if this were to change. Today we separate the producer, the consumer, and the waste dump. The result is to encourage pollution. Imagine if we were to pass a national or international law that required households or industries to dispose of their wastes within two miles of where it was generated. I think they would quickly use their genius to design technologies and techniques that dramatically reduce waste, especially hazardous waste, and maximize recycling and re-use.
Sarah: Presumably, even with increased self-reliance, there would still need to be some kind of trade. You mentioned in "The Trade Papers" that part of that trade might be electronic. Can you expand a little on that?
David: Albert Einstein once observed, "Perfection of means and confusion of ends seems to characterize our age." Trade agreements illustrate his point. They perfect means, such as mobility, and simply assume the ends will take care of themselves. Indeed, trade discussions rarely include any mention of ends, except for the vague end of increased growth.
We need to agree on a set of goals and design the means with an eye toward achieving those goals. The following goals seem to me relatively uncontroversial: rootedness, a sense of community, a high level of psychological peace of mind, national security, environmental protection, a meaningful level of participation by members of the community in decision-making, and a dynamic and innovative economy.
Trade discussions apply the same philosophical and regulatory approach to all factors of production. That simplistic and simple- minded approach burdens the discussion. Trade in each factor of production – labor, raw materials, finished goods, information and capital – has a very different impact on our sense of community, our national security, and our natural environment. Let me briefly address each:
- Raw materials. From an environmental perspective the goal is to minimize materials consumption and substitute renewables for non-renewables. Improving efficiency and increasing reuse and recycling can dramatically reduce consumption. Doing this, as well as shifting to renewables like wind and direct sunlight and plant matter for fuels and industrial materials, encourages a miniaturization of economies. The higher the efficiency with which we use materials, the fewer materials we use and therefore the fewer we import. The more we recycle or reuse the more we rely on local products or materials. And renewable resources are widely available and easily harnessed on the decentralized level.
Trade rules should maximize efficiency and recycling and the use of renewable rather than non-renewable materials. The result will be a dramatic reduction in long-distance trade.
- Finished goods. Ten years ago, our economies were still based on mass production systems. The bigger the production unit the lower the unit cost of production. Factories that produce tens of thousands of a product must sell to national and even global markets.
Today business leaders use the term economies of scope rather than economies of scale. Flexible manufacturing and other techniques allow factories to produce small batches of many kinds of products at the same cost as producing large quantities. These factories could, in theory, serve smaller markets. When it comes to finished goods, trade rules should encourage distributed, decentralized, and flexible production systems. The result will be to significantly reduce long-distance trade.
- Labor. A true free-trade regime would open its borders to unlimited immigration. Doing so, in the long term, might equalize the wealth of poor and large countries. However, in the process it would disrupt communities, breed a violent backlash, and destabilize democracies. The rules of trade should foster development that doesn’t encourage or force people to leave their homes and communities and doesn’t subject other communities to a wave of immigration.
- Capital. Once upon a time money on the international level was simply a medium of exchange. Up until 1970, the amount of currency exchanged on the international level was about equal to the amount of world trade in goods and services. People changed currencies when they visited a foreign country or bought or sold foreign goods. Today the value of currency exchanges in one day is about equal to the value of world trade in one year. And as currencies change hands, the comparative value of currencies changes and with it the comparative prices of goods and services.
Free traders believe this global sloshing about of waves of currency fosters economic efficiency. It may be that one can now borrow money at a slightly lower interest rate because one can borrow globally. But the consequence has been increasingly volatile exchange rates. Business executives now spend much time tracking currency exchanges or buying financial instruments called hedges, which lock in a given exchange rate. The cost of these insurance policies offsets the benefit of the marginally lower interest rates derived from global financial markets.
Another consequence of the globalization of money is the diminished ability of governments to manage their economies. The real economy of goods and services is now driven by the artificial and even mystical economy of currency exchange, an economy dominated by a few very large currency speculators.
In the 1970s the US passed the Community Reinvestment Act. It said that banks had to lend at least a part of their deposits generated within their communities back to all segments of their communities. Trade rules should encourage the reinvestment of wealth generated by a community back into that community.
Capital can also translate into ownership and control. Communities should be able to develop rules that encourage local ownership and discourage absentee ownership.
- Information. Digital highways, unlike concrete highways, are not polluting And information, for the most part, is non-invasive. We should design rules that accelerate the flow of informational products. However, these rules should not only encourage increased flows but also encourage an increasingly horizontal rather than vertical transfer of information. Today planetary corporations beam messages to people who they view solely as consumers. In the future information systems could allow neighborhoods, households, and small businesses to produce informational goods and services and market (for example, broadcast) them directly to the final customer. We could become, in Alvin Toffler’s words, a world of prosumers.
In addition, we should take into account the needs of low-income communities and countries and strive for universal, low-cost access to basic information systems.
The end result of developing trade rules with social, environmental, and political goals in mind might be a new kind of dual economy, a global village and a globe of villages. A globe of materially self-reliant villages would produce a significant portion of their materials and energy and perhaps even finished goods within their regions, while a global village trades informational products along a planetary electronic network.
