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Opening the path to prosperity: Free Trade |
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| Thank you, Becky, for your kind introduction. In spite of my accent, I’m able to communicate with you because my father, a wise man who distrusted politicians, wanted to make sure that his children could earn a living even if forced to emigrate from our country, Venezuela. He sent all three of us to study in the United States, and we were lucky that there was no such thing as bilingual education in the 1950s, so we had to learn English. In 1987, I was editor of a Caracas daily newspaper, but the president of Venezuela, the social democrat Jaime Lusinchi, disliked so much both our domestic coverage of the news and our free market editorial position that he managed to have me fired. Two days later, I was in a court of law where judge Ramírez Colmenares, looking at a pile of documents, told me in a low and serious voice: “Mr. Ball, I don’t see much here, but you must understand that I have instructions from upstairs.” I was very fortunate that Ed Feulner, whom I knew from the Mont Pèlerin Society, offered me a Heritage Foundation fellowship, which allowed me to work in this country. Since President Lusinchi just wanted me out of the way, soon after I left, all charges against me were dropped. I remain very grateful to Ed Feulner and the Heritage Foundation. So it is a special pleasure for me to be here today to talk for a few minutes about trade. We seem to be advancing very slowly towards the goal of free trade in the Americas. "High level of protectionism" is how The Heritage Foundation and The Wall Street Journal's "2004 Index of Economic Freedom" describe the trade policies of Argentina, Brazil, Colombia, Ecuador, Peru, and Venezuela. It also reports that “The countries of Latin America and the Caribbean continue to suffer from their own counterproductive policies. Economic freedom in the region has not increased: It has decreased.” But for decades we have been hearing grandiose announcements of future free trade accomplishments. A resolution back in 1948 of the United Nations’ Economic Commission for Latin America proclaimed the establishment of a Latin American Customs Union. Those Latin Americans that were born that year are now 56 years old and still waiting for the benefits of the customs union. Central Americans born when the Central American Multilateral Treaty of Free Commerce and Integration was signed are 43 years old today. Colombians, Peruvians, Ecuadorians, Bolivians and Venezuelans that were born the same year as the Andean Pact (now called the Andean Community) are now 35 years old. Latin Americans born at the time of the Treaty of Montevideo, which launched the Latin American Integration Association, are 24 years old. Even the Free Trade Area of the Americas, proposed by the first President Bush in the late 80s and formalized at the Miami Summit of 1994, was supposed to be ratified by the year 2005. But we know that will not be accomplished any time soon. Trade negotiations seem to be a never-ending game where each player has different goals and applies different rules, which change all the time. Most of my fellow-journalists that cover the so-called "free trade" conferences tend to fall under the spell of the long-winded political speeches, and their glorious promises. The talk about "fair trade," "level playing field, "environmental protection," "labor standards," “anti-dumping” laws, and "no child labor" project a nicer and more humane picture than the cold but real advantages of the division of labor. In spite of frequent meetings, conferences, and summits taking place at the most attractive and expensive beach resorts around the Americas, free trade in our hemisphere remains a future dream. Why? I’d like to suggest that the whole approach is dead wrong. In those international meetings, our country’s ambassadors negotiate the granting to foreign nationals the privilege to export some products to our country in exchange for a counterbalancing privilege to export some of our own products to those foreign countries. Our trade representatives are supposed to be defending our interests, but if you look carefully, they are really representing the interest of foreign nationals. What truly benefits me, my family, and our fellow-citizens is access to a greater selection of goods and services, at lower prices than today. The government representatives at those international conferences are not looking out for their fellow-citizens, but arguing on behalf of a few domestic corporations that want to export their products and services, or politically influential unions and companies that are afraid of foreign competition; sometimes they even provide support to environmental organizations that oppose globalization. Central American and Caribbean farmers want to export sugar to the United States. Their ambassadors push the idea in trade conferences. The U.S. representative says “no”. Is he helping Americans? Of course not, he is mainly helping a couple of very influential Cuban-American brothers in Florida, one of whom