A  B In this book, Australian economist Graham Dunkley explains and critiques the crucial concept of free trade. A policy of free trade is central to today’s world-dominating globalization project. The more euphoric globalists uncritically assume that it has universal and unequivocal benefits for all people and countries. And the perpetual negotiations of the World Trade Organization are wholly based on this presumption. Graham Dunkley shows, however, that leading economists have always been more sceptical about free trade doctrine than the dog- matic globalizers realize. There are more holes in free trade theory than its advocates grasp. And the benefits of free trade in practice are more limited and contingent than they acknowledge. He also argues that the World Bank’s long-time push for export-led development is misguided. A more democratic world trading order is necessary and possible. And more interventionist, self-reliant trade policies are feasible, especially if a more holistic view of economic development goals is adopted. ‘An incisive and informative analysis of why free trade de- rails development…. An indispensable road map for those seek- ing to hack their way out of the neoliberal thicket.’ Walden Bello, Focus on the Global South; author of Deglobaliza- tion: Ideas for a New World Economy ‘This thought-provoking book is a valuable contribution to one of the greatest debates of our time, namely, trade and development.’ Ha-Joon Chang, University of Cambridge, author of Kicking Away the Ladder: Development Strategy in Historical Perspective A BRAVE NEW SERIES GLOBAL ISSUES IN A CHANGING WORLD This new series of short, accessible think-pieces deals with lead- ing global issues of relevance to humanity today. Intended for the enquiring reader and social activists in the North and the South, as well as students, the books explain what is at stake and question conventional ideas and policies. Drawn from many different parts of the world, the series’ authors pay particular attention to the needs and interests of ordinary people, whether living in the rich industrial or the developing countries. They all share a common objective – to help stimulate new thinking and social action in the opening years of the new century. Global Issues in a Changing World is a joint initiative by Zed Books in collaboration with a number of partner publishers and non-governmental organizations around the world. By working together, we intend to maximize the relevance and availability of the books published in the series. PARTICIPATING NGOS Both ENDS, Amsterdam Catholic Institute for International Relations, London Corner House, Sturminster Newton Council on International and Public Affairs, New York Dag Hammarskjöld Foundation, Uppsala Development GAP, Washington DC Focus on the Global South, Bangkok IBON, Manila Inter Pares, Ottawa Public Interest Research Centre, Delhi Third World Network, Penang Third World Network–Africa, Accra World Development Movement, London F T Myth, Reality and Alternatives   UNIVERSITY PRESS LTD Dhaka WHITE LOTUS Bangkok FERNWOOD PUBLISHING LTD Nova Scotia BOOKS FOR CHANGE Bangalore SIRD Kuala Lumpur DAVID PHILIP Cape Town ZED BOOKS London & New York Free Trade was first published in  by In Bangladesh: The University Press Ltd, Red Crescent Building,  Motijheel C/A, PO Box , Dhaka  In Burma, Cambodia, Laos, Thailand and Vietnam: White Lotus Co. Ltd, GPO Box , Bangkok , Thailand In Canada: Fernwood Publishing Ltd,  St Margaret’s Bay Road (Hwy ) Site , Box , Black Point, Nova Scotia,  B In India: Books for Change,  Richmond Road, Bangalore   In Malaysia: Strategic Information Research Development (SIRD), No. /, Petaling Jaya,  Selangor In Southern Africa: David Philip (an imprint of New Africa Books),  Garfield Road, Claremont , South Africa In the rest of the world: Zed Books Ltd,  Cynthia Street, London  ,  and Room ,  Fifth Avenue, New York,  ,  Distributed in the USA exclusively by Palgrave Macmillan, a division of St. Martin’s Press, Inc.,  Fifth Avenue, New York,   www.zedbooks.co.uk Copyright © Graham Dunkley  The right of Graham Dunkley to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act, . All rights reserved. Cover designed by Andrew Corbett Designed and typeset in Monotype Bembo by Illuminati, Grosmont Printed and bound in