by Mike Curtis, Arden, DE
(editor's note: The following speech was presented
by Mike Curtis at the Sept. 2000 meeting in Des Moines, IA
of the Council of Georgist Organizations.)
The World Trade Organization (W.T.O.) is a
Federation of about 130 countries. Some are big and some
are small like U.S. or Belgium. China is not one of them
yet.
The W.T.O. is negotiating a reduction in trade
barriers; It is negotiating rules for foreign investment;
and financial services like banks and insurance companies
with customers in other countries. And the enforcement of
each other's patents and copy rights within the federation.
The W.T.O. does not represent the consumers of each
nation. It is not about creating the opportunity for
consumers to buy at the cheapest possible price.
The W.T.O. is an organization of corporations and
the governments that represent them -- in the process of
negotiating the opening of each other's markets, and
investment opportunities.
In order to be a member in good standing, no nation
may restrict the sale of foreign products, unless there is
scientific evidence that it poses a health or safety risk
to the consumers or the environment based on a standard
negotiated by the representatives of 130 nations. And
compliance is judged by a panel of arbitrators.
So, for instance, if the French government decides
that English beef may be unsafe due to the possibility of
Mad Cow Disease, it must appeal to the W.T.O. judges for a
ruling, or be in violation of the agreement, with stiff
penalties.
The United States can ban the use of certain
pesticides, but it cannot unilaterally ban food that has
been sprayed with those same pesticides in other countries.
In other words, no member nation has the right to
decide for itself what products are safe for its own
people.
The United States requires its fishermen to use
special equipment which protects Sea Turtles and Dolphins
when catching Tuna and Shrimp, but under the W.T.O. rules,
it cannot prohibit the importation of Tuna and Shrimp which
were caught along with Sea Turtles and Dolphins.
The W.T.O. Representatives say it is "broadening
democracy." Its detractors say that the U.S. is not all
that democratic, given the amount of money in American
politics, but many of those 130 countries are oligarchies
and modern day aristocracies which in no way represent
their people.
Remember, in addition to imported products, the
W.T.O. is also negotiating foreign investments and
intellectual property rights, which make it a multi-faceted
and enormously complex agreement with thousands of pages of
rules already and many more to go.
Even if we focus just on trading products, we can
see, clearly, there is a difference between negotiating
access to foreign markets with universal standards of
health, safety and the environment, and an independent
country which allows its people the freedom to trade legal
products with foreigners.
But the W.T.O. has already increased the volume of
International trade, and has the potential to increase it
further.
Today, many Environmentalists, Humanitarians, and
Labor Unionists are against both the concept of Free Trade
and the World Trade Organization Agreement.
The President and Congress contend that Free Trade
creates jobs, increases production and raises wages.
The advocates of labor contend that Free Trade
exports jobs, lowers wages and causes unemployment.
We know that during recent years a large number of
high wage manufacturing jobs have been lost. Many of the
workers have accepted far lower paying jobs, and many are
still unemployed. And during this same recent period
statistics show that the total number of Americans who are
actually working is greater, and the median wage -- or if you
will, the average worker, is actually earning more.
And the critics say: jobs were lost, and those
workers had to accept lower wages because of Free Trade,
because of cheaper imports. And the high pay jobs that
were created had nothing to do with Free Trade.
The U.S. imported over $200 billion more in
products than it exported this year. However, ironic as it
may seem, one thing that all sides agree on, whether it's
the President and Congress or the advocates of labor, is
that the more a nation exports above and beyond the amount
it imports, the more it contributes to our prosperity. And
this we call a "Favorable Balance of Trade."
So, in order to achieve the highest possible level
of prosperity, we should export everything and import
nothing.
I am here to convince you that the restrictions of
imports (protection) do not and can not create jobs or
raise wages, but neither can Free Trade. Free Trade does
increase production, but Free Trade does not and can not
increase wages.
Just to set the stage, let's remember, from the
inception of the U.S. constitution, tariffs (import taxes)
were a major source of Federal revenue. This continued
until 1913 when they began to shift in favor of the income
tax. However, as a means of protecting American
industries, the tariff remained a powerful force until
1933, in the depths of the great depression.