Sarah: I’d like to ask you about the province of Kerala, which is one of India’s most highly populated provinces and which has done a lot to alleviate poverty and increase literacy, and so forth. But one thing they haven’t been able to do is to become self-sufficient in food, and it doesn’t sound like they are likely to do so. Given that there are parts of the world in that situation, under what circumstances should trade be encouraged?
David: Let me repeat that self-reliance doesn’t mean autarchy or complete self-sufficiency. Very high density countries like Singapore are not going to grow a significant amount of their own food.
Having said that, I should also add that agriculture has been heavily distorted by the demands of trade. Countries and regions that once grew food for their own consumption are now growing export crops, usually because of external pressure from international financial institutions that want these countries to earn hard currencies to pay back their debts. One result is that they have become increasingly dependent on remote and unstable customers for their crops, while in many cases lowering the overall nutritional levels of their own populations.
Sarah: Some people claim that free trade will bring greater prosperity to parts of the world that aren’t now prosperous.
David: The level of inequality both within nations and external to nations has increased every decade since we began the free trade regime. In the mid-19th century, richer countries were about twice as wealthy as poorer countries. That ratio went to 5 to 1 and then 8 to 1 and now I think it’s something like 12 to 1. Inequality has also increased inside many countries. So I don’t think that one can argue that increased trade has made us all more prosperous.
When you look outward for development you tend to overlook your local capacities. In Latin America, where I lived, when they have shifted to exports it has enriched a segment of the economy, but the overall living standards have not increased.
In Mexico, where exports have soared in the last 10 years, real manufacturing wages have been cut in half. So I don’t think that one can make an argument that increasing trade lifts up countries.
Sarah: Since there will be some level of trade, what’s your sense about how that trade can be structured so that it doesn’t have the kind of environmental effects and impacts on workers and local communities that our current trade system has?
David: First, we should encourage fair trade rather than free trade. That means we should compete on the basis of quality, reliability, productivity, customer satisfaction or turn-around time rather than simply on the basis of price, especially when price is determined by how much workers are paid or how lax or rigorous the environmental standards are.
Second, we should allow communities to impose the same rules on imports as they do on domestic producers. Eighteen months ago, a GATT [General Agreement on Tariffs and Trade] panel concluded that parts of the US Marine Mammal Protection Act constituted unfair trade practices. US law banned the sale of tuna caught by fishing techniques that slaughtered dolphins. The GATT panel ruled that the US could impose such a law on its own fishing fleets but not on foreign fleets that sell fish in the US. Complying with that ruling could force US companies out of business.
Recently, the European Commission issued a report identifying unfair trade practices in the US. It specifically cited California’s requirement that glass containers sold in the state contain a minimum proportion of recycled content. California had vigorously encouraged recycling and its residents had responded, and it had accumulated a mountain of materials in search of markets. The state passed the recycled-content law to force manufacturers to use these materials. The EC agreed that the environmental objectives were worthy, but argued that since such a law would favor local bottlers it constituted an unfair trade practice.
Third, we should establish minimum, not maximum international labor and environmental standards. Consider our own history. In the 1930s, low-wage states aggressively pursued northern manufacturers. In 1938 the nation enacted the Fair Labor Standards Act. It established minimum wages and maximum hour standards, but allowed states to exceed these standards. In the 1970s and 1980s national environmental standards, in most cases, also allowed states to do better.
Fourth, we should adhere to the principle of subsidiarity. We should delegate authority and responsibility to the lowest possible levels and impose a significant burden of proof on higher levels of government to justify any pre-emption or intervention in the affairs of cities or states or regions.
Remember, free trade agreements are super-constitutions. They pre-empt national and state constitutions and laws. Yet unlike Constitutions, these agreements do not include a structure of government, a process for citizen participation in decision-making, or a bill of rights. They have only one goal – the increased mobility of all resources – and few if any safeguards. We need global rules that allow us to manage the international and subnational flow of resources, but they should be rules that reflect our core social and political values.
Sarah: What are the most promising things you see happening in this arena?
David: One is the debate over free trade itself. Free trade discussions, whether about the US-Canadian free trade agreement or GATT or NAFTA, or the Single European Treaty are about the rules we design to manage our futures. Increasingly, numbers of people are using these debates as an opportunity to begin thinking about the kinds of rules they would enact. Creating global rules that enable strong communities, preserve natural environments, defend local cultures, and encourage innovation and resource efficiency is one of the most important challenges of our time.
Another reason for optimism is the debate around sustainable development, which also offers us the opportunity to envision a different kind of economy and society. Once again, it invites us to write the new rules that will guide investment capital, entrepreneurial energy, and scientific genius in different directions.
A third reason for optimism is the new debate over the transportation system itself. The recently enacted Intermodal Surface Transportation Efficiency Act for the first time lets us spend gas tax money on bicycles, compact communities, mass transit, telecommunications, and a host of non-road alternatives. Hundreds of communities are now engaged in a healthy and at times wide-ranging debate about the very design and layout and function of their areas.
My optimism does not mean I ignore the fact that in all of these debates there is an extraordinary inequality of power and resources between those who believe the future should be a simple extrapolation of the present and those who believe we can and should dramatically refashion societies and economies.