#ThrowbackThursdays: Refuting This Deadly Anti-Free Trade Postcard from the 1910s
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| Anti Free Trade Postcard From 1910. Corbis via Getty Images / Getty Images |
Events after the postcard that proved the postcard a lie
The most commonly applied protectionist practices, tariffs, also called “duties,” are taxes charged on specific imported goods. Since tariffs are paid by the importers, the price of imported goods in local markets is increased. The idea of tariffs is to make the imported product less attractive to consumers than the same locally produced product, thus protecting the local business and its workers.One of the most famous tariffs is the Smoot-Hawley Tariff of 1930. Initially intended to protect American farmers from the post-World War II influx of European agricultural imports, the bill eventually approved by Congress added high tariffs on many other imports. When European countries retaliated, the resulting trade war restricted global trade, harming the economies of all countries involved. In the United States, the Smoot-Hawley Tariff was considered an overly-protectionist measure that worsened the severity of the Great Depression.
What would be interesting is that protectionism actually helped fuel the Second World War. Adolf Hitler's economics, according to the Mises Institute, also wrote of how Hitler promoted economic protectionism as his policy:
In the 1930s, Hitler was widely viewed as just another protectionist central planner who recognized the supposed failure of the free market and the need for nationally guided economic development. Proto-Keynesian socialist economist Joan Robinson wrote that "Hitler found a cure against unemployment before Keynes was finished explaining it."
What were those economic policies? He suspended the gold standard, embarked on huge public-works programs like autobahns, protected industry from foreign competition, expanded credit, instituted jobs programs, bullied the private sector on prices and production decisions, vastly expanded the military, enforced capital controls, instituted family planning, penalized smoking, brought about national healthcare and unemployment insurance, imposed education standards, and eventually ran huge deficits. The Nazi interventionist program was essential to the regime's rejection of the market economy and its embrace of socialism in one country.Such programs remain widely praised today, even given their failures. They are features of every "capitalist" democracy. Keynes himself admired the Nazi economic program, writing in the foreword to the German edition to the General Theory: "[T]he theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of production and distribution of a given output produced under the conditions of free competition and a large measure of laissez-faire."Keynes's comment, which may shock many, did not come out of the blue. Hitler's economists rejected laissez-faire, and admired Keynes, even foreshadowing him in many ways. Similarly, the Keynesians admired Hitler (see George Garvy, "Keynes and the Economic Activists of Pre-Hitler Germany," The Journal of Political Economy, Volume 83, Issue 2, April 1975, pp. 391–405).Even as late as 1962, in a report written for President Kennedy, Paul Samuelson had implicit praise for Hitler: "History reminds us that even in the worst days of the great depression there was never a shortage of experts to warn against all curative public actions.… Had this counsel prevailed here, as it did in the pre-Hitler Germany, the existence of our form of government could be at stake. No modern government will make that mistake again."On one level, this is not surprising. Hitler instituted a New Deal for Germany, different from FDR and Mussolini only in the details. And it worked only on paper in the sense that the GDP figures from the era reflect a growth path. Unemployment stayed low because Hitler, though he intervened in labor markets, never attempted to boost wages beyond their market level. But underneath it all, grave distortions were taking place, just as they occur in any non-market economy. They may boost GDP in the short run (see how government spending boosted the US Q2 2003 growth rate from 0.7 to 2.4 percent), but they do not work in the long run."To write of Hitler without the context of the millions of innocents brutally murdered and the tens of millions who died fighting against him is an insult to all of their memories," wrote the ADL in protest of the analysis published by the Glenview State Bank. Indeed it is.But being cavalier about the moral implications of economic policies is the stock-in-trade of the profession. When economists call for boosting "aggregate demand," they do not spell out what this really means. It means forcibly overriding the voluntary decisions of consumers and savers, violating their property rights and their freedom of association in order to realize the national government's economic ambitions. Even if such programs worked in some technical economic sense, they should be rejected on grounds that they are incompatible with liberty.So it is with protectionism. It was the major ambition of Hitler's economic program to expand the borders of Germany to make autarky viable, which meant building huge protectionist barriers to imports. The goal was to make Germany a self-sufficient producer so that it did not have to risk foreign influence and would not have the fate of its economy bound up with the goings-on in other countries. It was a classic case of economically counterproductive xenophobia.And yet even in the United States today, protectionist policies are making a tragic comeback. Under the Bush administration alone, a huge range of products from lumber to microchips are being protected from low-priced foreign competition. These policies are being combined with attempts to stimulate supply and demand through large-scale military expenditure, foreign-policy adventurism, welfare, deficits, and the promotion of nationalist fervor. Such policies can create the illusion of growing prosperity, but the reality is that they divert scarce resources away from productive employment.
