Ulysses S Grant debunks free trade

For the last 25 years or so, the West has forced the developing world to accept neo-liberal economic “reforms” – the unrestricted movement of goods and capital, balanced budgets, privatisation, deregulation and lower taxes – as a condition for economic assistance. But consider the following:

“You are visiting a developing country as a policy analyst. It has the highest average tariff rate in the world. Most of the population cannot vote, and vote buying and electoral fraud are widespread.

“The country has never recruited a single civil servant through an open process. Its public finances are precarious, with loan defaults that worry investors. It has no competition law, has abolished its shambolic bankruptcy law, and does not acknowledge foreigners' copyrights. In short, it is doing everything against the advice of the IMF, the World Bank, the WTO and the international investment community.

“Sounds like a recipe for development disaster? But no. The country is the US - only that the time is around 1880, when its income level was similar to that of Morocco and Indonesia today. Despite wrong policies and sub-standard institutions, it was then one of the fastest-growing - and rapidly becoming one of the richest - countries in the world.” (History debunks the free trade myth, Ha-Joon Chang, Guardian, 24 June 2002)

At this time, Britain was preaching free trade to the world, having become rich on the basis of protectionism, not to mention the slave trade and plunder. The following was the response of US President, Ulysses S Grant, to this preaching:

“For centuries England has relied on protection, has carried it to extremes and has obtained satisfactory results from it. There is no doubt that it is to this system that it owes its present strength. After two centuries, England has found it convenient to adopt free trade because it thinks that protection can no longer offer it anything. Very well then, gentlemen, my knowledge of our country leads me to believe that within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade.” (quoted in Capitalism and Underdevelopment in Latin America by AG Frank, Monthly Review Press, New York, 1967).

Once the US had become the most powerful economic power in the world after World War II, it also began to preach free trade to the world. Today, it is an official dogma of the American state. Just look in The National Security Strategy of the United States published by the White House in September 2002.

The US President is obliged to submit a National Security Strategy to Congress periodically. The Bush edition received an unusual amount of attention because of its unprecedented assertion of the US right to strike its enemies pre-emptively, as well as its vow to maintain American military supremacy over all rivals indefinitely. But, it also asserts over and over again the virtues of free trade.

Contrary to the US’s own historical experience, the President declared in its foreword:

“Free trade and free markets have proven their ability to lift whole societies out of poverty – so the United States will work with individual nations, entire regions, and the entire global trading community to build a world that trades in freedom and therefore grows in prosperity.”

One of the eight elements of the Strategy is to “Ignite a New Era of Global Economic Growth through Free Markets and Free Trade” (Chapter VI). There free trade is declared to be a universal moral principle, which been known to man (but not to Ulysses S Grant) from the dawn of time:

“The concept of ‘free trade’ arose as a moral principle even before it became a pillar of economics. If you can make something that others value, you should be able to sell it to them. If others make something that you value, you should be able to buy it. This is real freedom, the freedom for a person—or a nation—to make a living. (p18)

In September 2002, when this was published, immorality was rife in the US: a few months earlier, the President had imposed tariffs on imported steel, in order to protect steel production, and steel jobs, in Mid-Western states. Watch out for further bouts of American immorality in the near future, as more and more Chinese manufactured goods flow into the US market and Chinese companies attempt to buy up US companies. Last year, when a state-owned Chinese oil company made an offer for the major US oil company, UNOCAL, which has access to oil in the Caspian basin, it was made clear it wasn’t going to happen. Boeing isn’t to become Chinese any time soon.

One doesn’t have to be a genius to realise that the US conversion from the principle of tariff protection to the principle, if not the practice, of free trade has got more than a little to do with its own economic interest, just as it was in the case of Britain a century earlier.

[Ha-Joon Chang has written a very informative book on the environment in which Western countries developed, an environment that is very different to that which the West seeks to impose on developing countries today. It is entitled Kicking Away the Ladder - Development Strategy in Historical Perspective and was published in 2002 by Anthem Press, London.]

David Morrison

Labour & Trade Union Review

7 January 2006