Criticisms of Current Forms of Free Trade

Blind Allegiance to Ideology

As will be seen in the protests section on this site, there is growing vocal concern around the world at the negative impacts that the current form of globalization is having on people’s lives. The mounting criticisms against current neoliberal policies and ideology are in face of the existing realities versus the almost utopian theory.

Amongst a growing chorus of dissent are also some influential economists who have occassionally been heard in the mainstream. One example is Joseph Stiglitz, former Chief Economist of the World Bank, former Chairman of President Clinton’s Council of Economic Advisors and Nobel prize winner (basically a good authority on the issue!), and another is Paul Krugman a well-known economist who writes columns in the New York Times. On various issues, they too have been critical¹⁶ of numerous aspects of corporate-led globalization.

As one example of the critique, consider this lengthy quote from the Nation magazine on Joseph Stiglitz:

In March 2003, the IMF itself admitted in a paper that globalization may actually increase the risk of financial crisis in the developing world¹⁸. Globalization has heightened these risks since cross-country financial linkages amplify the effects of various shocks and transmit them more quickly across national borders the IMF notes and adds that, The evidence presented in this paper suggests that financial integration should be approached cautiously, with good institutions and macroeconomic frameworks viewed as important. In addition, they admit that it is hard to provide a clear road-map on how this should be achieved, and instead it should be done on a case by case basis. This would sound like a move slightly away from a one size fits all style of prescription that the IMF has been long criticized for.

As mentioned on the structural adjustment¹⁹ page on this web site, and as many critics have said for a long time, opening up poorer countries in an aggressive manner can leave them vulnerable to large capital volatility and outflows. Reuters, reporting on the IMF report also noted ²⁰ that the IMF sounded more like its critics when making this admission.

In theory there may indeed be merit to various arguments supporting global integration and cooperation. But politics, corruption, geopolitics, as well as numerous other factors need to be added to economic models, which could prove very difficult. As suggested in various parts of this site, because economics is sometimes separated from politics and other major issues, theory can indeed be far from reality.

Increasing Unaccountable Concentration of Power and Decision-Making

There has been growing concern at the increasing corporate power ²¹ and their influence in the industrialized countries and international trade agreements, while their accountability is very small.

Environmental Degradation

The effect on the environment³⁰ is argued to be detrimental due to the over-consumption/throw-away model of most developed nations not allowing for much sustainable development.

For more on this aspect, see also this site’s sections on

• Environmental Issues³¹
• Corporations and the Environment³²

Eroding Worker’s Rights

The stability of jobs³³, is feared to continue to fall as less regulation in the pursuit of free trade means that corporations can easily move from country to country in search of cheapest costs (and labor forces are often very expensive).

This also results in first world hostility to third world people in some ways, whilst also resulting in attempts at protectionist policies.

Protectionism For The Rich, Open Markets For The Poor

Another concern is that most developing nations complain that the western nations themselves are very protectionist³⁷ but want the developing countries to completely remove barriers to free trade which would cause an imbalance in the favor of the industrialized countries. While there have been recent statements to address such concerns, nothing has really happened. This further suggests that the current world system being pushed is not free trade in the sense that is typically understood. For example,

Increasing Poverty and Inequality For the Majority

Also argued by many is that only the wealthy nations will benefit⁴⁷, while the poorer ones will suffer the most in this. It will not just be poor people from developing nations, but poor people in industrialized countries too. For example, corporations will be freer to move around and avoid substantial taxes⁴⁸.

The way that the global financial system is structured benefits the core, compared to the periphery. George Soros for example, is worth quoting at length:

Inequalities and gaps between those who have and those who do not is already shown to be rising in these early years of globalization. Former Chilean President, Patricio Aylwin summarizes an aspect of this quite fiercely:

Neoliberal proponents, including the World Bank and IMF have reports suggesting that globalization is good for the poor.