Tariffs were raised and lowered many times over the
years, with a multitude of different rates for different
products, but in 1933, following the Smoot-Hawley Tariff
Act, the average tariff was all the way up to 54%.
It was dramatically cut during the Roosevelt years,
and by 1963 the average tariff was down to 12%.
From the middle of the 1970s to the middle of the
1980s, there were increases in protection, but they took
the form of Quotas. Under the General Agreement on Tariffs
and Trade, these were substituted for tariffs, which are
being phased out over several years.
In 1997 the average tariff, which includes
automobiles and steel, were less than 3%, and even the
tariffs on clothing, which were previously between 25% and
30%, were well on the way to being phased out over several
years.
And most products from Mexico and Canada have no
tariffs or quotas at all.
There are some odd exceptions like the high tariffs
on peanut butter and oranges, but they're probably a small
part of our total imports.
Today, many of the corporations that were in the
past advocates of protection, have established facilities
in other countries and are now sending goods to the United
States. Tariffs diminish their profits, so they've
reversed their positions, and are now in favor of free
trade.
And America is still losing many smaller industries
such as canned mushrooms and cut flowers.
Why do we want to trade with the people of other
nations? We trade with the people of other nations for the
same reason we trade with the people of the same nation --
to satisfy our desires with the least exertion.
The diversity of nature impels people to trade.
Everything does not grow equally well in all parts of the
world; minerals are not found in equal abundance
everywhere in the world. By trading, we enable each nation
to produce that for which it is best equipped. We multiply
the total body of knowledge and skill, increase the
potential from economies of scale, and disperse the
regional peculiarities of nature to everyone.
Tariffs are probably as old as any tax. Because
trade is the most significant way that human beings
increase the results of individual exertions, it must be an
irresistible source of revenue. A Sales Tax is simply a
Domestic Tariff.
What is different about a protective tariff, is the
way it discriminates against foreign products and distorts
the incentives. It rewards people who divert their labor
and capital from producing the things they make most
efficiently, to producing things in which people of other
nations are more efficient.
And in the process they diminish the aggregate
production of the country, G.D.P. Or, in the words of
Henry George, with a protective tariff, we attempt to do to
ourselves in time of peace what we do to our enemies with a
blockade in time of war: keep them from getting desirable
products from other countries. Isn't that what was
attempted in Iraq or with the Embargo on Cuba?
Here's how the protective tariff works, and who
actually profits from it. Let's say we levy a tariff on
cars; let's say the price of cars goes up until the return
on every dollar invested in the production of cars goes
from the standard 10% to 15%. What do other American
investors do? Continue producing food, gasoline and office
buildings, etc. or cars?
Capital always seeks the path of the highest
return. When the supply of cars increases due to the fact
that more people are building them, what will then happen
to the price of cars?
The supply of cars will increase until the profits
from making cars are no greater than the profits from
making anything else. Of course, the Big Three have the
organization and know how and the patents.
Although the profits from producing a protected
product may be no higher, protected products may still cost
more if the domestic producers are less efficient, or the
cost of their materials are higher. (Higher cost of
production.)
Now, by contrast, suppose a tariff is raised on
foreign steel. What will happen to the price, and the
demand for American steel? What then happens to the
production of American land containing iron ore?
So, in this case, the price stays increased, as
long as it doesn't diminish equally the demand for iron to
be used in export products. No one can produce a natural
resource. The same thing applies to any mineral -- or any
monopoly.
Let's say that we put a tariff on German steel
that's being exchanged for American wheat. As Americans
make more steel, the rent of land that contains iron ore
increases. But since they traded wheat for steel, they now
grow less wheat and the rent of land that grows wheat
decreases.
However, since Americans grew wheat more
efficiently than they made steel, the total production of
the country is diminished.
The less a nation imports, the less it exports. In
general, tariffs increase the domestic demand for natural
resources used in protected products, and increase the
profits of their owners. By also diminishing exports, they
reduce the demand for natural resources embodied in
exports, and reduce their respective profits.
What one group of land owners gains from reducing
imports, another group of land owners loses from a
corresponding reduction in the demand for exports.
