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"FREE MARKET" FALLACIES:
What we need is a rule-based international economy

By John McMurtry



All freedoms have limits. Freedom of speech does not include the right to slander one's neighbour or to shout "fire" in a crowded theatre. In the same way, the free market needs to have limits imposed on its operations. Otherwise, as we now see, the unfettered free market tends to weaken or destroy the resources of life and freedom for the majority, to benefit mainly a small wealthy minority, and to leave most people with little but their own work to live by and increasing tens of millions without even that.

The more unequal the possession of wealth is in a free market, the more people there are without the money to buy what they need for a decent life, and the less freedom the free market assures for the society in which it operates.

In recent years, globe-girdling technologies and international free trade agreements have increasingly allowed corporations and investment capital to sever their connection with any given community or nation or culture. Workers anywhere can now be displaced, not only by workers elsewhere willing to work more cheaply, but by new labour-replacing, computer-driven systems of production and communication.

With no democratic input or accountability required for any step of this process of mass worker displacement and disemployment, corporations and investment capital can dismantle or move their operations across the world with the speed of an electronic signal. The vast majority of the planet's people have in this way been radically disempowered as an economic and political force--transformed into an international pool of part-time employees who can be hired and dismissed at will, with ever more people in the labour market competing for ever more replaceable jobs.

Globalized free trade has brought us to the age of disposable humanity.

The solution is to institute a "rule-based international economy" where the rules do not, as now, merely protect business interests and trade, but include minimum standards to protect workers' wages, health and safety, to safeguard the environment against pollution and degradation, and to provide a "social safety net" for the unemployed, the old, the young, the infirm, and others left out of the current global economy.

Most of the serious problems of the anarchic free trade economy would be significantly reduced by such a global-rule system. Unfortunately, the world's dominant corporations are opposed to the protection of any rights but their own. They have fiercely attacked public health care, unemployment insurance, old age pensions and social security programs as "too costly," "unworkable," "anti-private initiative," even "communist."

In the past, such programs have nevertheless been provided because of their widespread popularity and support within the general population. The difference now is that corporations are no longer tied to the community as a whole, and are free to leave any society in which effective rules and programs to protect human rights and the environment have the effect of raising business costs.

Now that business has secured the right to invest or disinvest at will across national boundaries with no social obligations, rules protecting human life have to be international to be effective. If they are not, business will simply move to the lowest-cost, lowest-standard areas to maximize profits. Effective international rules protecting people and the environment must therefore be included in transnational trade agreements to bind corporations to wider interests than their own profits. Once such trade deals include life-protective standards--not as now by token "side-agreements" without legal force, but by specific and enforceable regulations--corporations would be obliged to comply in order to continue having access to the national markets covered by these agreements.

Two benefits would flow from such a regulatory balancing of the rights of corporations with the rights of people. First of all, the current corporate agenda of reducing or dismantling the social standards of civilization "to compete in the tough new international marketplace" would be diminished in its capacity to extort social sacrifices for lower business costs.

Secondly, the ability of dictatorships and oligarchies abroad to resist international pressure to improve human rights and environmental standards within their borders would be eliminated. Their access to other countries' markets would be conditional on their compliance with international social and environmental standards.

Unfortunately, it is not easy to be optimistic about the chances of educating free market adherents to the most elementary requirements of social existence. Private corporations and business-dominated governments have so far imposed against majority will a series of undebated, secretly-negotiated, business-only trade agreements which have disemployed and disempowered millions, ruined communities, and cut back social legislation across the developed world without a noticeable dissenting voice from a single political party in the process.

A world-wide coup d'état, one might say, has already occurred. The owners of international capital have been given clearly defined transnational rights to rule the world's production and distribution, uncontrolled by a single effective human right or environmental limit to their private profit-seeking activities.

There are three illogical assumptions upon which the destructive absolutism of the corporate agenda is based which need to be clearly recognized.

1. The first is that the right of access to markets across regional and national boundaries is assumed to belong to private corporations cost-free with no obligation to pay any of the direct or indirect costs of this market entry to other societies. All that is required is that corporate agents agree among themselves through government mechanisms to a system of self-protective rules not infringing one another's rights to this access.

Yet market access to what is owned and exchanged in another society has in fact enormous costs for that society which are borne by its citizens' taxes and government deficits. The benefits of these tax-supported goods, under present trade agreements, are now received cost-free by foreign corporations who buy and sell in other societies' markets without having to contribute to the many costs of their ownership and trade in these societies. Their goods are produced elsewhere and provide no jobs in the markets to which they sell.

