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Free trade: Comparative advantage for the corporations

Tatu Museyni cultivates coffee in Tanzania. The price she gets for coffee has halved over the 20-year period since 1980. It halved again in the last two years. Her income is now down to £30 for the whole year. Her children no longer have education and the family faces starvation. Even worse is in store. Researchers in Hawaii have developed GM coffee plants whose beans all ripen at the same time making it possible to pick by machine. When machines replace pickers, Tatu Museyni and 25 million others may have no income at all. On the other side of the planet, Nestle boasts in its annual report: "Thanks to favourable commodity prices profits have reached a record high."

The price of other commodities also dropped between 1980 and 1997: Sugar down 73%; cocoa down 58%; rubber down 52%; rice down 51%; cotton down 36%; copper down 30%. And prices continue to drop. The reason is obvious. A multinational corporation will move its operation to where it can get coffee cheapest, says Brazil. If India drops its price, it will move there. If Brazil then drops its price further, it will move there. Corporate free trade is a mechanism designed for the benefit of multinational corporations, not for the poor.

Consider a company that buys land from farmers in Kenya to grow flowers for sale in Europe. Previously self-respecting farmers become dependent labourers, and land that once fed the rural community now provides luxuries for the rich. But then the company may suddenly transfer its operations to Uganda if labour is cheaper there. Rich countries get cheap luxuries, the company makes a good profit, GDP in Africa rises, the African business elite benefits. But, in Africa, the poor become even poorer and, in Europe, flower-growers lose their business.

Three-quarters of all international trade is in the hands of multinational corporations. It enables them to drive down the cost of commodities (products in western shops become cheaper), to have more customers worldwide (they can take profit from customers in poor countries), and to locate their facilities where labour and environmental standards are low (if unions demand proper wages the MNC can move to another country).

The concept of global corporate free trade is forever associated with the laissez-faire monetarist attitudes of Margaret Thatcher and President Reagan -- and now endorsed by Tony Blair. John Maynard Keynes had a more enlightened and humane approach: "I sympathise with those who would minimise entanglement between nations. Ideas, knowledge, art, hospitality, travel -- these are the things that should of their nature be international. But let goods be homespun whenever reasonably possible and, above all, let finance be primarily national."

The period of corporate free trade has been a period during which social disintegration, breakdown of democracy, environmental deterioration, new diseases, poverty and alienation have all increased. The ratio of global inequality has doubled. More people are hungry than ever before in the history of the world. The most successful developing countries, like China, have been outside the free trade system.

For the global elite, free trade corporate capitalism has many of the attributes of a fundamentalist religion, impervious to reason, evidence, or compassion. Like communism before it. The religion has a central dogma that an `invisible hand' will somehow result in the poor benefiting from the excessive wealth of the rich. World leaders should open their eyes to the ghastly results of their fanaticism, but all they can offer is: "Hold tight, it will be all right in the end." This was Stalin's story about communism. In the end, the downtrodden rise up in anger.

There is considerable support for free trade among the business community and governments of developing countries. The World Bank's data showed that free trade raised the wealth of poor countries. To demonstrate this it commissioned research for publication in its millennial report. To its distress the paper, `The Simultaneous Evolution of Growth and Inequality', showed that free trade benefits the elite in developing countries but sinks the lower 40% into deeper poverty. These findings did not support the fundamentalist beliefs of the Bank's hierarchy and so were deleted from the report. The editor of the World Development Report, professor Ravi Kanbur, resigned in disgust.

The number of people living on less than $2 per day has risen by almost 50% since 1980, to 2.8 billion, almost half the world population. This is precisely the period of liberalised trade.

Comparative advantage
With normal trade, one country sends, say, hats to another, and gets oranges in exchange. This is because the first country is good at making hats and the second grows oranges. A country benefits from selling what it grows or makes better or more cheaply than other countries. This theory of `comparative advantage' is taught to first-year economics students as the underlying principle of trade, and is trotted out by economists and politicians as one of the benefits of the free trade religion. It made sense when Adam Smith first formulated the theory in the 18th century, but it has been turned on its head. Now that capital and investment are mobile, the rich buy up any profitable land or businesses in poor countries. With global free trade, a poor country loses its only advantage.

The law of comparative advantage now reads: "Multinational corporations benefit by taking over those things that a country grows or makes better or more cheaply than other countries."

Excerpted from The Little Earth Book by James Bruges, published by Alastair Sawday. To order a copy or for further details visit www.littleearth.co.uk

  Free trade: Comparative advantage for the corporations
  Intuition: Common sense, imagination and morality
  Patenting life: Wait a minute! Who made it?
  The Terminator: Corporate control of food for profit
  Population: More or less
  Pests and weeds: Biotechnology for profit, a nightmare
  A citizens' jury: The locals know what aid they need
  Imperial tribute: Why the rich are rich and the majority poor
  The WTO: Power in a moral vacuum
  Biomimicry: Science's exciting new frontier
  Water denied: A crime against humanity
  The first MNC: Little has changed
  Feeding the world: There is no shortage of money or food
  Ecological footprints: The rich wear big boots