Is it time to reconsider free trade?

As we search for solutions to the current global economy crisis many issues are on the table for discussion with the exception of one. Challenging the tenant of “free trade” has become taboo. The problem with the idea of free trade is that it has become an absolutism for politicians and businessmen. Absolutism always leaves little room for nuanced and honest review and deliberation.

Noreena Hertz argues free trade should be closely examined and we should not let allow debate to revolve around a false dichotomy of free trade versus protectionism. This from Der Spiegel:

The absolutism of the key tenets of neo-liberalism: privatisation, deregulation, balanced budgets have all been rejected by all but the most dogmatic. Apart from one that is: the primacy of free trade.

Its status is basically sacrosanct. While banks are being nationalized, bonuses recalled, and trillions of dollars of debt racked up, while pretty much every other concept, belief or ideal is being interrogated, contorted or just set aside, "Free trade is good" continues to be presented as a totemic truth, ring-fenced from debate or interrogation. Any questioning of this axiom is not even on the G-20's agenda.

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So we have countries publicly preaching free trade, but on the sly making protectionist moves. Such dissemblance creates two problems. It fosters distrust between nations -- at a time at which without trust there's almost no chance that a collective solution to the crisis will be reached.

And, it also sends out a dangerous message to domestic electorates that their leaders are unwilling to embrace the intellectual honesty and flexibility that is needed right now to question absolutely everything they have held dear in economic policy over the last three decades, no caveats.

We urgently need a frank, honest and grown-up discussion about the final frontier of neo-liberalism -- free trade. And we're not getting one.

Instead we get scaremongering. "Remember the 1930s; don't take us back there." This isn't even an accurate representation of the past. Leading economic historians now explain the collapse of world trade in the 1930s not as a result of protectionism, but because of shrinking demand and a lack of trade credits.

We also continue to be presented with a false dichotomy -- free trade versus protectionism. What we actually need is a nuanced analysis of where on the free trade/protectionism scale individual nations need and want to be positioned, and what the implications of that would be.

The ability to openly have this discussion is particularly vital at a time when countries are under huge pressure from their electorates to protect jobs and businesses, and create compelling narratives about their own recovery. This is especially important given that, when used specifically and for a limited time, as Sweden and Japan did in the aftermath of the 1970s oil shocks, protectionism can be the lifeline a struggling country needs to survive. It can provide the breathing space an economy needs to retrench and retool its industries and workers.

I'm not advocating trade warfare, nor am I proposing that powerful countries be allowed to erect trade barriers with impunity. It's just that I don't think protectionism should be seen as a non-acceptable taboo. Instead we should see protectionism as a tool in nations' armouries that can be deployed to help address their local economic freefall, but is also capable of creating far-reaching collateral damage. Its use therefore needs to be sanctioned by the global community, practiced with caution, and within guidelines. Perhaps there is a role here for the WTO to play, not in enforcing the letter of the free trade law, but in adjudicating as to what is fair and right for now.

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This week's G-20 meeting will show us whether the world is led by intellectual sophisticates or a dogmatic generation unable to respond powerfully and flexibly to our economic nadir. Productive trade arrangements will be pivotal to our collective futures. So rather than simply re-stating old beliefs about the supremacy of free trade, the G-20 should place it firmly under the microscope. For surely if we have learnt anything over the past few months it should be that economic axioms are at best schools of thought, and that wisdom comes not from blindly accepting convention but from questioning, interrogating and challenging what we think we know.

You can read her entire piece here.