TCS Daily


The Prophets Milton and Rose

By James Pinkerton - October 10, 2003 12:00 AM

The Tyranny of the Status Quo. Those words, which form the title of a 1985 book by Milton and Rose Friedman, came back to me as I sat in the Cato Institute's Washington headquarters, listening to a panel discussion entitled: "Cancún Post-Mortem: What Next for the World Trade Organization?" The status quo is sometimes tyrannical because of dictators and their guns and truncheons. But more often, the status quo is a tyranny because it channels our thinking into familiar paths -- even when those paths can become a rut, leading to a disastrous dead end. So sometimes, every so often, a transformation is needed, as when visionaries espy new pathways to progress that others hadn't seen. And that's how we can be liberated from tyranny of the status quo.

 

In this instance, the issue is world trade, the $6 trillion-a-year enterprise that is now threatened by a global garrote of protectionism, a death-grip made all the tighter by cynicism and fatalism about prospects for something better.

 

Three of the four panelists at the Cato forum -- representing the Bush administration, the business community, and the media/think tank establishment -- all made good and convincing cases that the failure at Cancún, where the World Trade Organization's talks collapsed last month in a welter of accusation and vituperation, was all but inevitable. Only one speaker, a fellow from the relatively ivory-towery Cato Institute -- which is to say, on the libertarian outskirts of the Beltway consensus -- offered any prospect that things might get better. The Cato man wasn't necessarily correct in his optimistic vision, but at least he held out the hope of expanded trade and expanded prosperity for all. And it's hope, followed up by action, that moves people toward history-bending, paradigm-shifting change.

 

The first speaker was Chris Padilla, Assistant US Trade Representative for Intergovernmental Affairs and Public Liaison. That's a mouthful of a title, so allow me to translate: he's one part mouthpiece for his boss, Bob Zoellick, the US Trade Rep, and two parts, or maybe three parts, punching bag for his boss's enemies. His job is to represent the Bush administration to non-federal officials -- governors, mayors, etc. -- and also to the public. "The public," of course, as defined by Washingtonians, consists not of the overall citizenry; here in Powertown, "the public" is considered to be the sum total of all the interest groups that have hired a lobbyist to represent them.

 

But for someone who gets paid to sweet-talk, Padilla was in a sour mood. "Cancún failed, and it was a failure, for one overriding reason," he said as he led off the panel. The problem was "the sense of entitlement, rather than compromise, of one-way demands, not two-way dialogue, of Brazil, India, Egypt, South Africa, and the G-21." Padilla was referring to the group of 21 countries at Cancún who demanded unilateral reductions in agricultural tariffs from the "Northern" industrialized countries. It was "the harsh rhetoric of resistance from the 1970s," Padilla complained, that torpedoed the talks, which were a phase in the so-called "Doha Round" of negotiations.

 

This was not the usual diplomatese, I thought to myself as I scribbled. But Padilla was just getting warmed up. "Through a combination of inexperience, incompetence, and hubris," he continued heatedly, the G-21 countries took the conference "right over a cliff."

 

I didn't agree with everything that Padilla had to say. For example, he averred that American ag subsidies, which were part of the casus belli at Cancún, were "on the table, waiting to be cut." Such a claim might be news to US senators from cotton-growing states. And indeed, Padilla was careful to insert some wiggle-wording into his talk; he stipulated that Zoellick and USTR were prepared to move to reduce "trade-distorting subsidies." That sounds pretty good at first blush, but he might have been making room, rhetorically, to defend agriculture trade subsidies that could be defined, however spinningly, as non-trade-distorting. That is, in his mind, there might be subsidies that distort world trade and subsidies that don't. But that's somewhat of a phony distinction: all subsidies are in some way trade-distorting.

 

Padilla then lamented that some critics were attempting to alter the US position by "shaming us in the editorial pages." Yikes. Imagine that: some naughty person seeking to alter America's trade policy through the reasoned debate and discourse. Such sneaks might be pointing out, for example, that US cotton programs -- in which Uncle Sucker pays American producers, many of them millionaires, to flood the world with cotton that undercuts the subsistence-level prices of Third World -- is bad morality, as well as bad economics. And of course, the mere fact that Padilla brought up the word "shame" suggests that even he agrees, at least a little, that the US has something to be ashamed of.

 

Yet Padilla was persuasive when he said that those critics of American ag/trade policies weren't necessarily familiar with the difficult reality of making changes in national policy. "They haven't testified before Congress," he snapped. And he has a point there.

 

And it was impossible for me to dispute his assessment: in the wake of the Cancún Collapse, "The poorest countries go home to a cold reality... they go home with nothing."

