This
diagram is based on Structural Adjustment, John Clark and Mary Davies, Oxfam
Development Policy Unit, 1991.You can see that trade has winners and losers, but the economists who run the world continue to advocate what they call free trade. Whose freedom? - you may well ask. To justify the iniquities, they have a theory that proves that trade must be mutually advantageous. If there is anything wrong with the system, it is because of restrictive practices, tariffs and other "market distortions". Their answer to every problem is that what we need is more so-called free trade.
The interesting thing is that when their justification is examined, it is a house of straw. The next time you get into an argument with a right wing economist, remember that their most fundamental theories are works of fiction, based on idealised models that ignore the real world. This wouldn't be so bad if they weren't so dogmatic in their application of these unreal theories to the running of the real world. Or maybe they just use them as a smokescreen to conceal their true agenda... Either way, it is politically useful to be able to tear their dogma to shreds, and if there's an audience, it can be fun too.
The laissez-faire advocacy of free trade began with Adam Smith, but modern adherents generally take as their starting point Ricardo’s theory of comparative advantage, which states that where two countries have different ratios of unit costs of two commodities, then specialisation and trade are advantageous even if one has an absolute advantage (i.e. can produce more efficiently) in both commodities.
The theory was later modified by J. S. Mill to reflect gains being greater where demand for a country’s exports is strong relative to its demand for imports, leading to improved terms of trade.
Neo-classical economists use comparative advantage not only to justify the removal of tariffs and non-tariff barriers to trade, but also to argue for export orientated manufacturing and cash crop production. Trade liberalisation, they say, creates increased competition, economies of scale, and boosts technological progress. This benefits the environment by using scarce resources more efficiently, reducing environmental damage per unit of production.
While the neoliberal perspective tends to take it as read that the theory can be generalised to many countries and many goods and applied to the real world, empirical evidence for trade patterns that might be expected as a consequence is sparse and inconclusive.
Ricardo made assumptions which he realised did not hold true in all trading arrangements, including that while trade was free, funds available to invest in industry did not flow freely from one country to another. This assumption is clearly not the case in the late twentieth century. (Ricardo "approved of these restrictions on capital mobility, and stated that he would be sorry to see them weakened." Paul Ormerod, The Death of Economics, Faber & Faber, London, 1994.)
Ricardo’s model also
it takes no account of
The significance of such exogenous factors is that in the real world, while trade relations may be mutually beneficial, this is not necessarily the outcome. Indeed, Maurice Allais, a Nobel Prize Winner in Economics, upset the economic orthodoxy when he argued that free trade "could be of benefit only in certain very special circumstances ... when carried out between regions which were at comparable levels of economic development" (1993 speech to Ecole des Hautes Etudes Commerciales, described in the Death of Economics, p.8)
This
diagram is based on Structural Adjustment, John Clark and Mary Davies, Oxfam
Development Policy Unit, 1991.
The economist Gerrit Faber notes the environmental impact of single commodity export dependency, but argues that development will bring diversification, and promote more environmentally friendly production. While he endorses debt relief, this causality is not consistent with the observable effects of structural adjustment and other policies imposed in the name of development.