Free trade spreads civilization

The essence of capitalism’s foreign policy is free trade—i.e., the abolition of trade barriers, of protective tariffs, of special privileges—the opening of the world’s trade routes to free international exchange and competition among the private citizens of all countries dealing directly with one another. During the nineteenth century, it was free trade that liberated the world undercutting and wrecking the remnants of feudalism and the statist tyranny of absolute monarchies.

—Ayn Rand. Capitalism: The Unknown Ideal, 1966.

Trade opens countries to the world, leads to a questioning of values, attitudes and precepts. This in turn leads to the adoption of what is best, and thus progress is made. The voluntary adoption of uniform mores through commercial ties leads to the homogenization of values that most closely accord with the Golden Rule. This alignment is the best guarantor of peace.

Free trade erodes despotism

But as one looks round the Asia-Pacific region, it is striking how economic growth and greater prosperity have consistently brought political change in their wake, with governments becoming steadily more accountable in fully democratic elections. Indeed it’s not just Asia’s experience: in Europe, the Industrial Revolution was followed by new constitutions and new legal systems. I do not find that surprising, because as people achieve higher living standards and accumulate more wealth, they want a greater say in running their own lives, they want a rule of law and a system of government which is fair and equitable. China has its own distinctive history of strong and highly centralized government, but I do not believe that in the long term it will be immune from the same processes which have affected its neighbors.

—Margaret Thatcher. Speech to the International Herald Tribune Conference, Beijing, China, November 14, 1996.

As more and more countries join the global market, the economies of scale possible for manufacturers and service providers boggle the mind. This, combined with competition-driven technological advances, leads to increasingly lower prices. These lower prices in turn bring more and more customers, further increasing the economies of scale, and so the prosperity feeds on itself.

If China continues freeing its economy, once it is fully modernized the international market for manufactured goods will almost double, bringing drastically lower prices and more wealth to the entire world. We can now cautiously anticipate this progress, as China’s government continues to move away from despotism. These reforms include its tolerance of Internet access, even if some websites are censored; its steady transition to a market economy; allowing unrestricted business travel to and from China; the protection of private property; and not only tolerating, but actually encouraging, the pursuit of wealth. This change in values was not driven by an exchange of army officers, nor by the U.S. Peace Corps, cultural exchanges, or by any other contrived, state-sponsored interaction—but rather by free trade.

Free trade inoculates against despotism

A prosperous, property-owning people finds nothing attractive in communism. The starving, frozen Russians in 1917 were all ears to Lenin’s outlandish promises, just as the starving, disillusioned Germans in 1933 were susceptible to Hitler’s demagoguery. The lesson of history is clear: economic misery gives rise to radical politics and violent xenophobia, leading to war. Thus, vanquished enemies should never be cut off from trade, and economic downturns should never be countered with protectionism.

Free trade resists socialism

Free trade forces governments to compete—to offer lower tax rates and lighter regimes of regulation in order to satisfy people and companies.

—Margaret Thatcher. First Clare Boothe Luce Lecture, Washington D.C., September 23, 1991.

The privatization that occurred throughout the world in the 1980s and 1990s was forced upon socialist peoples and governments, notwithstanding their dogmatic belief in the wisdom of their statist folly, because their economies were declining at unsustainable levels. As this became more pronounced, the flight of capital and the ‘brain drain’ phenomenon began to drag them towards collapse. Nor could they rest satisfied with their degradation, as people in the Dark Ages did, because they could see other countries were doing so much better. What they saw forced them to acknowledge reality.

Imports are just as beneficial as exports

There is a primitive belief that imports are bad and exports are good. In fact all trade is good, regardless of the direction in which it flows. Imports mean that the people are able to buy goods cheaper from overseas than they would be able to get them locally. Exports means they are earning the money to pay for those cheap imports. Both contribute to prosperity.

If a country, in the misguided belief that exports are ‘better’ than imports, subsidizes exports with tax dollars, it is effectively transferring wealth from its own citizens to foreigners. Moreover, these subsidies make its industries uncompetitive and inefficient, while forcing foreign producers to become more efficient in order to survive. Like a welfare recipient, a supported industry becomes dependent on the subsidy. Typically it will collapse when the subsidies are finally discontinued.

Nor is it useful to retaliate in kind against governments that refuse free trade. A country that unilaterally removes barriers to imports gains an enormous advantage over all the self-hobbling nations of the world. This was proven by the experience of Britain, whose prosperity rocketed in the nineteenth century when, at the urging of Cobden and Bright, it dropped all impediments to imports without requiring reciprocation. The British people, by this act, were able to buy everything the world had to offer at a lower cost than any other people. This forced British industries to become the most efficient in the world, while reducing the costs for, and therefore increasing the purchasing power of, the British people in every category of goods.

This article is an extract from the book ‘Principles of Good Government’ by Matthew Bransgrove