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Listen to Hugo Ch..vez

Ali Wyne

The growing tension between President George W. Bush and his Venezuelan counterpart, Hugo Ch vez, emerges as discussions on the Free Trade Agreement of the Americas (FTAA) have stagnated or, some would argue, collapsed. It is tempting to dismiss Ch vez’s invectives against international capitalism as undeserving of serious consideration, as he is admittedly predisposed to hyperbole and sensationalism. However, adopting such a posture is imprudent, because ideology retains a powerful degree of influence in shaping economic policy and, more importantly, his words convey some powerful truths.

As a long-term strategy, protectionism is widely recognized to be a prescription for failure, especially as the economies of the world become increasingly interdependent. The abysmal standards of living in Cuba and North Korea offer striking affirmations of this assertion, as did the implosion of the Soviet Union. Indeed, those who would have the world revert to isolation articulate a uniquely regressive and damaging strategy for achieving economic growth. Modern history suggests that successful states are those that maintain (roughly) free markets while preserving a robust legal, regulatory, and institutional apparatus to temper capitalism’s vagaries.

This assessment is not incorrect, but it neglects to address the role that protectionism has played, and continues to serve, in guiding developed states’ economic policies. In its August 2002 survey of free trade, The New York Times magazine affirmed that the United States, Germany, France, and Japan have historically developed their economies by quarantining their domestic markets from external economic forces, and that East Asia experienced a postwar growth “miracle” by protecting domestic manufacturers, isolating banks from foreign competition, and mandating that investors purchase domestic products and develop indigenous knowledge.

At present, although average levels of trade barriers are far lower than they were in the aftermath of the Second World War, many Western countries are still employing protectionism to their advantage, notably through agricultural subsidies. Consider that since the Uruguay Round, government subsidies to farmers in the United States and the European Union (EU) have risen by $120 billion. Fully 40 percent of the EU’s budget is devoted to agricultural subsidies. The Economist, widely regarded as the journalistic bastion of economic liberalism, issued a critique of Western subsidy policy:

Rich countries cut their tariffs by less in the Uruguay Round than poor ones did … Rich countries are particularly protectionist in many of the sectors where developing countries are best able to compete … rich countries’ average tariffs on manufacturing imports from poor countries are four times higher than those on imports from other rich countries. This imposes a big burden on poor countries. The United Nations Conference on Trade and Development (UNCTAD) estimates that they could export $700 billion more a year by 2005 if rich countries did more to open their markets.

Indeed, at present, having established themselves as dominant economic centers, the progenitors of trade liberalization appear to be reverting to protectionism while compelling poorer states to open their own markets. The primary vehicles for implementing such changes are international economic institutions, notably the International Monetary Fund, the World Trade Organization, and the World Bank. To be sure, they are neither omnipotent nor intent on repressing the world’s underdeveloped countries, as the fiercer critics of international capitalism would have us believe. However, there can be no question that the power with which they are vested has steadily increased since their emergence after the Second World War. Indeed, they have considerably eroded the ability of lesser developed states to protect their inhabitants from external economic forces, and, indeed, punish those countries which oppose their prescriptions.

Consider, for example, that in order to obtain debt relief, most poor countries are required to consent to structural adjustment programs, which, on balance, prescribe rapid liberalization in spite of a given country’s internal circumstances. After the debtor crisis of the 1980s, a large number of developing countries direly required such assistance, and, accordingly, had little choice but to adopt the measures, at great cost.

Another illuminating example of these improvident policies is the Trade-Related Investment Measures that were implemented at the Uruguay Round, which effectively “transformed core components of economic development policy into trade law violations.” They furthermore mandated the elimination of tariffs “in many product categories that currently represent a substantial export income for the world’s poorest countries.” Some have properly referred to this process as “forced liberalization,” especially since poor states have such little representation in the forums in which crucial decisions are made.

To cite one uniquely compelling example: while “developing and transition countries have almost 80 per cent of the World’s population, provide 75 per cent of [International Monetary Fund] income, [and] are subject to [all] IMF programs, [they] only have 36 per cent of the votes on the IMF board.”

Economic globalization has largely anchored global economic growth for the past six decades and is properly credited for achieving this result. However, at present, developed states are far better able to understand and accrue dividends from international capitalism than their poorer counterparts. Redressing such inequities, then, is not only a moral imperative, but is also vital to the preservation and advancement of international economic integration. It is worth noting that, far from being irreversible, as many scholars and policymakers have argued, economic globalization can and has been stunted, with devastating consequences.

Recall, for example, the impact of the Great Depression. It was properly viewed at the time as a damning indictment of classical economic ideology, which maintained that protectionism served to interrupt the natural process by which markets restored societies to equilibrium. By so pointedly illustrating the market’s limitations, it legitimated and nurtured the rise of a class of collectivist ideologies, chief among them fascism and socialism. While these philosophies initially appeared to offer remedies to the tenuous dictates of laissez-faire economics, they incubated some of the deadliest regimes that modern history has witnessed, particularly the Third Reich in Germany. Just as competing nationalisms and policies gave rise to the First World War 25 years earlier, competing collectivist ideologies and their corresponding policies clashed in perhaps the greatest worldwide shock that modern history has witnessed: namely, the Second World War.

Admittedly, in recent memory, the global economy has experienced no crisis on the scale of the Great Depression, and, at least for now, does not appear primed to. However, as ideological opposition to economic liberalism grows worldwide, and socioeconomic disparities perpetuate, it would be unwise to dismiss as unrealistic the prospect of a global conflagration similar to the one that I highlighted above. The melodrama of Ch vez’s repeated calls for a war against capitalism undercuts their resonance in developed states, but amplifies it in poorer states. Accordingly, even if they may regard his statements with amusement, resentment, or a mixture thereof, Western leaders would be remiss to ignore their widespread appeal, as well as their potential for upsetting the international order.