International and Transnational Trade

Published November 2,000 by permission of the author.


The author analyzes the ethics of international trade and concludes that we should withdraw support from the move toward transnational trade and seek to strengthen the ability of nations, especially in the Third World, to control their own affairs. He believes that what Christians value can be attained better when national governments, more or less representative of their people, make their own decisions about trade.

Trade among human communities has been a part of normal human life for tens of thousands of years. Coastal tribes traded with those in the mountains and desserts, each gaining prized goods they could not otherwise have enjoyed. Trade encouraged peaceful communication and interchange; it broadened the horizons of thought and imagination; it stimulated technological advances. In more recent times trade of this sort has continued, and it continues to contribute greatly to human welfare. Tropical fruits can be enjoyed by persons living in temperate climates while those living in the tropics can have foods that grow only in the temperate zone. When we think of trade in these terms, we can only favor it and oppose obstacles to its smooth functioning. The issue is not, then, whether there should be trade among people living in different places. There should. The issue is instead who should make the decisions regarding what is traded and with whom and under what circumstances.

Through most of history communities imported only those goods they could not acquire or produce locally. According to this norm each meets its own needs as far as possible, trading only for other goods. The opposite ideal is that each should import whatever can be produced more economically elsewhere.

Closely related to these two norms for trade is the question: Who should make the decisions: communities or individual trading units? If communities, they tend to the former ideal; if the trading units, to the latter.

Third, if communities play a role in decision-making, what are these communities? In traditional societies they moight be villages or towns; in the modern period, nation states.

Answers to these questions lead to two quite different models of trade. In one model, nations may be thought of as the units of trade. This is associated with support for domestic production even when goods could be imported more cheaply. Although it is rare that nation states, are the trading units, because they regulate trade according to their interests, we may speak of this system as "international trade".

The trading units in the past have been individual businesses, sometimes relatively small ones. Today, they are chiefly transnational corporations. Trade controlled by these corporations and not restricted or regulated by national governments should be called "transnational trade". Prior to World War II most trade that crossed national boundaries was international. Since World War II, and especially since 1980, the involvement of national governments in decisions about trade, has been reduced, turning these over to transnational coroporations. Today, trade is increasingly transnational.

The change has not occurred without argument. But the terms of the debate have tended to obscure the real issues. International trade has been called "protectionist", because governments often favor businesses within their own borders in relation to those outside. Protectionism has been seen as a form of favoritism. Transnational trade is called "free", because corporations are free from governmentally-imposed restrictions. People prefer "free" to "favoritism". The less loaded terms "international" and "transnational" allow a more open discussion.

Much of the support of each of comes from those businesses which benefit. Industries that can survive only with protection from external competition favor the former; those that profit from extending their activities across national boundaries support the latter. Christians will ask instead which kind of trade contributes most to the common good.

The dominant political and economic forces in the world today strongly favor transnational trade. They are supported, and largely motivated, in this by the implications of the economic principles now taught in our universities. Economists assume, quite reasonably, that a shared goal is prosperity. There is still much poverty in the world, and the global population continues to increase. A great deal of economic growth is required in order to increase prosperity and spread it more widely. The question economists ask, then, is how best to attain economic growth.

There have been two approaches to attaining growth. One has been through governmental planning and bureaucratic management. This is called socialism. The other is by leaving economic actors to make their own decisions. This is a market economy or capitalism. Market economies work much more efficiently than managed ones, and economists can show why resources are more efficiently used when free transactions set prices. What to produce, how much to produce, and at what price to sell are decisions to be left to the economic actors.

A second question is that of the size of the market. Economists have pointed out that the larger the market the more efficient production can be. If each town manufactures all of its own goods, many of its factories will be very small and cannot achieve "economies of scale". A single large factory can produce sufficient hats or belts or buttons to meet the needs of many towns. The cost per unit will be much less; so the consumers will get more goods at cheaper prices. Competition is important for the market to work; so it must be large enough to support a number of large factories competing with one another.

The larger market makes it possible to locate production where it is most economical, that is, most efficient. Once again, this lowers the cost of production, and prices to consumers are further reduced. This argues against governmental restrictions over the movement of capital investment and goods. Until recently, however, most nations believed it appropriate to regulate trade across their boundaries. But the argument for lareger markets counts against these restrictions.

Most Christians agree that transnational trade enables goods to be produced more efficiently and that this leads to overall economic growth. In principle, the increased production should make it more possible to meet the needs of the poor. Hence, most Christians have supported the transfer of decision-making power from national governments to transnational corporations.

There has been, however, accumulating evidence of negative effects of this shift of power. Despite the overall growth of the economy, it is not clear that the lot of the global poor is improving. The gap between the rich and poor nations and between the rich and the poor within most nations is growing. If, for Christians, the primary reason for desiring global economic growth is concern for the poor, this is reason enough for second thoughts about supporting the move to transnational trade.

The counterargument is that it is a mistake to concern ourselves with current distribution of income. If income is now concentrated in the hands of the rich, they will use their increased resources for new investments. These investments will generate more jobs. Increasing demand for workers will reduce unemployment and raise wages and wages. In the long run the gap between rich and poor will again decline. For the sake of all, therefore, it is important to stay the course.

