Free Trade or Bioregional Security?

Word reached me yesterday that Colin Hines is writing again about the destructive nature of the global trade system and the need to protect our security of supply. In standard economic theory protectionism is a dirty word, the impulse to be resilient and self-reliant undermining the ability of merchants to achieve arbitrage profits. My own view is closer to that of Gandhi when he said ‘Any country that exposes itself to unlimited foreign competition can be reduced to starvation and therefore, subjection if the foreigners desire it.’

So much for theory, what about the practice of trade in the globalised economy? The governance of global trade is overseen by the World Trade Organisation (WTO) which replaced the General Agreement on Tariffs and Trade that the global body with authority in this area under the tripartite systems established at the end of the Second World War, signed by 23 governments in 1947. Its aims was to replace the chequered history of mercantilist policies based around the protection of national interests that had dominated the early years of capitalism and was considered to have been implicated in the unstable and conflict-ridden history, especially of Europe, up to that time.

The WTO ‘does not adopt a neutral stance on trade policy. It is passionately against protectionism and just as profoundly for trade liberalization', in the words of Richard Peet. In its mission to liberalize trade the WTO has proceeded well beyond the GATT’s aim of ensuring efficiency and stability and follows this imperative even when this ‘conflicts with the need for environmental protection in an age of burgeoning production, massive consumption and the use of powerful technologies’ and even when the restrictions on trade are intended to ‘protect the environment, ensure food quality and safeguard public health’. According to Peet’s critical account, the single-minded emphasis on free trade undermines national attempts to ensure environmental protection, as well as undermining the power of labour to ensure decent working conditions and acceptable levels of pay.

The failure of talks to extend the liberalization of global trade further, the so-called Doha Round, indicate that the nature of the WTO as a membership organisation has resulted in a political stalemate, with the rising nations of the South refusing to accept the terms of trade that favour the more powerful nations that have traditionally dominated trade talks. Global trade is now governed by a patchwork of bilateral and regional trade agreements, the regional agreements between the countries of Latin America (Mercosur) and South-east Asia (ASEAN) being examples of co-operation at different levels that contrast with the continued rhetorical emphasis on globalisation.

The last time we had an economic crisis on anything approaching the scale of the current one the response by the competitive world powers was to engage in trade wars that eventually led to real wars. This time around the wars seem to be being fought through currencies, while trade remains in the hands of corporations. While the objective of avoiding war must remain the priority, this does not preclude the introduction of policies to ensure national security in essential goods and services. On this basis I look forward to what Colin has to say.
. Tweet

Queasy Come; Queasy Go

I want to think again about quantitative easing - the government's new favourite policy that enables it to make money by decree. This is necessary because the favoured method of money creation in this late form of financialised capitalism is by banks lending it and then accepting each other's debts. Once they realised their mutual debts would never be paid this source of cash dried up, and so the government stepped in to spend money directly into the economy. In essence, this is exactly the sort of money system that green (and other) critics of debt-based money have been calling for.

So what's the problem? That is easy to answer: the money that is being created is not being spent on the real economy, but rather injected into the financial upper circuits of the global economy, where it does nothing of real value (it would be far better if the policy worked as illustrated in the cartoon). As Colin Hines argued back in the spring, this money should be being spent on building the infrastructure for a low-carbon economy.

In fact it is being used to buy two sorts of debt. Most is being spent on government debt, which means that the government's debt management agency can afford to sell more government bonds without having to offer impossibly high rates of interest on them - the more UK national debt there is out there the more expensive it becomes to create more. Some is also being used to buy junk corporate debt, thus 'helping the banks to rebuild their balance sheets', otherwise known as 'new lamps for old'.

The pushing of all this new money into the financial system was proposed on the basis that it would miraculously find its way into the real economy. There is no evidence or even convincing argument as to why that might happen. In this form of capitalism, the reverse process is dominant - with money being sucked out of the real economy into financial operations where more money can be made more rapidly.

The policy has two real consequences - both iniquitous. As more cash floods into financial organisations, they use it to buy assets of various sorts, so QE causes a new asset bubble. This value can then be used by the wealthy members of society who own assets to purchase other assets, such as more property or land, hence exacerbating the inequality that already haunts our economy.

Secondly, the policy extends the gap between the money supply and the real economy. The money that has been created is a claim on future goods, and hence this policy is creating a pressure for more economic growth, with the consequent exploitation of more energy and resources. Hence QE to support the finance sector is an environmental disaster in the making.

As it is being used currently, quantitative easing is magnifying the worst consequences of the financialised economic system we are suffering under. The one glimmer of light is that it has proved beyond question that money can be created in this way, but when it is, it should be used to invest in positive outcomes for society, rather than to support the unequal distribution of resources. Tweet