 

But then, as he wrapped up, Padilla shifted from shrewd politics to batty economics. "We will never accept a one-way deal that makes Americans bear all the burdens of liberalized trade." That's a great cheer line for some audience of protectionists, but it's a laugh line for economists, who understand that lower tariffs, like lower taxes, are a good, pure and simple.


Indeed, that last peroration of Padilla's provoked a comment from the next speaker, R. Scott Miller, the director of national government relations for Procter & Gamble. Miller began with a wry reaction that revealed the alt. reality of WTO-land. Trade negotiations, he quipped, are "the only place where taking an action in your own interest is termed a concession." What Miller was illuminating was the difference between trade economics and trade politics. In trade economics, it makes sense to alleviate a self-inflicted problem -- a cost-increasing trade barrier -- immediately. But in trade politics, it is deemed necessary to negotiate mutual alleviation of such problems. To make an analogy, if I have a thorn in my finger, it makes sense to pull it out immediately. But if I were negotiating thorn removal at the WTO, I would insist that all the others in the room remove the thorn in their hands, too. Only when we all agreed would I remove my thorn. Such mutuality makes a certain amount of sense in a multilateral context, although, of course, it hurt likes hell in the meantime. And that was Miller's point: the trade equivalent of pulling the thorn out of America's own hand might properly be viewed as pain relief, not as a painful concession.

 

But Miller was not without sympathy for the US position. It was a blunder for the poor countries to put "a blatantly unilateral item" -- the agriculture subsidies issue -- "on the multilateral agenda." Miller's point was that the WTO can function only by consensus, and consensus requires trust every step of the way. Hence, the meeting's pre-arranged agenda must not be altered at the last minute.

 

Miller represents an important point of view: corporate America's huge stake in a thriving WTO. After all, tens of millions of American jobs rest upon expanded trade. Procter & Gamble is the 19th-largest company in the world, according to The Wall Street Journal; its market capitalization is nearly $113 billion. And yet like just about every other American company these days, P&G's most exciting growth sector is exports; its fastest growing market is Russia, where sales are increasing 50 percent a year. No wonder Miller is so interested in the fine points of trade talks, because each point could be worth millions.

 

Next up was Bruce Stokes, a columnist for the National Journal who's involved in a lot of Council on Foreign Relations activities. Stokes is a smart guy; a few days before Cancún, he and I found ourselves waiting in the same line at the Mexican consulate in Washington for visas. At the time, Stokes told me that American farmers had reached the conclusion that they were no longer cost-competitive with their international rivals. And so, he prophesied, Big Ag would move into an ever more subsidizing and protectionizing mode, vastly decreasing prospects for a successful meeting in Cancún. He was proven right, of course, shortly thereafter.

 

In his talk, Stokes rated the various trade players at Cancún. "The US comes off better than almost anyone," he maintained. That is, for all our faults, trade-wise, we're less protectionist than either the "Eurolateralist" Europeans, or the Japanese; we all know about the latter and their fetishization of protection, especially for their sacred rice. And perhaps worst of all is China, which at Cancún "didn't act like a leader, but rather, a small country." And so the WTO, Stokes said, faced the dreaded prospect of "UNCTAD-ization." That is, the WTO could end up like the United Nations Conference on Trade and Development. That body, which has existed since 1964, was created to do what the WTO does, but instead of growing into a genuine trade-rules negotiating entity that could actually deliver the goods, UNCTAD became a version of the UN General Assembly -- a toxic talk shop.

 

So I found myself agreeing with all three of these speakers. Padilla of USTR is right; theory aside, there are severe limits on the trade deals that the US can strike. And Miller of P&G is right; the WTO is too important to let it be guerilla-theatered by poseurs and provocateurs. And Stokes is right; the WTO might not be headed for a crackup -- because it might already have cracked up.

 

And then it hit me: this is the tyranny of the status quo that the Friedmans warned against. It wasn't that any of these arguments were wrong; even Padilla's point about "concessions" was politically astute, albeit economically misguided. In fact, just about every word said was shrewd Beltway commentary. But at the same time, if this is the best we can do, then the WTO is probably ready for the slab, along with the realistic hopes of billions of the poor for a better life.

 

And so it was left to the last speaker, Brink Lindsey of the Cato Institute, to offer the most inspiring commentary. Maybe not the most realistic, but the most uplifting. And there are times when we need the lift of a driving dream.

 

Lindsey is no bubblehead, even if he does possess more idealism than the average Beltway bear. He is a longtime trade-watcher, author of a zillion papers and monographs on trade, as well as books including Against the Dead Hand: The Uncertain Struggle for Global Capitalism. And it's that uncertain struggle -- the struggle for a free and productive economic system that will keep poor people from sliding into the abyss of poverty, craziness, and even terrorism -- that America must embrace and support, not only for humanitarian reasons, but as a matter of enlightened self-interest.


