Haku Mo‘olelo

By EDWIN TANJI, City Editor
The economists are at it again. When Sen. Hillary Clinton was bashed over whether she supported or didn’t support the North American Free Trade Agreements, her response revived the scenario of John Kerry voting for and not voting for funding for the Iraq invasion.

Any 30-second campaign response will be inadequate when it comes to complex issues of trade and globalization.

Adding to the difficulty, expert economists on television networks are relegated to simplistic answers as well, even if they’re given more than 30 seconds. Most also focus on economic theory to the exclusion of questions of social policy, ethics and political realities.

Economists advocating the benefits of free trade among sovereign countries in a global economy have no interest in ethics or social policies.

Free-trade theories are based on models of economic behavior that reduce the consumer to numbers reflecting market activity. The tenet of global free-trade theory is that more efficient producers benefit from economies of scale that allow them to market widgets, boutique wear and plastic baubles at a lower price than the less efficient producer in another country.

The guru of free-market economics, the late Milton Friedman, made a compelling argument that free trade provides products at a lower cost to consumers by opening world markets to the most efficient producers. But Friedman’s theories assume no government interference with markets and advise that the producer has only one responsibility — to generate earnings for the investor.

In a dialogue on business obligations to society (“Rethinking the Social Responsibility of Business,” Reason, October 2005), Friedman argued that a business’s only responsibility is to be successful in business. Payments made to labor and suppliers, along with earnings expended in the community, will take care of the community.

“Of course, this is abstract and idealized,” Friedman said. “The world is not ideal. There are all sorts of deviations from the perfect market — many, if not most, I suspect, due to government interventions.”

Friedman’s free-market theories hold that unfettered economic process provides the social benefits. But denying any benefit to government intervention doesn’t keep it from happening.

In all countries, government intervention is inevitable. In some, the government moves to impose standards of social responsibility; in others, the government protects producers from a need to adhere to standards of social responsibility.

That all makes the global marketplace a grotesquely uneven playing field and undermines assumptions of producer efficiencies. Friedman’s free-market theories are based on an idealized global political structure that doesn’t exist.

Other countries undercut the United States in pricing with lower costs of inputs. But those inputs can involve exploitation of workers and substandard materials that “government intervention” doesn’t allow the American producer. Sweat shop factories producing boutique blouses and toxic toys are evidence of the disparities of government roles in economic processes.

It is as if free-trade economists discount a few children poisoned by failure of safety standards in the global market if there is an overall benefit of lower costs to consumers.

A trio of international economists, Nancy Birdsall, Dani Rodrik, and Arvind Subramanian (“How to Help Poor Countries,” Foreign Affairs, July/August 2005), suggest the competence of government can determine the benefits of free markets, citing Mexico after the 1994 NAFTA for which Hillary Clinton was faulted.

“But since 1992, Mexico’s economy has grown at an annual average rate of barely more than 1 percent per capita. . . . Access to external markets and resources has not been able to make up for Mexico’s internal problems,” they said.

“Internal problems” of government inability to impose ethical standards on corrupt business were cited for economic failure of countries that should benefit from access to the U.S. consumer market. Birdsall-Rodrik-Subramanian cited the contrast of Vietnam, which did not have access to the U.S. market.

“Why has Vietnam outpaced Nicaragua? The answers are internal: history and economic and political institutions have trumped other factors in determining economic success.”

• Edwin Tanji, city editor of The Maui News, can be reached at citydesk@mauinews.com. “Haku Mo‘olelo,” referring to a story writer, appears every Friday.