Why won't people understand comparative advantage?

A guide to the WTO and resistance at the Seattle Ministerial Conference."

Raj Patel


Very quickly, I want to give you some of my background. There's a story told by MIT Economics Professor Paul Krugman in his book "Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations" (1994, page xi): An Indian-born economist was explaining his personal theory of reincarnation to his graduate economics class. "If you are a good economist, a virtuous economist," he said, "you are reborn as a physicist. But if you are an evil, wicked economist, you are reborn as a sociologist." I've clearly been doing some pretty unspeakable things in this life. I started off as a pure maths major, flirted with economics, and am now in the department of rural sociology. Before I die, I fully expect to be rocking backwards and forwards in some grad office in a comparative literature department somewhere.

In this talk, I want to explain why it is that I worry about the WTO, and why it is that I'm not alone in worrying about it.

I want to begin with a true story. It concerns a group of Nobel prize winners, including physicists, chemists, literature prizewinners, and a handful of economists, including Paul Samuelson, the winner of the first Nobel prize for economics in 1970. These Nobel prize winning men (all men, I believe) were gathered round a table, presumably in the hope that together, they'd come up with an exceptionally smart interdisciplinary theory which would change the world as we know it. What actually happened is that they settled down to bickering. In particular, one of the physicists was accusing all social scientists of being charlatans. He turned to Samuelson and asked pointedly, "What social scientific result, any result, in the history of social science, is neither trivial nor obvious?". The funny thing was that Samuelson couldn't think of a single one. But in his memoirs, he said that if he'd had the presence of mind, he'd have said "Comparative advantage".

Comparative advantage is one of the most powerful, and robust ideas in the history of economics. As the Dartmouth Economist Douglas Irwin notes in his intellectual history of free trade, entitled " Against the Tide ", despite numerous assaults against the idea over the past 200 odd years, it has proved remarkably resilient to criticism. This is because at heart it is a very powerful and simple idea. I won't do the boring math, you'll find examples a plenty to go through in elementary economic textbooks. But here's the abbreviated version. The key economic assumption is that every country has a different resource endowment, compared with the rest of the world, which is fair enough. The key idea is this. It is possible to separate what you produce from what you consume. If you concentrate your productive efforts on those things at which you are relatively (and not absolutely) better than me, it turns out that if you and I trade, we're guaranteed at least as much stuff, if not more, than if we didn't trade. Even if you're a giant and I'm a wimp, there are things which although giants do everything better than wimps, wimps can concentrate in, and then swap the surplus with giants, who are busy doing other things.

This is a remarkably powerful idea, and one which has something of a progressive redistributive twist. It's a way of taking the good things which giants can produce and getting them to the wimps, who without trade would never be able to get them. The question I'm addressing in my talk is this: if free trade, underwritten by the theories of comparative advantage is such a good idea, why are there so many people opposed to it?

In a sense, the title of this talk is a provocation. I'm making it seem as if people are actively being pathetically stupid in not understanding how trade benefits them. If only the cobwebs of ignorance could be swept away, all would be well. But in a sense, this is precisely the view taken by the US government. Listen to this quote from US commerce secretary Daley, in his recent testimony to the Senate Finance Committee, argued that "People see layoffs, not payoffs, when it comes to trade." In order for continued liberalisation to be possible, suggests Daley, the public need to be better educated to "be able to see and understand that the global trade system works for them and the environment in which they live." (Daley 1999). Similarly, in last week's Economist, we had a couple of articles explaining why Greens Should Love Free Trade (the subtext being that they really didn't know enough economics to spot that free trade is actually good for the environment.)

I want to suggest that we should take more seriously what it is that people do see when they look at trade liberalisation. It could be that what people will be protesting about at the WTO Seattle Ministerial later next month turns out to be every bit as powerful, and as important, as the idea of comparative advantage.

But I'm going to quickly. What I'm going to do in the rest of the talk is this:

  • First, in order to understand the meaning of grassroots resistance, it is necessary to put the opposition to free-trade into some sort historical context.
  • Second, I'm going to be talking about the WTO, and what it thinks it is doing.
  • Third, I'll be looking at the resistance movements, and see how they themselves interpret what they're doing. It will also explain why it is that I'm using the term 'resistance' and not a more familiar, or less belligerent one, like lobbying, or advocacy.

As I say, I'll be stopping frequently to take questions, and make sure that we're all on the same page. It's late in the afternoon, so I'll be using lots of verbal fireworks, to keep people awake, probably at the expense of content, but particularly if you're feeling as rough as I am at the moment, a little entertainment can't hurt.

