Free trade and free markets are myths. They have never existed.
Yet the legend is perpetuated by academic advocates who entrench themselves in the “Ivory Tower” as Saruman the White resided at Orthanc. Through the mystical power of tenure, these sages wrap themselves in immunity from the immutable market forces. Then from scholarly sanctuaries on high, they expound the laws of supply and demand to all who will listen and obey.
Politicians parrot this rhetoric, squawking self-righteously of their conversion and commitment to comparative advantage. However, they will never implement it for fear of falling from their gilded perches.
This is not shocking. There is a radical divergence between business practice, and the theories and ideals which are preached in hallowed halls of academia and debated in the ornate offices of the State.
After two centuries of thriving competition, the Anglo-American version of capitalism now dominates global business, virtually unchallenged.
Two key components, protectionism and price distortion, are essential to the continuity and expansion of this brand. This would surprise many people who have been spoon-fed the fables of an ennobled capitalism. However, there is a growing body of evidence that indicates its true form and nature.
A prime example is the airline industry. Since the dawn of the age of aviation, the mighty U.S. government has protected its consumers from lower prices and increased competition.
At first, this task was accomplished by massive governmental schemes. Then, Ronald Reagan, the Great Deregulator, provided some regulatory respite. However, he swayed in his convictions and failed to push his reforms far enough.
The bold and decisive actions that Reagan took failed to reverberate among his weak-willed successors and have stalled since his presidency. This has ensured that intra-American air travel remains closed to foreign competition indefinitely. Apparently the “friendly skies” of so many marketing campaigns don’t live up to their name.
However, the most visible proof of the plague of protectionism and price distortion cannot be seen from the air. It is apparent only on the ground, where a low-intensity conflict continues to pit the developed nations against developing ones. This is a clash that will shape and define attitudes and alliances, priorities and policies for the next century.
It is centered on the Doha round of trade talks, which remains stalled over a seemingly simple topic: agricultural policy.
Agriculture is most often cited by economists as the classical example of a “free market.”
With few barriers and millions of individual producers and consumers, the argument seems to hold. However, close examination reveals that this is only half-right.
There are few barriers in the agricultural market, but producers — especially in the industrial world — do not act as individual price takers. Instead, they rely on their national government to employ a variety of market-manipulating methods to identify and benefit those producers within their borders.
There are many tricks that governments in the developed world can use to prop up the politically important — but uncompetitive — farmers. Each nation approaches this conundrum with unique perspective, thus enabling them to reach into the protectionist arsenal and precisely select which weapons they wish to wield to achieve the desired effect.
Think of the last time you purchased a gallon of milk. Did you wonder how it was priced, or why it cost more than a gallon of gasoline?
Most people assume that the market sets the price, but that is absolutely incorrect. You paid that price because of an increasing price floor set by the federal government using authority it assumed during the Great Depression.
Other effective tools include import quotas, subsidies and tariffs, all of which are very capable of distorting prices, limiting competition and masking causality. Consequently, the consumer is able to remain blissfully ignorant; not realizing that one’s actions are directly related to market failure across the globe.
Globalization is changing the dynamics of the world economy and it will continue unabated as economies become increasingly linked through social and intellectual fiber optic channels.
As information becomes more available, the end of asymmetry approaches. Empowered by access to information, the producers and consumers of the developing world will refuse to play this game on the long-established, uneven terms that have been dictated by centuries of imperial and corporate domination.
If we refuse to accommodate our impoverished neighbors by making them allies, we might soon find ourselves at the mercy of a more numerous and powerful foe.
The once-great Saruman delivered the most powerful weapons at his disposal to his enemies — first his army, then his staff of power and finally the palantir, thus undermining his claim to power and his ability to exercise it.
As the bearers of great wisdom, we must not voluntarily strip our society of its greatness and act as our own destroyers. It is time to correct course now. Doha is just the beginning of the greatest conflict of our time.
