Half-Free Trade

The first chapter of All Roads Lead to Open Borders is called “Global Apartheid.”  Here‘s one of the top Google hits for the phrase:

The role of national boundaries is an important issue raised by global apartheid theory. In the global apartheid perspective, nation-states are compared to South African homelands; that is, territories reserved for nonwhites. National boundaries, passports, border patrols and fortifications function as reinforcements of racial segregation at the world level, since they provide effective control mechanisms for keeping nonwhites (of the South) out of white areas (of the North) of the world, if so desired. An economic consequence of that, as Mukherji observes, is a severe limitation of labor mobility on a global scale from nonwhite to white areas. Furthermore, as Arghiri Emmanuel has shown, the fact that low-wage labor of the world is captive in certain territories provides the foundation for a system of unequal exchange between South and North. [18]

Endnote [18] in turn reads:

18. Arghiri Emmanuel’s view is summarized in the following passage from Susan Strange, Casino Capitalism (Oxford, UK: Basil Blackwell, 1986). She writes (p. 87):

A self-styled Marxist like Arghiri Emmanuel, whom others repudiate as a heretical deviant. . . . His explanation of the unequal distribution of wealth in the world economy, and the unequal terms of North-South, rich-poor trade is truly systematic (Emmanuel 1971, 1976). His analysis rests on the contradiction between the mobility of capital and credit, moving freely from country to country, and the immobility of labour, prevented by immigration laws from responding to differential wages in national economies. Trade, and incomes, thus become unequal and high wages are maintained in industrial countries, while wages for exactly the same kind of work remain low in the developing countries. When goods are exchanged, the low-wage country is paid for its product at low prices, the high-wage country at high prices. By contrast, liberal economists usually take the limitations of migration for granted, as if they were inherent, rather than a politically-imposed characteristic of the system; nor do they inquire closely into the explanation of wage differentials.

I can readily picture my friends’ polarized reaction to these excerpts.  One reaction – probably the most common – to stop reading right after the phrase “self-styled Marxist.”  But I suspect that many of my left-libertarian friends would effusively praise the self-styled Marxist for being a better free-market economist than most self-styled free-market economists.  At minimum, trade barriers and migration barriers deserve similar attention.  Why do free-market economists treat migration barriers like an afterthought?  Why do they look at half-free trade and call it “free trade”?

I’d like to strike a middle ground.  Yes, the typical free-market economist neglects migration barriers to an absurd degree.  And yes, these barriers do impoverish the world in general and Third Worlders in particular.  But footnote 18 strongly insinuates that capital mobility amplifies global inequalities.  Why else would you highlight the “contradiction” between mobile capital and immobile labor, then say,  “Trade, and incomes, thus become unequal”?

Common-sense and basic economics, however, say something very different: Half-free trade is better than no trade at all.  The best way to maintain global inequalities is to immobilize both capital and labor.  After all, if labor can’t move to capital-rich countries, capital has an extra reason to move to labor-rich countries.  A consistent First-World nativist would want to lock foreign labor out and domestic capital in.*

So what?  Other than a few libertarians, almost no one will take these reflections on global apartheid as an endorsement of fully free trade.  Instead, the typical reader will falsely conclude, “Until labor is mobile, capital mobility hurts the global poor” or maybe just “Free trade hurts the global poor.”

Indeed, readers might even conclude that the status quo is strategically engineered by capitalists, when the real story is that the status quo is impulsively engineered by nativists.  Why do First World countries restrict the import of labor far more than the export of capital?  Because “Foreigners live among us” provokes a far more visceral public reaction than, “Capitalists are investing abroad.” Far from promoting immigration restrictions, Big Business is the First’s World most influential pro-immigration lobby.

I’m all for intellectual self-criticism and intellectual outreach.  Free-market economists have failed to take migration barriers seriously.  If they’d done a better job, perhaps they could have found common ground with cosmopolitan progressives.  The key word, though, is “perhaps.”  If someone thinks that half-free trade is worse than autarchy, it’s hard to be optimistic.

* So why doesn’t capital mobility fully compensate for lack of labor mobility?  Most obviously, because the Third World is an unwelcoming environment for capital as well as labor.  Picture Antarctica.

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