So, first off, let's put the opposition to free trade into some sort of historical background. For as long as there has been trading nations, there have been winners and losers in trade. History records the opposition to free-trade by domestic producers of commodities challenged by producers from overseas who undercut the domestic producers (often by using better technology, or who have a better climate, or slave labour or something). The wisdom of comparative advantage has made it conventional to see any opposition to free-trade, as protectionism, associated only with those directly involved in the production of affected goods.

What's new about the resistance the world trade organisation is at his involves actors and arguments which have very little to do with direct personal material loss or gain. This sort of opposition presents a bit of a puzzle for political economists. How is it that we are to make sense of church movements and women's movements taking to the streets to protest the world trade organisation, when what the world trade organisation is trying to do is make the world a better place for these consumers?

The main point I want to make here is that the current resistance, coming from consumers themselves, and coming from a broad range of people across a broad range of countries presents a problem which historically you haven't had. In the past, if you didn't like free trade, it was because you produced something that was going to be undercut by some foreign producer. Now there's no easy answer to why people are protesting because either you have to find a way in which they materially lose out because of free trade, or you argue that they're in some sense, falsely conscious about the benefits of the free trade.

The WTO itself certainly believes that there are a lot of misinformed people around. It has recently been in the business of evangelising the cause of free trade to anyone who will listen, and if we listen hard, we can hear some pretty interesting arguments. Before turning to see how the WTO is explaining itself, I should really explain what the world trade organisation is and how it came about.

At the end of World War II, the United Nations proposed an organisation called "the international trade organisation" ITO. Like the ILO, the international labour organisation, the ITO was to exist within the UN system, as a permanent policy-making body in which concerns from governments business and civil society might be heard. The reason people were so keen to have some sort of trade regime stems from historical experiences before the war. It was theorised that trade barriers had exacerbated the depression (which they had) and that unilateral increases in tariffs, such as the Smoot-Hawley act in the US, caused increased international distrust, which in turn led to a climate of international relations more conducive to conflict. In other words, there was an idea that the more international links, and for mediating disputes there were, the less likely it was that things would go wrong. The creation of a body in which multilateral negotiations over tariffs might take place was seen as an essential element to the construction of an international regime which would guarantee peace.

But to the ITO never came about. There are two important reasons for this. First is the onset of the cold war. It was unlikely that the US would take being dictated to by a body in which the USSR and its satellite states had an equal voice in commercial policy. But even had the Cold War never happened, congress would not begin to entertain the possibility of and external body dictating policy to it. For those who could make it to Professor Kramnik's talk last week, where he was asking whether global governments was anti-American,... he pointed out that of the 500 odd labour acts put out by the ILO, the US has ratified, I think, 4. This is what the Reform party is barking on about too - they want to withdraw completely from the WTO because they see it as unconstitutional.

In an atmosphere of congressional intransigence, an ad hoc arrangement was cobbled together. The GATT, the general agreement on tariffs and trade was set up. It operated through a series of about half a dozen negotiating rounds in which tariffs are in some goods were progressively lowered, the membership base of the organisation was progressively increased. Unfortunately, at the same time as these liberalisation as it measures were taking place, the number of nontariff barriers - such as sanitary and phytosanitary measures, quotas, paperwork, production process requirements - outside the purview of the organisation sprawled out of control. The Uruguay round of negotiations began in 1983 and it was the aim of certain members of the gatt secretariat, together with certain European economic community and US officials to stamp out these evasions, and in particular to bring trade in agriculture into the GATT system. The year-round ended in 1994 when, in Marrakesh, the agreement was signed, and it was agreed to set up a permanent negotiating body called the world trade organisation. The WTO would be different from the proposed ITO in many ways, not least in the total absence of non-governmental representation in the fora. But in many ways its historically similar, and we'll touch on that in a second.


So that's a bit of the brief history behind how the world trade organisation came about. What I want to do now is just quickly trip through some of the claims that the world trade organisation makes. These claims you can find on their Web site by looking for the section entitled "ten benefits of the WTO trading system". It is a bit of a cheap debating trick to take the pronouncements of the WTO and show them to be false, but cheap tricks are all I have.

Many of these claims are conflatable, and I'm only going to look at four core claims.

