Capitalism and Selfishness

Make Trade, Not War

By kira

Created 04/06/2011 - 06:55

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THE TWENTIETH CENTURY SAW more deaths from wars than at any time in human history—some 15 million in World War I and 60 million in World War II to name but the worst examples. But it also highlighted a force that has and can continue to replace international enmity with amity: free trade.

If free trade is to augur a more peaceful future, then the principles of economic freedom—which underscore free trade—must be understood and embraced by citizen and leader alike. They must perceive the market system as fundamentally just and its end—individual prosperity—as a value worth pursuing and prioritizing.

The Trader Principle

The most promising and proven path to peace has been economic freedom. On the domestic front this fact is easily understood. In the United States, interactions between individuals must be based on mutual consent; the initiation of force is banned except in cases of self-defense. To prosper, individuals must therefore produce goods and services valued by others who then trade with producers on a voluntary basis. Individual profit-seeking is a win-win: it increases the overall wealth and economic opportunities in society as a whole.

Government rightly should be restricted to protecting the lives, liberty, and property of individuals. Such a society would seem peaceful by its very nature.

There’s a stunning amount of evidence linking freedom and prosperity. Just one such piece of evidence is the 2009 Index of Economic Freedom, published by the Heritage Foundation and the Wall Street Journal. The Index found that one-fifth of countries with the highest scores on economic freedom had average per capita incomes of $40,253 while the bottom one-fifth had incomes of only $3,926.

Across Borders

Out of economic self-interest, most individuals would have a strong incentive to see the same system operating across national borders. Most Americans, for example, happily flock to stores to buy hundreds of billions of dollars of products imported from other countries and are happy when they have employment opportunities producing goods and services that the consumers of other countries wish to purchase from them.

The economic freedom indices also show that the most protectionist countries are also the ones with economic problems.

Thus out of economic self-interest, most individuals would have a strong incentive to see that their country remains at peace with countries that are the markets for their exports as well as the source of their imports. Better to make trade, not war.

So if free trade is such a win-win situation, if these principles and the reality have been clear now for centuries—see Adam Smith, David Ricardo, and Frédéric Bastiat—why is conflict so persistent? Consider that on the eve of World War I, France, Germany, and Britain were each other’s major trading partners. Economic logic would dictate that they had much to lose from a war, yet they warred on one another anyway. Why?

Economics and Politics of Trade

The concept of free trade is often rejected due to ignorance and misunderstanding regarding its benefits.

Some argue that free trade exports jobs and industries. Let the Chinese make our undershirts and shirt-makers in America will shut down and their workers will be unemployed.

But when Americans, for example, purchase products from less-costly overseas suppliers, American labor and capital are freed up for higher-value uses. The Chinese make shirts and we make advanced medical equipment, with jobs in the latter industry commanding higher wages. And instead of American consumers paying $20 for an undershirt, they pay $2 and therefore have more to spend on other things.

The United States has had the greatest levels of job creation and job turnover in the industrialized world because capital and labor tend to go to those higher value uses. In the past 30 years the American economy has added about 45 million net new jobs with unemployment averaging about 5 percent.

The most protectionist countries are also the ones with economic problems.

Countries with governments that restrict imports or subsidize domestic producers competing with imports often find themselves with failing, old firms. Freer countries create the cutting-edge new industries. European countries, for example, tried to hold on to their steel and shipbuilding industries while American firms were creating the information revolution. Those countries for decades saw little net private sector job creation with unemployment averaging near the double-digit level. There is a “war” in such cases where special interest groups attempt to use government to restrict economic liberty.

Some are concerned about balances of trade. We’ll often hear newscasters read headlines about the country’s trade deficit with the dire tones usually reserved for airline crashes or earthquakes, followed by questions about what the government can do to deal with such a disaster.

But it is important to remember that ultimately countries don’t trade, individuals do. I run a trade deficit with my local grocery store. They buy nothing from me. But they have my money and I have food. All is in balance. When I buy a shirt made in China, some Chinese company has my money and I have a shirt. We both gain.

