Free Trade and Economic Centralization - Part 2:

De-Localization and its Malcontents

 
Alex Jackimovicz
 
As argued by its proponents, free trade delivers the greatest
good to the greatest number of people
through specialization and exchange. The theory assumes
that by specializing in specific products, a nation is able to
produce more efficiently than the rest of the world, at higher
quality and lower costs, and can exchange its production for
goods and services that other nations produce more
efficiently. This results in a globalized economy where
everyone wins. But what is the actual result of this
globalization? Who really wins and who loses?
 
The free trade model has resulted in the consolidation of
industries into large, transnational companies, creating a great
disruption of regional and local economies which used to provide
the same economic functions. Jobs have been outsourced as manufacturing moves abroad. Locally made
goods and services are not able to compete with goods that are subsidized by other governments and
where transnationals can produce comparatively cheaper goods through economies of scale.
 
And although free traders argue that this actually benefits local economies with jobs, it’s a devil’s bargain.
The wealth generated by jobs from these outside companies is drained from the local economy and
hence the possibility for that wealth to multiply locally is largely gone. The multiplication of wealth as it
moves in a local economy—from local business to local business—is also gone and living standards are
negatively impacted. Instead, the rewards of productivity and profits go mostly to the outside investors
and owners of the production process, both on the production/input end and the sellers/output end.
 
 
Wage Suppression
 
The extraction and draining of local wealth is a central feature of economic centralization as local jobs
become dependent on faraway sources of capital and investment which, at any moment, can move to a
more profitable location. This model of globalized investment, strengthened by free trade, is based on an
export-oriented development model that requires a slashing of workers’ wages. New trade rules are
created to facilitate the movement of jobs to regions with lower-paid workers and weaker environmental
regulations. There has been a global movement of capital 'racing to the bottom', resulting in crushed
wages and pitting workers against each other, internationally, as they vie for the same manufacturing
jobs.
 
For instance, Apple’s iPad, which retails for about US$ 500.
Though made in mainland China, only 10%, US$ 50, of the
total value of the wealth generated at the output/selling end
stays locally in the supply chain where it is made—paying for
all normal costs of production and worker salaries. Most of the
usual costs of fair labor wages and strong environmental
standards are externalized to maximize profit. Apple is not
alone—the suppression of wages is universal with
globalization. With Nike, for instance, it is far worse. In many of
their factories, genuine sweatshop labor conditions exist.
Workers, mostly young women with no other employment options, are forced to labor for 13-20 cents
(US$) an hour, 6 days a week, 9-13 hours per day. This amount of wage remuneration is below the
minimum required to even subsist and meet the most basic of needs.[1]
 
We have a global economic system where near or actual sweatshop labor conditions in primary exporting
nations have become the norm for many of the world's cheap, mass-produced goods. The cheap goods
and services brought to the privileged masses in developed nations contribute to an artificially enhanced
lifestyle made possible directly at the expense of decent wages in the developing countries. Meanwhile,
with the shift of manufacturing to developing nations, the jobs in wealthier nations are in jeopardy and
face further risks with the reduction of trade barriers that may come with trade agreements like the TPP
and TTIP.
 
Take, for instance, a provision within the TPP being
negotiated by the Vietnamese government to reduce duty
on Chinese goods. In a letter to the U.S. Trade
Representative, Congressman McHenry of North Carolina
(where the textile industry has declined) states his
concerns:
“The Vietnamese government has attempted to change
long standing rules to allow the sourcing of textiles from
China to the United States duty free. This change could
lead to the loss of more than 500,000 textile jobs in the U.S.
and another 1.5 million jobs in the textile supply chains in
the Western Hemisphere and Africa.”[2]
Through this provision, state-owned Vietnamese companies
could “flood the U.S. market with subsidized Chinese imports that would take significant market share
from small and medium sized textile companies in the U.S.”[3]
 
Trade wars through subsidization
 
Another feature of this global trading system is the huge advantage of nations able to subsidize and
protect their homegrown industries. Not only do poorer nations have to endure tedious, low waged jobs
and greater environmental degradation, they also suffer from other free trade rules that allow wealthier
nations to monopolize trade. Developing nations face export dumping (selling below market prices) by
industrialized nations, backed by trade rules that force the developing nations to accept cheap, heavily-
subsidized imported goods which can crush local/national industries.
 
One recent example is the solar power industry which was largely destroyed in many countries when
China's heavily-subsidized solar panels flooded the international market. Companies in both poor and rich
countries were affected and have only begun to rebound after stiff tariffs were introduced. Abound
Solar CEO Craig Witsoe complained to the U.S. Congress in 2012 after his company had declared
bankruptcy, “With over $US 30 billion in reported government subsidies, Chinese panel makers were able
to sell below cost and put Abound out of business before we were big enough to pose a real competitive
threat to China’s rapidly growing market share.”[4]
 
Similar examples of such dumping of heavily-subsidized production take place regularly in agriculture:
“The plight of Third World agriculture is directly linked to a system of unfair global rules that allow rich
countries to protect and subsidize their big farms and food companies, while at the same time pressuring
developing countries to open their markets to cheap food imports. The food is sold to poor countries at
prices below cost because of the ability of rich nations to provide export subsidies. Poor nations cannot
afford to subsidize exports and are at an extreme disadvantage.”[5]
Millions of tons of artificially cheap, heavily-subsidized foods are dumped by industrialized nations on
developing nations annually, effectively destroying the potential for localized self-reliance in food
economies as well as traditional farmers' livelihoods—by the millions. Take the example of Mexico.
 
