Free Trade, Utility, and the Good

 
 

Economists and other social scientists should take into account the integral flourishing of human beings and not just material utility. After doing so, defense of free trade becomes more—not less—important.

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In his thoughtful response to my Public Discourse essay on free trade, Stefan McDaniel raises a number of important questions about the extent to which a commitment to free trade can be reconciled with the fact that human flourishing is not limited to material development and cannot be understood in terms of pure utility. Central to his observations appears to be a concern that excessive regard for economic liberty might limit or undermine the potential of given societies to facilitate the participation of individuals in complex communal goods.

No reasonable conception of the good can be limited to the economic realm, let alone utility. Unfortunately many contemporary economists do not see this, precisely because they are more-or-less utilitarian and positivistic in their outlook. In this regard, they differ from the founder of modern economics, Adam Smith. This much is evident from reading the corpus of Smith’s works, which traverse jurisprudence, philosophy, astronomy, and rhetoric, as well as economics. But while prepared to countenance particular forms of protectionism in a very small number of instances, Smith was not convinced that significant restrictions of trade within and between nations would help facilitate human flourishing within communities. Neither am I.

McDaniel suggests that there are good reasons derived from considerations for both utility and human flourishing to insulate economies partially from movements in international markets. One is the concern that, in an interdependent world, such insulation may diminish the impact of significant global market failures upon those economies that choose one or more forms of protection. He also maintains that there would be other benefits, such as the innovation he associates with craftsmen who pride themselves on producing locally made quality products. The same partial insulation, he suggests, may even place some nations in a position to help those negatively affected by global economic downturns.

Several difficulties mar each of these arguments. First, there is no evidence that various forms of insulation, ranging from tariffs to subsidies, do much to mitigate the effects of global recessions upon countries adopting such measures. If anything, they inhibit countries from quickly responding to the new circumstances and thus prolong the downturn’s negative effects.

Nor does it seem to be the case that partial insulation from the global economy fosters much innovation or productivity. History suggests that efforts at partial economic insulation tend to encourage economic insularity. This is exemplified by guilds. As a form of economic and social organization, guilds often began with a concern to produce a certain product of a certain quality. But they invariably became preoccupied with determining who could and could not engage in certain occupations or produce certain goods and services. Being what we would call today “closed shops,” they disliked free trade and competition—domestic or foreign—because it threatened their monopolies and often made available to consumers better, newer, and less-expensive products than those produced by guilds. A similar logic was recently at work with the recent effort of organizations such as the United Steelworkers to persuade the Obama Administration to raise tariffs on Chinese-made tires for the next three years.

 

The same insularity encouraged by various forms of protectionism also actually discourages nations from worrying about other countries’ economic problems. A good example is the fierce resistance of European and American farming lobbies to permitting developing countries wider access to European and American markets. Many developing nations would escape their poverty far more quickly if the highly protected American and European agricultural markets were “de-insularized.” But this would mean removing the legal and economic privileges presently accorded to many American and European farmers. They will never give up these privileges without a fight, no matter how much such measures impede developing countries’ emergence from poverty.

More significantly, however, McDaniel asks us to reflect upon the consequences for economic decision-making if political reasoning was concerned with “integral human development” or “all-round human flourishing.” McDaniel correctly observes that it would radically change the way that most present-day policy-making occurs.

I myself would welcome a shift in this direction. First, it accords with the demands of reason. Second, it holds out the potential for the development of an understanding of politics that provides the workings of government and law with a far more coherent rationale than that provided by Millian or Rawlsian Liberalism.

I am less convinced, however, that a politics committed to promoting integral human flourishing means that governments should implement policies that significantly inhibit free trade. Naturally there are some things whose nature provides strong reasons to inhibit or completely prohibit their trading. Legitimate national security considerations, for example, should significantly limit the trading of certain forms of sophisticated weaponry or military technology. Likewise human trafficking is an evil in itself and ought always to be prohibited.

But beyond these and similar instances, policies that undermine free trade in goods and services arguably diminish opportunities for the type of flourishing that McDaniel and I value. Let me explain why using the example employed by McDaniel and myself: a fictional Scottish wine industry.

