“Free trade” has been a powerful ideological tool of the bourgeoisie since Adam Smith extolled the virtues of the market in opposition to government-issued overseas monopolies in the era of mercantilist capitalism. Smith’s classic work, The Wealth of Nations, was published in 1776, at the beginning of the transition of the capitalist world-economy from agricultural capitalism to industrial capitalism. In opposing government-issued monopolies, Smith was taking the vantage point of the newly emerging industrial bourgeoisie, and he was seeking to eliminate restraints on the development of industry. Smith’s analysis constituted an important advance in the science of political economy. His concepts, however, were formulated before the emergence of large-scale and concentrated capitalism, and they therefore must be reformulated, taking into account this development and others in the evolving world-system (McKelvey 1991:61-64).
When concentrated industry emerged during the nineteenth century height of British hegemony, British economists used the concept of free-trade to argue against the government protection of national industries, seeking to promote the sale of British manufactured goods in other core nations. In spite of its contradiction with the interests of their nations, the economists of other industrializing nations used the concept, because it justified the determination of workers’ wages on the basis of the market principle of supply and demand, thwarting state intervention in support of workers’ needs.
In removing the concept of free trade from the theoretical and historical context of Adam Smith, and in using the concept to justify national and international policies, economists were taking free trade from the domain of science and placing it in the sphere of ideology, where ideas distort reality in order to defend and promote particular interests. But as is typical of ideological distortions, free trade as ideology was characterized by contradictions: it was not followed in practice by core nations that needed to protect their industries; nor by governments with respect to labor, as courts intervened to declare union activities to be restraints of trade and police intervened violently to repress workers’ strikes.
The ideology of free trade suffered a setback during the era of welfare state capitalism, which was provoked by the Great Depression of the 1930s. The period was dominated by the concepts of Keynesian economics, which advocated state investment in order to expand the economy, increase employment, and create greater social equality. The capacity for core states to invest in the economy and society was made possible by the colonial and neocolonial superexploitation of vast regions of the earth, providing core nations with high levels of capital and revenue. The idea of free trade did not completely die; its virtues were proclaimed by a few economists, including Milton Friedman, a well-known economist of the University of Chicago. But most economists considered that events had shown that free trade was limited in its validity, and that governments would never again be guided by it.
During this period of welfare state capitalism from 1929 to 1980, global elites made concessions to the Third World project that sought independence and national sovereignty for the colonized regions of the planet. The concessions gave Third World states a degree sovereignty, in order that they could adopt measures for the protection of their national industries and national currencies. The protective measures had benefits for the people, however limited. During this period, there ruled in the Third World the idea that sovereign states had the right and the duty to take necessary measures to promote national economic and social development.
In the 1970s, the first signs of a long structural and possibly terminal crisis of the world-system emerged. Historically, since the sixteenth century, the world-system had expanded by conquering new lands and peoples, thus making available new sources of cheap raw materials and cheap labor as well as new markets for surplus manufactured goods. But by the 1970s, two factors emerged to block this historic mechanism of expansion. First, the world-system had reached the geographical limits of the earth, so that there were no more lands and peoples to conquer. Secondly, the colonized peoples of the earth had attained a capacity to politically mobilize in defense of their natural resources and the rights of the people (see various posts on the crisis of the world system).
In response to this situation, the global elite launched the neoliberal project, giving new life to the ideology of free trade. Core governments and think tanks launched an ideological attack on the state, seeking to reverse the modest concessions that had been made to Third World governments during the era of welfare state capitalism. They maintained that state intervention by Third World states in their economies had promoted poverty, and that the implementation of free market principles would allow them to finally overcome poverty. This claim of the global elite represented the highest form of deceit and hypocrisy: in fact it was imperialist interventions by core states in the affairs of Third World nations, in pursuit of the particular interests of the core, which had deepened the underdevelopment of the Third World since the attainment of political independence. The deception was understood in the Third World, where popular movements could not lose sight of the fact that colonialism is the author of underdevelopment, and that imperialist policies maintain the economic and cultural structures of colonialism. But because national elites in the Third World, in collusion with international financial actors, had betrayed their nations and accepted untenable loans, Third World governments were now in debt, providing a lever for the core to impose the neoliberal project.