the United Kingdom by Cox & Wyman, Reading A catalogue record for this book is available from the British Library US CIP data is available from the Library of Congress Canadian CIP data is available from the National Library of Canada      Pb (Canada)      Pb (India)      Pb (Malaysia)      Pb (Southern Africa)      Hb (Zed Books)      Pb (Zed Books) C LIST OF TABLES, FIGURES AND BOXES viii ABBREVIATIONS USED IX ACKNOWLEDGEMENTS AND DEDICATION XII PREFACE XIII  INTRODUCTION: TRADE, MYTH AND OBSESSION  Trade: The Making of an Obsession  In-Your-Face Globalisation  Globalism: Three Myths  Free Trade: Five Myths  Challenging TINA – There are Alternatives!  Different Goals for Different Trade and Development   THAT’S THE THEORY! DEBATING FREE TRADE DOCTRINE FOREVER  The Smith–Ricardo Revolution  Free Trade Doctrine: Models, Assumptions and Question Marks  Comparative Advantage  Gains from Trade  Assumptions, Assumptions!  Here Come the Corollaries  The Rise of Not-Quite-Free Trade  Conclusion   A CONFEDERACY OF HERETICS: TWO CENTURIES OF FREE TRADE DISSENT  Heresy before Orthodoxy  The Keynesian Bombshell  History versus Equilibrium  Heretics in the Temple  Conclusion   WHAT ABOUT THE PRACTICE? TRADING AND FREE TRADE IN HISTORY AND REALITY  A Clash of Propensities  Trade and Markets Embedded  Trade’s Loss of Innocence  The Necessity of Virtue: The Myth of Free Trade Beneficence  Free Trade, War and Peace  The Legend of the Thirties  Trade and Manifest Destiny  Conclusion   DEVELOPMENT, MYTHS AND ALTERNATIVES: A CRITIQUE OF GLOBALISING GROWTH  Inventing Development  There Are Alternatives!  Trading Development  Of Ladders, Lock-in and Scale Economies  Two Steps Backwards: The Terms-of-Trade Problem  Two Cheers for the Poor: Globalisation, Poverty and Inequality  Belaboured Playing Fields  Human Development and the r-Curve  Greening Trade or Trading the Green?  Don’t Forget the Ladies! Development, Globalisation and Women  A Poor Relation: The Neglect of Agriculture  Small Farms Are Beautiful  Re-greening My Valley: The Organic Agriculture Revolution  The Four Lost Causes: Culture, Community, Values and Tradition  Conclusion   THE EXPORT CULT: THE IMPORT-SUBSTITUTION VERSUS EXPORT-ORIENTATION DEBATE  An Elite Consensus  Models, Numbers and Export Cults  Welfare Methods  Modelling Methods  Case Study Methods  Industry Policy Does Work!  Conclusion   THE SELF-RELIANCE OPTION: GLOBAL MYTHS AND ALTERNATIVE DEVELOPMENT  Self-Reliance: A Respectable Lineage  Defining Self-Reliance  The Case for Self-Reliance  The Feasibility of Self-Reliance  Ten Reasons Why Self-Reliance Is More Feasible than Globalisers Admit  Alternative Development and Self-Reliance  Conclusion   THE FREE TRADE ADVENTURE: THE WTO, GLOBAL MYTHS AND ALTERNATIVES  Foundation Assumptions  The WTO in Principle  The WTO in Practice  Alternatives: Global Free Trade versus Co-operative World  A More Participatory, Cooperative World Order  Conclusion   CONCLUSION  REFERENCES  INDEX  L  T, F  B BOX . What is free trade?  TABLE . Ricardo’s model  FIGURE . Harberger triangles  BOX . Consumer surplus  TABLE . World merchandise and service exports  TABLE . Growth rates of world trade and world industrial/ manufacturing production  TABLE . Trade ratios: merchandise exports as % of GDP  FIGURE . The r-curve  BOX . Some costs of development  BOX . CGE models  FIGURE . The relationship between trade and economic growth  BOX . The WTO in brief  BOX . GATS and the water monsters  BOX . The Banana War  BOX . Summary of arguments against Free Trade  A U CGE Computable General Equilibrium (mathematical models) EO(I) Export-Orientation (Oriented Industrialisation) EU European Union FDI Foreign Direct Investment GATS General Agreement on Trade in Services (of the WTO) GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product GNP Gross National Product HD Human Development HO Heckscher/Ohlin (theory of international trade) ILO International Labour Organisation IIT Intra-Industry Trade IMF International Monetary Fund IS(I) Import-Substitution (Industrialisation) IT Information Technology MFN Most Favoured Nation (WTO principle) NIET New International Economic Theory NGOs Non-Governmental Organisations OECD Organisation for Economic Cooperation and Development PPP GDP GDP (above) based on Purchasing Power Parities