If that's not enough, communism was on the rise and protectionism was, too. Both China and North Korea were testaments of communism. Kim Il Sung founded his kingdom of North Korea and declared the Kim Dynasty. Today, Kim Jung Un sits on the throne of his late paternal grandfather after his father, the late Kim Jung Il, died. China's communist foundation was founded by Mao Zedong. Though, unlike the Kims, Mao never created a monarchy for some reason and probably never intended to. Yet, one can read how Mao's "Great Leap Forward" was a great leap forward to disaster. The Investopedia's team described Mao's great leap failure or great leap forward to disaster with these words:
Agriculture
Private plot farming was abolished and rural farmers were forced to work on collective farms where all production, resource allocation, and food distribution was centrally controlled by the Communist Party. Large-scale irrigation projects, with little input from trained engineers, were initiated, and experimental, unproven new agricultural techniques were quickly introduced around the country.
These innovations resulted in declining crop yields from failed experiments and improperly constructed water projects. A nationwide campaign to exterminate sparrows, which Mao believed (incorrectly) were a major pest on grain crops, resulted in massive locust swarms in the absence of natural predation by the sparrows. Grain production fell sharply, and hundreds of thousands died from forced labor and exposure to the elements on irrigation construction projects and communal farming.
Famine quickly set in across the countryside, resulting in millions more deaths. People resorted to eating tree bark and dirt, and in some areas to cannibalism. Farmers who failed to meet grain quotas, tried to get more food, or attempted to escape were tortured and killed along with their family members via beating, public mutilation, being buried alive, scalding with boiling water, and other methods.
Industrialization
Large-scale state projects to increase industrial production were introduced in urban areas, and backyard steel furnaces were built on farms and in urban neighborhoods. Steel production was targeted to double in the first year of the Great Leap Forward, and Mao forecast that Chinese industrial output would exceed Britain’s within 15 years. The backyard steel industry produced largely useless, low-quality pig iron. Existing metal equipment, tools, and household goods were confiscated and melted down to fuel additional production.
Due to the failures in planning and coordination, and resulting materials shortages, which are common to central economic planning, the massive increase in industrial investment and reallocation of resources resulted in no corresponding increase in manufacturing output.
Millions of “surplus” laborers were moved from farms to steel making. Most were the able-bodied male workers, breaking up families and leaving the forced agricultural labor force for the collective farms consisting of mostly women, children, and the elderly. The increase in urban populations placed additional strain on the food distribution system and demand on collective farms to increase grain production for urban consumption. Collective farm officials falsified harvest figures, resulting in much of what grain was produced being shipped to the cities as requisitions were based on the official figures.
Important: Throughout the Great Leap forward, while millions starved to death, China remained a net exporter of grain as Mao directed grain exports and refused offers of international food relief in order to convince the rest of the world that his plans were a success.
The postcard was soon proven to be a lie. Countries that still practice protectionism or economic isolationism are still suffering until today. I would really want to show some obvious consequences in world trade. Did protectionism really work? Instead, it backfired. I don't see any Venezuelan goods in contrast to Mexican goods. Mexico may still have some protectionism going on but it's an emerging market. Though, most Mexican food products I tasted are owned by North Americans. North Korea hasn't even become an exporter of Korean food products, entertainment, and gadgets. I don't see a single Koryolink store anywhere. Instead, it's South Korea that's doing the job. China, though a communist country, became a first world country thanks to Deng Xiaoping's economics.
We need to look again at what free trade really means
Free trade can be dangerous if there's no regulation. I'm not advocating for free trade without regulation. Rather, this free trade agreement can be reasonably regulated. Foreign-owned businesses are still required to be registered as players in the home country. Oligations such as paying value tax, quarterly tax, and annual income tax are still there even without the need of a local partner. Other obligations include following labor laws, intellectual property laws, and every other law designed for healthy competition. Failure to follow can result in shutdown of the business and deportation of foreigners who don't follow rules.
Free trade economics is best defined by the Investopedia as:
In principle, free trade on the international level is no different from trade between neighbors, towns, or states. However, it allows businesses in each country to focus on producing and selling the goods that best use their resources while other businesses import goods that are scarce or unavailable domestically. That mix of local production and foreign trade allows economies to experience faster growth while better meeting the needs of its consumers.
This view was first popularized in 1817 by economist David Ricardo in his book, "On the Principles of Political Economy and Taxation." He argued that free trade expands the diversity and lowers the prices of goods available in a nation while better exploiting its homegrown resources, knowledge, and specialized skills.
