Protection or Free Trade Pt.2

As the (delayed) tax day approaches, it is worth remembering that the income taxes coming due are largely a product of the early 20th century progressive movement to replace tariffs with income taxes. The arguments put forth by the progressives included the fact that tariffs were ripe for legalized corruption, in that they encouraged firms to lobby for tariff protection on their products but not on their supplies -they encouraged monopolies by inhibiting foriegn firms from competing with domestic trusts. Georgists were among the prime advocates of free trade and the elimination of tariffs, and Henry George advanced two other arguments: first, that imports, rather than being seen as an ‘invasion’, were a proper functioning of a market which sought, better than any government could, to meet people’s needs and desires. George also noted that tariffs were almost always regressive, because collecting them on luxury goods (which were small for their value and thus easily smuggled) was prohibitively difficult, but collecting them on necessities and bulk goods was relatively easy. 

Armed with these arguments and others, Georgists in congress (including Tim Johnson of Ohio, who had the entirety of Protection or Free Trade read into the Congressional record) were a key part of the movement to lower tariffs. In the modern era, where free trade is now associated with ‘global elites’ rather than being seen as a force to improve the lives of the working class, we can learn a great deal from George’s defense of true free trade, and critiques of the limited way it is so often applied.

The first and perhaps most critical lesson for free trade advocates to learn from the original Georgist success of free trade advocacy is the necessity of centering the working class in both rhetoric and policy. Where possible, trade deals should be structured in ways that are likely to raise wages or at least keep them stable while lowering prices.  But that can rarely be guaranteed. Thus, trade deals whose distribution impacts are likely to benefit high earners should be coupled – both rhetorically and legislatively – with increased benefits to workers. The lesson is not to repeat the 1990s – which saw the accession of China to the WTO and the signing of NAFTA occur at nearly the same time as welfare reform was putting new pressures on the unemployed and the ‘war on crime’ was devastating Black communities. When the glory days of the 1990s bubbles burst, many blamed the free trade deals for the inequality they observed and the stagnating median wages.

Free trade would likely also be more popular internationally if its advocates continued to elucidate George’s view of the relationship between protectionism and militarism. George denounced what he saw as the connection between the two – pressure for increased arms spending on the one hand benefitted the military and associated industries, and on the other increased demands for rising government revenues that could only be met by continued tariffs. Too often today, hawkishness in foreign policy and free trade evangelism go hand in hand – and thus protectionists find they can sell their solution in alliance with isolationism, which has a ready-made sympathetic audience on both the left and right. But nationalism and protectionism are not the natural results of a less interventionist foreign policy. Economic liberals today need to describe another possible world – one populated by a “league of sovereign States, settling their differences by a common tribunal and opposing no impediments to trade and travel…giving to the world a more than Roman peace. “

This focus on peaceful internationalism can be one of many ways free trade liberals can find common ground with social democrats and other left-leaning groups. George’s perspective on socialists is considerate and respectful, even as he clearly has deep disagreements with their views on government.  He writes that “while there is a truth in socialism which individu[1]alists forget, there is a school of socialists who in like manner ignore the truth there is in individualism”. Despite coming out strongly in favor of individual liberty, free trade between nations, and the ability of individuals to make and profit from investments, George’s attitude towards socialists is not dismissive.

Too often liberals assume that history has conclusively shown socialism to be a failure, and that economic theory indicates that it must always be so.  But, there are times when we can learn from a socialist perspective, even if our responses might differ.  The socialist passion for eliminating poverty and instituting a living wage, for example, may seem to run contrary to liberal theory. However, empirical research has challenged the straightforward relationship between minimum wages and employment. Rather than simply re-emphasizing for the thousandth time the theory that a minimum wage is a ‘price floor’ that dooms people to unemployment, or that mandating health insurance will kill jobs, free market liberals would do well to offer an alternative – potentially in the shape of more universal, direct benefits to provide the same impact on poverty reduction without the same market distortions.

Another potential point of commonality with the left can come in the understanding of ‘land’ by George’s definition. Even if they do not share George’s view of land value taxation as a panacea for myriad social problems – any economic liberal would do well to note his differentiation between land and capital, and help make it legible to public understandings of economics. For George, land – those resources which are not created by individual effort but are inherent to nature – is not a tradeable good and is not an investment that rightfully earns dividends for its purchaser. While most Americans do not share this view, there is something intuitively different about land that makes people who have never given a formal thought to political economy uneasy with massive landholdings and especially foreign land ownership.

For this reason, the foreign investments most likely to arouse opposition, both internationally and at home, are in what George would call land.  Ownership of plantations, mines, aquifers, and oil deposits are all more likely to provoke backlash than ownership of constructed capital. Because the supply of these goods is inelastic, rising prices for them cannot bring more land or water or copper ore into existence. Even if they cannot put into economic terms why this chafes them, people who see foreigners driving up the price or taking ownership of these resources understand at a fundamental level that it is different from the promised benefits of foreign capital investment – and they are right, even if the only terms on which they can express this idea are those of nationalism and populism.

 Rather than try to undercut these claims or simply overthrow the governments making them – as the US did in Guatemala, Iran, and elsewhere during the Cold War – economic liberals should recognize this difference. Profits from land and resources, along with natural and government protected monopolies, are truly ‘rent seeking’, in the sense that they do not come from producing any real wealth for the community. When asked to explain how inequality stubbornly persists despite greater economic liberalization, free traders should be pointing directly to this ultimate cause, because that is a political struggle that can unite the interests of capital and labor, which to a liberal mind is the proper condition for political economy. 

As one of George’s contemporaries, Mark Twain, noted, history does not repeat itself, but it does rhyme. The echoes of previous debates about economic liberalization and free trade can still be made out in the cacophony of current debates surrounding those topics. Protection or Free Trade continues to present lessons for how to make the liberal side of the argument attractive to both domestic and working classes by keeping the focus on the income of wage earners, working with the left where appropriate, and keeping in mind the distinction between wealth creation and rent collection. If free trade advocates can both explain the benefits of free trade effectively and ensure those benefits are distributed to a broad cross section of society, advocacy for free trade may again capture popular attention.  In this vein, trade policy will cease to be a political weapon for protectionist populists to wield against a supposed global elite. 

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