As the result of the North American Free Trade Agreement
(NAFTA), cheap, subsidized American corn flooded the Mexican
market. Producer prices of corn for Mexican farmers crashed by
50% and with it, 2.4 million traditional farmers were permanently
displaced from farming in their communities. At the same time,
overall consumer food prices rose in Mexico and the cost of the
staple food, the tortilla (made of corn), rose dramatically. The New
York Times reports that “NAFTA's failure in Mexico has a direct
impact on the United States. Although it has declined recently,
jobless Mexicans migrated to the United States at an
unprecedented rate of half a million a year after NAFTA.”[6] Most
of the farmers displaced by trade with the United States became
part of that mass exodus northward when corn imports from the U.S. tripled and producer prices halved.
Mexico lost its ability to produce corn domestically.
 
The agricultural disaster in developing nations is immense due to free trade. The concentration and
consolidation of the international food economy have created a world where a handful of companies trade
nearly all of the world's cotton, corn, sugar, wheat, soybeans, and coffee. Global prices and supply are
dominated by heavily-subsidized industries. The net effect of the commodification of food prices, as
centralization replaced localization of agriculture, is “increased poverty and landlessness among farmers
in the South and the North, devastation to the environment from industrial agricultural practices, and lower
food safety and nutrition.”[7]
 
De-localization and loss of democracy
 
The economic centralization of the global economic system based on free trade functions to expand and
magnify a de-localization of economic power and decision-making. A central principle intrinsic to the
model of economic globalization is the de-localization of control over economic and political activity. The
process of globalization has been a strengthening of “a systematic appropriation of the powers, decisions,
options and functions that historically have been fulfilled by the community, region, or state.”[8] Much of
what is called “free trade” is a significant part of the process of transferring control of economic decision-
making to the hands of unaccountable large global corporations and their interests.
 
The new trade agreements of the modern-day have introduced a new phase of upward movement of
economic decision-making and further consolidation of power into the hands of international, extra-
governmental corporate actors. The result is essentially an assault on democracy itself as traditionally
sovereign powers of local and nation-states are redesigned and further removed to conform to the
practices of distant economic powers.

“Communities and nations that formerly operated in a relatively self-reliant manner, in the interests of their
own peoples, are converted into unwilling subjects of this much larger, undemocratic, unaccountable
global structure. If democracy is based upon the idea that people must participate in the great decisions
affecting their lives, then the system we have today of moving basic life decisions to distant venues of
centralized, international institutions, which display a disregard for democratic participation, openness,
accountability, and transparency, brings the death of democracy.”[9]
 
 
To be continued next issue...Part 3: Fair Trade and Economic Decentralization: Moving toward
regional self-sufficiency

Alex Jackimovicz is an activist from Maine who works with the Maine Fair Trade Campaign and
publishes material on Prout in local and regional media.

[1] Bensusan, Graciela; Chris Tilly (2010). "Confronting Globalization: Lessons From Puebla". New Labor Forum 19(3): 64–
68.
[2] McHenry, Patrick, “Congressman McHenry Sends Letter to U.S. Trade Representative in Support of Strong Textile Rules
in Trans-Pacific Partnership” http://mchenry.house.gov/news/documentsingle.aspx?DocumentID=342060
[3] Ibid McHenry
[4] Bastasch, Michael, "Solar Eclipse: 112 Solar Companies Have Closed Their Doors In 5 Years" The Daily Caller. The
Daily Caller. Web. 8 Aug 2015 http://dailycaller.com/2014/12/08/112-solar-companies-have-closed-their-doors-in-5-years/
[5] Cavanaugh and Manders, ed., “Alternatives To Economic Globalization: A better world is possible” 2nd edition. San
Francisco Berrett-Koehler, 2004. p212
[6] Carlsen, Laura, “Under Nafta, Mexico Suffered, and the United States Felt Its Pain” The New York Times, NYTimes.com
Web. 8 Aug 2015 http://www.nytimes.com/roomfordebate/2013/11/24/what-weve-learned-from-nafta/under-nafta-mexico-
suffered-and-the-united-states-felt-its-pain
[7]Carlsen, Laura, "NAFTA Is Starving Mexico: Free trade has starved Mexico and stuffed transnational corporations"
Foreign Policy In Focus. Foreign Policy in Focus. 20 Oct 2011. Web. 8 Aug 2015 http://fpif.org/nafta_is_starving_mexico/
[8] Ibid Cavanaugh and Manders p147.
[9] Drafting Committee of the International Committee on Globalization, “A Better World Is Possible! Alternatives To
Economic Globalization: Summary of an Upcoming Report by the Alternatives Committee of the International Forum on
Globalization” Web
8 Aug 2015, p12
https://www.scribd.com/doc/68106515/Alternatives-to-Economic-Globalization-IFG#scribd