When someone asked the first American economist to win a Nobel laureate, Paul Samuelson ‘what is the economic concept which is most true and least obvious’, the professor replied: ‘comparative advantage’. Imam Ghazali, mostly known in liberal circles as an enemy of free thought, had discovered the principle of exchange based on comparative advantage as the foundation of all trade about 1000 years earlier than Samuelson and 800 years before Ricardo. Quoted in Encyclopedia of Political Economy, Imam Ghazali had said:
“…farmers live where farming tools are not available. Blacksmiths and carpenters live where farmers are lacking. Naturally, they want to satisfy needs by giving up in exchange part of what they possess. Farmers bring produce to markets and anything unsold or unexchanged is sold at a lower price to traders who store the produce and sell at a profit. True for all kinds of goods. The motive is profit.”
For Tom Palmer, who was speaking at a seminar under Economic Freedom Network here at Karachi yesterday, comparative advantage is the building block of trade. For him, free trade, and not trade restrictions, will guarantee peace and prosperity for both India and Pakistan and restricting imports would always have a negative impact on our exports, thus bringing the overall trade volume down. Quoting a recent study, Tom Palmer suggested a robust inverse relationship between trade volume and probability of war.
Addressing the seminar, Dr. Palmer suggested that protectionism is based on a mentality and a corresponding set of policies that emphasize the opposing interests of nations. Free trade, in contrast, links nations together in peace. Referring to an old adage, Dr. Palmer reminded: when goods cannot cross borders, armies surely will. Dr. Palmer termed trade „at the very foundation of human civilization.“
According to Tom Palmer, the most common error of protectionists is to confuse absolute advantage with comparative advantage. Dr. Palmer suggested that if in a system profits are private and losses are public“, then it is not a free market economy system.
Tom Palmer’s speech was followed by comments from two eloquent and leading persons in their fields: the women rights activist Najma Sadeque and the economist-economist Dr. Kaiser Bengali. Najma attributed income gaps and absolute poverty to the exploitation by British Raj thus depriving Indians of the fruit of their labor. Najma considers concentration of wealth, food insecurity, and exploitation by MNCs as fundamental reasons of resisting free trade.
Dr. Kaiser Bengali, the architecture of the conditional cash grant Benazir Income Support Program, thought that while comparative advantage is a helpful principle, it does not explain the role of endowments. Bengali also intelligibly proposed that under a pure free market economy and free trade, it becomes very difficult for the new entrants to enter a business because the existing businesses could, thanks to economies of scale, produce at a much lower average costs, thus making the products of new entrants non-competitive.
For Bengali, free trade between the countries that are not equal is not workable as, for instance, the under-developed countries will continue to export only raw material whereas the developed countries will continue to produce value added while continue selling them back to the poor. Bengali also believes that the real factor behind the rise of East Asian economies like Japan, South Korea and Vietnam is not free market economy, but public finance resting on the US investments aligned with its own cold war strategies. Finally Kaiser Bengali suggested that instead of debating capitalism vs. socialism, we need to debate our peculiar socio-political milieu that defines our incentive structure to a great degree.
If one were to believe Kaiser Bengali’s take on the East Asian miracle, than we will have to stop calling them Asian tigers instantly and should call them Tigers in a statist cage. If one were to wait for the countries to become equal before they should start trade, it will surely mean no trade between these two countries will take place as equality will never arrive and absence of trade between two unequal countries would increase the inequality. If one were to accept Najma Sadeque‘s interpretation of history and hold the British Empire responsible for the economic deprivation of Indians in general, one will have to forgive Mughals for historically ignoring the plight of their subjects over centuries.
To conclude in speakers own words, “the choice we have in front of us is this: choose free trade or introduce more trade restrictions.” Nowhere was this choice was clearer than Najma Sadeque proposition that ‚trade is not a substitute‘ and just a complement in various tools adopted by the state, which may be used at country’s discretion. For Tom Palmer, trade is at the very center of human civilization that defines our future. We will take this second option.
If discourse should be used to convince each other, than we ought to rely on data to support our argument. Biased interpretations of history, casual observation in a street, and personal feelings do not augur well in the course of discussions as reliable instruments of research. If this simple principle is followed in our discourse, we will see both value and results arising out of deliberations. Perhaps, EFN Pakistan has taken the crucial first step towards that. Tom Palmer would be taking his own steps across the Indo-Pak border at Wahgah in a few hours, where he will be participating in Freedom Caravan by our friend Parth Shah’s Center for Civil Society.
For now, good bye to Tom Palmer. Shukriya!