There is a potential problem with a trade imbalance caused by governments manipulating their monetary supplies, attempting artificially to prop up the value of their currencies. Latin American countries did this in the 1980s and ultimately their currencies collapsed, making it impossible for their own people to purchase imports. But these were problems caused by governments, not by free markets.

Security Concerns

Some opponents of free trade believe that it can actually undermine national security by increasing international tensions and the possibility of war. Case in point, if citizens are allowed to sell, to a potential or real enemy, weapons or technologies that can significantly enhance that country’s war-making capacity. There is merit to this argument although those who are obsessed with security will wrongly see virtually any sales as enhancing an enemy. Very limited export restrictions on advanced weapons or technologies with direct and important military uses, might well be prudent.

On the flip side, some believe that the decline of a domestic industrial base coupled with an increasing reliance on potential enemies for critical resources or goods makes one’s own country vulnerable. This is almost always an argument that protectionists make to keep out competitors.

But even in the case of really strategic and hard-to-get products, an autarchy—total economic self-reliance—that severely weakens one’s own economy will harm the country’s defense capacity. If we restrict imports of oil from unfriendly countries, and gasoline then winds up at $13 a gallon rather than $3, would we have improved our defense capacity? Other alternatives to autarchy would include stockpiling strategic products or even subsidizing strategic industries. But such policies encourage politicians to split their focus between security concerns and granting special favors to domestic special interests.

But here we are touching on a deeper issue. Why would Americans be concerned about getting oil from Arab countries? We’re not too concerned with importing from Canada and Mexico.

Clearly, the reason is that the governments of Saudi Arabia and most of the oil countries are dictatorships of one kind or other. And whether people in those countries approve of or chafe under those dictatorships, their cultures do not reflect the values of most Americans and thus, beyond the moral issue of trading with dictatorships, we just don’t trust the governments or people to be part of our community of values.

What Trumps Economics

Many people believe that there are other values that are more important than economic improvement.

In the American South after the Civil War and until the middle of the twentieth century many whites were willing to support a political system that imposed racial segregation even though the economic costs to whites as well as blacks of such a system were clear.

In Nazi Germany many supported to elimination of all Jews from the country’s economy—and far worse—not just from the rationalization that somehow Jews were harming other Germans with the economic activities. The Nazis despised Jews and were willing to accept a weaker economy as the price of eliminating them.

Too many Muslims prefer lower living standards—standards as medieval as their own superstitions—to modern, industrialized, classical liberal regimes with individual liberty. Or they simply find certain Western products, such as movies that glorify pornography or intoxication, to be a corrupting moral influence—so they reject all the West has to offer.

Uniting or Dividing?

Just as social peace or conflict within a country depends on the acceptance of certain values, so it is between nations.

The wars of the twentieth century were the culmination of nationalism, the tribalist value that did not just celebrate the life-affirming aspects of the culture of one’s own country but favored the values of one’s country right or wrong and in conflict with other countries. For example, on the eve of World War I, Germany was one of the world’s major economic powers. But that country had only been created in 1871 out of a number of German principalities by Prussian persuasion and force of arms. Nationalism was a way to get citizens to think of themselves as “Germans” rather than as “Bavarians,” “Swabians,” “Franconians,” and the like. Further, the drive for global power and national pride led Germany to demand its “place in the sun,” that is, an empire to put it on a par with Britain, France, and even the Netherlands.

The socialists of that era believed that workers in France, Germany, and other advanced countries had more in common with one another than with the capitalists and governments of their respective countries. They believed that the workers of the world would reject the narrow interests of their own countries and take a truly international perspective on their economic class interests. But when war broke out, nationalism trumped class and workers in France and Germany went to the battlefield against one another.