• While some points are obvious, such as that growth improves income for poor people, there are many unquestioned assumptions, some of which include the fact that IMF and World Bank are supposed to be the drivers of these policies (these economic policies and the group that has promoted and pushed them internationally are known as the Washington Consensus), and that the one policy fits all situations.
• The World Bank for example, reported in March 2000 that globalization is good for the poor⁵¹. Growth generally does benefit the poor and that anyone who cares about the poor should favor the growth-enhancing polices of good rule of law, fiscal discipline, and openness to international trade, it noted.
• However, there have been many criticisms about the report for making far too many assumptions and not considering many interrelated issues. (For an example of detailed critique, this following link points to a responding article from the Center for Economic and Policy Research, called Growth May Be Good for the Poor — But are IMF and World Bank Policies Good for Growth?⁵²)

In reporting on the March 2002 UN Conference on Financing for Development in Monterrey, Mexico, the New York Times described feelings of some leaders on the effects of globalization:

A Level Playing Field That Gives More Advantage to the Wealthiest

Another aspect related to the above is how western nations, want their multinational firms to be treated the same as domestic firms in the foreign countries which they may enter. At first thought, this sounds fair and equitable. However,

• When considered from the view that this would mean that a much more established multinational corporation would be able to get treatment that allows them to outsmart the smaller domestic firms, this this sounds less fair and equitable.
• The discourse of level playing fields are those settings that allow the multinational corporations to dominate; hence, they are the massive proponents of such clauses in international trade and investment agreements. It is not level as such.
• It would imply that the balance is actually tipped in the favor of these transnational corporations.
• And, it would make it harder for a nation to help its industries develop (as throughout history, even during neoliberal eras, large government involvement has always been needed to nurture and protect growing industries.)
• Most mainstream media is dominated⁵⁶ by multinationals themselves, so the major source of information for the general public can also be subtly distorted.

Positive or Negative Form of Interdependence?

One of the arguments made for globalization is that the world should move further towards becoming interdependent on one another.

• This way, no one will want to war with others, because they depend on each other to keep their economies alive. This sounds like a wonderful solution to prevent future horrors such as the previous two World Wars.
• The argument probably bears some merits, if there was a truly free trade system which was fair. As argued above, the current global system appears to be more mercantilist.
• Furthermore, what is often overlooked is that given the current international institutions in place (WTO/IMF/World Bank, etc) who would benefit from the interdependence within the framework of the current form of globalization? It is the large multinational corporations and their governments. The governments of more influential and powerful nations have the ability to impose certain types of interdependence and easily force dependence in their favor if needed, using economic or military pressure⁵⁷. This helps explain why for some nations, even thought the Cold War has ended, their military budgets remain roughly the same.
• In fact, as pointed out by the Institute for Economic Democracy⁵⁸, many wars throughout history, hot or cold, have had trade, resources and related expansion at their core. History shows us that the more powerful nations have devised international economic agreements that promote more dependency upon those wealthier countries. In a twisted sense then, such an interdependency as implemented would be good for stability of the status quo. Real interdependency on the other hand, that deals with equity and cooperation as well, may have more likelihood of being good for all, but that would be less likely to happen because it would threaten to reduce the influence and power of the wealthier nations and multinational corporations.

  Far from some altruistic motive to see those in poor countries improve their lot and thus narrow the gap between rich and poor, globalisation therefore merely serves as an efficient, low-cost method for TNCs [transnational corporations] to take advantage of low taxes, weak regulations and vulnerable labour whilst penetrating the economies of developing countries.

• For more about the dependencies of the developing countries and how it has come about, visit this site’s structural adjustment⁵⁹ section.

Cultural Uniformity and Effects on Other Societies

There are other subtle, but important impacts, to peoples, societies and cultures. While the current form of globalization has its benefits such as helping open otherwise authoritarian or restrictive societies, the ways in which cultures and societies may be opened can also have an impact, as summarized from this following quotation:

As mentioned in this site’s mainstream media section⁶¹, in India, for example, one important aspect of globalization, the liberalization of media, had seen some negative effects along side positive. For example, many women found that they faced more violence from their husbands, and lost more of their savings as their husbands bought things they saw on TV rather than save for their children’s education, for example. For companies, marketing got easier: in the past, in terms of demographics, it did not make much sense to talk about the average Indian. Now, with the introduction and dominance of a few large companies there is a significant proportion of Indians who fall into this category. While there appears to be more freedom of material choice, perhaps socially there is a reduction in diversity and an increase in conformity, as a result.

