Comparative Advantage for Whom? The Rise of Corporate Tyranny

The simple classical economic doctrine of comparative advantage – that countries should specialize in producing goods and providing services in which they have a comparative advantage over other countries, and exchange their surplus production with each other – has gained the status of a religious doctrine that, like many religious beliefs in the past and present, is being imposed on very large numbers of people all over the world, regardless of its costs in the number of human lives that are sacrificed, ancient traditions that are disturbed or destroyed, the many millions of rural people who are forced to migrate to cities in search of work, the environmental damage that results, and the mountains of garbage and toxic wastes it produces.

In spite of its historic failure, the supranational high clergy obstinately continues to believe in the theoretical postulates of neoclassical economics, which do not apply in reality as scientific law. The first of these is the theory of the ‘comparative advantages’ of the underdeveloped countries. According to this theory, a hyper-free market is required so that the advantages that the countries of the underdeveloped world have in terms of cheap labour and natural resources can attract the necessary transnational investments. In fact, today, the comparative advantages of the underdeveloped countries are no longer determining factors for attracting foreign investment. The transnationals [multinational companies] do not place their investments according to the supply of natural resources or cheap and uneducated labour, but with a view to the hefty profits to be gained from the high rate of productivity provided by a highly skilled and cheap workforce and local enterprises with technological capabilities. These factors do not exist in the majority of the so-called developing countries. It is precisely for these reasons that the transnationals mainly invest in India and other countries in South Asia and in China.[1]

Those who preach the virtues of free trade are economic proselytizers who go about the world spreading The Gospel of Economic Plenty and How to Achieve It. And, like their religious counterparts, they are completely blind to the many harmful effects which the imposition of the doctrine of free trade has had on many people around the world. Just as religious intolerance caused the deaths of countless millions of people in the past, the dogma of free trade has also caused the deaths of significant numbers of people around the world, while worsening the lives of an even larger number of them.

The proceedings opened with Maurice Allais, Nobel Prize winner in economics and now in his eighties, presenting what Le Monde described as ‘le choc Allais’. It is an article of faith in orthodox economics that free trade between nations is wholly desirable. But to the horror of the audience, Allais attacked the proposition that free trade was in general beneficial. Indeed, he argued that it could be of benefit only in certain very special circumstances. Denouncing the Maastricht Treaty, Allais pronounced that free trade would have favourable effects only when carried out between regions which were at comparable levels of economic development. He condemned roundly ‘the free-trade policies of the European Commission’.[2]

But, you may object, what about the many benefits of free trade? Are they not worth the harm and suffering which it causes some people, when many more are benefitted by its implementation? There is no question that free trade can and does contribute to improving people’s lives, such as by lowering the costs of many products and by providing employment. But there is also no question that free trade, along with the overly simplistic theory of comparative advantage on which it is based, causes much harm, in large part because there are many real-world instances where this simplistic theory diverges from the complexities and heterogeneity of reality. In fact, the theory of comparative advantage suffers from many of the same defects as communism, which assumed that human beings could be refashioned according to its dictates, and that traditional models of behaviour are not important because they are inefficient, incorrect, unjust, or immoral, and therefore they can be swept away without compunction or ill effects. As a result, both communism and free trade have caused very serious disruptions in many people’s lives, without necessarily replacing their old way of life with one that is better.

An important fact about global free trade that many of its advocates either ignore or overlook is that it is an economic model that is not sustainable.

Already in 1991, four billion tons of freight were exported by ship worldwide, and this required 8.1 exajoules of energy, which is as much as was used by the entire economies of Brazil and Turkey combined. Seventy million tons of freight that year were sent by plane, and this used 0.6 exajoules, which is equal to the total annual energy use of the Philippines.[3]

The defenders of free trade regard the economic co-dependence and interconnectedness of the human world as a good thing; conversely, they regard economic self-sufficiency, which they call by the curious word “autarky,”[4] as a bad thing. Considering the vast amounts of non-renewable energy it takes to keep the system of free trade operating, this belief is illogical, to say the least.

The situation has become quite absurd: rather than eating a potato grown in your own garden, it is better for the economy if you buy a potato grown on the other side of the country, which has been pulverized, freeze-dried, and reconstituted into brightly colored potato balls. Consuming in this way, of course, means more transportation, more use of fossil fuels, more pollution, more chemical additives and preservatives, and more separation between producer and consumer. But it also means an incremental increase in GNP, and is therefore encouraged.