Many expected at the end of the twentieth century that when the dictatorships of the Soviet Union and its satellites fell, the nationalism of the early part of that century would be gone as well. But this wasn’t so. In the case of Yugoslavia, nationalism was simply the last stage of communism, and with Tito’s death, the component parts of that country began to break apart.

Today China and India are the major, emerging economic giants of the world. Free market policies have allowed the citizens of those countries to follow their individual economic self-interest to personal prosperity. But will their governments and citizens look more like those of early twentieth century Germany? Will they want their place in the sun, their international respect and influence? Will their governments especially use nationalism to overcome the many regional differences in these giant, multi-ethnic countries, even at some cost to their economies?

Enlightened Example

There have been compelling ideas that have fostered international peace rather than conflict. It is hard to say whether the Enlightenment ideas of the eighteenth century stopped any wars. But they did create an international elite who shared important values and ideas: the power of the rational mind; the moral importance of the individual; and the political goal of personal liberty. The universal nature of these values certainly laid and reinforced the foundations of the open societies in the West.

Communities of value can take generations and centuries to develop, with enough of a consensus that peaceful relationships between individuals, even across national borders, become the norm. Today, for example, the European Union shows that many of the nationalist urges have been tamped down. It is also true that if the E.U. takes the direction of centralized government regulation from Brussels, if statist policies favor one group while punishing others, these urges could reemerge.

Why Globalization is Crucial

One might acknowledge that the values shared or not shared by the citizens of a country can make a difference between peace and war within a country and between countries. But why is the situation today unique? Why specifically must we come to grips with the challenges of globalization now?

While free trade has expanded since World War II as tariff barriers between countries fell, in recent decades several other important trends and facts have emerged to accelerate the process.

The information and communications revolution along with elimination of barriers to capital flows have made economies much more integrated with one another. It is often difficult to say which companies are American, Japanese, or German because ownership is often transnational and diversified. It’s also often difficult to say which goods are American, Japanese, or German because production processes are typically spread out over many countries. Volkswagen produces cars in Mexico; BMW makes cars in the United States. Ford for decades owned the largest share of Mazda and the companies worked together to produce vehicles. Customer service, website design, engineering, and other business processes may be outsourced to the lowest bidder—in any country.

Capital investment now is done in such a way that markets are for all practical purposes integrated. Labor, while not as mobile as goods, is also more mobile today than in the past due to the emergence of low-cost transportation.

The economic policies and their consequences for better or worse rarely stay within that country. Huge budget deficits in the United States will have important effects in the E.U., China, and elsewhere.

Global Culture

Fine you might say. But isn’t it the case that while individuals in countries might be the ultimate purchasers of goods and services, it is international business elites who actually facilitate trade? And as long as those elites put aside nationalist and religious differences, won’t commerce continue apace?

The information and communications revolution along with the low cost of international travel has meant that cultures cannot easily remain isolated in their own countries. Immigrants in the United States, for example, can stay in close touch with the folks and culture back home through websites, emails, and the like.

Not only economic activities but also culture is becoming more global, generating conflict as well as cooperation. This is most obvious as individuals in the Islamic world struggle with the need to interact with the West. The Muslim in the street might riot if he feels that his culture—which he might value higher than economic prosperity—is being insulted.

Many Islamist terrorists have been educated elites who were exposed to the West but seduced by their religion into seeing Western values as antithetical to theirs and deserving of destruction.

Add tens of millions of Muslims to Western Europe with reproduction rates higher than the native Europeans and the culture clashes are clear.

Does economic globalization require a global culture? Yes. But this doesn’t mean that all local cultures must be completely homogenized which, in any case, just isn’t going to happen.

Still, it does mean that certain principles of morality must be accepted both by international elites and the emerging middle classes in the Middle East, India, Africa, Asia, and elsewhere. Three stand out as crucial and should be fostered by those who value global peace as well as prosperity.

Individual Prosperity as a Value

First, individuals must be committed to improving their individual economic condition as a principal goal in life. We in the West are used to thinking in economic terms and seeing the causes of social conflict in those terms. But this discussion has shown that other values can trump personal prosperity.