Fair wages for the poor will eventually be bad for everyone

In an Economist article, Globalisation and its critics⁶⁵, September 27 2001, the following is offered in discussion of the issue of quest for profits, regulation, fair wages, etc:

What is wrong with this? The answer depends on how you look at it. From one perspective, the economist is right; if we do manage to get fair wages for the exploited, then we risk affecting everyone due to passing on these extra costs to consumers. But, does that suggest we should therefore resign ourselves to continue this exploitation? After all, it does pay those people, even if it is a small amount.

Well, in short, NO! Yet, that is what the Economist and possibly extreme versions of the liberalism ideology seem to hint (although it may be politically incorrect to actually ever say it explicitly).

So how can this seemingly be right and seemingly be wrong? Well, it is the range of discourse within which a point is made that affects how you view this. That is, the assumptions, etc affect perspectives:

• If we talk about these wages within the confines of the current implementation of the globalization system, this is perhaps how it has to be.
• However, let’s just take a tiny step outside and just ask some simple questions such as: why do these corporations have to go outside their own region? why should the poor produce sneakers or other products mostly for export? What good is that going to do them to earn so little money? What good is that money going to do when there is not much else to buy? And so on. We start hitting a major difference in perspective that is at the heart of this.

That is, when we start asking things like why the poor don’t create their own industries, rather than be an extension of multinational’s, then we start to hit a key issue. For example:

• The poor countries ideally have to build their own industries, with their own internal markets etc.
• With that, they will have their own distribution networks. Right now, they are a source of cheap resources (such as all those cash crops, the export-oriented economies—or mostly resource export-oriented, etc). With poorer nations selling resources and commodities elsewhere such as to wealthy nations, while buying from them the finished products made from those resources and commodities means the poor pay more than what they got! If products can be easily produced within the same region, it leads to better growth in those regions due to multiplying and circulation of wealth. It is worth quoting J.W Smith, again, on what was mentioned on this site’s structural adjustment page:

  [I]f a society spends one hundred dollars to manufacture a product within its borders, the money that is used to pay for materials, labor and, other costs moves through the economy as each recipient spends it. Due to this multiplier effect, a hundred dollars worth of primary production can add several hundred dollars to the Gross National Product (GNP) of that country. If money is spent in another country, circulation of that money is within the exporting country. This is the reason an industrialized product-exporting/commodity-importing country is wealthy and an undeveloped product-importing/commodity-exporting country is poor. (Emphasis Added)

  Developed countries grow rich by selling capital-intensive (thus cheap) products for a high price and buying labor-intensive (thus expensive) products for a low price. This imbalance of trade expands the gap between rich and poor. The wealthy sell products to be consumed, not tools to produce. This maintains the monopolization of the tools of production, and assures a continued market for the product. [Such control of tools of production is a strategy of a mercantilist process. That control often requires military might.]

• A multiplier effect of their money would be created as it circulates around their economy, not around someone else’s (i.e. the TNCs, and other countries)
• Wealth in the poor country would be created more rapidly.
• Much of the production and distribution we now see are wasteful of resources, capital and labor in this way because they are largely owned by foreign investors, or influenced heavily by foreign actors. Poorer countries are dependent on export-oriented economies, and much of the production flows to the wealthier regions. (And the effort that goes into maintaining these disparities and keeping real competition from the poor countries at bay is also wasteful.)
• Addressing this could eliminate much in terms of environmental degradation from distribution (although perhaps be offset by new local (national or regional) industries, which must be countered with alternative/sustainable/less wasteful use of resources, etc.)
• Free—but somewhat managed—trade between like nations, within regions etc would be beneficial to all involved. Free trade in its current form between unequal nations is itself unequal and continues inequality as a result.
• Furthermore, the freeing up of labor in wealthy countries through elimination of wasted distribution and wasted capital, combined with efficient job-destroying technologies that we have today, means there would be more unemployment—but that should be used to society’s advantage: we should share remaining productive jobs—that would reduce the workweek for all. This is detailed much more in this web site’s section behind consumption and consumerism⁶⁷.

