Ordinary people pay big price for free trade


* John Legge
* June 27, 2008

Free trade is simply a mechanism to benefit a few at the expense of many.......

Economists' devotion to free trade is like the Pope's devotion to the Immaculate Conception: both beliefs start from rumours dating back hundreds of years and neither is based on anything resembling scientific proof. The truth or falsity of such beliefs is irrelevant. Their main purpose is to separate believers from the rest — free trade versus protection; Catholics versus protestants; Collingwood versus Carlton. These are matters of belief, not fact.

The RBA claims to be tackling inflation but only people out of touch with reality could believe that closing factories in Victoria will stop the Saudis charging $150 a barrel for oil. Ricardo's theory of comparative advantage is often described as a proof of the benefits of free trade. It was actually a specious attempt to justify the imposition of an unfair treaty on Portugal. It wasn't comparative advantage that made the Portuguese open their country to British manufacturers, but the threat that if they hadn't agreed, the Royal Navy would have withdrawn and allowed the Spanish to conquer their country.

Free trade is unpopular because it causes hardship without offsetting benefits while industry policies are popular because they work. A strong manufacturing sector does not only benefit manufacturing workers. The fact manufacturing workers can earn relatively high wages drags up the wages in low-technology manufacturing and the basic service industries. Conversely, weakening manufacturing industry does not only affect the workers who lose their jobs, other low-skilled and semi-skilled workers also suffer as their avenues to higher-paying jobs are closed........

John Legge teaches innovation and advanced finance at Chifley Business School and Swinburne University.