GOLDSMITH ON GATT -- PART 2
[to Goldsmith on Gatt, Part 1]
Q: What are your thoughts about the World Trade
That is the organization which is supposed to replace
GATT, regulate international trade, and lead us to global
economic integration, it is yet another international
bureaucracy whose functionar ies will be largely
autonomous. They report to over 120 nations and
therefore, in practice, to nobody. Each nation will have
one vote out of 120. Thus, America and every European
nation will be handing over ultimate control of its economy
to an unelected, uncontrolled, group of international
If by wise policy or blind luck, a country has managed to
control its population growth, provide social insurance,
high wages, reasonable working hours and other benefits
to its working class (i.e . most of its citizens), should
it allow these benefits to be competed down to the world
average by unregulated trade? This leveling of wages
will be overwhelmingly downward due to the vast numb er
and rapid growth rate of underemployed populations in the
world. Northern laborers will get poorer, while Southern
laborers will stay much the same. But the application of
GATT will also cause a great tragedy in the third world. Modern economists believe that an
efficient agriculture is one that produces the maximum
amount of food for the min imum cost, using the least
number of people. That is bad economics. When you
intensify the methods of agriculture and substantially
reduce the number of people employed on the land, those
who be come redundant are forced into the cities.
Everywhere you travel in the world you see those terrible
slums made up of people who have been uprooted from the
land. But, of course, the hurt is deep er, Throughout the
third world, families are broken, the countryside is
deserted, and social stability is destroyed.
This is how the slums in Brazil, known as "favelas", came
into existence. It is estimated that there are still 3.1
billion people in the world who live from the land. IF
GATT manages to impose worldwide the sort of productivity
achieved by the intensive agriculture of nations such as
Australia, then it is easy to calculate that about 2
billion of these people will become redundant. Some of
these GATT refugees will move to urban slums. But a large
number of the m will be forced into mass migration. Today,
as we discuss these issues, there is great concern about
the 2 million refugees who have been forced to flee the
tragic events in Rwanda. GATT, if it " succeeds", will
create mass migrations of refugees on a scale a thousand
times greater. We will have profoundly and tragically
destabilized the world's population.
Q: But why do third world nations themselves support global
We must distinguish between the populations on the one
hand and their ruling elites on the other. It is the
elites who are in favor of global free trade. it is they
who will be enriched. In Indi a there have been
demonstrations of up to one million people opposing the
destruction of their rural communities, their culture and
their traditions. In the Philippines several hundred
thousand f armers protested against GATT because it would
destroy their system of agriculture.
Vandana Shiva is an eminent Indian philosopher and
physicist. She is Director of the Research Foundation for
Science, Technology and National Resource Policy, and is
the Science and Environment Advisor of the Third World Network. In India, she says,
global free trade will mean a further destruction of our
communities, uprooting of millions of small peasants from
the land, and their migration into the slums of overcrowded cities. GATT destroys the
cultural diversity and social stability of our nation ...
GATT, for us, implies recolonization.
Q: Without global free trade, how could the developing
Those who wish to industrialize should form free trade
areas, such as the trading regions currently being
created in Latin America and South-East Asia. These areas
should consist of nations wit h economics which are
reasonably similar in terms of development and wage
structures. Trading regions would enter into mutually
beneficial bilateral agreements with other regions in the
world. Freedom to transfer technology and capital would
be maintained. Thus commercial organizations wishing to
sell their products in any particular region would have
to produce locally, importing capit al and technology, and
creating local employment and development. That is the
way to create prosperity and stability in the developing
world without destroying our own.
Q: Some would say that Europe's employment problem is not
GATT, but just the result of the old-fashioned diseases
that one finds in uncompetitive, inflexible and spoiled
societies. The welfare state is out of control; social
costs borne by employers discourage the creation of new
jobs; high government expenditure and taxation stifle the
economy; state intervention is paralyzing; corporatism
blocks remedial action, etc. Is that not true?
It is partially true, and those diseases must be treated
forcefully. But even if the treatment is successful, it
will not solve the problems created by global free trade.
Imagine that we were able to reduce at a stroke social
charges and taxation so as to diminish the cost of labour
by a full third. All it would mean is that instead of
being able to employ forty-seven Vietnamese or fort yseven
Filipinos for the price of one Frenchman, you could
employ only thirty-one. In any case, as we have already
discussed, you must remember the example of France, where,
over the past twenty years, spectacular growth in GNP has
been surpassed by an even more spectacular rise in
unemployment. This has taken place while Europe has
progressively opened its market to international free
trade. How can we accept a system which increases
unemployment from 420,000 to 5.1 mi llion during a period
in which the economy has grown by 80 per cent?
You must understand that we are not talking about normal
competition between nations. The 4 billion people who are
joining the world economy have been part of a wholly
different society, indeed, a different world. It is
absurd to believe that suddenly we can create a global
free trade area, a common market with, for example,
China, without massive changes leading to consequences
that we cannot anticipate.