Of course, other issues will arise and the above glosses over numerous other issues (which links below will address in more detail, or point to sources with much more detail.) Local populations will have to continue to demand fairness and just actions from the new capitalists in the poor countries—such as demanding wages are fair, that environmental and other social standards and concerns are observed and respected, there is no concentration of ownership in land, technology, money and so on, like there currently is in the global sense (which also needs to be addressed).

Some might fear these suggestions, thinking they are communist or something, but they are not. These are all capitalist theories. There is nothing anti-capitalist about this. Instead, it is addressing a key issue of enhancing rights (economic rights) to all. Of course, this is not saying that there should be no international trade whatsoever, but that at least for the development of the current third world, the international setting should be something along the lines of the first world assisting by trading tools that help create industry (what some call tools of production) in those countries. Adam Smith, Henry George and others have all pointed to aspects of this. Of course, politics has meant that some of these theories have been distorted from original intent, or there may even be problems within the original theories. J.W. Smith for example, highlights well that philosophically much of this is possible:

(J.W. Smith quote above, describes in detail over 800 years of history of plunder by trade that is mentioned above, and how at the world level, the subtle monopolization of land, technology, capital etc have all come about, including the waste of wars and other factors to maintain such systems. Furthermore, he provides details on how society has unwittingly supported what has amounted to plunder of the poorer regions of the world.)

(For more about the waste aspect, also see the latter parts of this site’s section on behind consumption and consumerism⁶⁹, especially the page on waste.)

So, one might naturally ask, if it is this simple why haven’t the poor done this? There is in some respects, a simple answer but one that demands a lot of explanation! The simple answer to this can be found in in things like politics, greed, dominance-politics, etc. For example, international economic institutions like the World Bank and IMF, with the influence of economically and politically powerful nations, have been able to push through policies, which are known to be destructive (as even admitted by former Chief Economist of the World Bank and Nobel prize winner. (See this web site’s section on Structural Adjustment Policies⁷⁰ or SAPs, for more including links to article from Joseph Stiglitz (that former Chief Economist) and others on how SAPs creates poverty and destroys any real chance of developing one’s own nation.)

In fact, instead, things like SAPs open up poor countries economy for Foreign Direct Investment, for constructive engagement etc. But these are often constructive for the multinationals, not always for the host country, because there is investment to create sweatshops, constructive engagement to extract resources, and so on. There is little constructive investment in helping these countries build their own industries. So, such investments might look like they create jobs in the poor countries, but compared to the real potential of what the poor countries could achieve, this is very little, and much potential for poverty alleviation instead is lost. And while some mainstream commentators may not like to talk about it, the effects of colonialism etc are still felt—the same countries are still poor; their resources are still plundered away (instead of through force it is now largely through unequal trade). (See also this site’s section on corporations and human rights⁷¹ for more on this issue of constructive engagement.)

Furthermore, the above argument from the Economist lends well to corporations who do not actually wish to engage in competition that will threaten their current success:

• Because people everywhere are pretty much equally productive, then factors like access to industry, technology, education etc can enhance that productivity.
• Structural Adjustment is almost an assault on such things, and the poor are not only poorly paid for the work they already do, but are denied technology, industry, education, health etc, to build their own industries and economies.
• Furthermore, you get companies closing off in the first world and establishing in the third world, where they can say they are being constructive because they bring technology, know-how etc. However, this is a con; it is not to really and effectively help the poor build their own industries, their own buying power, and their own wealth. Instead, it is a way for companies to reduce costs but with social effects on all sides—the workers of the wealthy country lose out, while workers of the poor get exploited. Because on both sides then ordinary people lose out, and the poor cannot build their own industries etc, as a result, the threat of real competition leads to what J.W. Smith describes aptly as capital destroying capital⁷².

