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OPEN BORDERS: THE MORALITY OF FREE TRADE

By Nigel Ashford

Foreign Policy Perspectives No.29

ISSN 0267-6761
ISBN 1 85637 360 6

An occasional publication of the Libertarian Alliance,
25 Chapter Chambers, Esterbrooke Street, London SW1P 4NN.

Email: LA@capital.demon.co.uk
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(c) 1997: Libertarian Alliance; Nigel Ashford

Dr Nigel Ashford is Principal Lecturer in Politics at Staffordshire
University, England

The views expressed in this publication are those of its author, and
not necessarily those of the Libertarian Alliance, its Committee,
Advisory Council or subscribers.

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Editorial Director: Brian Micklethwait
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FOR LIFE, LIBERTY AND PROPERTY
____________________________________________________________________           
          

There is now a massive literature on free trade, overwhelmingly
positive, despite the opposition of politicians such as Sir James
Goldsmith and Ross Perot. However it is almost exclusively economic,
and concentrates on goods and services. The focus here is on the
moral and political consequences of free trade. After defining free
trade as the four freedoms, the paper presents the moral values
promoted by free trade: peace, freedom, human rights, democracy and
social trust.


THE FOUR FREEDOMS

Free trade can be defined in terms of the four freedoms: the free
movement of goods and services, capital and people. This principle
should apply to all transactions, but has come to mean transactions
across national borders. These four freedoms, of course, were the
founding principles of the European Economic Community. (How far has
it deviated from them?) They highlight that `trade' involves goods
and services, but also includes capital investment across borders,
and labour contracts between employer and employee of different
nationalities. These principles are more dramatically summed up in
the nineteenth century cry for `laissez-faire, laissez passer', let
them act, let them move. Regrettably only the former phrase is now
remembered.

History shows that trade is natural; left to themselves free people
will seek to trade with others in pursuit of their own
self-interest, combined with a sense of adventure. Friedrich Hayek
showed how free trade developed spontaneously without states.[1] In
the nineteenth century there were open borders with the real
possibility of free exchange and travel. The historian Gustav Stolpe
described the era in The Age of Fable (1942) in terms of the three
freedoms.

   "They were freedom of movement for men, for goods and for money.
   Everyone could leave his country when he wanted and travel and
   migrate wherever he pleased without a passport. The only European
   country that demanded passports (and not even visas!) was Russia.
   ... who wanted to travel in Russia anyway?"[2]


THE MORALITY OF FREE TRADE

Peace

Another forgotten phrase of nineteenth century liberals was "if
goods do not cross borders, soldiers will". Liberals believed there
were no irreconcilable interests between nations. Trade creates the
social conditions that reduce the causes of war and aggression
because it increases satisfaction with the standard of living and
recognises the essential humanity of other people. The Manchester
School of intellectuals, led by Richard Cobden and John Bright,
organised the Anti-Corn Law League to advocate the abolition of the
Corn Laws, the British predecessor to the Common Agricultural
Policy, achieving their goal in 1846. They were motivated primarily
not by the economic benefits, although they were considerable, but
by trade as a contributor to peace. Richard Cobden proclaimed that
"free trade would have the tendency to unite mankind in the bonds of
peace, and it was that, more than any pecuniary consideration, which
sustained and actuated me in that struggle."[3] This was also the
primary motivation for Cobden's vital role in negotiating with
France a free trade treaty in 1860.