Q: Why is it not possible to repeat our successes in
enriching countries like Taiwan, Hong Kong, South Korea and
The combined population of those countries is about 75
million people, so the scale of the problem is quite
different. The US might be able to achieve a similar
success with Mexico and, progressiv ely, Western Europe
could accommodate Eastern Europe. But attempting to
integrate 4 billion people at once is blind
In any case each of those countries has been a beneficiary
of the Cold War. During that period, one or other of the
superpowers sought to bring every part of the world into
its camp. If one failed to fill the void, the other
succeeded. That is why very favorable economic treatment
was granted by the West to South Korea after the Korean
War, and to Taiwan, Singapore and Hong Kong while China
was considered a major communist threat. Special economic
concessions combined with their cheap and skilled labor
made them successful. Over the past thirty years the
balance of trade between these countries and the West has
resulted in a transfer of tens of billions of dollars from
us to them. The West has been hemorrhaging jobs and
capital so as to help make them rich.
Q: What do you recommend?
We must start by rejecting the concept of global free
trade and we must replace it by regional free trade. That
does not mean closing off any region from trading with
the rest of the world. It m eans that each region is free
to decide whether or not to enter into bilateral
agreements with other regions. We must not simply open
our markets to any and every product regardless of
whether it benefits our economy, destroys our employment
or destabilizes our society.
Q: Does that not mean that wewill cut ourselves off from innovations in
other parts of the world?
No. Freedom of movement of capital should be maintained.
If a Japanese or a European company wishes to sell its
products in North America, it should invest in America.
It should bring its capita l and its technology, build
factories in America, employ American people and become a
corporate citizen of America. The same is true for
American and Japanese firms wishing to sell their products
in Europe. Think about the difference between the GATT
proposals and those I have just outlined. GATT makes it
almost imperative for enterprises in the developed world
to close down their production, elimin ate their employees
and move their factories to low-cost labour areas. What I
am suggesting is the reverse: that to gain access to our
markets foreign corporations would have to build
factories, employ our people and contribute to our
economics. It is the difference between life and death.
Q: But won't that reduce competition?
Competition is an economic tool which is necessary to
promote efficiency, to apply downward pressure on prices
and to stimulate innovation, diversity and choice.
Vigorous competition needs a free market that is large
and in which cartels and other limitations on competitive
forces are forbidden. Europe and NAFTA are economically
the two largest free trade areas ever created in history.
Both are more than big enough to ensure highly
competitive internal inlets. They are vast and open and
free and welcome to innovations from anywhere in the
world. Every significant corporation wo rldwide would
have to come and compete, because no corporation could
afford to bypass them - their markets are much too big
and prosperous. But such competition would be
constructive. not destructive.
Q: Many will answer you by saying that you cannot export to
other regions if you maintain a regional economy. There
would be retaliation.
Take a look at Japan: the Japanese have certainly been
able to export over the decades during which they
protected their economy. In any case bilateral trade
agreements would allow for the exchange of products in a
way which suited all parties. And our corporations would
be free to invest and compete throughout the world.
Q: What other recommendations do you have?
I totally reject the concept of specialization.
Specializing in certain activities automatically means
abandoning others. But one of the most valuable elements
of our national patrimony is the ex isting complex of small
and medium-sized businesses and craftsmen covering a wide
range of activities. A healthy economy must be built
like a pyramid. At the peak are the large corporations.
At the base is the diversity of small enterprises. An
economy founded on a few specialized corporations can
produce large profits, but because the purpose of
specialization is to streamline producti on, it cannot
supply the employment which naturally results from a
broadly diversified economy. Only a diversified economy
is able to supply the jobs which can allow people to
participate fully in society.
It is extraordinary to read economists commenting on the
state of the nation. They believe that the profits of
large corporations and the level of the stock market are a
reliable guide to the hea
lth of society and the economy. A healthy economy does not
exclude from active life a substantial proportion of its
Q: You face a difficult problem in converting the British
to these ideas. Britain has a long tradition of almost
unconditional belief in free trade.
The origin of Britain's belief in free trade goes back to
the early nineteenth century. It was in Britain, at that
time, that the Industrial Revolution was born. The new
industrial barons, whose power was growing in step with
the expansion of British industry, needed ample and
low-cost labor to populate their factories. The idea was
that by importing cheap food from the colonies, Britis h
farms would be unable to compete. This would result in
an exodus of farm workers to the cities. At that time,
80 per cent of the British population lived outside urban
areas. Once the farmers who had lost their livelihood
reached the towns, they could be employed cheaply because
cheap food was available from the colonies. What is more,
the money that left Britain to buy the cheap food was
recycled back to Britain to buy manufactured goods. At
the time, Britain had a quasi-monopoly of manufacturing.
