October 17, 2007

Who’s Afraid of Free Trade?

by Michael Miller

The late economist Friedrich Hayek was suspicious of conservatives because he worried that when push came to shove they would tend toward state intervention in the economy to ensure security. While Hayek’s analysis misses the mark when it comes to committed conservatives such as Ronald Reagan, a recent survey of the views of likely Republican voters reveals that Hayek might have been more right than we’d like to believe.

Reagan was an example of a true conservative whose policies flowed from deeply held principles about the nature of human dignity and freedom, the importance of family, the need for a limited role of the state, and a solid grasp of economic realities. Yet among Republican voters, the days of principled conservatism may be a thing of the past. According to a recent Wall Street Journal poll, 59 percent of Republicans believe free trade to be bad for the American economy. What the poll tells us is that Republicans need to return to conservative principles and are sorely in need of a review of basic economics.

Few things are better for economic growth than free trade. Adam Smith demonstrated the mutual benefit of trade with his famous example of the brewer, butcher, and baker. The butcher has more than enough meat, so he trades it for beer and bread, and vice versa. When people are allowed to trade, everyone is better off. The same thing that happens in a city market takes place globally. Global markets allow more people to trade more goods and services, increasing the amount of goods and lowering prices. Trade creates opportunities for farmers and producers in the developing world and creates more markets for U.S. producers to sell their wares abroad.

Perhaps more important, trade creates incentives to allocate labor and capital more efficiently. Because it is cheaper to produce manufactured products in places like India, China, or Mexico, U.S. workers have incentives to move to higher value-added activities such as technology. We hear about U.S. jobs being “shipped” overseas, but we don’t hear about the economic value that this creates and the opportunity for those workers who lost their jobs to move into higher paying, less physically demanding work. People used to complain about the inhumane nature of factory work; now that we are moving into a knowledge economy some of the same people bemoan the loss of those factory jobs.

It is true that free trade can create volatility and upset industries, so we must be ready to creatively address the social consequences of globalization. A vital network of churches and other charitable groups can -- and in some places already do -- serve this purpose.

But protecting vulnerable industries is not the answer. Protection does more harm than good in both the short and long run. When the Bush administration put tariffs on imported steel to protect U.S. steel jobs, it may have saved some jobs in the steel industry, but what was less obvious is how many other manufacturing jobs in the auto and construction industries were lost when firms moved their operations abroad to escape inflated domestic steel prices.

Protectionist import substitution strategies used by developing economies in the 1970s and 1980s didn’t work either. Those economies began to grow faster as they became more, not less, involved in the global economy. Short term fixes may help one group in the short run, but they harm the common good over time. Republican voters looking for security through government intervention should be careful what they wish for. Bureaucratic meddling with the economy gave us the stagnation of the 1970s. The last thing we want is to return to a protectionist model that has failed wherever it has been tried.

There is also a moral aspect to free trade that was part of Reagan’s principled conservatism, which seems to be forgotten. Economic freedom and the right to free exchange come from man’s natural right of association and his responsibility to take care of himself and his family. Economic freedom as a core element of political freedom grew out of the tradition of liberty in the West. In Spain, the medieval theologians that formed the School of Salamanca argued this well before Adam Smith came along, insisting that free exchange was a natural right and it lay beyond the government’s role to prevent it.

Among Democratic presidential candidates there is a growing opposition to freedom in the economic sphere whether it be in health care, regulation, or protectionism. If Republicans don’t hold a banner for economic freedom, who will? It’s time for conservatives to return to the sources that inspired the Reagan revolution. Otherwise there will be no one to resist the leftward turn down the road to economic slavery.

Michael Miller is director of programs at the Acton Institute.