Daily Archives: December 29, 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 anypoint 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 opulation 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 diven 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 assive 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 (2005) even by the official figures – approximately 950,000 by the claimant count and around 1.5 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 never rose 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.

%d bloggers like this: