Trade in Process Perspective
by John B. Cobb, Jr.
John B. Cobb, Jr., Ph.D. is Professor of Theology Emeritus at the Claremont School of Theology, Claremont, California, and Co-Director of the Center for Process Studies there. His many books currently in print include: Reclaiming the Church (1997); with Herman Daly, For the Common Good; Becoming a Thinking Christian (1993); Sustainability (1992); Can Christ Become Good News Again? (1991); ed. with Christopher Ives, The Emptying God: a Buddhist-Jewish-Christian Conversation (1990); with Charles Birch, The Liberation of Life; and with David Griffin, Process Theology: An Introductory Exposition (1977). He is a retired minister in the United Methodist Church. His email address is firstname.lastname@example.org.. The following paper was written in December, 1990.
We all believe in freedom. So if we are asked whether trade should be free, our spontaneous answer is likely to be "Sure." But spontaneous answers are not always right. It is better to check out what is entailed. We don't really want everybody to be free to do anything. We don't want men to be free to rape women. So it is well to ask who is free and from what are they free.
So who is freed by free trade and from what are they freed? The answer is that economic units, such as firms, are free to do what is in their interest, and that they are free from governmental restrictions. In other words, governments are not free to regulate market transactions. To be for free trade is to be for the transfer of power from the political sector to the economic one. When put in this more precise way, it becomes clear that the issues are more complex. It is not evident that in all cases and in all respects governments should surrender their powers.
What difference can it make in reflecting about such a question that one approaches it in a process perspective? A great deal. But to show that, we will need first to consider the standard argument for free trade. We can then look at its assumptions from a process perspective and see that a change in assumptions would lead to different conclusions.
So how is it argued that governments should not regulate economic transactions? The first step is a convincing one. If government regulation amounts to bureaucratic control over what is produced and how it is priced, we have overwhelming evidence that this leads to extreme inefficiency. The recent collapse of the Eastern European economies is historic evidence of such force that the ideal of centrally planned economies is dead. The market adjusts to the decisions of thousands of actors in such a way as to get the goods needed produced at moderate prices. Market economies consistently outperform centrally planned economies. I take this as established.
The second step in the argument is that the larger the market the better. That is, it is better that capital, goods, and services flow freely in as large an area as possible. For example, it is better that they move freely throughout the United States than that state borders be an impediment to their movement. It is better that they flow freely across the borders with Canada and Mexico than that they be restricted there. And finally it is better that they flow freely throughout the world than that national borders constitute any kind of barrier.
How is this argued in standard economic teaching? The main argument is that the larger the market, the greater the specialization that is possible. If each region specializes in what it can produce most efficiently, total production is increased.
This is generally true, and I do not propose here to criticize it in terms of the exceptions. Instead, the question to be posed is whether the increase of total global production is desirable. It is here that the assumptions of standard economic teaching come into play. A different perspective, the process one, leads to other conclusions.
Perhaps the argument will be clearest if we begin with the challenges. First, there is one challenge that does not lie outside standard economic theory although its seriousness is rarely acknowledged by economists. That is, part of the total global production is "defensive." This means that part of the production is needed because of other parts of the production or because of undesirable changes connected with the increase in production.
That sounds quite abstract; so examples will help. It is generally recognized that the growth of the market encourages urbanization. There are many costs involved in the building of cities that do not contribute to personal consumption. For example, transportation costs far more in an urban industrial economy than in a rural village economy. This adds to gross product, but it is really a cost of production rather than an improvement in economic wellbeing. Furthermore, a rise of crime usually accompanies this urbanization. The cost of police, law courts, and prisons is included in GNP, but a rise in these costs does not mean that consumers are better off. In addition, pollution of air and water are results of economic growth, and society spends considerable money to reverse these changes. These expenditures also add to GNP but not to economic wellbeing.
This means that an increase in Gross Global Product does not necessarily indicate a comparable increase in the goods and services people desire. In a global market many goods are transported for many thousands of miles. The costs of such transportation add to the Gross Global Product. Third World societies face enormous costs in the process of urbanization. And the costs of dealing with pollution around the world rise.
While acknowledging these costs of economic growth, most economists assume that personal consumption still rises as gross product rises and that the defensive portions of personal consumption are negligible. Therefore, they continue to propose policies, such as free trade, that enlarge the size of markets, promote specialization, and thus lead to increase of total production. Whether they are correct in these assumptions is subject to dispute. When efforts have been made to measure economic welfare in distinction from gross product, the results have generally showed greater divergence than economists generally like to suppose. (My own work on this topic is to be found in the Appendix of For the Common Good, which I wrote with Herman Daly. The appendix is chiefly the work of Clifford Cobb.)
A second challenge focuses on distribution. Let us assume that the larger market attained by free trade does lead to greater total consumption of goods and services by the people living in the free trade zone. There is still the question of how this greater consumption is distributed. Do all gain?
Here there is a significant dispute. According to the standard models all gain. Economists may acknowledge that the increased consumption is disproportionately skewed in favor of the rich and that the poor gain least. But, in John Kennedy's language, they assert that "a rising tide lifts all ships." Even if the policies adopted for the sake of growth benefit the rich first, in time the poor also gain. This is the famous "trickle down" theory.
