Open Markets – not Free Trade

Free Trade is supposed to enhance Open Markets, but the facts shows that Free Trade kills competition. It makes oligopolies and destroys truly open markets.

Open Markets require many players

It is axiomatic in economics that an open market requires many players, and that competition only works for maximum effect when there are open markets.

The experience of the last 30 years has shown a trend towards agglomeration, with smaller firms being swallowed up. This is done in an attempt to achieve a level of market power and cost efficiency resulting in a firm being of sufficient size that it can compete with all comers, and dominate a market.

If economists were not blinded by their own theories, they would realize that this trend is antithetical to their “ideal world” of perfect competition. Instead of combating this trend, they are prepared to explain it away as a limitation to their micro-economic theories.

Open Markets deliver mixed results

The effect of open markets is clearly seen in the agricultural sectors especially in subsistence economies. Here the farmers deliver their products to the market and receive whatever the customers will pay – they are entirely price-takers.

No-one wants to be a price-taker in an open market. We all want to be price-setters. In the agricultural sector this can only be achieved if the producers gather together in a collective, and only deliver to the market those goods that must be sold, because they will perish, or those goods that will receive the best price that the market is likely to pay (in the medium term).

The ideal situation is where the market sets the price, based on supply and demand, but where both buyers and sellers have equal power. Yet this never can be achieved under Free Trade. This is because the lowest-cost producer has virtual monopoly power.

The end result under Free Trade, is that open markets for many goods and services become a virtual fiction, with a few operators holding an unconscionable level of monopoly power, by virtue of operating in an oligolopolistic space.

Restoring Open Markets in the US via a Cash Destination Tax

The US Republican proposal for a Cash Destination Tax has the potential of restoring a more competitive market situation in the United States. This is because US producers will gain a slight advantage over those producing goods and services overseas. This will arise because only the costs incurred in the United States will be deducted from income when assessing income tax payable by corporations.

The slightly higher prices that United States firms will be able to charge for sales within the United States will encourage additional producers to enter the market. As well as improving the Open Market status of the US economy, wage rates for US workers will rise, bankruptcies will reduce, and the neglected cities of the US will revive again.

However, one aspect of the Republican proposal for a Cash Destination Tax is totally unacceptable. This is the proposal not to charge Income Tax on any revenue earned by exporting outside of the United States. Surely, the proponents of this aspect of the tax know that importing countries will be entitled to treat all US firms as if they were dumping their goods. One thing is for certain, the EU will impose countervailing dumping penalties on all imports from the US. It is also the way of such things, for dumping tariffs to include a penalty component.

If the Republicans insist on “no Income Tax on Export revenue”, we can look forward to a full-throated trade war. Good luck with that! It won’t end well.

Too much Competition is Too Much!

Who is too thick not to realize that getting imported goods at a price 20% cheaper is not worth the social dislocation that the current Free Trade ideology is creating?

Apparently, most of the people protesting against the Donald Trump agenda are as thick as bricks.

Yes, the Obama years saw the US economy recover, albeit ever-so-slowly, from the sub-prime induced difficulties. However, the EU and the Obama administration were too thick to realize that the Global Financial Crisis merely exposed the soft under-belly of the economies of the Western world. Radical changes are required to fix this situation, and the world can thank God that the US electoral college decided to elect the radical Donald Trump, rather than Hillary Clinton, who would have continued Obama’s failed policies.

There can be no investment where there is nothing in which to invest. For most industries, this is a problem caused by Free Trade. Who will invest in the developed world when  almost everything can be made more cheaply in Asia. Yet the irony is that these cheaper goods have to be exported back to the developed world, with the markets in the developed world drying up because the jobs supporting them have gone.

Undeveloped economies need trade reform

Undeveloped nations should give their utmost efforts to making the farmers more prosperous, with higher prices being achieved for their produce. This will require a modification of their own Open Market theories, such as discussed above, so that their markets work for the good of their own nations, not for the benefit of global capital.

Look after yourselves! Capitalists are required to look after their shareholders, not to look after the nations in which they operate. Oxfam may fulminate, but its pleas will achieve nothing if national governments do not look after their own people.

 

Elite Capitalism – It is NOT the Future

Elite Capitalism has been running the world’s governments for 30 years, but it has failed to deliver for ordinary voters.

Elite Capitalism and Free Trade

The ideology of Free Trade is built on the premise that each nation should concentrate of those things upon which it has comparative advantage. It is a static theory, which has not changed much in over 200 years. Nor have the advocates been willing to learn from the downsides of the theory that have been experienced over the last 200 years.

The ideology of Free Trade began with the theory that, in 1820 and forever afterwards, Portugal should continue to concentrate on wine, and the UK should continue to concentrate on textiles. It is theory that is based on a static world, and actually one in which entrenched poverty should be endured forevermore. And so it has happened.

Free Trade is also built on the premise that getting goods 20% cheaper is worth whatever disruption is caused by open trade borders, even to the extent that it can cause 10% more unemployment than before. Given the loss of social cohesion of such a policy, it should never have been accepted.

