Chapter 6 Lessons for Europe from the Quebec Trade Summit

I recently returned from five days in Quebec City, a quaint and picturesque own on the St. Lawrence river, which will heretofore be known as "la capitale mondiale du gaz lacrimognène"; the "tear gas capital of the world". I traveled there hoping to get inside the head of the anti-globalization, anti-trade movement. Trouble is, there was no head to be found. I saw heart in great abundance — in-your-face public displays of compassion were the order of the day—but clear thinking was conspicuously scarce.

The respectable reason to be in Quebec was for the Summit of the Americas, a gathering of thirty – four heads-of-state from across the western hemisphere. The most important business at their meeting was the ongoing effort to negotiate a Free Trade Area of the Americas — a trade barrier-free zone stretching from Alaska to Argentina.

But I traveled to Quebec for the real show; the "People's Summit", an alternative event organized ostensibly to represent — what else?—the "people's views."(I had assumed that the elected leaders at the Summit were there for that purpose, but who am Ito question" the people"?). The Hemispheric Social Alliance, a coalition of ideological and economic interest groups that are opposed to free trade, had invited fringe groups, from the far-left to the farther-left, to a" carnival against capitalism" in a big white tent alongside the river. Gracious to a fault, the Canadian government (i.e. Canadian taxpayers) funded the event and paid for Latin American activists to attend.

The "carnival against capitalism" lived up to its name. There were clowns, puppets, cheerleaders, dancers, actors, "Raging Grannies"(a real group of not-so- aged women who revile big business), and a giant green floating bag" Practice safe trade!)". My favorite was probably a troupe of dancers in blue who chanted and worshiped a large papier-maché water goddess. Yet beyond the spectacle, there wasn't much in the way of serious discourse, either in the streets or at the various organized "teach-ins". Consider the following actual exchange I had with a startlingly well-fed young activist (who wore, naturally, imported jeans and sneakers). As she shook her flabby fist at me, a comrade filmed the exchange with a Japanese video camera that easily cost more than a year 's salary for the average Latin American.

"People before profits!" she shouted, inches from my face.
"Okay, that sounds good," I said, stepping back a pace, "What exactly 　　does it mean?"
"It means we need to elevate people above profits."
"Right, I got that, but what specifically does it mean? What are the policy implications?"
"We want policies, "she replied, exasperated," that consider people before corporate profits."

And on it went. If the woman had a deeper message, I couldn't coax it out her. Yet it's undoubtedly only a matter of time until the "People before Profits Act "debuts in a legislature near you. If only someone had thought of this sooner! On the other hand, given that profits are really just a measure of the wealth created by entrepreneurs above their costs, living in a profitless society might not be so people-friendly after all.

Despite the inanites , I made an earnest effort to understand what the Summit attendees were all about. I interviewed dozens of people, focusing on those with fewer than ten body piercings. I was "questioned" for nearly two hours by protesters at a Canadian version of a town hall meeting—not that anyone was interested in my opinion. I read all the anti-trade literature I could get my hands on. Yet throughout it all, not once did I hear a logical, never mind reasonable, case against free trade. Few had bothered to familiarize themselves with the most rudimentary principles of supply and demand, yet all professed an unassailable knowledge about how to best organize the international economy.

My frustration grew as the Summit wore on. Hour after tedious hour, I stood in the sun listening to bandana-clad adolescents whining, loudly, about how they deserved to be on the other side of the 2.5 mile security fence that ringed the town center where the delegates were meeting. They wanted—no, deserved—seats at the negotiating table. One teenage crusader told me that Latin Americans would be better off living as hunter-gatherers, because" hunter-gatherers eat well every day". A unionized garment worker, whose job likely depends on making sure no one is allowed to buy shirts made in Honduras, straight-facedly hoisted a sign reading" Free trade equals corporate welfare." If that's true, then it's curious that so many industries, like textile manufacturers and steel plants, cling desperately to tariffs and subsidies.

Such statements would be laughed out of any economics department in the world.

