Five reasons to worry about free trade

I AGREE with President Clinton. The Word Trade Organisation protesters in Seattle (and London) have a point - in fact, several points - that need to be taken on board by those of us who don't believe it is a great idea to turn over police vans and torch them.

The reaction of most people to the violence will be to side with the US police verdict that these are indeed the "forces of darkness". Anyone who recalls why the three institutions - the IMF, the World Bank and the Gatt, the forerunner to the WTO - were founded after the Bretton Woods conference in 1944 will feel that even more strongly. These institutions were designed to prevent the post-war world falling back into the protectionism and competitive devaluation that led directly to the Thirties depression and indirectly to the rise of Hitler. The rising prosperity that most of the world's population has experienced since the war could never have taken place without a surge in world trade and that surge in world trade would almost certainly not have taken place without those three bodies to police it.

As for the role of the WTO, it is a bit tough to blame it. It is the newest of the three Bretton Woods bodies, for though it was envisaged in 1944, international squabbles blocked its creation. The world had to make do with the interim body, the General Agreement on Tariffs and Trade, until four years ago.

So whatever you believe about the way the world economy has developed over the last couple of generations, it is hardly fair to blame the WTO. It hasn't been going long enough.

Why then should those of us who know a bit of economic history and believe passionately in the beneficial effect of world trade acknowledge that the protesters' ideas do need to be taken seriously? The answer is that there are several real concerns about the way the world is being changed by growing international flows of tradeand these concerns need to be tackled. We would each have our own list of concerns, but I'd push five to the top of the pile. Three of these are old ones - old in the sense that they have been around for at least 20 years. Two are new, brought about by the step change in communications technology that is taking place now.

The most obvious of the old ones is that there are losers as well as winners from the growth of international trade, and these losers tend to be more visible than the winners. The workers in the British car industry are a good example of losers. In the Sixties we were a substantial net exporter, but we have seen our own market taken over by imports. The result is that we as consumers have much better cars, but people connected with the industry have lost both income and jobs.

Just about every increase in international trade (and whereas in 1946 only 5 per cent of world GDP was traded internationally, now 25 per cent is) adds to the list of losers. The fact that society as a whole benefits is small consolation to them, and it is reasonable to expect society to make some recompense. We do; that is why government props up declining industries. But finding the right balance between buffering the social costs of change, and paying people to produce things no one wants, is a tough call.

Concern No 2 is the pressure on world resources created by rising living standards. The world aspires to the standard of living of North America and Western Europe, but if the world tried to live that way we would place an impossible burden on the resources of the planet. You can have a debate about the pinch-points on the environment that are most worrying, but it is inescapable both that the rich world uses a disproportionate amount of finite resources, and that the market cannot persuade it to stop.

Concern No 3 is the uneven way in which the benefits of greater world trade are spread. While many developing countries, particularly in East Asia, have used the potential to export to the developed world to propel them to developed status, others, particularly in sub-Saharan Africa, have failed completely to do so. You can argue that this is largely their own fault; that for a generation many such countries rejected the market system and pushed nutty Marxist programmes instead. But even accepting that point, the fact remains that there are parts of the world where the human and physical resources do not exist to get even a modest share of the increased global wealth. The world passes them by.

The two new concerns seem to me to be the increase in the relative power of financial markets, and the surge of information. Both in themselves are surely beneficial on balance. The increase in the private sector investment flows relative to public sector means not only that there is much more money available for international development. It means that the investment decisions are made by thousands of investors all around the world, rather than a tiny handful of people sitting in the capital cities of the developed countries.

As for the surge in information, suddenly at last the clever person with a PC sitting in Bangalore can compete with the clever person sitting in Boston or Berlin. Each can have the same kit to create intellectual products and distribute them for free anywhere in the world.

But there is, of course, a downside. Financial markets have the same weakness as democracies. They change their minds. Money is not only deeply cowardly, running away at the first sight of trouble; it is also capricious. Countries or companies that are perfectly properly run but happen to be in the same region as the duffers get hit along with the rest. Finally, even journalists have to accept that information can be misused. The new communications technologies in themselves are profoundly democratic. Anyone with access to the Internet can draw on the pool of global knowledge in a way that previously was open only to the government of a sizeable country, a top university or a multinational corporation. But people need skills to use the potential of the new technology. Those without those skills are excluded - and remember that many of the excluded are not in far-off developing countries, but in our own cities.

Other people may want to tack on other concerns about the way the world is changing; the erosion of power of national governments, perhaps, or the rising power of multinational corporations, or, indeed, the power of international organisations such as the WTO. These would be the conventional targets of the Seattle protesters.

I would argue that their guns are misdirected. The declining power of national governments is on balance beneficial, for it puts government under the same kind of competitive pressure that has forced the private sector to improve its performance. As for multinational corporations, there is at least as good a case to be made that their power is falling as the one that it is rising. And the poor old WTO? It is not really that powerful, either. Like the IMF and the World Bank, it has the aura of power, for large bureaucracies are good at making themselves look important. But these people are only civil servants, appointed and dismissed by national governments. These people are not the world economy. They do not even organise it. They only try to help it operate in a slightly more orderly way.