Even though it was not the intention of the original theorists, Free Trade has led to intolerable levels of inequality within nations, and between nations. This is because Free Trade puts too much power in the hands of global corporations, since they are able to move operations to the cheapest place in the world, and to wherever government regulations and taxation are the weakest.

Phony arguments of Elite Capitalism – Trade

In Australia, we have a government that was elected on a mix of the ideologies of Democratic Capitalism and Elite Capitalism. In simple terms, the Nationals support the principles of Democratic Capitalism (the economy must serve the interests of the voters), and the Liberal Prime Minister, Malcolm Turnbull believes the nation is best served by following a model of Elite Capitalism.

Turnbull approach has some appeal, since it can lead to a higher overall national GDP. Yet in defending his theory, it is appalling that he has decided to follow the UK example of “Project Fear” (in opposing BrExit). In the last Weekend Australian he made the claim that “Protectionism leads to Poverty.” This is an absurd claim that has no foundation in history or theory.

Of course, there are sufficient examples from history to show “Isolationism leads to Poverty!” If that were Turnbull’s position, there would be no problem in accepting it, but that was not what he claimed. Turnbull is ideologically committed to Free Trade. He proves to everyone that he does not have a rational argument in favour of unrestrained Free Trade, since he resorted to this pathetic argument in its favour. Don’t stand in the way of an ideologue when he (or she) is in full flight!

Rather than being hurt by protectionism, Australia’s egalitarian society was built on protectionism: it cannot be said that it led Australia into poverty. Australia had unemployment running at around 2%  until the Labor government, blinded by ideology, decided to revalue the currency upwards and reduce tariffs over-night. Since then, unemployment has reverted to world’s average of about 5%, and global capitalists have had a freer hand to control Australia’s economic life.

The world-ranking US economy was built on protectionism in the 19th century. If the Free Traders had won the argument in the middle of that century, the US would have remained an economic backwater, mostly growing cotton and other agricultural products, and the UK’s industrial base would have kept on growing and growing. Is that what Free Traders want for the developing nations of the world? Fortunately for China (and to a lesser extent India), it thumbs its noses at the Free Trade rhetoric of the West, while taking advantage of the ideological blindness of its trading partners.

Phony arguments of Elite Capitalism – TPP

The most objectionable part of the TPP is entrenching the power of global corporations via ISDS clauses. These clauses allow global corporations to sue national governments if those national governments pass laws to reduce their ability to make a profit (even at the expense of the interests of ordinary voters). These clauses are the greatest threat to national democracy in the modern world.

Even if the TPP becomes enforceable, it will be a Pyrrhic victory for Elite Capitalism. This attempt to use the rule of law to enhance the interests of corporations over voters will not be tolerated by ordinary voters. In Australia, the first sign of difficulties to come can be seen in the attempt of Philip Morris to use the ISDS clauses of a Free Trade agreement between Australia and Hong Kong to overthrow Australia’s plain-paper cigarette packaging legislation. It was the first sign of problems to come. Success would not have led to the abandonment of the rule of law in international trade, but it would have sown the seeds of that outcome.

TPP is designed to entrench the power of Elite Capitalism forever, putting ISDS clauses into law, so they cannot be overthrown by future governments. It is the enemy of Democratic Capitalism. If the current Australian government cannot see that, they are inviting other parties to take up the ground of democracy that they are abandoning. Already the Liberals are losing ground with the electorate, and it is only the complete unacceptability of the ALP opposition that is keeping the Liberals within reach of re-election to government.

Phony Arguments of Elite Capitalism – Angela Merkel

Angela Merkel has said the economic and political problems can best be solved via global solutions. She opposes Donald Trump’s proposition that nation states should solve their own problems. In this, Merkel is wrong: most problems are local, and are best solved with local solutions. Donald Trump is right.

20 years of the Euro has shown that, even in Europe, region-wide solutions don’t work. Portugal, Spain and Greece are still struggling, while Germany is going very well. It is not surprising that Donald Trump correctly says that the EU gives Germany hegemony (at least in economic matters). At least we can agree with Merkel’s response, namely that the EU can look after itself (implying that it doesn’t need Trump’s gratuitous advice). Exactly, the EU problems don’t need a global solution, they need a EU solution. It is a pity that Merkel won’t consider the obvious solution – abandoning the Euro.

Most developing nations have a dominant agricultural sector. One thing is certain from a study of economic history – global trade in agriculture has mostly led to impoverishment of the agricultural sectors of less developed nations. It has led to the over-development of single crop economies (the so-called banana republics, etc.), which has made those nations vulnerable to global price movements. Yet the agricultural sector is something that national governments could enhance, as has been done in Australia for about 100 years, starting with government funded and run storage and pricing schemes. Now, in Australia, these are often run by individual farmers, who store crops on their own farms. Such is the nature of dynamic local solutions, designed to solve local problems.

Elite Capitalism is the problem – not the solution

It is time we recognized that Elite Capitalism is the source of the world’s problem with increasing inequality. It is inevitable it will lose its hegemony. It is also ironic: Donald Trump is the only one willing to call out, “The Emperor has no clothes!”