Cobden declared:

   "Free trade! What is it? Why, breaking down the barriers that
   separate nations; those barriers, behind which nestle the
   feelings of pride, revenge, hatred, and jealousy, which every now
   and then burst their bounds, and deluge whole countries with
   blood; those feelings which nourish the poison of war and
   conquest, which assert that without conquest we can have no
   trade, which foster that lust for conquest and dominion which
   sends forth your warrior chiefs to scatter devastation through
   other lands, and then calls them back that they may be enthroned
   secretly in your passions, but only to harass and oppress you at
   home."[4]

Trade domestically is not a cause of conflict and war so why should
it be internationally? International trade wars only exist as
economic warfare when there is government intervention. Economic
interdependence increases peace and harmony. It is tariffs and other
barriers which create conflict and friction between nations and
domestic interventions do the same. Ludwig von Mises in Omnipotent
Government: The Rise of Total Government and Total War warned that
the greater the role of government, the greater the risk of war.[5]

It is frequently claimed that capitalism leads to war, yet war is
not in the interests of business whose capacity to trade is severely
damaged. Capitalism is a society of free traders based on free
markets, whilst war is the enemy of trade: it is expensive,
destructive of property, damages relations with prospective
partners, and increases taxes. As Ayn Rand noted:

   "The trader and the warrior have been fundamental antagonists
   throughout history. Trade does not flourish on the battlefields,
   factories do not produce under bombardments, profits do not grow
   on rubble."[6]

A world of diverse cultures, values and beliefs has great potential
for conflict, which is reduced by economic relations which cares
little for those differences compared with the ability to conduct
relations for mutual profit. Economic interdependence fosters
harmonious behaviour between nations that otherwise differ in
culture and institutions. Francis Fukuyama in his famous work on The
End of History argued that economic globalisation and the
international division of labour has required all societies to
participate if they wish to achieve higher standards of living, and
that economic success requires peaceful relations with your
neighbours and other countries. He declared this globalisation as
"the ultimate victory of the VCR".[7]

The desire for peace through economic integration, especially
between Germany and France, was one of the goals of the European
Community. Chancellor Kohl of Germany in his campaign for a federal
Europe warns of the danger of war if political integration does not
proceed. However economic integration, in the form of the four
freedoms, is sufficient to achieve peace. Political integration is
unnecessary, as war is already inconceivable between the member
states of the EU.

Freedom

A free person has the right to do whatever he wants with his own
life, including the ability to buy, sell, invest, borrow, work for
and employ whomever he wishes. This natural right to `life, liberty
and the pursuit of happiness' is denied by national barriers.
Genuine freedom, to pursue one's own values and interests, requires
free trade. "Work at what you want, trade with whomever you wish,
live wherever you feel happiest", as Richard Eberling proclaimed.[8]
Why should the pursuit of your dreams and ambitions be limited to
your country of birth?

Human Rights

There is rightly a concern about the denial of human rights to so
much of the population of the world, although the concept of human
rights has become frequently misrepresented.[9] However, most of the
human rights movement is wrong on the means of promoting human
rights, often demanding boycotts or sanctions against those
governments who fail to respect those rights on a massive scale. To
influence such a society, it is best to maximise contacts with the
rest of the world. Free people have nothing to fear from such
activity, and truth and freedom will always benefit. There has been
a neglect of the role of business and travellers in promoting the
ideas that led to the collapse of communism in the Soviet Union and
apartheid in South Africa. Local interaction with visitors
undermined the regimes, whether in the form of buyers and sellers,
tourists, academics, or visitors of any sort. Every visitor who
asked why a Jew could not emigrate, or why a black cannot do a job
as well as a white, undermined the legitimacy of the regime.

Merle Lipton illustrated this in the context of South Africa in her
book on Capitalism and Apartheid by showing how foreign investors
and firms were a powerful instrument for weakening apartheid, e.g.
in the education, training and promotion of black workers.[10] They
were not a prop of the system, but contributed to the removal of
some of the props. It was for this reason that sanctions, economic
and sporting, were a mistake. Sanctions were not the cause of the
collapse of apartheid, as the boycotters now claim, but delayed that
collapse by contributing to the sense of social isolation and
encirclement of the South African regime, the `laager' mentality.
One should be against sanctions for human rights abuses elsewhere,
e.g. in the current debate about recognition of China with `most
favoured nation' status in the World Trade Organisation (WTO), or
in the US embargo against Cuba, reinforced by the Helms-Burton Act
which seeks to extend the embargo to non-US companies. Businessmen
are the unintended subversives of authoritarian and totalitarian
regimes.

