When free trade is not fair exchange
In 2009, when Zambian-born economist Dambisa Moyo published Dead Aid, her devastating analysis of the inefficacy of Western foreign aid, she was feted by many on the Right. Dead Aid, was, enthused the Washington Times, “a wonderfully liberating book.” Quite apart from the book’s many merits, it was liberating in another sense—it echoed what conservatives have always known (but generally refrained from saying) about foreign aid, except that the critique came not from the despised “white males” but a black African woman. Careerist conservatives everywhere were thereby enabled to make points by proxy, and absolve themselves of responsibility to take action. But even Moyo’s political cachet and acute intelligence have not sufficed to give her newest book the attention it deserves.
How the West Was Lost tells, in pellucid prose, the seldom-told story of precisely what a certain understanding of free trade and consumerism have done to the economies of the West (particularly America and Britain)—and how in the not too distant future global economic and political predominance is likely to pass from the United States to China.
Far from being the hard-headed policy so fondly imagined by anti-socialists, free trade can sometimes be as utopian as the most virulent variants of liberalism. Just as socialists believed that the ties of religion, nation, and culture would dissolve in favor of a workers’ paradise, some conservatives believe that nations should willingly surrender sovereignty and care for their own well-being and survival in favor of an abstract global “market” presumed to solve all problems. Conservatives who seek to defend U.S. sovereignty simultaneously promulgate an economic ideology that is undermining that sovereignty by destroying the dollar—which may shortly be overtaken as the world’s principal currency. “Think about it,” warns the author: “Foreign exchange, share prices, the price of copper, the price of oil, all in Chinese renminbi.” Think about that indeed.
Free trade is only fair exchange when it occurs between countries which have comparable living standards, and play by the same rules. Those who believe that there should be largely free movement of ideas, technology, capital and labour are at a major disadvantage when dealing with those who do not. And it is not just a matter of rival companies operating on behalf of their shareholders, but whole countries pursuing comparative advantage and national aggrandizement—as European powers did in the nineteenth century. China is but the largest and most successful of these emerging economies, with its government engaging almost openly in brinkmanship, asset-stripping, cyber-warfare, and industrial espionage against rivals who for the most part adhere to the relatively gentlemanly rules set at WTO summits. Moyo’s insistence in pointing out the unpalatable fact that economics is sometimes war by other means has infuriated not only free-market fundamentalists who believe that all self-interest is ipso facto enlightened, but also some on the Left. John Vidal whimpered in the Guardian on 26 February
“Her prose is littered with images of winning and losing races, conflict, aggression, submission, domination, victory, violence and triumphs.”
But China is only availing of our weakness. As the author notes, “Across the West, everyone is culpable.” Over decades, centre-right and centre-left governments alike have promoted greed and indebtedness in the name of an abstract “global capitalism.” They have scrimped on education and infrastructure while lavishing money on egalitarian eccentricities, vanity projects, and ill-advised foreign policies. They have pampered workforces and electors with unsustainable welfare models and Ponzi-like pension schemes. In cahoots with avaricious companies, “conservative” and “socialist” governments alike have outsourced much of our industrial base in return for cheap gewgaws. These policies combine the worst features of free-market ideology: a belief that prosperity can only increase, thus supporting an expanding welfare state with no real spending restrictions, and the conviction that consumption by rich countries is the same as actual production of goods and capital, ignoring the national interests other countries clearly seek to protect in favor of grand pronouncements about market efficiency. And we have let them do it.
The author provides many arresting statistics and comparisons. Here are a few to illustrate the depth of our hot water. In 1952, U.S. household debt as a percentage of income was 36 percent; in 2007, it was 130 percent. Two-thirds of British manufacturing vanished between 1960 and 1990, and now hovers at just 11 percent of the UK economy. According to Forbes, in 2009 U.S. universities granted 41 times more law degrees than engineering degrees. The Economist has estimated that China spent an extraordinary $200 billion on railways between 2006 and 2010. Indian nationals are thought to have more money in Swiss banks than the rest of the world put together (India and China are still recipients of Western foreign aid). The author piles up unpalatable facts to give a devastating diagnosis.
Moyo may be over-egging the Chinese pudding, however, as that nation has problems of its own. China’s interventionism is itself risky, and carries an exorbitant socioeconomic and ecological price tag. A combination of sclerotic administration, corruption, internal divisions, reliance on Western consumerism, lower industrial standards and inventiveness, massive environmental destruction, and demographic implosion mean that the proverbial “Yellow Peril” may after all fail to materialize. But obviously we cannot simply hope for the best. The economic disaster the West may be facing would be real enough without Chinese efforts to profit at our expense.
The author’s suggested solutions are varied, and some are more feasible or desirable than others, and are geared to making the West more economically competitive without resorting to free-market shibboleths. Some are obvious—investment in infrastructure and scientific research, cuts in welfare spending, encouragement of saving rather than consumption, and the promotion of unabashedly elitist education.
She examines various degrees of protectionism, with wistful evocations of the 1930 Tariff Act (the so-called Smoot-Hawley Tariff, which raised U.S. tariffs on many thousands of imported goods), and the days when commercial can-do and statesmanship combined to win the space race. Moyo goes so far as to commend “well-engineered” socialist states and the “political mettle” of states like Singapore, which incentivizes university graduates to have high IQ children while lotus-eating Westerners “complain about being seen on CCTV”.
Moyo, controversially, also wants more nuclear power—the book’s timing was unfortunate, coming out just before Fukushima reminded the world of the dangers. She wants more intensive agriculture, but appears oblivious to the environmental costs. She wants more immigration from poor countries, failing to take into account the resulting increased welfare costs and social tensions. She advocates allowing more gifted overseas students into the U.S., but does not consider how many of these would stay in the country and contribute to the economy after graduation.
Then there is what she calls her “economic nuclear option”—and it is probably this which has most shocked the conservative commentariat—for the U.S. simply to default on all her loans. Not only would this permit the U.S. to start again economically—she predicts the markets would be lending to the U.S. again within just six months—but it would have the beneficial side-effect of derailing China, 82 percent of whose foreign reserves are denominated in dollars. She acknowledges that many would be horrified by such an idea, but says default may in any case be unavoidable, given the magnitude of the problem. Whatever one thinks about this (and genuine conservatives have surely little reason to love global capitalism) the author is right to consider all possibilities—and in her urgent contention that “policymaking will need to be fierce, innovative, and radical.”
There are sometimes flaws in her argument, and not all her proposed solutions are acceptable to conservatives, but the author has thrown down a cogent and courageous challenge to economic convention. All who worry for the West’s fiscal future should feel deeply in her debt.
Derek Turner is the editor of the Quarterly Review and a freelance writer whose articles have appeared in the Times, Sunday Telegraph, Country Life, Chronicles, Salisbury Review and many other journals.
Posted: June 19, 2011
Rabelais in the Graveyard