Daily Archives: December 20, 2010

Is society materially enriched by “free markets” and “free trade?

This is an impossible question to answer categorically because there is no way knowing what would have happened if protectionism had   remained full blooded throughout the last century and a half.  One can   compare growth rates under stronger or looser protection regimes,   but   they really   say little   because the other determining  factors  such  as public expenditure have  varied so greatly.   These variables also blur  judgement  about  the comparative  merits  of  controlled  and  “free”  domestic markets.

The most certain thing one  can say from the economic experience of the developed world  is that governments running commercial industries such as coal and steel  directly  is generally  a mistake.  (Governments are the natural  suppliers of universal services such as  healthcare  only because private provision of such things is never adequate.)

What  is certain is the fact that the material effects of “free  trade” are  far from uniform.  It is no consolation to those who suffer  along the  way  that others may benefit from their  disadvantage.  The  next generation  or the generation after that may  be richer but why  should their  benefit  be brought  at the cost  of  disadvantaging   a  prior generation?   Certainly no politician or political party standing at an election would dare to do so on  a platform  of “we shall make many  of you poorer to make future generations richer.”     Those living at  any point in time have their own moral context and needs.

The constant economic turmoil caused by “free trade” and its inevitable concomitant,   the  supranational  corporation,   undeniably  leads  to circumstances   which  greatly  disadvantage  large  swathes   of   the population  in the First World through the removal of First World  jobs to the rest of the world.  At worst,  these people become the perpetual victims of structural unemployment (try getting a job in an area  where the main employer closes and you have no scarce or easily  transferable skills or you are middle-aged or, indeed, try opening a new business or becoming self-employed in a depressed economy): at best they are driven into ill-paid and uncertain employment.

What is meant by material enrichment?  Britain as a case study 

The assumption is that  the material conditions for most  have improved considerably  over the past two hundred years.  Any economics  textbook will  plot  economic improvement in terms of rising  real   wages.  But those  supposedly   rising real wages are based on measures  which  are often    questionable,  incomplete  or derived from very  narrow   data such as corn prices.   Even modern measures such as the  Retail  Price Index (RPI)  are  not  static,   their  content  and  weighting  being regularly revised. Nor do such measures  fully represent the true costs of necessities,  the  most notable distortion in  Britain  being  the failure  of the  Retail  Price Index  (and  its  successor  index  the Consumer Price Index)  to reflect housing costs fully.   Any comparison between  different times  based on such measures needs to  be  treated with caution.

Of course no one in their right sense would question whether there  has been  massive   material  advance in the past two  centuries.   A  more interesting  question  in  our  context is   whether  most  people  are materially better off  now than they were in 1960s,   by which time   a fully fledged  welfare state  was bedded in,  housing,  both owned  and rented, was  reasonably  priced,  social housing was  being  built  in massive quantities,  university  education was  not  merely  free  but students subsidized with  grants,  unemployment was tiny  and inflation low.

Today   the  welfare state is constantly under attack  by  the  British political  elite  and  in  some areas such  as  NHS  dentistry  already seriously  inadequate,  while the state pension is much reduced  as   a fraction of the average wage following two decades of  increases linked to the   cost-of-living pegging rather than increases  linked  to  the average national wage. Housing  of  all  sorts  in most parts  of  the  country  is  presently absurdly   costly  and  social  housing  is  greatly  reduced   through Right-To-Buy and minimal new building since the 1980s.  The  cost  of  university education  is rocketing  and  grants  are   a distant memory.

 Unemployment remains high today even by the 2010 official figures  – approximately  2.5 million  by the  most  widely used  international measure –   figures  which   most probably   severely understate the real unemployment level  because  it ignores  the  considerable  disguised unemployment within the  2  to  3 million  people currently on long term sick benefit payments (the  1980  figure  for such people was 600,000). The increase in those staying  on at school  after  the age of 16 and going on to  university  has  also reduced the present figures by taking hundreds of thousands out of the jobs market for years.   From 1945 to the late seventies  unemployment neverrose above a million on the official claimant count and for  most of  the time  was  considerably  lower  even  with  little   disguised unemployment and  far  fewer people staying  in  education  after  the school-leaving age (which was only 15 until the mid sixties).

There   are  other  fundamental  social changes  which  bear  upon  the material  state of the nation.   Many more people today have to  travel long distances to work than they did  forty or fifty years ago.   That is  costly both in terms of fares and time.   More  generally,  it  is increasingly difficult  for someone on the average wage to  support  a family  on that wage.  That often means both parents have to  work  not from choice but necessity.

Taxation  bears much more heavily on the poorer part of the  population now than it did in the past.   Direct taxation  – income tax,  national insurance, inheritance duty –  applies to many more people  now than it did in  1960,   primarily  because a  failure  to  maintain   personal allowances and tax bands at a reasonable level. Direct taxation is also broader  in scope,  for example  VAT compared to purchase  tax.   Such taxation takes proportionately more of the income of the poor than  the rich.

It  is  a moot point whether overall people  are  generally  materially better off than they  in 1960.  They may own more trinkets such as  TVs and computers and  some imported goods such as clothes  may be at least much cheaper,  but those are  small advantages to set against the great increase in housing costs and commuting fares and the  diminishment  in social provision. Doubtless a section of society has benefited,  but it would be a brave man who wanted to argue that the condition of the vast majority has improved, especially the poorest third  of the population. 

Many  will   read this with astonishment, saying  but we have  so  much more  today,  dazzled  as they are by the many  new   products.  It  is important not to confuse technological advance with “free markets”  and “free  trade”  or general  material wellbeing.  People are  undoubtedly better  off in 2005  in terms of being able to purchase such things  as cars or electronic goods then they were in 1960.   But people in  1975 were also  better  off in those respects  than  those  who  had  lived fifteen years before. That improvement   was long before “free markets” and “free trade” had become the elite ideology.   It is worth  adding that   new products often  result in additional expenditure  regardless of whether the individual really wants the product – any product  which becomes widely used is difficult to resist.  Technological  innovations are particularly prone to induce reluctant purchases.

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