Nevertheless, the case against "staying the course" is strong in the eyes of many of those who observe close up the consequences of the present policies. In their view, the problem is not simply that the poor are growing relatively worse off. The problem is that they are often displaced from traditional homes and are becoming less and less able to meet their own needs. The trade policies adopted for global economic growth increase their misery. Millions who were once able to subsist from their plots of land and surrounding forests have now been forced to depend on wage labor which is in little demand.

Furthermore, the reasoning through which advocates of the now dominant policies call for staying the course is not beyond criticism. This reasoning assumes that increasing investment will generate sufficient new employment so as to raise wages globally. This is contrary to actual present trends and seems unlikely in the foreseeable future. Not only is there already a huge pool of unemployed labor throughout the world that is continuing to grow because of the population explosion, but also transnational trade has the immediate effect of reducing the need for workers. Imported goods destroy existing industries. More efficient agricultural production undercuts subsistence farming. Shopping malls put millions of small retailers out of business. And ever intensifying competition leads to "downsizing".

If the global economy doubles in size several times, and if population growth is restricted, the optimistic expectations of the believers in the present system may still eventually be fulfilled. But can the global economy grow tp this extemt?

This is not an economic question. Economists develop their models on the assumption that the condition of the physical world is not important. It is physical scientists looking at what economic growth has already done to the planet who raise this question. Many of them doubt the availability of the resources necessary for continued economic growth. More urgently, they point out that the environment cannot cope with the pollution already inflicted upon it. Global warming is only one form, but the costs it alone inflicts on the future are horrendous.

Supporters of growth argue that with this growth comes technological progress and that this generates the needed resources and means of keeping pollution within acceptable limits. They point to great improvements possible in the efficiency with which resources are used and recycled. They show that when societies attain a certain level of prosperity they devote increasing economic resources to the improvement of the environment. The ability of our children to deal with the consequences of global warming will depend, they argue, on the economic resources available to them. Therefore, rather than slow economic growth, we should do all we can to accelerate it.

Christians as Christians are not especially well equipped to judge the merits of such arguments. Predictions of the future based on projections from past experience are notoriously unreliable. This recognition may lead to placing priority on meeting the current needs, and hence of opposing those policies that now worsen the condition of the poor and of the environment. But those who are theoretically convinced by these arguments continue to regard this as sentimental and counterproductive.

Christians as Christians are better equipped to consider how economic gains are to be valued in relation to other gains and losses. For example, it can hardly be doubted that economic growth requires destruction of traditional communities. This can be seen in rural America and in many parts of the Third World.

Christians recognize limitations to traditional communities. Christianity arose as a new voluntary community set overagainst communities of kinship and custom. If the destruction of traditional communities were accompanied by the rise of new communities that met basic human needs for relationship and promised heightened personal participation, this might be regarded as a gain. But in hundreds of millions of cases this has not happened. The slums in cities in this country and those surrounding Third World cities result from economic "progress".

Another loss that accompanies the enlargement of markets generally is the reduced ability of people in local communities to manage their own affairs. When the economy of the community is controlled by persons who have no stake in the community, there are few major matters still subject to its own control. The transfer of power to larger political units is the inevitable consequence. But this is accompanied by a feeling of alienation.

Some now call for a return of power from federal to state and local levels, but unless this includes power over the local economy and the movement of people into or out of the community, it cannot amount to much. For example, if governmental aid to the poor is determined at the state level, generous states will attract poor from other states and bankrupt themselves.

Similarly, if states undertake to improve working conditions in their factories and to apply stringent pollution controls, it will prove "economic" for factories to move to neighboring states that entice them with the promise of a more favorable "business climate". In short, the pressure inherent in this one-sided decentralization is to lower standards.

The problem becomes more critical when international trade gives way to transnational trade. The market now extends beyond all political boundaries. Concerns for workplace standards and pollution cannot be expressed in legislation in one country without functioning to encourage factories to move across borders in order to escape the costs entailed.

Whenever markets extend across political boundaries, the political units defined by these boundaries are under pressure to compete for investments. This competition inevitably consists in part of relaxation of standards that impose costs on local production. Transnational trade exacerbates this problem because no larger political entity can establish minimal conditions.

Although, viewed globally, supporters of transnational trade can argu that eventually workers will benefit from increased production, workers in high-wage countries have no assurance that their situation will be improved in the foreseeable future. On the contrary, there is an inevitable tendency toward equalization of wages within a free market. Many of the industries that once paid high wages to blue collar workers have moved to countries where much lower wages are accepted. Most of these workers have had to take jobs that pay less. Other workers have accepted reduced wages in order to keep their employers from moving. This process continues. U.S. wages have fallen steadily over the past twenty years, and there is no foreseeable end to this decline.

The consequences of transnational trade are more dramatic in what we have called the Third World. Many Third World countries made consierable economic progress during the fifties and sixties in the context of international trade. They defined national economic goals and encouraged trade that supported these goals. International institutions such as the World Bank and International Monetary Fund accepted these policies.