However, by impeding trade, both countries give up
some portion of the natural, cultural, and scientific
advantages possessed by the other country. That is to
say: The aggregate production of the country falls.
But suppose one country produced all things more
efficiently than the other country. Would it be mutually
profitable for that country and its neighbor to trade with
one another? Our first reaction would be no -- but let's
think about it.
Why does a carpenter work with an apprentice, if
the carpenter can do all the jobs involved in house-
building faster than the apprentice can? Suppose a first-
class carpenter could saw boards, hammer nails and even
sweep the floor one tenth faster than a second-class
carpenter, but he could figure the pitch of the roof, frame
the windows and hand the doors ten times faster. By
dividing the jobs, they could produce two houses more than
twice as fast as either one of them could have produced one
house. Even if the U.S. could produce every single product
more efficiently than Mexico, we could still benefit from
trading with them.
If we imported from Mexico those products between
which the difference of advantage was least (say, clothes),
and would export to Mexico in return those products between
which the difference was greatest (say, high tech
equipment), both countries will have more than either of
them could have produced on their own.
By trading Blue Jeans for computer programs, the
Mexicans get more computer programs than they could have
produced with the same amount of labor and time, while the
Americans, by trading computers for Blue Jeans, get more
Blue Jeans than they could have produced with an equal
amount of labor and time.
This is known as the law of comparative advantage.
We know that trade is a two-way street, but any
fool can see that every year Americans are buying over $200
billion worth of cheap foreign products for which America
isn't exporting anything in exchange.
How long before the American worker has to accept
the same subsistence wage that the vast majority of other
people are getting all over the world?
We know that they aren't giving those products
away, and we know they only take money because it will buy
valuable products in the future.
But what about the $200 billion worth of products
that weren't made by, or exchanged for, the products of
American workers every year.
What about all the factory workers that are either
unemployed or working for half of what they used to make,
while Americans are buying products from other countries.
For 30 of the last 50 years the U.S. exported more
than it imported. For the last 20 years, it imported more
than it exported. Some countries always export more than
they import and vice versa.
How do we explain it? The first way is for people
from other countries to make investments in the U.S. Let's
say, Japanese products go to the United States, and instead
of buying American products and taking them back to Japan,
they buy American assets and leave them here.
It could be an automobile factory or a cattle
ranch. It could be corporate stocks or Government bonds.
Or it could include money in American banks. You sell a
product in the U.S., and you simply put the money in an
American bank.
You could buy anything from anywhere, but only if
the money buys an American product, and only if that
product leaves the country, does it count as an American
export.
It is rumored that more American money is being
used by people in other countries than that which is used
by people within the United States. And that could account
for billions and billions of dollars worth of foreign
products. You could even say that the U.S. is exporting
dollars.
The second way for imports to exceed exports, is
for investors from the U.S. to take profits from previous
investments. If Americans invested heavily in China during
past years, many of the products which go to the U.S. will
simply represent profits from those investments. Nothing
will be given in exchange. There will be no corresponding
export.
You've heard that the British are still the number
one foreign investors in the U.S. And guess what? The
United States exports more to Britain than it imports from
Britain, which takes us all the way back to the colonies
and the rail roads. And this is no different from American
companies in Guatamala.
Of course, the credits from one country are often
used to buy products from another.
But to fully grasp the reality, let's suppose we
stopped imports entirely; there are some exports that
would continue to leave the country anyway. They would be
products bought with American money spent by Americans
living in other countries, including American military
personnel. Or products bought with American money received
by gift or inheritance; and all the returns from bonds,
stocks and real estate owned by foreigners. And all the
money that's given in foreign aid. What about the Marshall
Plan? I'll bet that increased American exports.
Now, some of those exports which result from
previous investments are compensation for an increase in
productivity. They yield a net gain to the national
economy -- and some of them represent a pure drain on our
national wealth.
Productive investment vs. monopoly profit.
Suppose the interest on bonds which built part of
the Interstate Highway system amounted to $200 billion a
year, but the same part of the highway system increased the
Gross domestic Product of the United States by $400 billion
a year. Would this drain the national wealth?
