The Winners and Losers of Free Trade

Leo Timm
By Leo Timm
November 29, 2016News
The Winners and Losers of Free Trade

Steve Keen, author of “Debunking Economics” and lecturer at London’s Kingston University, explains the flaws in conventional theory and what a President Trump could do to reverse the process

According to conventional economic theory, free trade is a winner for developing and developed countries alike. That’s how globalists sold Americans on NAFTA and China’s ascension to the World Trade Organization (WTO), but that’s not how it played out.

Millions of lost manufacturing jobs later, frustrated American workers from the rust-belt states like Wisconsin, Ohio, and Michigan voted for Donald Trump, the first candidate in decades to oppose the free trade doctrine.

But why doesn’t free trade work? And what can a President Trump do to reverse the near complete offshoring of American manufacturing?

Mainstream economics cannot answer these questions. That’s why Epoch Times spoke to Steve Keen, author of “Debunking Economics” and lecturer at London’s Kingston University who was able to offer both an explanation and insights on how Trump could revive American manufacturing.

Epoch Times: Why doesn’t free trade work as advertised?

Steve Keen: What the neoclassical economists say is that workers in the losing industry can get a job in the winning industry.

They will admit there will be winners and losers, the steel industry in the United States will suffer whereas the textile industry will gain. The theory is that the winners compensate for the losers and there is more for everyone.

So it’s assuming full employment, everybody who wants a job gets a job, which is not the real world. And they also assume you can move resources from one industry into another. Workers can retrain, it is possible to retrain a textile worker into a steel worker. It takes time but it can be done.

In the case of China and the United States, the steel plants in the United States won’t become weaving machines; they just turn into rust. So what you have is absolute destruction of physical resources in one country. Or they ship the capital to the place where the low wage workers are, like China or Mexico, and what you get is a class redistribution of income. The workers in the developed country lose, the capitalists in that country gain.

Epoch Times: How could Western societies let this happen?

Mr. Keen: The motivation is profit, and the question is whether companies or the government would constrain their greed. You don’t if you don’t care what the workers think.

But in a democracy you get to the point where the workers have lost so much because of globalization, they get sick and tired of hearing the fairy tale that they won’t suffer and that it’s all for their own good. And they look at their decayed streets and factories and dismal jobs and lower share of income, and they say: “You know what, I’m going to vote against this.”

Epoch Times: Most governments in the West tried to paper over the job losses by expanding the welfare state. With the election of Trump, however, the workers don’t seem to be content with handouts anymore.

Mr. Keen: Yes, humans get their sense of self-worth by contributing to a community. If you are human and you are being paid for staying alive, you are not particularly happy about it, your sense of self-worth is pretty low. But if you have a job and can contribute to a community, that’s where your sense of self-worth is going to come from.

That’s why Trump has such an appeal, and they don’t care about him being politically incorrect. They like the fact he is like a human hand grenade. They threw the human hand grenade into Washington.

Epoch Times: So what can Trump do to reverse the process?

Mr. Keen: Once you have transferred all your capacity offshore, it’s very hard to reverse the process. You haven’t just lost the industrial capacity, you have lost the skill-base as well, you don’t have the engineers and designers anymore. They used to build news versions every year; now they are gone.

What he can do on the fiscal front is his plan to invest in infrastructure. If he goes into this massive program as he has talked about and insists on a made-in-America policy, which he will do, that will provide the financing for the reindustrialization to occur.

Because there is demand by the government and the components have to be manufactured onshore, capital needs to be invested and workers trained for the job. On top, you have the increases in productivity through infrastructure, another positive.

Epoch Times: What about automation?

Mr. Keen: In a well-functioning human society, that wouldn’t be a problem. The problem in a neoclassical capitalist system is that the workers lose out because their only source of income is wages. If there is no need for wages anymore, you don’t have an income anymore.

So we have to think about a post-capitalist income system. Trump is a right winger but not an ideologue of small government.

The conventional economic theory makes you think that way, reduce government as much as possible. Trump doesn’t seem to think that. He seems to be much more pragmatic in his attitudes.

This is a condensed and abridged version of the full interview published on Epoch Times. 

Featured image credit: Epoch Times

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