happens to be a Democrat and the other a Republican. Those fighting on our behalf are the foreign representatives that are trying to export sugar and save each American about 25 dollars per year. No one in this room worries about 25 dollars, but multiply 25 dollars by the population of the United States and you’ll have a good idea of the cost of protecting the sugar barons, plus the loss of the candy industry which has been moving to Canada, where they pay world prices for sugar. But even worse is the loss of credibility suffered by Washington south of the border when it maintains that free trade is good in general, but not in agriculture, beef, fresh salmon, textiles, steel, and pharmaceuticals or for Mexicans trucks to deliver products in the United States. The misconception regarding child labor is especially harmful. In poor countries, the older children must contribute to the families’ up keeping or they will not have enough to eat. And the real alternative for them is not going to school, but begging, selling trinkets on street corners or even prostitution. Americans would better understand the problems faced by poor families in developing countries if they looked at Latin American peasants as people not unlike their own forefathers, struggling to raise a family in a frontier farm. Schooling for the children and better labor conditions were then just as desirable goals as today, but food on the table was the overwhelming priority. The reasoning on the part of Latin American governments, politicians and trade ministers is not better. They complain all the time about U. S. agricultural subsidies. I understand that American taxpayers should feel unhappy about money collected by taxes passed on to rich farmers, but U.S. corn subsidies benefit Mexican consumers with a lower price for their tortillas. If the Mexican ambassador in Washington is representing his people and not the Mexican business elite, he should be applauding each time he hears about more subsidies for corn or for any other food product imported by Mexicans. It is obvious that every penny subsidizing the export of corn to Mexico makes Mexicans a little less poor and Americans a little less rich. If our politicians were truly defending the common citizen, they would push for the unilateral lowering of tariffs and the repeal of all import quotas. Then, the people’s standard of living would increase, upon obtaining free access to cheaper import of goods and services. In recent history, only the widely vilified Chilean government of General Augusto Pinochet dared to do exactly that. The result is that today, even under a socialist government, the Chileans' standard of living is the highest in Latin America. I recently read that before NAFTA, Canadians drank only the beer produced in their own province. It was the competition from American and Mexican beer that pushed the Canadian breweries to sell all over Canada, and Canadians now benefit from many more options. Frequently, the heavy hand of government interferes with the optimal assignment of resources, something that does much more harm to small countries with very limited internal markets. Without foreign trade, their small domestic markets dramatically curtail the benefits of specialization. They should then be the ones demanding free trade because, as Adam Smith wrote over 200 years ago, “the division of labor is limited by the extent of the market”. Adam Smith strongly believed that everyone benefits from trade because we are “natural equals,” something which he illustrated with a famous phrase: “there is little difference between the philosopher and the street porter.” But, sadly, the education received in most government schools is so deficient that the average citizen has little understanding of the economic facts of life, and foreign trade has been politicized to the extent that most people believe that there is always a winner and a loser. We trade with our next door neighbor and with foreigners because we place a greater value in what we are getting than in what we are giving up in exchange. Both are winners or the trade does not take place. A world without hunger and misery is not impossible if we understand what Adam Smith was saying so long ago. If the efforts of the United Nations and other international organizations had been primarily devoted since the end of the Second World War to opening up trade, we probably would live today in a world without hunger and misery. Modern communications makes it possible for the world to be one market. It has not become one because of political decisions that curtail free trade to favor constituencies, special interests, and privileged minorities. Anti-dumping seems to be American protectionists’ favorite device. If used by a growing number of other countries it will end up causing great harm to U.S. exports, especially in copyright products such as television programs, music, and Hollywood movies of which we export $ 90 billion a year, and where the export price has little relation to the cost of production. Outsourcing is the new devil in the current presidential campaign. Lou Dobbs, who has a degree in economics