CORPORATIONS ARE NOT HUMANS : NOT EVEN CLOSE ---Episode 12

    THE BETRAYAL OF ADAM SMITH AND DAVID RICARDO
                                             (A Continuation) 


    We now move on from Adam Smith to David Ricardo, and discuss how corporate libertarians confuse the truth with fiction. We've seen the way libertarians contradict the truth of what Adam Smith advocated. Now we look at David Ricardo's theory of comparative advantage, which corporate libertarians regularly invoke as proof of their argument that unrestrained free trade advances the public good. This theory, originally articulated by Ricardo in 1817, provides an elegant demonstration that, under certain conditions, trade between two countries works to the benefit of the people of both. Three conditions, among others, are fundamental to this outcome : (1) capital must not be allowed to cross national borders from a high-wage to a low-wage country, (2) trade between the participating countries must be balanced, and (3) and each country must have full employment. 
   When these conditions are met, investment in each country will tend to flow toward those activities in which each has a comparative advantage based on differences in their natural endowments. To use Ricardo's example, because of difference in climate it may be relatively more efficient to produce wine in Portugal and woolen goods in England. In the event of open trade between the two, the hapless vintner in England who finds himself unable to compete with imported Portugese wines will convert his grape fields to pasture lands for sheep and his winery to a woolens mill employing the same people. 
   In Ricardo's time, most trade involved the exchange of finished national goods, produced by national enterprises. Today, products are commonly assembled using components and services produced in many different countries. Global corporations, rather than national companies, are likely to be the coordinating units, with the result that roughly a third of the $3.3 trillion in goods and services traded internationally in 1990 consisted of transactions within a singe firm. A growing portion of international is intraindustry, meaning that countries are exchanging the same product --- as when the United States and Japan sell automobiles to each other --- making it difficult to argue that natural comparative advantage is involved and rendering trade theory irrelevant in assessing the consequent costs and benefits. 

   In the pursuit of free trade, corporate libertarians actively promote the removal of restrictions on the transfer of factories across borders and the free international movement of money, belittle trade balances as irrelevant, and look to unemployment as a beneficial brake on inflation --- in each instance disregarding essential conditions of the trade theory they invoke to support their cause. In truth, the "trade agreements"advocated by corporate libertarians are not about trade ; they are more about economic integration. Although the theory of comparative advantage applies to balanced trade between otherwise independent national economies, a very different theory --- the theory of downward leveling --- applies when national economies are integrated. 
   When capital is confined within the national borders of trading partners, it must flow to those industries in which its home country has a comparative advantage. When the economies are merged, capital flows to whatever locality offers the maximum opportunity to externalize costs through cash subsidies, tax breaks, substandard pay and working conditions, and lax environmental standards. Income is thus shifted from workers to investors, and costs are shifted from investors to the community. It seems a common practice for corporate libertarians to justify their actions based on theories that apply only in the world that by their actions they seek to dismantle. 
   Economist Neva Goodwin suggests that neoclassical economists have invited this distortion and misuse of economic theory by drawing narrow boundaries around their field that exclude most political and institutional reality. She characterizes the neoclassical school of economics as the political economy of Adam Smith minus the political and institutional analysis of Karl Marx: 

     The classical political economy of Adam Smith was a much broader, more humane subject than the economics that is taught in universities today. . . For at least a century it has been virtually taboo to talk about economic power in the capitalist context ; that was a Marxist idea. The concept of class was similarly banned from discussion. 

Adam Smith was as acutely aware of issues of power and class as he was of the dynamics of competitive markets. However, the neoclassical economists and the neo-Marxist economists bifurcated his holistic perspective on the political economy, one taking those portions of the analysis that favored the owners of property, and the other taking those that favored the sellers of labor. Thus, the neoclassical economists left out Smith's considerations of the destructive role of power and class, and the neo-Marxists left out the beneficial functions of the market. Both advanced extremist social experiments on a massive scale that embodied a partial vision of society, with disastrous consequences. 

       THE DEMAGOGUERY OF U.S. TRADE AGREEMENTS 

   On the evening of December 1, 1994, a lame-duck session of the U.S Senate approved by a margin of seventy-six to twenty-four the Uruguay round agreement of the General Agreement on Tariffs and Trade (GATT) that created the World Trade Organization. Responding to their corporate financial sponsors, a broad coalition of Republican and Democratic senators supported the measure in defiance of widespread and growing opposition among those Americans familiar with the agreement and its threat to jobs, the environment, and democracy. The strong and unequivocal backing of the agreement by President Bill Clinton and Vice President Al Gore (and their friends at Goldman Sachs, et al) deepened the chasm between them and their core labor and environmental constituencies. 
   C-SPAN, a cable television news channel, held a telephone call-in session following the vote. Doug Harbrecht, the trade editor of Business Week, was the guest resource person. As caller after caller phoned in to express outrage at the politicians who voted for the agreement in support of big-money interests and total disregard of the of the popular will, Harbrecht  commented that the pro-GATT position represented impeccable economics but bad politics. As did many of his colleagues, Harbrecht mistook free-market ideology for good economics.  The global economic integration advanced through GATT and the World Trade Organization is at odds with the most basic principles of market economics and puts in place an economic system designed to self-destruct at an enormous cost to human societies. The can scarcely be considered the practice of "impeccable" economics. 
   How can neoclassical economists advocate economic integration if it advances conditions that are at odds with those required for efficient market function ? An important part of the answer is found in their legendary ability TO ASSUME AWAY REALITY.  Anyone who has dealt with economists to any extent know that they have n unlimited ability to assume. When the real world diverges from the conditions necessary to support their preferred policy options, economic rationalists are prone to solve the conflict by assuming the conditions that support their recommendations. 
   Take the case of the obvious reality that the human economy is embedded in and dependent on the natural environment. As far back as 1798, Thomas Robert Malthus suggested that environmental limits might make population growth a problem for the future of humanity. Neoclassical economists have dealt with this inconvenience by adopting an analytical model that assumes economies consist of isolated, wholly self-contained, circular flows of exchange values (labor, capita,. and goods)between firms and households without reference to the environment. In other words, they avoid the problem of environmental limits by creating a model that assumes the environment doesn't exist. They then conclude from this model that the economy does not depend on the environment and dismiss those who challenge the possibility of infinite growth on a finite planet with the stinging epithet "Neo-Malthusianism ! "