In fact, Adam Smith, who criticizes both big government and concentrated big corporations in his 1776 classic The Wealth of Nations, what some regard as the free trade/capitalism bible, is worth quoting here:

There are numerous other political factors, and geopolitical/military factors as well, related to the historic struggle and control for resources, and the wars that have revolved around that to maintain such disparities. (The poverty⁷³ section on this web site introduces many of these angles, with many links to other sites and sources.)

The Economist article doesn’t really consider political aspects in this, and instead uses only some aspects of these capitalist theories, which, contrary to what seems to be popular belief, are not magical or natural forces without alternatives! Regardless of whether or not the theories themselves are sound, or not, or partially, (which is a huge topic unto itself!), they are heavily manipulated by political interests as has always happened throughout history. Hence, while in theory there may be many good points, in reality politics (power play) leads to supporting only those aspects of those theories that fit one’s interests and so rhetoric and reality are far apart.

Effects or Influence on Culture?

In the Economist article, Is globalisation doomed?⁷⁴, September 27, 2001, there is the following mentioned in addressing the impact on culture:

What does free choice in this context mean? In a narrow range of discourse, yes, this is a choice one makes. However, in a wider sense, it is not really that much of a choice, because in a wider discourse and debate we would see that other real choices have been denied. For example, think of all those non-choices because there is no internal market allowed to develop, as suggested above; no industry of their own for their own people etc. The WTO, IMF, WB, SAPs, etc. have all help create economic policies have in effect limited the possible choices a nation/region/peoples can make. Hence, within the confines of a limited choice, you have a choice.

There is also the interesting point about McDonalds not using a gun. Again, this depends how you look at it. Of course, McDonalds does not have an army, so in that respect, they are right. But it is of course oversimplified.

(Thomas Friedman is a popular columnist in the New York Times, and a very staunch advocate of the current form of globalization.)

Yet, war or, using the old phrase of gun boat diplomacy, can be conducted in many ways — political, economic, and military. That is, the gun has been used by a company’s parent country (part of the foreign policy to help enhance one’s own country). These means have included military, IMF/WB, WTO or some other means. The historic plunder by raid or, now increasingly, by trade, has led to the same effects for the poor. As pointed out in the structural adjustment page, there is immense dependency created upon the poor. Hence, their choices are limited, but within those confines, they have a choice.

As mentioned above, one cannot separate politics from economics; to do so would be naive. Politics in this respect includes institutional abuse of power, which affects the purpose for which economic policies are carried out, as well as their effectiveness. (See also the military expansion⁷⁷ page on this site for far more on the economic links and purpose of military expansion, and how this has a direct effect on people’s choices far away from us.)

Because most of us in the wealthy world are fortunate to have far more choice, and our politicians keep reminding us that, we instinctively think that what we are therefore doing in other countries has to be offering them a choice as well, because we as individual people are decent at heart. Yet, we often don’t see that our own leaders and institutions will be involved politically around the world to help enhance our national interests which may or may not be in the interests of others. A classic example of this is food charity in non-emergency situations, which has increased world hunger, as detailed on this site’s section on food dumping⁷⁸.

This is a good example of the ideology of neoliberalism taken to an extreme and shutting off the complexities from the discourse. It is naive to assume that politics isn’t a factor. In that light then, choice can be seriously affected.

So, in a way, that people choose the products they purchase, etc. But that choice is not as free as it initially seems; it happens in the surrounding context; what choices have been made available, what choices have been denied or forced out the market (by both market and non-market forces). The Economist used the example of McDonald’s and Nike, two global cultural icons, but didn’t mention any brands from developing nations. It could be argued that they are not mature enough but it can also be added that various international policies, under the name of free markets, have prevented them from competing even-handedly with the established powers. There’s also the geopolitical angle which can be seen on the resource struggle⁷⁹ page on the Middle East section on this site. While in a slightly different context, the support of dictators, overthrow of democracies etc is discussed here with links to numerous sources and books for more details.