Lindsey joked that he could have entitled his talk, "A Pox on 148 Houses," referring to the nation-state members of the WTO. All nations bore responsibility, he said, for the trade talks' tanking. He criticized the developing countries, for recycling their neo-Marxist fantasies of the post-colonial past: "The Third World's gravest wounds are self-inflicted," he noted, referring to dead-handed restrictions on free markets and free enterprise.

 

But then he got to the most pox-worthy players. "The rich countries bear primary responsibility for the failure at Cancún," he continued. "It is their job to lead by example."

 

For instance, the US, boasting a GDP that's double the combined economic output of the poorest 100 countries, can afford to give a little on trade matters. If the nation can afford Operation Iraqi Freedom, if it can afford a National Endowment for the Arts, then it can afford to let the poorest countries of the world sell us cheap goods. Especially since, as P&G's Miller pointed out, such concessions are not really concessions at all, but rather actions in one's own economic self-interest.

 

And yet the US, Lindsey said, has gone the other way on trade; he cited, in particular, the Bush administration's steel tariff and its ever-ballooning agriculture subsidies, both of which can be proven to reduce US economic output. Thus the paradox: free trade might be good for America overall, but it might be bad for a certain sector or industry -- just as Stokes pointed out. Meanwhile, "after this string of sellouts," Lindsey added, "US credibility is near zero."

 

No wonder the trade talks failed. The US, as the leading economy in the world, is by definition the biggest beneficiary of the status quo; that same Journal ranking found that 14 of the world's top 20 companies, and 56 of the top 100, are American. If the indisputable trade leader can't show leadership, then one can't be too surprised if other countries don't show followership.

 

Leadership that transforms is always risky; in the history of trade policy, bold leaders have sometimes transformed themselves out of a job, even as they have etched themselves into the pantheon of world-improvers. So I empathize with Padilla's worries, and certainly don't envy his daily drudge. As I noted last month in TCS, the government of Britain's Robert Peel fell after the Tory prime minister unilaterally eliminated the Corn Laws in 1846. So Peel was out of a job, but more British workers were eating well. And yet his vision was vindicated just two years later, in 1848, when radical revolution swept through Europe; amidst all the proto-Marxist convulsing, British workers were not motivated to storm the barricades.

 

Today, the world is in yet another time of radical flux; protestors and academics -- notably Amy Chua, author of World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability -- are helping to mold a substantial backlash against globalization. And in the Middle East, the problems for America are even more acute. As the federal Advisory Group on Public Diplomacy for the Arab and Muslim World concluded recently, "The entire system of public diplomacy urgently requires a broad and deep transformation." The panel came up with a slew of worthy recommendations for improving American communications and persuasion, but surely this is also a time for stronger deeds, as well as better words.

 

One such deed would be opening our borders to Arab and Muslim goods; in August, Lindsey wrote a piece pushing this idea, "The Trade Front: Combating Terrorism with Open Markets." He advocated granting temporary duty-free, quota-free access to the US market for exports from selected Muslim countries. The unilateral elimination of US trade barriers, he wrote, would give "tangible, dramatic proof of US commitment to the region." Isn't that what we need right about now? Surely Americans, digging deep to spend hundreds of billions in the war on terror, can see that importing more Pakistani apparel, thereby strengthening Pakistan's private sector -- as well as lowering prices for American consumers -- is a wise course for the population-migrating/weapons-proliferating decades ahead.

 

Is America ready to embrace such a long-term view of our national interest? Or our even longer-term interest in civilizational survival in a world of terror weapons? No, probably not; today, few Americans see the crunch coming, and so they are apathetically content to let lobbyists control the trade debate. But such a Gucci-gulched system will flourish only in palmy times. As Milton Friedman explains, "Only a crisis . . . produces real change." And when that crisis hits, Friedman continues, "The actions that are taken depend on the ideas that are lying around." In other words, individuals and societies break free from the tyranny of the status quo only if they have effective idea-tools at hand, ready to be picked up and used.

 

Happily, the Cato Institute is one place where free-trading and growth-promoting ideas for fending off planetary crisis are already being warehoused. Whether they will be used or not is another question. So Lindsey should get out and speak more; there's a big but mostly unknowing public out there, waiting to be liaisoned by someone with fresh, free-trading ideas for growing the world out of the trade crisis -- and the political crisis that will follow, like night after day. And if such neo-Peelite free-trade policies make for cheaper shirts for Americans, too, that's all the better.
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