This one-dimensional view of progress, widely favored by economists and development experts, has helped to mask the negative impact of economic growth. Moreover, it has blinded us to the value of locally based subsistence economies. This has led to a grave misunderstanding of the situation of the majority of people on earth today—the millions in the rural sector of the Third World—and has disguised the fact that development programs, far from benefiting these people, have in many cases served only to lower their standard of living.

Farmers who had previously grown a variety of crops and kept a few animals to provide for themselves—either directly or through the local economy—are now encouraged to grow a single cash crop for distant markets. In this way they become dependent on forces beyond their control—huge transportation networks, oil prices, and the fluctuations of international finance. Over the course of time, inflation obliges them to produce more and more, so as to secure the income that they now need in order to buy what they used to grow themselves.

Since even the most meager salary or payment in the cash economy is regarded as an improvement, cash cropping and the consequent increase in trade and transport appear unequivocally beneficial. In fact conventional development often results in the creation of poverty, as rural populations are lured away from the land into urban slums. Increasingly, people are locked into an economic system that pumps resources out of the periphery into the center—from the nonindustrialized to the industrialized parts of the world, from the countryside to the city, from the poor to the rich. Often, these resources end up back where they came from as commercial products, packaged and processed, at prices that the poor can no longer afford.[5]

The problem with such narrow thinking is that it has made these farmers and their families completely dependent on market forces over which they have no control. Moreover, by encouraging farmers to specialize in growing export crops and trade their produce for all the things they need, they have destroyed the independent self-sufficiency in which they formerly lived. But there are many people in the world who are not able to produce something that other people are willing to pay money for, and these people, who number in the hundreds of millions worldwide, are thus left completely outside the economic system based on specialization and free trade. As we saw in “Free Trade Means Less Life and More Death: When the Free Market Becomes the Blind Market,” by increasing the distance between the producer and the consumer, free trade makes it more likely that a given market will be blind, so that consumers, in seeking only their own narrow advantage, can unintentionally cause harm to others by their consumption decisions.

Wangari tells us, “The colonists made people believe they had an answer for everything.” One answer was cash crops. As one African writer describes: “Colonialism programmed African countries to produce what they do not consume and to consume what they do not produce.” And, once independent, Kenya didn’t change direction.

The economists’ rationale, which I’d first read ad nauseam decades ago, is that specialization in export crops like coffee makes sense because countries should grow what best suits their climate and soils, and then—according to the hallowed theory of “comparative advantage”—sell on the international market and use the profits to buy what they need that grows best elsewhere.[6]

In general, the history of colonialism is the history of the exploitation and imposition of alien beliefs and practices on the subjugated peoples. A sort of economic colonialism is presently taking place in many countries around the world, based on the theory of comparative advantage and free trade, as well as other tenets of free-market capitalism, such as privatization, deregulation, specialization, and minimal government intervention in the free market. Those who live in highly developed industrialized countries, where people perform highly specialized kinds of work and then buy everything they need with the money they earn for performing that work, fail to understand how artificial and disruptive such a social and economic system can be when it is imposed on people who live a much less specialized and more subsistence lifestyle, where many people grow the food they eat and possess far fewer things than people who live in wealthy industrialized countries. Both kinds of colonialism, whether traditional or economic, assume that the dominant power’s way of life is inherently better than the way of life of the subjected or economically inferior people.

[Martin] Khor was asked how he could so strongly argue against the big trade agreements. Was he not worried that without an expanded production and consumption base, Third World peoples would be deprived of Western standards of living? His answer, which I am paraphrasing, was to this effect: “I think you have it backward. Those who most depend on an expanding economy are not Malaysians or other Third Worlders, but you in the First World. In your world, you no longer have contact with the land, and you don’t know how to get along without luxuries. For us, if the whole global trade system collapsed, we might be better off. We have never lost touch with the land; we know how to grow food for our communities, how to make our own clothes, how to develop the fairly simple technologies we need. This is how most of us lived until recently. We wouldn’t mind having some of the new technologies you offer, and some kinds of trade are very useful, but if the Western colonial powers and transnational corporations would simply leave us alone, stop exploiting our resources and land so we could again retain their use, we could probably survive quite well. But what would you do?”[7]

The primary beneficiaries of free trade are large multinational corporations that gain unrestricted access to foreign countries’ resources, to huge quantities of cheap human labour, and to their growing consumer markets. In their relentless pursuit of profits, these corporations have adopted numerous selfish, illegal, immoral, and otherwise harmful methods which, in many cases, have become standard operating procedures, in order to reduce their costs, regardless of the many harmful effects that these procedures have on human beings, other living organisms, and the environment. This is shown by the fact that a large part of what is calculated as free trade is merely the movement of products within the same multinational company.