Like a Japanese soldier isolated on a Pacific island, people on the streets of Quebec didn't realize that the war over the effects of trade is over, and the free traders have won. Hundreds of studies, and even casual observation, show us that misery eventually falls wherever markets expand. Countries that are open to international trade and investment tend to grow faster than those countries that seal themselves off from the global economy; more than twice as fast according to conservative calculations by the OECD. What's more, the wealth created by trade leads to higher living standards across the income spectrum. Millions upon millions of people have been lifted out of conditions of abject poverty since developing countries began to open their markets two decades ago—a feat unmatched at any time in history. Yet the protesters see none of that, choosing to make themselves the enemies of the downtrodden by denying poor countries the tools of development, arguing that free trade cause poverty. Such ignorance is criminal.

Lessons for Europe

The antics of the anti-trade left have harmed efforts to achieve trade liberalization through international negotiations. While there is little in the way of substantive criticism coming from the activists, their continual presence at international meetings gives cover to old-style protectionists who would like to see more restrictions on the flow of goods and capital around the globe. Both the United States and Canada have addressed the problem by simply increasing security measures at international gatherings. Ultimately, however, more sweeping changes will be needed.

It is an order of faith among protesters that globalization is a recent phenomena that has been driven primarily by international institutions. And it's predecessor, the General Agreement on Tariffs and Trade, have facilitated the reduction of trade barriers over the years. But their impact has been decidedly modest. The great events that opened up the world economy — the embrace of reform in China and the abandonment by many developing countries of their "import substitution" development model—all occurred outside the context of trade negotiations. Since the mid-1980s, more than sixty developing countries have unilaterally lowered their barriers to trade and foreign investment. Even more have flocked to join the WTO. Today more than three-quarters of that body's members are developing countries, with another twenty desperately wanting to join.

In short, free trade hasn't been imposed from the top down; it has arisen from the bottom up. The global trend toward economic freedom began as a direct response to the abject failure of protectionist, state-dominated development strategies, and it continues today for the same reason. In other words, the march toward economic freedom will go on even if the FTAA and the WTO fail. Nevertheless, the collapse of such institutions would be at best a setback for developing countries, as it would slow the global pace of economic liberalization. The recent spate of anti-trade, anti- capitalist protests should thus prompt free traders to reassess their strategy for advancing open markets.

Diversion and Appeasement

For decades, trade liberalization has been pursued through a policy of "diversion and appeasement": diverting attention away from opening domestic markets by focusing on exports and foreign policy, and appeasing protectionists with "fair trade" policies that gave politically powerful industries a pass on foreign competition. That strategy worked reasonably well for a long time, and led to a gradual opening of markets around the world.

The success of diversion and appeasement, however, depended on several factors that no longer pertain. For one thing, the Cold War is over and trade liberalization can no longer be sold as a tool for strengthening the Atlantic alliance. Meanwhile, the spread of globalization means that trade is no longer an insider's game; today, international economic issues arouse popular passions that can spill onto the streets. The strategy of diversion-and-appeasement is not well suited to advancing free trade in this new environment. Indeed, the approach has become self-defeating. By failing to directly challenge mercantilist assumptions and fair trade fallacies—that is, to make an unapologetic case for truly free and open trade—economic liberals are helping to perpetuate popular suspicions that trade's critics have legitimate complaints. That is especially true in socialist-leaning Europe, which often views globalization as being imposed by the United States.

The battleground for free markets must therefore shift from international meetings to the home front. Free trade must be sold, not merely as a means to open foreign markets, but as the best policy for Europe regardless of what other countries do. The time has come for European free traders to take seriously the ideas of unilateral trade liberalization.

First, that will require abandoning the mercantilist assumptions of trade negotiations that stress only the benefits of open markets in other countries. Indeed, in the parlance of such negotiations, opening one's own market is a "concession" that is granted only grudgingly in exchange for a similar concession from a trading partner. But as economists since Adam Smith have pointed out, the idea of open markets as a concession gets reality exactly backwards: the real benefit of trade is imports, the necessary cost of which is exports. A nation benefits from opening its markets regardless of what other countries do.

Unfortunately that reality has not been adequately explained to a public that is becoming increasingly fearful of globalization. Far from making an unapologetic case for open markets, free traders have played into the hands of protectionists by treating trade barriers as important assets while focusing all their energies on prying open foreign markets. Defending the virtues of imports should no longer be avoided.

Scrap the CAP

Nor can free traders continue to tolerate the worst trade barriers at home. In Europe, that obviously means that the Common Agricultural Policy must be tackled head-on. The use of anti-dumping duties as covert protectionism must be exposed. And politically powerful industries, such as steel and textiles, must no longer be coddled or bought off with targeted quotas and tariffs. Part of the plan for achieving those goals must be to organize import-using and exporting businesses — sectors of the economies in most EU countries that dwarf protected industries—into a new free trade coalition. That strategy has begun to work in the United States, where, for example, automobile manufacturers and other steel-using industries have begun to fight efforts by domestic steel manufacturers to further close the already protected US market.

Many supporters of trade have opposed unilateral liberalization by pointing out that although open domestic markets are important, it is preferable to open markets everywhere at once. That is certainly true. But it is also true that trade negotiations cannot force countries to drop their trade barriers; nations open up only when the domestic political atmosphere is right. Trade agreements may be a useful way to "lock in" the benefits of free trade, but they have never been the primary impetus for it. Instead, developing countries are embracing free trade because they have observed the benefits it brings. The most effective way for Europe to open foreign markets is to lead by example. And even the staunchest multilateralist should agree that in a world where trade agreements are subject to popular scrutiny, educating the public about the virtues of open domestic markets must be a top priority.

Another way to further free trade is by reforming the dispute settlement process in the WTO. Specifically, there should be more reliance upon "compensation" as the means for enforcing judgments against nations that violate their trade commitments. Currently, plaintiff countries tend to turn to sanctions, as the United States has done in the now infamous US-EU disputes over beef and bananas. The idea is to punish an offending nation into dropping its trade barriers by punishing its exporters with high tariffs—a result that harms consumers in both countries. Instead, countries that lose in the WTO should be required to drop trade barriers in some other sector as compensation for their WTO-illegal protectionism. Compensation would encourage countries to abide by their trade commitments while moving us in the right direction: towards open markets.

Finally, Europe should refrain from hosting any major international trade meetings in the near future. As both Seattle and Quebec demonstrated, situating such meetings in developed countries makes it unnecessarily convenient for anti-trade forces to organize any protest. The WTO has the right idea by holding its upcoming ministerial meeting in Qatar. Shifting meetings to more remote locations will have the added benefit of making developing countries feel less marginalized in the negotiation process.

In sum, by pursuing unilateral trade liberalization, free-traders can better achieve their objectives without needlessly subjecting themselves to legions of clueless protesters in the streets. The anarchist of tomorrow may find that he has no targets to firebomb and no negotiations to disrupt, yet free markets will continue to gain ground.

indispensable Markets

If nothing else, the spectacle of Quebec should dispel any lingering doubts about whether the anti-trade left has anything new to offer the world's poor. Indeed, the ideological gulf between residents of developing countries and their so-called defenders in the West is wider than ever. The pretexts may be new—human rights, environmental protection, and cultural diversity—but the prescription is as stale as ever: trade barriers and redistributive social system. Never mind that those policies have failed time and again; anti-trade activists can abide anything, it seems, except choice and freedom. Their promise of government-sponsored prosperity is phony; it hasn't and won't ever deliver the goods. Countries that have followed such advice have made little progress in raising living standards, while those that have embraced free markets have seen real improvements in the lives of average people.

There is no palatable alternative to free economies and free trade. A market economy isn't simply a place where people provide goods and services in the pursuit of profits — not that there's anything wrong with that. Market competition is also a discovery process; a way of learning things we wouldn't otherwise know, and which we learn from people we may have never met. It is that knowledge that makes us more productive, wealthier, healthier, and better able to protect our world. The ability to reason and innovate is one of mankind's greatest gifts. Yet the only way to realize that potential, to get at the knowledge that improves our lives, is through an open market system where people are allowed to compete to satisfy the wants and needs of others. We need, in other words, the freedom to trade. Any barriers that short-circuit that process leave us with a smaller pool of talent and ideas, and thus leave us poorer. The blessings of free markets at home are undeniable; trade merely widens the circle of opportunity to people who's previously been excluded.

The faces and slogans on the fringe left may have changed, but the mindless idealism remains. The Quebec protesters cared deeply about many things, but sadly, not about the truth.

　Supplementary Reading