Challengers are not satisfied. First, the evidence does not always support the view that all gain. For example, during the Reagan years, total consumption rose greatly, but homelessness and hunger also increased. Labor earned less per hour in real dollars at the end of his term than at the beginning. It is very difficult to see that "trickle down" has worked. Students of Third World countries such as Brazil often judge that despite great strides in GNP, the poor of Brazil are not only relatively, but absolutely, worse off.
Even if it were true that the poor benefit slightly while the rich benefit greatly, this would not satisfy all challengers. Reduction of the spread of income between the richest and the poorest seems to many to be a proper goal of policy. Here we encounter a theoretical difference between challengers and standard economic theory.
This theory aims at value-neutrality. That means in this instance that economists refuse to judge whether it is better to add to the consumption of one person rather than another, that is, they are unwilling to judge that the increase of wellbeing in toto will be less when a hundred dollars is added to the income of a rich person than when it adds to the income of a poor one. Others, including myself, believe that such judgments are possible and that policy should reflect them. More fundamentally in this context, this latter judgment entails that governments should not abdicate their ability to influence the distribution of income, leaving such decisions to the market.
The third objection brings theoretical issues still more clearly into view. The increase of gross global product involves the increased speed of use of natural resources. The exhaustion of several of these resources is now foreseeable, with oil an especially important example. Policies should be directed toward slowing the use of these resources rather than speeding up this process. The market left to its own devices will eventually raise the price of such resources and thus slow their use, but this price rise would be abrupt and precipitous. The enormous changes involved in adjusting to the unavailability of oil on the part of oil-dependent societies must be made much more gradual if catastrophe is to be avoided. Governmental action is needed here.
Economic theory does not take such problems into account. Indeed, it tends to deny that they are real. In general, economists believe that market pricing will direct technological changes of the sort needed to replace a scarce raw material with an abundant one. They believe that capital expressed in technology can lead to virtually unlimited substitutions, so that they argue that for practical purposes raw materials are unlimited. Indeed, this assumption plays a large role in economic theory, leading to exclusive concentration of attention on capital and labor and virtually denying the importance of the physical world, which enters theory only under the label "land."
From the point of view of process thought, this is profoundly erroneous and has disastrous consequences. Shortages of oil and water and the erosion of topsoil are not irrelevant to the economic wellbeing of humanity. Desertification is a serious matter. The problem with the ozone layer cannot be solved by a technical fix. Indeed, in process perspective, the relation of the human economy to the whole physical system is of primary importance. We need an economy that works with that system in a sustainable way. Since the human economy is already seriously disturbing the natural world, undifferentiated increase in its size is highly undesirable.
The fourth objection also brings out the conflict in assumptions. The specialization and capital mobility that are so prized by economists for their tendency to increase total production have profound affects on human beings that fall outside of the consideration of economists. Economists view human beings as individuals who rationally aim to increase their consumption of goods and services with as little work as possible. Much activity in the market place is explained in this way. But human beings also shape their lives out of concern for human relations and for the larger communities of which they are parts. From the perspective of process thought, relations are fundamentally constitutive of who we are.
Since economists do not see relations as important, they support policies that disrupt them and break up communities. During the past few decades economic theory has been applied to American agriculture. Hundreds of rural communities have disappeared. Economic theory has been applied to industry. As a result hundreds of urban communities, built around factories, have disappeared. From the point of view of economists, these are great success stories. From the point of view of process theology, there have been enormous losses for the sake of questionable gains. The economy should serve human community rather than destroy.
The major defense of the enlarging of the market and the elimination of governmental influence on the economy is that inceased gross product is essential. As we anticipate continued growth in population and see that even now there are hundreds of millions of people whose needs are not met, we are morally obligated to support any measure that will lead to increased production. But from the point of view of process thought, this defense is far from convincing. If we are really concerned about meeting the basic needs of all, then policies that speed up the exhaustion of resources primarily for luxuries of the rich are not indicated. Furthermore, the poor are not benefited by the continuous disruption of their communities. As land once used for subsistence farming is transferred to plantations growing food for export, the GNP is likely to rise, but the ability of ordinary people to feed themselves declines.
There is a better alternative. There can be economies that serve the communities of which they are a part. These will be market economies, but the markets will be small. They will be inside communities that are of a size that encourges popular participation in decisions. The communities will specify the conditions under which all producers operate, conditions that favor the quality of life in terms of health, environment, and working conditions. Those who produce under those conditions will not have to compete with others, outside the community, who pollute the environment and exploit workers.
Small communities cannot be completely self-sufficient. They will want to trade. But they will not have to trade in order to survive. They will be free to trade or not to trade. Accordingly, they will trade only on terms satisfactory to them. This would be more truly "free trade" than what now passes under that label. A people who cannot feed themselves must trade on whatever terms are set by those who control food supplies.
At the outset I gave a definition of free trade that was relatively neutral. I spoke of the freedom of firms to seek economic gain without governmental interference. This is what the academic discipline of economics encourages.
However, we should also note the actual effects. Realistically, today, the "firms" that are seeking freedom from governmental interference are the great multinational corporations. The effect of the new proposals for GATT (General Agreement on Tariffs and Trade) will be to make the world safe for these multinational corporations. Third World governments will no longer be able to work for the development of their own economies. The United States will no longer be able to maintain environmental, health, or labor standards higher than those of other countries. These too will be determined by market forces controlled by multinationals. Much is at stake. Under the apparently attractive rubric of "free trade," we are asked to adopt policies that will enrich a few and ruin us all. This is worth preaching about.
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