The home society provides police protection, publicly-paid-for roads, subsidized utilities, water and sewage systems, and many other domestically financed and highly expensive infrastructures and protections. To these expenses have now been added still further major costs of protecting foreign-owned corporations' patents (e.g., in medicines) and enforcing intellectual property rights (e.g., over farmers' seeds and authors' texts, even against their own growers and writers).

Foreign corporations (or domestic ones) which pay no taxes for the protection and utilization of these publicly-financed supports and services are thus free-riders on public expenditures which increasingly disemployed citizens are required to pay for. Current free trade agreements grant this free-rider status to all non-domestic corporations, and increasingly to domestic corporations as well, by subsidies, tax reductions and exemptions designed to keep them from investing elsewhere.

This is why private corporations have been so unanimous in supporting these trade agreements. As free-riders on public purses and deficits, it is in their self-interest to institute free trade regimes which grant them this ever more extended right to free-riding. Under this system, societies must compete against one another in granting private corporations ever lower domestic tax rates and favourable treatment. To pay for this subsidization of corporations, societies must reduce more and more of their social spending for public needs.

In this way, a spiral of bankrupting public sectors to subsidize private corporations has been set in motion, with no apparent limit to its special-interest demands and to government concessions. Ironically, the same corporations that are feeding so greedily at the public trough are the same ones that are given to lecturing governments about "overspending" and warning citizens and taxpayers that there is "no free lunch."

2. The second illogical premise of current international trade agreements is that damages and losses suffered by corporations are to be recognized and regulated, but damages and losses to workers, governments, communities, environments, publicly-owned resources, and any other economic sector are not to be recognized or effectively regulated at all.

Implicit in this one-sided protection of corporate economic interests is the assumption that the public interest which governments are supposed to represent has become "too costly" and must be abandoned, while the private interests governments are supposed to regulate require less regulation but more public subsidies.

3. The third and perhaps most pernicious illogical premise is that the damages and losses inflicted by private corporate interests on other sectors through free trade agreements are never to be borne or paid for by the corporations which inflict them, but only by their victims--the workers and taxpayers.

The corporations, in other words, are assumed not only to have the right to a free ride on costly services and infrastructures paid for by the citizens of free-trade countries, but the right to be held non-liable for any costs and damages they inflict within these countries.

In a normal context, we would call these assumptions not only illogical, but downright psychopathic. The fact is, however, that these unrestricted corporate rights and their consequences are now built into free trade agreements and considered as "givens" by transnational corporations, international investors, and their apologists in political, academic and media circles.

Indeed, this favoured treatment of corporations is now justified as "inevitable," and its costs to workers and the environment as "necessary adjustments" to the "tough new realities of the global marketplace."

This inevitability doctrine of the prevailing market ideology is typical of fundamentalist religious sects. There is "an invisible hand," we are told, that governs human events with an omniscient logic that cannot be interfered with. Followers of the true faith will be rewarded in some certain but vaguely defined realm of future prosperity, while those who resist will be consigned to the hell-fires of "painful cuts" and "shock treatment."

No amount of human suffering or natural destruction exacted by this doctrine's implementation can prove it false, because its truths are eternal and not subject to contradictory evidence. Salvation can only be won by obedience to its "iron laws," though life for the majority in fact grows ever more bleak and desperate under its rule.

No fundamentalist ideology has ever been so dominant in the world since the Middle Ages, or so widely diffused by its propaganda organs. Its unifying assumption of "inevitability" to the harm it inflicts on the world's people, however, stands in stark contradiction to its claims of promoting "freedom" and "democracy." Because it has everywhere been contrived by secret negotiations without or against the will of the majority of people, and because it rules out any social alternative or public participation, it is "democratic" only in that realm of fantasy which fundamentalist religious ideology occupies.

* * *

In the context of the inherent illogic and injustice of the "free trade" dogma, a rule-based international economy which accords rights and protections to broader human and environmental interests is compelled by elementary logic, as well as the requirements of global survival.

The more widely such broader human interests are taken into account and safeguarded, the less destructive the free trade agreements will become and the more rationally coherent and life-responsible.

John McMurtry is a professor of philosophy at the University of Guelph. His work in social and political philosophy, political science and sociology has been widely published internationally in journals, textbooks and public forums. His latest book, "The Invisible Prison: The Global Market as an Ethical System," will be published by Garamond Press this fall. The foregoing article was excerpted from a longer essay he wrote for the Journal of Business Ethics.

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