  1. The order in which I present these claims is the order in which they appear on this site. And what's very interesting is that the first claim is that the WTO promotes peace. Although, quite rightly, they lace this claim with many caveats, there is still something of the historical trace of the origins of the multilateral trading system. The idea that Liberalism and democracy promotes peace is still unimportant rhetorical flourish, even if, in fact, it is empirically groundless. Thomas Friedman, in his best-selling book "the Lexus and the olive tree" puts this theory forward in its crudest and most transparent form. He calls it the golden arches theory of conflict prevention, noting that no two countries in which a McDonald's restaurant exists have ever gone to war. There are problems with this argument. The first is that it is false - I believe fighting in the Balkans rather extinguishes this theory. The second is that even if it were true, which it may have been at the time of writing, it ignores the fact that countries with McDonald's restaurant in them, frequently wage war against their own people. Third, there are plenty of poor countries which do not have a McDonalds and get by peacefully. Finally countries which do have a McDonald's seem to find ways of sponsoring war. I think it's an interesting question to ask whether, since 1960, no two countries with large weapons manufacturing industries have gone to war, but I'm not sure that this is an argument for the proliferation of these sorts of establishments.
  2. The next couple of claims which the WTO makes are these "A system based on rules rather than power makes life easier for all. & The system allows disputes to be handled constructively.
    Again, a second historical trace still present in the WTO's philosophy is that the international trading system as it now exists, allows disputes to be handled more constructively and peaceably. Again, those opposed to the WTO point out that this is just a way for rich countries to lord it over poor ones. The power lies in the hands of those who fix the rules. The dispute settlement mechanism is a way to turn what is essentially a political dispute into something essentially technical. In this sense, the WTO is an anti-politics machine, to use the title of James Ferguson's insightful critique of World Bank.
  3. The third claim made by the WTO is that "The system shields governments from narrow interests. " If there is one assertion that is diametrically opposed to the way things seem to be in the WTO, it is this. In the time that I was working there, I saw a very sharp distinction between those interests allowed through the big gates, and those who stayed on the other side. I also observed the rather different treatment which documents from organisations such as the World Wide Fund for Nature received, compared with, say, something from IBM. In fact, the agreement on technology which passed through the WTO in record time a year or so ago, was drafted by a bunch of IBM and Motorola lawyers.
  4. The final, and most important claim made by the WTO is this: "Freer trade cuts the cost of living." This linked to a second claim that free trade makes our lives better by giving consumers more choice.
    This is the most important claim about the WTO, and to the extent that there is truth in it, it's worth taking very seriously. It is clearly true that everyone consumes. We need food, water, shelter, and a whole range of other things in order to live. But there's a subtle difference between saying that we all consume, and that we are all consumers. To state the former is to state the obvious. To state the latter is to begin to elide the business of everyday living which would exist under any social organisation, into one which is explicitly capitalism. In other words, it normalises consumerism, and a culture of consumption, as the only way in which we can get the stuff we need to consume. This is a point I had a bit of difficulty getting across when I delivered the talk downtown.
    There's nothing natural about working your arse off for money in a day job, so that you can go to Wegmans and buy things cheap. Nothing natural about this at all. It is a state of social affairs which has come about historically. Being a consumer is a socially constructed subject position. And to say that because we need to consume (true statement) means that we must become consumers, or that consumerism is the only way in which we can get all the things we need, or that the system which allows consumerism to flourish is the only desirable one, well, that's in ideological assertion. There are plenty of ways, historically, that people have participated in work and play, without being consumers.
    This is how many people at Seattle are critiquing the theory of comparative advantage. They agree that it's indubitably true that if we trade, there's more stuff to go around, they can accept that, but still be a little sceptical about the social arrangements needed to support consumerism. They want to ask questions about who gets to consumer and who doesn't, and at what price this is achieved.


So, there are lots of criticisms of the WTO, even on its own terms. Now I want to move to voice the concerns which other people assert about the WTO and what people are doing about it at the forthcoming ministerial conference in Seattle.

It is vitally important to note that there isn't a unified front which comes from those opposed to the WTO. On one end, of the spectrum are people like Mike Dolan. Dolan is Ralph Nader's Field Director for a group called Trade Watch. He and his beltway buddies are concerned with reforming the WTO, concerned with coming in under the tent, as Clinton put it in his newscast on Thursday. I got an email from him a few days ago, and he said this:

"if we all organize like crazy over the next 5 weeks, we MIGHT get a concensus among the 134 member countries NOT to advance the corporate agenda and instead take a long look at the damage done by economic globalization and the attendant loss of local control"

This is state-directed lobbying, plain and simple.

