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Is Brexit the final nail for global ‘free’ trade?

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Is Brexit the final nail for global ‘free’ trade? article image

Britain is leaving the European trading union and other nations are threatening to do likewise.

Both US presidential nominees are vowing to tear up TPP trade deals and anti-globalisation political parties are suddenly on the rise.

Are we entering an era of protectionism which will replace free trade globalisation?

Maybe globalisation is now seen by many as a failure with developments such as Brexit merely a manifestation of such failure, if we can call it that, simply as a result of misguided intent or fumbled execution?

Regardless, there is clear polarisation between the two camps – those purporting to support so called globalisation/free trade and those who question or doubt its merits.

The doubters appear to be lumped together by the globalisation script writers and denounced as “protectionists.”

Let’s clarify a few things first. There is no such thing as “Free Trade”, it doesn’t exist anywhere in the world. Free trade is a generic ideological or symbolic term that has no specific meaning.

Free trade will never happen

For the starry eyed owners of capital, free trade conjures images of 100% unrestricted movements of labour, capital, goods and services across all national borders. It will never happen.

Similarly, protectionism is a symbolic term with no clear or precise meaning. Protectionism infers some Governmental imposed limits to movements of labour, capital goods and services across national borders in order to minimise suffering and/or commercial disadvantage to the local population.

The fact is 100% free trade and 100% protectionism does not exist.

The real world choice is not binary between either 0 or 100% of anything as so many commentators keep suggesting. Real life and commercial markets are far more nuanced than that. In any economy there will always be some free trade and some controls.

If indeed globalisation is stalled or in retreat the first question must be why?

While Britain’s exit from the European bloc has some crossover into the wider Globalisation debate it should be kept in mind that Britain’s entry to the common market was primarily for the purposes of gaining market access for British manufactured goods with that specific ideology being born in the 1950s-60s.

Globalisation itself has largely failed

As a result of the higher exchange rates of the pound sterling during the North Sea resources boom the British manufacturing sector was substantially hollowed out thus making the Euro market arrangement relatively less beneficial to British interests as there were fewer manufactured products to sell.

To many, the free trade aspect of globalisation, indeed globalisation itself has largely failed because asset prices were allowed to inflate so far beyond intrinsic value that they bear no relationship to western worker domestic purchasing power.

Such an imbalance causes myriad distortions among them being an explosion in the size of the unproductive rent seeking class and the relative impoverishment of those who do not own property or mass capital.

While basic western manufacturing jobs have been exported by western businesses to poor developing nations in pursuit of profits, these jobs have not been replaced by better paid jobs up the value chain.

And capital has not redeployed in value-add innovative western businesses.

CEO wage hikes

Indeed, well paid jobs have declined in the west as a proportion of total jobs since globalisation began.

Similarly, western CEO pay has increased exponentially since Globalisation kicked-off particularly so in the least competitive industry sectors of cartels, oligopolies and bureaucracies which have also multiplied.

Companies whose primary source of profits is derived from low cost labour wages, cartel pricing and tax minimisation must find it hard to justify galloping increases in CEO pay.

Moreover, western Governments are openly interfering with market mechanisms and immigration intakes to artificially depress wages and boost asset prices, support market uncompetitive sectors along with pumping up returns on mass capital assets.

The same western Governments that rather disingenuously proclaim free trade, globalisation and the “market” as a mantra. 

Markets and market forces do function in a few small pockets of the economy but examples are rarer and are becoming rarer still despite the breathless rhetoric of “let the market decide.” This has now become outright propaganda seemingly designed to confuse and deceive.

Breathtaking chutzpah

Amongst Globalisations most substantive failures is the business habit of pushing or forcing basic business operational costs onto the citizenry and then claiming with breathtaking chutzpah that these are efficiency measures.

Pushing or disbursing costs to another point or place in the national social-economic chain is not efficiency as it derives no net benefit to the economy.

If anything it promotes business managerial laziness, easy – no penalty-escape routes and rewards ineptitude and lack of planning.

Globalisation has created subsistence wage jobs in bulk that is true but most of these jobs have gone to poor developing economies.

Failures with globalisation

Even in the west we have seen an explosion in unsustainable below subsistence wage jobs which must in turn be filled by quasi-legal indentured immigrants from poor countries living ten to a room in a type of Australian sub-economy which in turn creates a need for taxpayer funded infrastructure and various challenges with social integration.

It is these failures with Globalisation that cumulatively have created the conditions for Brexit style outcomes and lack of support or even opposition to alleged Free Trade deals.

Perhaps Globalisation may be in for a rough ride for the foreseeable future.

Either way it cannot ultimately succeed or gain legitimate widespread acceptance until these issues are addressed.                                              

David Gray is lead consultant at BizTechwrite suppliers of white papers, economic modelling data, geopolitical analysis and position papers. David can be contacted at: biztechwrite@gmail.com

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