In the West a process of moral growth developed with the political development of economic freedom. For example, over generations individual Christians have either accepted or rejected the Catholic belief that the sacrament of the Eucharist involves the actual transubstantiation of bread into flesh versus being a symbolic act of remembrance imbued with spiritual import. But unlike in the time of the Thirty-Years War in which hundreds of thousands of Europeans butchered one another over this matter, most Christians today see waging war over doctrinal disagreements as irrational and immoral.

In Letter Six, On The Presbyterians, Voltaire perhaps best described this process: “Go into the Exchange in London, that place more venerable than many a court, and you will see representatives of all the nations assembled there for the profit of mankind. There the Jew, the Mahometan, and the Christian deal with one another as if they were of the same religion, and reserve the name of infidel for those who go bankrupt.”

A commitment to personal prosperity of course also implies a growth in the respect for one’s self, the emergence of a true individualist ethos.

Free Markets as Just

Second, individuals must see the free market system as fundamentally fair and just and understand that the inequality of outcome that will result from that system is fair.

There are various reasons why one might see capitalism as unjust. For example, in some countries businessmen profit not from free exchange but through special privileges granted by government. This has often been the case in Latin American countries, which are better described as mercantile rather than capitalist. Still the populations of those countries are conditioned to equate business success with government force and corruption and to confuse crony capitalism with true free markets.

The egalitarian obsession can be countered with a sense of pride and satisfaction in one's achievements.

Another reason for seeing a free market system as unjust might be called the egalitarian obsession. This is more often a problem in Western Europe but is found in the beliefs of statists in other countries, including the United States, as well. Winston Churchill explained it best when he said “socialism is the equal sharing of misery.” Usually such egalitarians use envy to stir up hatred against those who they judge to have “too much” even if they earned it through their own, honest efforts.

On the positive side, the egalitarian obsession can be countered by fostering in productive individuals a sense of pride and satisfaction in their achievements. This might seem obvious to Americans but guilt over consumption and success are still serious moral problems here and in other parts of the world.

The belief in the justice of free markets and pride in achievement can also foster respect by individuals for their fellows. A peaceful society ultimately must be based on such respect for others, on the right of others to their own lives, their own goals; their own choices; and their own profits.

The Primacy of Reason

Third, individuals must acknowledge the importance of reason as a guide to their own lives and practice rationality as a virtue. In the West the acceptance of the powers of human reason to understand the physical world and thus to control and transform that world for human well-being was central to creating its advanced economies and cultures.

Individuals also have accepted reason as a means by which to guide their own lives. Here in the West the acceptance and thus the results have been imperfect. Using reason as a guide has secularized society. The worst aspects of religion that have lead to bloody wars and repression have been marginalized in the West. Most in the United States see religion as an affirmation of values such as personal responsibility, family, charity, and the like.

Of course, irrationality is not simply confined to particular religious denominations. The secular religions of socialism and radical environmentalism also denigrate the individual and are much more serious problems in Europe than in the United States.

But in emerging countries the rejection of reason in one’s personal life is much more pronounced and thus dangerous. The struggle in the Islamic world is ultimately between the use of reason as opposed to faith as a guide to one’s life, the same cultural struggle fought in Europe centuries ago. India still experiences religious hatred and violence as well, between Hindus, Muslims, and Sikhs.

A Philosophy of Peace

It is often the case that great trends and their outcomes, for better or worse, are seen only by generations looking back on them. But we can use reason and our understanding of the nature of human beings to project which way a trend will take us and how to influence it for the positive.

Globalization is a long-term process but the real and potential future economic benefits are clear. But those benefits can only be sustained if accompanied by the spread of the values and morality on which a free market system rests, with the completion of the Enlightenment enterprise.

A more peaceful world is possible but only if accompanied by a philosophy of peace, which will be based on individualism, freedom, and reason.