from Harvard, attacks outsourcing almost every night on CNN. On April 16, a Wall Street Journal article reported that 35 state legislatures in the United States have introduced anti-outsourcing legislation. Most of the proposals try to ban government contracts to companies that carry out the work overseas. Robert Galvin, former CEO of Motorola, wrote in a column published on April 19 by the San Francisco Chronicle that “Just as American firms have been increasing their presence overseas, foreign firms have been seeking access to American markets and talent by locating here… the creation of such insourced jobs is outpacing those outsourced by U.S. firms 2 to 1.” Outsourcing is really a reflection of a dynamic economy taking advantage of new opportunities. To limit outsourcing is contrary to the wellbeing of the majority and diminishes our own ability to compete with foreign rivals. Salaries in the United States are higher because productivity is higher than in the countries where the outsourcing is flowing to. It also means that those investments and American workers will be better employed doing something else. What that something else is cannot be known ahead of time by politicians or bureaucrats. Just in my own state of Florida, 300,000 people are employed by foreign companies. The total number for all 50 states is at a record high of 6.4 million, which means that subsidiaries of foreign corporations operating in the United Sates pay 350 billion dollars a year in salaries. The current, short-term drop in job creation the United States seems to be experiencing does not mean the economy is failing, or that jobs are being "stolen" by foreign workers; rather, companies are trying to remain competitive, to keep costs down, and improve quality, which will benefit workers, shareholders, and consumers. At the beginning of the 20th Century, 50% of Americans worked in agriculture versus 2% today. Imagine what would have happened if Congress had tried to save the farmers’ jobs. Some 25% of Americans today work in jobs that were unknown to our grandparents. Free markets and a dynamic economy mean that no matter how big and powerful a company is today, a new invention or a better manufacturing technique can appear tomorrow, and the employees of today’s successful company will be looking for a new job. You would think that our politicians know that and therefore would try hard to make sure that labor laws and government regulations are helpful to the unfortunate person who lost his job and is trying to do something else. My daughter María Gabriela became a realtor in Florida last year. The long classes and the extraordinarily difficult exam she had to take were not designed to make her a better realtor, but rather to try and discourage her from that career, in order to protect from competition those already inside. Tim Keller, of the Goldwater Institute explains it very well in a recent study entitled “Burdensome Barriers: How Excessive Regulations Impede Entrepreneurship.” He writes: “In Arizona, occupational licensing requirements and regulations stifle competition, diminish quality of service, and drive up prices. Thousands of laws restrict entry into occupations for persons wishing to serve consumers as cosmetologists, barbers, African hair braiders, taxicab drivers and street vendors. State agencies and occupational licensing boards act as gatekeepers, restricting competition and ensnaring entrepreneurs in thick layers of red tape... While regulatory boards and commissions are frequently defended on the grounds of alleged health or safety concerns, the principal effect of many occupational licensing schemes is to promote the vested interests of those already engaged in regulated professions, creating government-sanctioned cartels. To the extent that regulation adds marginal protections for consumers, that protection comes at a significant price in lost productivity and lost economic dynamism.“ Imagine if our Founding Fathers in addition to protecting free speech and journalists like me with the First Amendment could have envisioned government bureaucrats making it difficult for people to work in whatever they want and know best. Far too many of my fellow-immigrants are contributing much less than they can to their new country of choice because they are not allowed to do here what they had been doing for 5, 10 or 15 years in the old country. I fully agree with Jack McHugh of the Makinac Center for Public Policy, who recently wrote: “Throughout history, the worst destroyer of economic growth and prosperity has been politicians who panic during an economic downturn.” To conclude, the world is clearly divided among those who believe in free markets and those who believe in government intervention. The world will continue to advance towards freedom and a single market or towards the serfdom of bureaucratic collectivism. The enemies of freedom deceive, shout, lie, push, and sometimes even kill. We have reason and history on our side, we have learned from Adam Smith, von Mises, Hayek, and Friedman. Freedom should prevail. Thank you. |
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