During the seventies, partly because of OPEC's success in raising the price of oil, these nations became heavily indebted, and by the eighties, many were no longer able to make payments on their debts without assistance. The price of this assistance was in part their move from international trade to transnational trade. They have been required to open their economies to transnational corporations without restriction and to allow these corporations to become the major economic actors. With the conclusion of the Uruguay Round of the General Agreement on Tariffs and Trade and the new World Trade Organization, they can no longer protect their financial and service institutions from competition with transnational corporations. In short, they have been forced to give up control of their own economies.

The takeover of the economies of Third World countries by transnational corporations has been for the sake of economic growth. In some cases it has contributed to that goal. However, it does not always do so. That it should do so is a principle still widely taught in economics textbooks under the heading of "comparative advantage". But this principle assumed that trade would be international rather than transnational. It does not apply in the current situation.

Another confused argument is often offered for the move to transnational trade. This appeals to the impressive success of several Asian economies, especially, Japan, South Korea, Hong Kong, and Singapore. The argument is strong when it shows that market economies are able to grow faster than bureaucratically-managed ones. But it is misplaced when it is used to argue for transnational rather than international trade. All of these countries exercised firm control over their own borders during the period of their transition to prosperity.

The Christian's decision about these two models of trade will hinge largely on judgments of the value and importance of maximum global economic growth. The chief argument for transnational trade is that it is the means of attaining this maximal growth. Arguments favoring international trade are based on valuing community, emphasizing immediate improvement of the lot of the poor, avoiding extreme gaps of income internal to nations, and retaining the ability of people through political processes to have a say in determining what happens to them. Many believe that economic growth should be sought only as it contributes to meeting basic human needs.

There is a second level of concern about the current global commitment to growth that expresses itself in imposing the system of transnational trade on all. No one officially claims that economic growth as now measured is necessarily an improvement in the economic wellbeing of individuals. Nevertheless, the global system is geared to maximizing this growth as if it were supportive of such wellbeing. Hence the question of better measures of true growth is coming increasingly to the fore.

At this point Christians should participate vigorously. When economic measures cease to deal only with the price of goods and services exchanged in the market and begin to consider other matters, then questions of human value enter in. If the measure we need is one that includes economic goals generally, then it should include questions of distribution. Most Christians agree that adding a thousand dollars of income to a poor family improves the economic wellbeing of a nation more than adding it to a rich family that. Most Christians also believe that reducing the time spent in caring for one's children in order to earn money outside the home should not be counted as pure gain.

Furthermore, most Christians are concerned for future generations. Our present system is based on the assumption that current growth contributes to future wellbeing. But when current growth leads to growing ozone holes, progressive global warming, the exhaustion of soils, and the disappearance of wetlands and fisheries, costs are being imposed on the future. How should these be counted in evaluating economic performance?

A San Francisco organization, Redefining Progress, has produced a Genuine Progress Indicator for the United States. This takes into account the issues mentioned. The results show that during the past twenty years economic growth as measured by current indicators, especially Gross Domestic Product per capita, has been accompanied by decline in real economic wellbeing. This suggests that Christians should not automatically support policies whose chief advantage is that they promote growth in Gross Domestic Product or Gross World Product.

Christians are increasingly viewing these questions still more broadly. The World Council of Churches encourages us to think in terms of "the integrity of creation". We must then ask whether the move from international trade to transnational trade promotes the integrity of creation. It can be argued that by promoting efficiency in the use of resources it does so. But it can also be argued that by taking away the power of local people to protect their environments and encouraging the export of natural resources, it works against this.

My own conclusion is that we should withdraw support from the move toward transnational trade and seek to strengthen the ability of nations, especially in the Third World, to control their own affairs. In short, what Christians value can be attained better when national governments, more or less representative of their people, make decisions about trade. Many will do so unwisely, but those who suffer from their errors have some possibility of influencing them and making changes.

One reason for supporting international trade versus transnational trade is the conviction that economic actors should operate within parameters that are set by democratic means. When freed from responsibility to governments, they are responsible only to their stokholders who, qua stockholders, are interested in profits rather than in the general good. This goal could also be reached by forming a democratically controlled transnational political unit. The present World Trade Organization is not such a unit. Its membership and procedures are shielded from the influence of concerns other than the promotion of trade.

But it is not impossible that the WTO could be made much more responsible to the global public. It might be transformed, for example, into an agency of the General Assembly of the United Nations. Nongovernmental Organizations might be given the right to participate in its decisions. It might direct trade to the common good as understood by the people of the world.

Such a move would take us a long way toward global government. This is, for many Christians, a worthy goal. And, indeed, few would deny that, as so many of our problems become global in scope, increased power in the hands of global agencies is essential. Working out a way in which these global agencies become responsible to the people of the world is a task of enormous importance and difficulty.

My hope is that along with strengthening and democratizing global institutions, we also return as much power as possible to political units that are closer to ordinary people and in which they can feel some participation. This is the Christian principle of subsidiarity. Christians could make a contribution by leading in reflection about what kinds of political and economic power should be exercised at what levels. In that context, questions about trade could receive appropriate answers.