Is Globalization in its current form imposed on the poor?

In another article by the Economist, All too familiar⁸⁰, September 27, 2001, there is the following in describing similarities and differences in the 1920s for globalism and today where:

One can only respond to this by saying that later on, when we look at the protests⁸¹ page, we will see that protests at the effects of the current forms of globalization have occurred around the world for years. Many people, not just what the Economist defines as anti-globalists, but many others have protested because they face the brunt of these policies, and can often see right through them, by virtue of being the recipients of these. (Just as people of ethnic minority will see through policies that are racist, for example, whereas the instigators of that policy may not realize, and where it genuinely may not have been the intention for the policy makers to be racist.)

As mentioned above, SAPs, and other such policies are imposed on the poor. For the wealthy, it might not need to be so imposed, as it is beneficial to them and therefore there may be less need to impose it in the same way, so to speak. (Though some will even point out that in the wealthiest of nations, there are similar policies causing high disparities within those nations as well.) Just because in one culture or a class of people we might not see so much imposition, doesn’t mean that there isn’t that imposition in other cultures or classes (from that dominant culture or class). The previously mentioned page on the resource struggle⁸² in the Middle East section on this site, while in a slightly different context, talks of the support of dictators, overthrow of democracies which has gone in hand with globalization, and from that perspective can be seen as examples of imposition.

Economics helps the environment

In the Economist article, Economic man, cleaner planet⁸³, September 27, 2001, the point is made that economic theories, market systems etc are good for the environment.

The title of being economical meaning better environment is almost too obvious. Indeed, Shocking as it may seem to most anti-globalists, market forces can help the environment, says the Economist. Of course, market economies may help create incentives for doing various things too, including incentives to reduce environmental degradation, if appropriate policies are in place, if concerns of people are respected by the large pollution-causing industries, and so on.

But as well as helping, it often does not. climate change and global warming⁸⁴ is perhaps the ultimate example where markets have contributed to this problem rather than help the environment. The U.S., the ardent promoter of free markets has also historically been hostile against the Kyoto Protocol to deal with threat of climate change and global warming. For a long time it refused to accept what its own scientists had told the world. Numerous cases appeared where big business interests of the threat of profit loss was found to be influencing decisions affecting the planet. The value of the planet’s biodiversity has rarely been factored into prices⁸⁵, for example, even though the price signal is very important to our functioning economies. To be fair, in these examples, maybe it could be argued that this was a failing of free markets because they weren’t really free markets: free markets perhaps unleashed powerful forces (because they helped some entities become unduly powerful and influential beyond their democratic accountability) and it was these entities that are the problem, not free markets per se.

But, as stated before, power politics directs economic functions, because while economics can be about how best to use money, politics is about the control of that money. Given the earlier points made about political influence, the following also highlights this very well:

In 1991, then Chief Economist for the World Bank Lawrence Summers, (and US Treasury Secretary, in the Clinton Administration, until George Bush and the Republican party came into power), had been a strong backer of structural adjustment policies. He wrote in an internal memo:

Even what appeared in an Economist article, by a foremost pusher of Structural Adjustment, neoliberal globalization, etc we see that politics can affect markets to help or worsen environmental issues.

Furthermore, this gives a further excuse for corporations to prevent refitting factories in the first world with the costly environmentally oriented measures and protections (put in by democratic governments and environmentally oriented citizen pressure — not necessarily free markets by themselves), and move elsewhere where regulations have been reduced or removed. As a result, we may see a relatively cleaner environment in the industrialized world, but it is not all explainable by those nations and their industries being cleaner.

On this site’s section on consumption and consumerism⁸⁶, it has been detailed how many industries use resources efficiently to produce profits. However, if measured from an angle of how well the environment has faired, the efficient use of resources has led to a lot of environmental degradation. Measures like GDPs don’t fully factor in such angles (and are treated as externalities). Hence, as described on that section, there is a lot of waste in the economy that isn’t accounted for.