On the other end of the spectrum are some anarchists from Eugene, Oregon, who in their latest publication, claimed that the best way to approach the WTO Ministerial is to go there 'and fuck shit up'. This is not lobbying, but I'm not entirely sure what to call it.

Somewhere on the radical left, in between the Naderites and the anarchists is the group I'm associated with, and most excited about. They're called the People's Global Action. The PGA represents a staggering 5m people, I think. It does this by being connected to several huge social movements. These include the Brazilian landless peasant movement - MST (3m strong?), the Karnataka State Farmer's Association (1m), the Zapatistas (?), Friends of the Earth, a wide smattering of women's groups, unions, indigenous people's groups and others.

What are they doing? There have been a range of protests, most recently protests to coincide with the G-8 ministerial in Cologne earlier this year. In India, 50,000 farmers took the train up to Delhi from Bangalore, to hand in a petition to the minister of social affairs. She refused to see them in person, and chastised them in a written response for not writing their petition in English. In Toronto, between .5 and 1 million people took to the streets. This figure sounds like an exaggeration, but it isn't. This was organised by the fiercely democratic Canadian Postal Workers Union, who are worth looking out for. In Nigeria, over 10,000 people took to the streets to protest against Oil companies, and against the extermination of indigenous people. In London, the most famous or should I say infamous action was carried out by the Reclaim the streets bunch. They organised a carnival against capitalism which got a little out of hand, and at which the constituency of people who want to 'fuck shit up' got a little enthusiastic, and caused around $2m worth of damage to the London international FInancial Futures Exchange.

The most important work happens, though, invisibly. It is the everyday conversations and engagements, the acts of resistance against 'micro-power', the fights which struggles which people wage in the work place, in the home, in solidarity with others, educating each other, and working to create lived alternatives. The KRRS, for instance, has spent a great deal of time and money getting its member farmers informed. At the time of the last GATT round, farmers in fields in Karnataka were discussing the Dunkel draft more knowledgeably than many of the the third world diplomats (who had been excluded from the GATT process) in Geneva.

Solidarity is a key point here. A significant part of the PGA is about learning and the exchange of ideas. An excellent example of this occurred at the women's round table at the PGA conference, where Latin American maquiladora workers offered a complex and nuanced theorisation of their exploitation by multinational corporations in free trade zones. They presented a description of a complex articulation of capitalism with the systematic domination of women. Activists from the North were able to supplement this with arguments about the links between capitalist domination and the suppression of sexual difference. This turned out to be a pertinent observation, which had not figured in many debates on practices in maquiladora zones, but which spoke to the experiences of the women present (Grossholtz 1998). This building of solidarity, of respecting groups whom you don't love, to see their struggle as part of yours, even if you don't see them as part of You, is what is deeply exciting about these forms of resistance, and what makes the upcoming Seattle ministerial quite such an exciting thing to be a part of.

And this leads into my final point, which is why it's important to characterise the majority of these groups not as lobbying organisations, but as resistance. Lobbying takes the individuals engaged in it as a given. There's you crossing the lobby in your swank suit, and there's me with my clutch of papers, and the idea is that I try to persuade you with reason, money and flattery, that I'm worth listening to. Resistance is far more open about the relationship of power which implicates both you and me. When I resist, I acknowledge first that there is a power relationship which needs both you and me, and which in a sense precedes you and me. Resistance also reconfigures me. It's a transformation not just in our relationship, but changes the person who I am. To use the jargon, I reclaim my self, my subjecthood from you. In a sense, that's why it doesn't matter that it's the WTO that is being resisted in November. If the G-8 were having a get together here, as they did in Germany earlier this year, it would be pretty similar. They don't want to get around the table at the WTO or the IMF or the World Bank because they see it as more important, and ultimately more engaged, to fight the way in which the WTO operates on their own bodies. You don't need to go to Geneva or Seattle, or Washington to do that. You start with where you are, with where and how you're living.

The resistance organisations aren't really resisting the theory of comparative advantage - they are resisting the structures of power which make it possible for people who do have resources and power to dominate those who do not. It's about power, inequality and injustice. These are not things about which comparative advantage can speak. And, more importantly, there isn't really any language in economics, even if you take welfare economics into account, to explain why it is that consumers who benefit from low prices are also taking to the streets. These are people who are 'better off' from free trade, who are concerned with issues not of how much they have, but with issues of power.

So, you see, it's not that people are too thick to understand comparative advantage. It's that they understand it only too well. That they understand the consequences of letting this particular logic run rampant in the world. And that they're fighting it wherever it plays out, wherever there is power.


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