In short, it's a lie by the leftists and communist groups that free trade means neglecting the local industry. On the contrary, it isn't as local investors are still allowed to operate but they must learn to maneuver. It's pretty much like a Filipino investor opens a new restaurant, it has plenty of customers, and now it's always full. What the Filipino investor does is avail of the services of Grab and Foodpanda to deliver his or her food to hungry Filipino customer.s Grab and Foodpanda are both imported services. Yet, they could greatly help Filipino businesses increase coverage. That would be the big mix of local production and foreign trade. If a foreign investor produces in the Philippines--it would be considered local trade. Any imported brand products manufactured in the Philippines are already made in the Philippines. It's because even if the brand was imported--the manufacturing was done in the Philippines.
The use of free trade with reasonable restrictions had helped other countries. To say that first-world countries used protectionism to reach where it did id a lie by leftists and communists. In fact, the very words of the late Lee Kuan Yew and Kishore Mahbubani say otherwise. Lee and Mahbubani called it as third-world mentality to believe that foreign investors are bad or would rape the country. Instead, Lee and Mahbubani set up the example where they proved it wrong. Other countries learned from Singapore's model such as how China (and now, Xiaomi is now a global brand), Indonesia, Malaysia, Vietnam, Taiwan, Japan, and others somehow followed the economic model and became a power. Lee's own words and experience prove to be valuable learning experiences. Words that he wrote in his book From Third World to First narrate a Singapore, once a third-world country, emerged as a first-world country. Pages 57-58 of Lee's book also provides these wise words:
After several years of disheartening trial and error, we concluded that Singapore's best hope lay with the American multinational corporations (MNCs). When the Taiwanese and Hong Kong entrepreneurs came in the 1960s, they brought low technology such as textile and toy manufacturing, labor-intensive but not large-scale. American MNCs brought higher technology in large-scale operations, creating many jobs. They had weight and confidence. They believed that their government was going to stay in Southeast Asia and their businesses were safe from confiscation or war loss.
I gradually crystallized my thoughts and settled on a two-pronged strategy to overcome our disadvantages. The first was to leapfrog the region, as the Israelis had done. This idea sprang from a discussion I had with a UNDP expert who visited Singapore in 1962. In 1964, while on a tour of Africa, I met him again in Malawi. He described to me how the Israelis, faced with a more hostile environment than ours, had found a way around their difficulties by leaping over their Arab neighbors who boycotted them, to trade with Europe and America. Since our neighbors were out to reduce their ties with us, we had to link up with the developed world-America, Europe, and Japan-and attract their manufacturers to produce in Singapore and export their products to the developed countries.
The accepted wisdom of development economists at the time was that MNCs were exploiters of cheap land, labor, and raw materials. This "dependency school" of economists argued that MNCs continued the colonial pattern of exploitation that left the developing countries selling raw materials to and buying consumer goods from the advanced countries. MNCs controlled technology and consumer preferences and formed alliances with their host governments to exploit the people and keep them down. Third World leaders believed this theory of neocolonialist exploitation, but Keng Swee and I were not impressed. We had a real-life problem to solve and could not afford to be conscribed by any theory or dogma. Anyway, Singapore had no natural resources for MNCs to exploit. All it had were hard-working people, good basic infrastructure, and a government that was determined to be honest and competent. Our duty was to create a livelihood for 2 million Singaporeans. If MNCs could give our workers employment and teach them technical and engineering skills and management know-how, we should bring in the MNCs.
Results speak louder than words. Protectionists can go ahead and rant that they're in the right. However, how much has 30+ years after the EDSA Revolution been helpful with their advice? Has IBON Foundation truly given any solutions beyond ayuda and national industrialization? They may go ahead and blame the US for Venezuela's plight. However, decades of protectionism whether it's from the late Hugo Chavez up to Venezuelan President Nicolas Maduro (who's overweight while his country starves) caused it. I don't even find Venezuelan products on my shelf in contrast to Mexican products. At least, Mexico is now getting more open to free trade. The Philippines' would've ended up like Venezuela if it wasn't for some economic amendments done against Carlos P. Garcia's Filipino First Policy. However, we need more free trade--not more cash handouts or more economically unsound solutions. That's why I also wrote about the socio-economic cost of Filipino pride economics and Venezuela's pride and protectionism. Those two posts are meant to show how futile the arguments of leftists are based on published empirical data. I wonder what empirical data (if ever) do leftists have to show after their arguments can easily be shot down by the Singapore that Lee built? I bet they'll just keep quoting from their fellow protectionists in a vicious echo chamber of sorts, right?