Democracy

Unlimited majoritarian democracy is a threat to freedom, but a
political system based on the consent of the governed remains the
best protector of freedom compared to other regimes. There is now an
extensive literature on the relationship between economic
development and democracy, prominently associated with Seymour
Martin Lipset.[11] Lipset argues that economic development is a
precondition for stable democracies. He does not reflect on how such
development is related to the degree of trade with other nations and
integration in the world economy.

Francis Fukuyama has surveyed the evidence and identified a "very
strong overall correlation between advancing socio-economic
modernisation and the emergence of new democracies."[12] He related
it to the struggle for recognition: an increasing standard of living
leads to greater education, search for recognition, increased self
worth, and the desire for recognition as a political equal.

In Spain under the Franco regime, the Commissar for Economic
Development believed that Spain would only be ready for democracy
when it reached a per capita income of $2,000. Democracy arrived
when it was $2,446.13 Spain achieved that higher income as a result
of international trade. It would have taken very much longer if
sanctions had been imposed on a so-called fascist dictatorship.

If democracy is supposed to represent the interests of the people as
a whole, then protectionism is anti-democratic because it promotes
the special interests.  Frederic Bastiat described protection as a
species of "legalized plunder" in The Law.[14] The classical
economists were clear about. the damaging effects on the political
system. J. B. Say was a French nineteenth century economist and the
author of Say's Law: that supply creates its own demand. He wrote
that:

   "If one individual or one class can call in the aid of the
   (political) authority to ward off the effects of competition, it
   acquires a privilege to the prejudice and at the cost of the
   whole community."[15]

Alfred Marshall, the founder of marginal utility theory, believed
that protectionism corrupts politics, because of the special
interests that it creates. Edmund Burke saw this in his attack on
the corrupt regime of Warren Hastings in India. Despite recent
liberalisation, the widespread corruption of Indian politics today
is associated with attempts to use regulations, tariffs and quotas
to exclude foreign competition.

Vilfredo Pareto noted:

   "A protectionist measure provides a large benefit to a small
   number of people and causes a great number of consumers a slight
   loss. These circumstances makes it easier to put a protectionist
   measure into practice."[16]

Economists now call this rent-seeking, defined as directly
unproductive profit seeking behaviour. It is through manipulation of
the political laws and regulations that a firm or industry maximises
its profits. Mancur Olson discusses this in his famous book on The
Rise and Decline of Nations.[17] It is the classic problem of
"concentrated benefits and dispersed costs", where the beneficiaries
are in the industry protected and the losers are the disorganised
consumers of the product. It is further compounded when the
producers affected are in another country without access to the
political system. There is a failure to recognise the affect on the
standard of living of consumers, and the jobs lost as a result of
opportunity costs and inability to sell abroad.

Protectionism contributes to the corruption of the political system
by encouraging special interests to form, whose polices seek to
favour themselves at the expense of the general population in the
form of tariffs, quotas and regulations. Instead of seeking to
identify more general interests, such as public goods like
protection from external enemies, the politicians become sensitive
to the special interests. In order to avoid the recognition of the
costs for the public as consumers, there, is a lack of transparency
about the relationship between politicians and protectionist
lobbies.

Social Capital

One of the hottest topics currently in the social sciences is the
issue of social capital, which has been defined by Robert Putnam as:

   "the networks, norms and trust that enable participants to act
   more effectively in pursuit of common objectives. ... in short,
   social connections and the attendant norms and trust."[18]

Fukuyama's book Trust is also concerned to locate the sources of
success in social capital, defined as the capacity to trust those
beyond the immediate family.[19] Students of Italy explain the
poverty and backwardness of southern Italy with the lack of trust
beyond the family, described in Edward Banfield's study as "amoral
familism", which can be contrasted with Robert Putnam's study of
Northern Italy and its success which he attributes to a wider sense
of trust.[20] This led Putnam to explore the decline of social
capital in the US in his famous discussion of "Bowling Alone".