By contrast, suppose that foreigners owned our
mineral land. They take the products which represent rent,
or whatever they get in exchange for it, and they send
nothing back to the United States. Can that be anything
but a drain on the national wealth?
Clearly, Protection can't create jobs, and it can't
raise wages. The number of jobs in any country is simply a
matter of physics. The more land is accessible to labor
and capital, the more jobs are created.
It is on the land we stand and live, and from the
dirt and minerals of the land that we grow our food and
make our products.
You can't export a job, because you can't export
the land. However, with every advance in technology, every
extension of the infrastructure and every increase in
population, the value of the land tends to increase;
people tend to hold on to it, the way they hoard gold and
silver when the price is going up.
As long as it is profitable to speculate in land,
we will have some segment of our population unemployed.
In fact, as freer trade increases production, it also
increases the value of land. And this increase encourages
some land owners not to sell. As the population increases,
as machines replace workers, more land has to come into
production. So the degree to which the supply of land
meets the need for land will determine the level of
unemployment.
In the long run, freer trade can no more reduce
unemployment than the steam engine and the rail road, the
automobile, or the computer. It simply increases
production.
Wages are now determined by the legal minimum wage,
and the supply and demand for superior -- better educated,
higher skilled -- workers needed to maximize production.
So, in the long run, free trade cannot create jobs and it
can't raise wages.
In my opinion, we should not be a signer of the
W.T.O. Agreement. It will only remove the standards of
health, safety, the environment, and all considerations of
morality, that much further from the American people. Nor
should we in any way restrict the opportunity of our
citizens to trade with the people of other countries. For
that would only impede cooperation and diminish production.
What we should do in the short run is simply apply
to products coming into the country the same rules that
apply to products produced within the country. We should
institute Free Trade in all our relations and strengthen
our Representative Government.
Well, now! How do we create a job for every
worker, and raise their wages until they're equal to the
full value that each worker has produced? Only after there
is free land, which results from an end to land
speculation, can Free Trade, which raises production, also
raise wages and the rate of interest -- which is the return
to labor applied indirectly through the use of capital.
I think you've heard this part of the talk before.
When you look around at the 50% of the land in the
U.S. that's designated for private use, it is all owned --
but there's an enormous amount that's unused or grossly
underused. It is held because its owners expect its value
to increase (speculation). Or in the case of our inner
cities, miles and miles of land that's worthless because of
the tax structure.
If we started by thinking of land as a natural
opportunity -- a common asset -- assigned to individuals
and corporations for the purpose securing the product to
the producer. Of course, no one would plant a crop or
build a house, much less a modern factory, if they couldn't
lock the door or put up a fence. But, if they paid to the
community the annual rent for the land they held, they
would be satisfying everyone else's equal right to the same
piece of land. To hoard land that you are only renting,
would be like getting a rental car for the weekend, and
parking it in your back yard.
There would be nothing to gain by holding the land
idle, and every incentive to work and produce. We could
eliminate all confiscatory taxes. We would redevelop our
cities and the surrounding suburbs. We could relieve the
farm land from development pressure and the wilderness from
being cleared for agriculture.
At this point much of the land, though having a
productive potential, would have no value because it would
be in abundance.
Political economy is rocket science, so to speak.
It is infinitely complex and abstract, but you need no
special laboratory or scientific apparatus. Its principles
are the same principles upon which we make the decisions of
every-day life.
First, that human desires are unlimited, and,
second, that we seek to satisfy those desires with the
least possible exertion.
At present, most taxes are based on domestic trade.
Labor is exchanged for money; it is taxed. Money is
exchanged for a product of labor, the value of the product
and or the profit which results from the transaction is
taxed.
By supporting the government with the rent of land,
we could all enjoy what Henry George called True Free
Trade. All people would have free and equal access to the
marginal land, while the superior land would be assigned to
those who would pay its rental value to the community.
From then on all trade would be free of taxation
and restrictions.
All increases in production would raise wages and
interest, and would increase rent -- which is the social
fund -- out of which all people would share in social
benefits or in the cash dividends.