After conceding that the transnational companies now account for one-third of global output, two-thirds of trade (one-third of it between the companies themselves)[…][8]

One reason was globalization, in which advances in communications technology and production efficiency incentivized big companies to become essentially stateless entities, with operations spread all over the world. Where once you had a Boeing or a Hershey’s keep its factories and headquarters snuggled decade after decade in the same state or company town, you now had huge multinational firms peppering China and India with factories, and banking havens like Antigua and Jersey with corporate offices, as they raced around the earth in search of tax, labor, and other advantages. The whole world with its myriad sets of laws and rules presented endless opportunities for regulatory arbitrage. It would be harder for the cop on the beat to chase an offender that simultaneously existed everywhere and nowhere.[9]

An inevitable effect of the dominant Rumpelstiltskin model of corporate ownership is that corporations are constantly in fear of being bought by another corporation, much as smaller fish are in danger of being swallowed up by larger fish. This is because the many owners of a corporation have bought its stock solely for the purpose of making money, and so when someone comes along and offers them a goodly sum for their shares, they have no compunction in selling their shares to the highest bidder, regardless of the bidder’s intentions for the corporation. The result of this constant fear is that these corporate Goliaths ravenously go about the world looking for companies they can devour in order to grow even larger, in part to fend off their competitors. This has produced monopolies or oligopolies in numerous industries, with all the harmful effects of monopolistic or oligopolistic control over the means of production.

As was noted in “Aristotle’s Sillygism,” many multinational corporations are using their ability to transfer profits from high-tax countries or regions to low or no-tax countries or regions in order to reduce, as much as possible, the taxes they pay to governments. And yet, this important recent development is not taught in introductory economics courses, along with the standard doctrine of comparative advantage.

Fourteen million dollars.

That is what the firm [Goldman Sachs] paid in taxes in 2008: an effective tax rate of exactly 1, read it, one, percent [on profits or net income]. The bank paid out $10 billion in compensation and bonuses that year and made a profit above $2 billion, and yet it paid the government less than a third of what it paid [CEO] Lloyd Blankfein, who made $42.9 million in 2008.

How is this possible? According to its annual report, the low taxes are due in large part to changes in the bank’s “geographic earnings mix.” In other words, the bank moved its money around so that all of its earnings took place in foreign countries with low tax rates. Thanks to our completely fucked corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions up front on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to pay no taxes at all. A Government Accountability Office report, in fact, found that between 1998 and 2005, two-thirds of all corporations operating in the United States paid no taxes at all.[10]

The economists’ extremely naive advocacy of free trade – for all people, in all times, and in all places[11] – has enabled corporations to extend their tyrannical control over not just the economic marketplace but increasingly over more and more aspects of people’s lives, including through their control over the political and legal systems of many countries. There are many corporations that are large, rich, and powerful enough that they are able to influence or dictate more and more of the legal and political decisions that are being made around the world. Like barons, dukes, princes, and monarchs in past ages, these corporate rulers zealously defend their possessions and territories against all adversaries, invaders, enemies, opponents, and competitors, while seeking to increase their control, power, revenues, profits, market share, and global reach and dominance. In other words, corporations no longer have effects that are limited strictly to the business or economic sphere. Increasingly, their control, influence, and dominance are extending to more and more aspects of society, as is shown by the commercial indoctrination that many of us receive when we are young so that we grow up to become eager and spendthrift consumers, by buying things we don’t need in the belief that they will make us happy, the nature of our country’s laws and regulations, the way our food is grown or raised, our standards and our way of life, and our tastes, preferences, hopes, aspirations, and dreams.

During the course of Western history from the Medieval Age to the twentieth century, humanity struggled to free itself from various forms of tyranny, including slavery, serfdom, religious oppression, poverty, traditional male dominance, and the power of the hereditary aristocracy. Now, when many people have grown complacent about these hard-won freedoms, our rights and privileges have been very quickly usurped, violated, and reduced in recent decades by the growing power of undemocratic corporations all over the world.