He ignores, however, the relationship between trade and the creation
of trust. The division of labour requires cooperation, thus
providing an incentive to trust and friendship. The fewer the
traders, the fewer to know and the less need to respect others.
Protectionism and economic nationalism spreads antagonism, animosity
and enmity. Trade is a form of association and cooperation which
helps to build communities.

Robert Axelrod examined the problem of how to maximise social
cooperation and avoid social conflict and mistrust.[21] He tried to
discover it through a series of computer games, from which emerged
the most successful strategy as `tit for tat'. One should always
keep one's promises, but if another actor broke there's it was
legitimate to punish them once, but then one should hold to the
agreements unless the other actor broke it again. This is best
maintained in a system of global free trade where the chances of
repeat cooperation are maximised.


THE MORALITY OF INTERNATIONAL CAPITALISM

Current protectionists attack free trade for sacrificing cultural
and moral values at the altar of economic materialism, but this
paper shows that free trade stimulates and encourages fundamental
moral values: peace, freedom, human rights, democracy and trust.
This is why international capitalism, market globalisation and
multinational corporations are to be welcomed not only for their
contribution to material prosperity but also for creating a better
world.
____________________________________________________________________

NOTES

1. Friedrich Hayek, The Fatal Conceit, University of Chicago Press,
Chicago. 1988, chapter 3.

2. Quoted by Richard Eberling in Eberling and Jacob Homberger eds.,
The Case for Free Trade and Open Immigration, Future of Freedom
Foundation, Fairfax VA, 1995, p.8.

3. Ibid p.9.

4. Robert Eccieshall ed., British Liberalism, London, Longman, 1986,
pp. 133-134.

5. Ludwig von Mises, Omnipotent Government: The Rise of Total
Government and Total War, Yale University Press, New Haven, 1944.

6. Ayn Rand, "The Roots of War", in Capitalism: The Unknown Ideal,
New American Library, New York, 1967, p.58.

7. Francis Fukuyama, The End of History and the Last Man, Free
Press, New York, 1992, p.108.

8. Eberling, op. cit. p.xv.

9. Nigel Ashford, Human Rights: What They Are and What They Are Not,
Political Notes No. 100, Libertarian Alliance, London, 1995.

10. Merle Lipton, Capitalism and Apartheid, Gower, London, 1985.

11. S. M. Lipset, Political Man, Doubleday, New York, 1960,
pp.45-76.

12. Fukuyama, The End of History, p.112.

13. Ibid, p.110.

14. Frederic Bastiat, The Law, Foundation for Economic Education,
Irvington-on-Hudson NY, 1981, p.21.

15. Eberling, op. cit. p.8.

16. Jagdish Bagwati, Protectionsim, The MIT Press, Cambridge MA,
p.31, p.72.

17. Mancur Olson, The Rise and Decline of Nations, New Haven, Yale
University Press, 1982.

18. Putnam, "Tuning In, Tuning Out", Political Science and Politics,
Vol. 27, No.4 June 1996, p.664.

19. Fukuyama, Trust: The Social Virtues and the Creation of
Prosperity, Free Press, New York, 1995.

20. Edward Butterfield, The Moral Basis of a Backward Society, Free
Press, New York, 1958; Robert Putnam, Making Democracy Work,
Princeton University Press, Princeton NJ, 1994.

21. Robert Axelrod, The Evolution of Cooperation, Basic Books, New
York, 1984. See Kevin MacFarlane, The Rational Self-Interest of
Reciprocity: Robert Axelrod and The Evolution of Cooperation,
Sociological Notes No. 20, Libertarian Alliance, London, 1994.