McDaniel suggests that, as part of a legitimate desire to promote a variety of moral goods, some Scots may decide that, despite the enormous economic disutility involved, they want to start a wine-growing industry in Scotland. Enough patriotic Scots may also want to support this industry by purchasing this home-grown wine and would be consequently willing to pay more than they would otherwise pay for better quality, less expensive Italian vintages.

If such an industry succeeded under its own volition, then this is all well and good. My objection, however, would be to using the state to subsidize such an industry or protect it from foreign competition. Leaving aside arguments based on utility, the price of using the state to prop up such an industry over the long term will likely be quite direct—and sometimes more-or-less intentional—damage to the ability of those in other communities to flourish.

Perhaps the damage is to those Scots who request no government subsidies for their freely chosen profession but who discover that a large proportion of their taxes, which could be used to improve, for example, Scottish education levels (and thus participation in the good of knowledge), are being directed towards subsidizing highly uncompetitive Highland vineyards. In this instance, the communal integrity (of Scotland) that McDaniel rightly values would be significantly impaired.

More remotely, the damage might be to a group of Chilean winemakers. Instead of taking government subsidies to produce Chilean whiskey, this community determines its comparative advantage lies in Chile’s soil, climate and their own wine-making skills. Through their own entrepreneurial volition, they subsequently create a self-sustaining, profitable wine industry and, in doing so, provide tremendous opportunities for all-round flourishing for many Chileans working in the business. Then they discover that barriers have been erected to inhibit their entry into the Scottish wine market—and any number of subsidized, protected Western wine markets. This limits the Chilean industry’s capacity to grow and provide expanding opportunities for human flourishing inside and outside Chile.

But even more fundamentally, such policies generally represent a significant injustice—and justice is a key precondition for any society’s promotion of human flourishing. They unreasonably compromise freedom of association and the access of all peoples—especially the poor—to the goods of the earth. Some of the early promoters of the idea that free trade was a demand of justice, such as Hugo Grotius and Francisco de Vitoria, were so insistent on this point that they actually regarded denial of free trade as a legitimate casus belli. Moreover, from the standpoint of human flourishing, the ability of all people to maximize their opportunities for integral human development often lies just as much in expanding access to opportunities that transcend and traverse national boundaries as in rootedness in local communities.

Here it is worth adding that many small and medium-sized communities actually impede human flourishing. Some such societies often embody characteristics such as provincialism, irrational hostility towards outsiders and foreigners, ignorance of the wider world, and customs that unjustly restrict opportunities for integral development by some individuals and groups belonging to these communities. Some of globalization’s positive effects are to broaden horizons, diminish prejudices, and provide opportunities to pursue integral human flourishing in ways that often cannot be accommodated in relatively isolated groups.

Similar critiques could be made of some of McDaniel’s other specific suggestions. But let me conclude by stressing my agreement with McDaniel that much contemporary economic science and economic policy-making fails to do justice to the reality that human flourishing is about far more than utility-maximization. Many economists and economic policy-makers effectively cut themselves off from consideration of such matters. This partly reflects the present hyper-specialization of much higher education, but also the influence of positivism and what the economists Wilhelm Roepke and Friedrich Hayek called “scientism”—the indiscriminate application of the methods and concerns of the natural sciences to the humanities and social sciences.

This contrasts with Adam Smith’s outlook. Smith was deeply conscious of the moral challenges posed by the emerging commercial society of his time. Rather than seeking to resolve real and imagined conflicts between human flourishing and market-oriented economic development through government intervention, however, Smith sought to achieve a similar end through infusing this new society with a synthesis of commercial, classical, and Christian virtues. As Ryan Patrick Henley illustrates in his excellent book, Adam Smith and the Character of Virtue (2009), Smith was convinced that human flourishing was possible for people living in modern commercial societies that embraced free trade with relatively few caveats. So am I.

To be sure, not everything for which Smith argues is completely consistent with the vision of integral human development that McDaniel and I advocate. But I would suggest that Smith—in whom we certainly find significant streams of virtue ethics and non-utilitarian argumentation—is one starting point for rethinking questions of political economy such as free trade in a manner that takes both the demands of integral human flourishing and the insights of modern economic science seriously.

Samuel Gregg is Research Director at the Acton Institute. He has authored several books including On Ordered Liberty and his prize-winning The Commercial Society. His forthcoming book, Wilhelm Roepke’s Political Economy, will be published in early 2010.

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