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Europe or Free Trade?

July 15, 2004

Tags Free MarketsValue and Exchange

At a dinner party last week I disclosed that I was in favour of a UK withdrawal from the European community. On explaining that I liked markets and free trade but not political interference with them, I was accused of being naïve; in particular "the European Community had largely eliminated war in Europe" and under free trade "global business cartels would rule the world".

Yet these two points are in direct conflict with both theory and practice. Free trade is the antithesis of both war and global cartels.

Free trade – the ultimate pacifist

The heyday of free trade was the 100 years between the Napoleonic Wars and World War 1, the pinnacle being reached with the repeal of the Corn Laws in 1846 --an issue which split the Conservative Party asunder and ushered classical liberalism into government. By the end of that period, Europe had enjoyed by far its most peaceful century.

Free trade intertwines international voluntary exchanges to such an extent that war is unthinkable to the participants; it is a doctrine of international peace in which the frontiers of nations are immaterial to their citizens. Any voluntary exchange benefits both participants. No fact about trade is more superficial than the particular pieces of geography concerned, so a single nation pursuing free trade unilaterally still gains.

In the early 20th century, not only goods but people could move freely around the world in a way never seen before or since; among the European nations only the Russian and Turkish Empires imposed visa requirements. In the previous halfcentury over 50 million people migrated from their home countries to other parts of the world.

Nobody could argue that the European Community has anything like this record, especially given its untested enlargements of membership, bureaucracy, and intervention in trade. (It started off as a common market of course.)

Unfortunately power politics was too strong for the doctrine of classical liberalism and free trade to survive, and the second half of the 19th century saw its decline – with Bismarck's welfare state (much admired by Churchill) and its philosophy of mercantilism and nationalistic self-sufficiency winning the day. In this climate, war is inevitable. Both World Wars were unquestionably economic and trade wars, although they were triggered by different specific events. In particular, after Bismarck, Germany's National Socialism couldn't feed its citizens and left only one option – conquer somewhere that could.

The Globalisation bogeyman

Nor does the anti-enterprise globalisation movement fare any better in comparison with either theory or history. After the ravages of two world wars, international trade as a proportion of output has only just reached the levels of 100 years ago. Free trade is only a small proportion of that. The European Community's Common Agricultural Policy is an affront to civilisation; its protection of rich Western farmers not only costs consumers billions, it also does its best to ensure that the world's poorest nations remain that way.

The Third World needs trade not aid – which is always siphoned off by corrupt politicians. An open border can accomplish what a dozen World Bank projects, billions of pounds of Aid (Government to Government) and all the UN councils on poverty cannot – massive reductions of Third World poverty.

What has this to do with cartels? Plenty! Cartels love tariff barriers; they help get rid of that pesky competition. True free enterprise has no cartels or monopolies; show me one and I'll show you a government behind it; Western farming is one of many examples. If any business or occupation, global or otherwise, is open to entry world wide (i.e. there are no government laws or regulations which protect it) all attempts to cartelise or monopolise will fail. Somebody will always jump ship or some upstart will undercut the incumbents to ribbons. Market share is not the issue which defines a cartel or a monopoly; the point is can they gouge their customers and without government support the answer is invariably no. (When John D Rockefeller's Standard Oil was broken up under anti-trust law its market share had already fallen to about 10% from its peak of almost 90% 20 years earlier.)

McDonalds has shops not jails

Similarly the idea that McDonald's or Coca-Cola or Microsoft is more powerful than any government is absurd; all are at the mercy of their customers, who can eliminate them at any time simply by walking away. In contrast Government is all powerful and barely touched by periodical elections; it doesn't matter who you vote for, the government always gets in – inheriting, and almost always extending, enormous coercive power. Try walking away from Gordon Brown's "claims" on your money, or David Blunkett's coming identity card system and see where it gets you.

Little Englanders or globetrotters?

No doubt some of those wanting a UK withdrawal from the EC have a nationalistic and isolationist agenda – which always leads to war. But many others don't; they simply want the advantages of the division of labour to be available to entirely voluntary trade, both within and across borders, in the promotion of international peace. In contrast political clubs like the EC are themselves often isolationist and bellicose.

Nikita Krushchev is credited with saying "When all the world is socialist, Switzerland will have to remain capitalist, so that it can tell us the price of everything". Is it too much to expect the UK to join them in such a noble quest?

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Terry Arthur is a UK actuary and independent scholar. terry@tgarthur.co.uk Discuss this article on the blog.


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