Today, the greatest threat to democracy is not communism, socialism, fascism, or any of the many other political and religious ideologies of the past. The greatest threat to democracy today is corporate tyranny. Corporations are archaic relics of the nineteenth century that unfortunately managed to survive that bygone era, unlike other relics such as slavery, racism, nationalism, and war that have since been weakened, mitigated, or abolished. Not surprisingly, corporations have brought with them many of the ills that beset that less enlightened era. Because they are not under democratic control, it is not at all surprising that their actions have become more and more oppressive and tyrannical as their size, power, and global dominance have increased.

Contrary to what the many apologists, theorists, and proselytizers of the present dominant economic system believe, the behaviour of corporations is neither inevitable nor due to innate tendencies in human nature, such as the belief that all people are selfish: it is due to the unholy marriage of three basic economic doctrines and practices – global free trade, unbridled competition, and the Rumpelstiltskin model of corporate ownership – which have produced the present economic situation where more and more industries are dominated by a very small number of highly mobile large international corporations that have no allegiance except to themselves, their executives, and their no-responsibility owners.

In today’s increasingly corporate-dominated world, we are seeing the many harmful effects of allowing unbridled competition in the context of a specific economic model: the extension of the classical economic principles of laissez-faire – meaning little or no government regulation and oversight, with weak or minimal governments in general – and free trade all over the world. One inevitable consequence of these economic models is larger and larger corporations that dominate not only the way things are made, marketed, and consumed, but also the very nature of human societies and the relationships that we have with each other, our governments and legal systems, and all the other living organisms that inhabit the Earth.

It is time for the people of the world to take back and defend from the world’s corporate tyrants the rights and freedoms that our forebears fought so hard to gain, sometimes with the sacrifice of their lives. And if, instead, we submissively accept the continued corporate abrogation of our rights and freedoms, then in truth we have become abject corporate serfs, who cannot in any sense call ourselves the worthy descendants of those who fought against fascism, communism, racism, dictatorship, sexism, religious intolerance, and hereditary power and privilege, in the hope of giving birth to a freer, more equal, more fair, just, and better world for all of its inhabitants.

 

[1] The Myth of Development: Non-Viable Economies and the Crisis of Civilization by Oswaldo de Rivero, p. 40. Second edition. Translated by Claudia Encinas and Janet Herrick Encinas. Zed Books, London and New York, 2010.

[2] The Death of Economics by Paul Ormerod, pp. 7-8. John Wiley and Sons, New York, 1997.

[3] The Case Against the Global Economy: And for a Turn Toward the Local, p. 85. Edited by Jerry Mander and Edward Goldsmith. Sierra Club Books, San Francisco, 1996.

[4] Although this word existed prior to the economists’ usage of it in this particular sense, I have never seen it employed in any other context. Hence, its rarity gives the impression that being self-sufficient is somehow strange, when in fact it is the oldest form of survival known to humanity. Specialization of labour and trade developed gradually, and it is only in the past few decades and centuries that specialization and trade have become the dominant models of production. Hence, it is free trade that is the anomaly, while self-sufficiency is deeply rooted in our species’ history.

[5] Ancient Futures: Lessons from Ladakh for a Globalizing World by Helena Norberg-Hodge, pp. 143-147. Sierra Club Books, San Francisco, 2009.

[6] Hope’s Edge: The Next Diet For a Small Planet by Frances Moore Lappé and Anna Lappé, pp. 175-176. Jeremy P. Tarcher/Putnam, New York, 2002.

[7] The Case Against the Global Economy, pp. 17-18.

[8] The No-Nonsense Guide to World Poverty by Jeremy Seabrook, p. 80. Between the Lines, Toronto, 2007.

[9] The Divide: American Injustice in the Age of the Wealth Gap by Matt Taibbi, chapter 1. Spiegel & Grau, New York, 2014.

[10] Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History by Matt Taibbi, chapter 7. Spiegel & Grau, New York, 2010.

[11] This is comparable to claiming that there exists a medicine that will help all sick people, or should be taken by all people, since it will undoubtedly make them feel better. Of course, no such medicine exists, and anyone who made such a preposterous claim would be dismissed as a crank. People’s bodies differ, and the effects that a medicine has on someone must be evaluated case by case. Similarly, human societies differ, and the effects that free trade has on them will also differ, and, just as in the medical case, these effects must be considered case by case. And yet, most economists fail to recognize this important truth because they have been blinded by the dogma of comparative advantage, and by their erroneous belief that their theories are valid for all people, and in all periods of human history.