Those were the dynamics which led to the repeal of the
Corn Laws, which protec ted British agriculture, in 1846.
Today the circumstances are precisely reversed. Now only
1.1 percent of the British workforce is employed in
agriculture; instead of a need for labour in the towns,
there is chronic unemployment; and the money that leaves
Britain to pay for imports no longer returns to buy
British manufactured products. It goes to Japan or Korea
or anywhere else in the world. The result is that
Britain ha s a trade deficit in practically every major
category of manufactured goods. And even though some of
the large companies make good profits, 25 per cent of all
households and nearly one child in three live in poverty.
One of the greatest fallacies in economic thinking is that
the funds that flow away from a nation as a result of a
negative balance of trade, or of capital outflows, will
automatically be recycled. They believe that the money
that goes out must return, usually in the form of inward
capital investment or loans, but that is naive. When
funds leave a nation, those who receive them are free to
invest anywhere in the world. And they will invest
wherever the anticipated returns are highest. They will
not necessarily choose societies which are bleeding to
death. When a system is valid in one set of circumstances,
it is extremely unlikely to be valid in diametrically
opposite circumstances. One would hope that this
observation alone might prompt the British political
elites to reassess their economic doctrine with an open
mind. We seem to have forgotten the purpose of the
economy. The present British government is proud of the
fact that labour costs less in Britain than in other
European countries. But it does not yet understand that
in a system of global free trade its competitors will no
longer be in Europe but in the low-cost countries. And
compared to labour in those countries, Britain's labour
will remain uncompetitive no matter how deeply the British
government decides to impoverish its people. In the great
days of the USA, Henry Ford stated that he wanted to pay
high wages to his employees so that they could become his
customers and buy his cars. Today we are proud of the
fact that we pay low wages. We have forgotten that the
economy is a tool to serve the needs of society, and not
the r everse. The ultimate purpose of the economy is to
create prosperity with stability.
Q: What do you mean by stability?
Stability does not mean ossification or standing still. A
stable society can accommodate necessary change, without
social breakdown. A stable society can benefit from
responsible economic growth without destroying itself.
Q: How would you convince Germany of the merits of regional
trade in view of the German elites' commitment to
The Germans should understand that by far their largest
customers are their neighbors; about 70 per cent of
Germany's exports are sold within Europe. Germany cannot
want to see its principal customers impoverished as a
result of hemorrhaging jobs and capital. German
prosperity depends on the prosperity of the other nations
of Europe; Germany's social stability will be deeply
influenced by that of its neighbors, and, no matter how
advanced its industrial skills, Germany will suffer from
the transfer of production to low-cost areas, just like
the rest of the developed world. What i s more, under
GATT, Germany will have to share its residual markets
with imports from Japan, Korea and others.
Q: How would you sum up the effects of regional free trade?
Let us imagine that Europe returns to the original concept
of the Treaty of Rome, which was the basis for the
creation of Europe. Economically, its purpose was to
establish the largest free market in the world. Within
Europe, there would be no tariffs, no barriers, and a
free and competitive market. Trade with nations outside
Europe would be subject to a single tariff. This concept
was known as community preference. In other words,
priority would be given to European jobs and industry.
About twenty years ago, quietly, the technocrats who run
Europe started to alter this fundam ental principle and
move progressively towards international free trade.
Ever since, unemployment in Europe has swollen despite
growth in GNP. The Treaty of Maastricht enshrines this
change and makes global free trade one of the fundamental
principles on which the new Europe is to be built. If we
were to return to the ideas of our founding fathers and
reimpose community preference, overni ht all the
enterprises which have moved their production to low-cost
countries would have to return. They could no longer
competitively import products manufactured outside
Europe. Factories would be built, Europeans would be
employed, the economy would prosper and social stability
would return. What is more, international corporations
wishing to sell their products within Europe would also
have to build, employ and participate in the European
economy. From being a community which, at the moment,
reeks of death, it would all of a sudden become one of the
most exciting places in which to invest and participate,
and European corporations would go out to invest and
contribute to the prosperity of regions throughout the
The same is true for North America. Insofar as free trade
areas consisting of developing economics are concerned,
they also would prosper. For example, currently free
trade areas are being formed in Latin America and in
South-East Asia. Most North American, European and
Japanese corporations will wish to sell their products in
these large markets. To do so, they will have to transfer
capital and technology, build factories in Latin America
and South-East Asia and employ Latin Americans and Asians.
By participating in these economies, they would encourage
development. GATT must be rejected. It is too profoundly
flaw ed to be a stepping stone to a better system. The
damage it will inflict on the communities of both the
developed world and the third world will be intolerable.
This document was originally provided to Usenet newsgroup:
misc.act.progressive 12:17 PM Nov 18, 1994 by Jim Cook,
MIT Center for Space Research Cambridge, Ma.