The global elite was able to impose the neoliberal project and resurrect the free-trade ideology as a result of the vulnerability of the Third World project during that historic moment. In the first place, there was the high indebtedness of Third World governments, exacerbating their lack of capital for investment in industry, infrastructure and education. But in addition, the Third World project from the outset had been forged by a mixture of reformers and revolutionaries, with the former having economic interests tied to international capital, and with the latter seeking a decisive rupture with colonial economic, financial, cultural and ideological structures. Although some nations, like Cuba and Vietnam, took decisive revolutionary steps, many did not sufficiently seek transformation of colonial structures, with the result that promises of improvement in the material conditions of the nation could not delivered. So by the late 1970s, the hopes of the people had not been fulfilled, and the governments were in debt, rendering the Third World project powerless to prevent the implementation of neoliberal policies.
But the neoliberal project further impoverished the impoverished, thus giving rise to waves of popular indignation. At first the popular protests focused on concrete issues, such as the price of water. But charismatic leaders emerged to teach the people a more comprehensive understanding of neoliberal policies, exposing the ideological character of the free-trade doctrine. Proclaiming that a “Better world is possible,” the movements brought to power alternative political parties that would defend the rights of the people, a process particularly advanced in Latin America, where a number of progressive governments have been established on a foundation of popular support since 1998. These governments reversed the trend toward free-trade agreements with the United States and other core governments, and they have moved toward the development of South-South cooperation (see also “The fall of FTAA” 3/7/2014 and other posts in the category of Latin American union and integration). The Right in Latin America today seeks to bring down these progressive governments.
We should not lose sight of fundamentals. An objective analysis of human history and the modern world shows that the state commonly has played a central role in the development of a nation and in the formation of a national social project. An unregulated market contributes to economic development, under conditions in which buyers and sellers are small scale and more or less equal. But such conditions do not pertain to today’s world-system, characterized by the concentration of production and by the concentration of power in the hands of a few states. And they did not pertain to many empires in the past. Throughout human history, in pre-modern empires as well as in the development of the modern capitalist world-economy, the state has played a central role in economic development. The important role of strong state action to promote national development has been historically demonstrated, and this lesson from history especially applies to nations today that have been made underdeveloped through colonial and neocolonial domination.
The fundamentals that we should keep in mind include moral principles. In accordance with the democratic value of the equal sovereignty of nations, all states have the right to pursue projects of national development, seeking to utilize natural and human resources in accordance with long-term national needs. Those nations that have been historically colonized should be free to exercise this right, without being subjected to ideological attacks, in which false assumptions and distortions abound in order to justify military interventions and political interferences in defense of the particular interests of the powerful.
The long-term negative consequences of free-trade agreements in today’s global reality are not self-evident. Charismatic leaders were able to delegitimate the ideology of free trade in the immediate aftermath of the imposition of the neoliberal project. But only a minority of people, twenty-five or thirty percent, are able to internalize an historical and global understanding of the problems that the nation confronts. The majority is susceptible to the distortions of the major news media, which is characterized by selectivity and superficiality, driven by corporate interests. In the contest between, on the one hand, educating the people, and on the other hand, manipulating and seducing the people, the latter is easier to do, especially when undertaken by those with wealth, power, and control of the means of communication.
The concept of free trade once pertained to science. But it now belongs to ideology. We who are committed to the development of a just, democratic and sustainable world-system must undertake the difficult task of educating the people. This mission includes the delegitimation of “free trade,” an idea that is inconsistent with empirical reality and that has vibrancy, not because it is valid, but because its serves the interests of the wealthy and the powerful.
See further “Imperialism as neoliberalism” 10/7/2013 in the category US Imperialism; and “Free trade in the 19th century” 8/26/2013 in the category Colonialism, semi-colonialism, and neocolonialism in Latin America.
McKelvey, Charles. 1991. Beyond Ethnocentrism: A Reconstruction of Marx’s Concept of Science. New York: Greenwood Press.
Key terms: free trade, unregulated market, Adam Smith, political economy, neoliberalism, free-trade agreements, FTA, Third World project, Third World socialism