While anti-capitalism campaigners are up in arms against free trade, liberalists demonize protectionism as an obstacle to essential exchange. PROUT deems both protection and free trade to be necessary.

By Prabhakar Overland

The conventional view

Protectionism and free trade are regularly portrayed as the brake and the accelerator of economic prosperity. Which one is which depends on your perspective; localist or globalist. Since Adam Smith protectionism has been defined as economic policy that restrains trade by imposing tariffs, restrictive quotas, and other government regulations designed to allow for fair competition between imports and domestic produce.¹ Whenever there is a serious downturn in the economy, nationalist populists in particular tend to welcome protectionism.

Globalists, on the other hand, keep depicting protectionism as an ugly impediment to economic growth. Promoters of free trade seek to keep barriers to trade to a minimum. A recent ICITE report voices the standard globalist view of free trade: “Governments that foster open markets and resist protectionism have the best chance of stimulating inclusive economic growth and creating high-value jobs.”² Opponents of free trade say it hurts local economies. They often point out that capitalist free trade often has ill effects in other areas too, such as generating income inequality, causing environmental degradation, supporting child labor and sweatshops, wage slavery, accentuating poverty in poor countries, imposing foreign pseudo-culture, harming national integration including military defense, etc.

Conflicts

Since World War 2, conflicts over protectionism and free trade have been negotiated by specialized global organizations. The global trade authority at present is the World Trade Organisation (WTO) whose main intention is to liberalize global trade.[3]

U.S., Brazil hit on pragmatic fix to WTO cotton spat (Reuters) – The United States on Tuesday headed off a move by Brazil to impose penalties on a wide range of U.S. goods by offering concessions on an export loan guarantee program and said it would try to negotiate an end to a long-standing trade spat over cotton. The last-minute proposal came as Brazil was set to impose tariffs and lift protections on $829 million in U.S. goods, which would have been its right after a 2009 World Trade Organization ruling against U.S. cotton subsidies.[4]

The above example, where the U.S. decides to compensate Brazil in order to continue to subsidy its own production and export of cotton, gives an idea about the kind of underhand deals that are struck at the global level of capitalist trade today. More importantly, trade is object to wild speculation and profiteering more than ever through the mechanism of hyper-powered stock-exchanges and other sophisticated trading platforms that essentially have turned world trade into a device for betting and gambling for the 1%.

Reframing

PROUT seeks to alter the essential purpose of trade by changing the intent of protection and free trade, which remain the twin fundamentals of PROUT’s trade paradigm as depicted below: The figure depicts PROUT’s trade dynamics, where basic self-sufficiency of minimum necessities is secured domestically. The green arrow denotes development of domestic, regional and global economic democracy aided by both basic protection (blue arrow) and cooperative free trade (red arrow). Instead of viewing these basic building blocks of sound economic development in terms of capitalist market dynamics, PROUT applies them to the needs of ordinary people. By placing the two apparent antagonists within the framework of economic democracy, PROUT allows us to see them as complementary to each other and not as conflicting opposites.

Basic protection

The essential priority of a country is to secure basic goods and services for its citizens. Towards that end, PROUT suggests the application of protection in the form of two main policies:

1) Commodities, which are not locally produced, should be removed from local markets.

PROUT’s economy aims to develop local industries and create employment for the local population. It follows that those commodities, which are not produced within the local area, as far as possible should be banished from the local market and not be imported.

“It is essential that the local population utilize the commodities produced in their own area to ensure the prosperity of the local economy. Initially, local commodities may be inferior, more costly or less readily available than outside commodities, yet in spite of this, locally produced commodities should still be used by the local people. If local commodities do not meet the needs and aspirations of the people, immediate steps must be taken to increase the quality, reduce the price and increase the supply of local goods, otherwise illegal imports will be encouraged.”[5] Here PROUT focuses on the need for local people to be able to produce their own minimum necessities – food, clothing, housing, medicines and education. PROUT does not advocate blind parochialism, or seeks to deny local people good quality items, the latest technological gadgets, etc. that may be available in some other markets. Non-essential goods that are not available from local producers will be importable but the effort will be on producing them locally. “After all the requirements of the local people in a socio-economic unit have been met, the surplus goods may be exported, but only to a socio-economic unit which has no immediate opportunity or potential to produce them, in order to meet the requirements of the people in that unit.”[5]

2) Exporting local raw materials is not supported. Only finished goods should be exported under certain circumstances.

“Maximum industries should be developed in the local area according to the availability of raw materials or local consumption. This will develop the economic potential of a socio-economic unit by placing economic power into the hands of the local people and divesting outsiders of their control over the economy.”[6] “Raw materials must be immediately converted into manufactured goods at the place where they are available. The export of raw materials is a sign of an unhealthy economy in a country.”[7]

Cooperative free trade

In the same vein, PROUT sees free trade as essential to a progressive economy:

• Free trade should be encouraged once basic self-sufficiency is attained.

“Free trade will help facilitate increased prosperity and encourage economic parity among socio-economic units, and will increase cooperation between and stimulate mergers of socio-economic units.”[5]

• No import or export duties on consumable commodities.

“Free trade means that there should not be any imposition of export or import duties, and thus the prices of these commodities will benefit the consumers when they reach the market for actual consumption. 7]

• Overproduction in one place can be consumed by other countries or other economic units.

An example: “In India, excepting the Punjab and Haryana, there is underproduction of milk. In other states, common people cannot get a sufficient amount of milk. But there are many countries, such as certain European countries, where there is overproduction of milk. In England, Germany and Sweden the authorities even give orders or encourage the public to kill cows. If in these circumstances free trade is allowed among different countries, the countries having overproduction or underproduction can make respective adjustments among themselves so that the overproduction of commodities may be consumed by under-producing countries. In that case the concerned countries will be benefited.”[7]

• As far as possible barter should be the basis for trade among self-sufficient socio-economic units.[6]

“Barter trade should be conducted between trading units so that no net loss occurs to either of the trading partners. Barter agreements in foreign trade are especially beneficial for those socio-economic units which have very few commodities to sell but a large number of commodities to buy, and their saleable commodities, though few in number, are large in quantity. Where there is a plentiful supply of local raw materials, industries can be developed for local demand according to local consumption, and if applicable the surplus may be exported. The availability of raw materials will ensure the long term viability of local industries.”[6]

• Commodities should be exported from one region or socio-economic unit to other regions or units through cooperatives and not by private enterprise.

“The exportation of commodities must not be motivated by profit. If there are insufficient raw materials in any socio-economic unit to meet the minimum requirements of the local people, the necessary raw materials may be imported from another socio-economic unit providing it can be carefully verified that the raw materials in the latter unit are surplus.” [5] “To eliminate dishonesty in business, free trade should be established throughout the world as far as possible and the speculative markets [stock exchanges and other capitalist trading platforms] of all countries should be immediately closed down.”[8] “Only where cooperatives are unfeasible because of the complex nature or small scale of operations, should it be undertaken by private enterprises. The distribution of commodities should be done through consumers’ cooperatives. Adequate safeguards for cooperatives will have to be arranged.“[5]

Conclusion

Under PROUT, protection and free trade are not first and foremost defined by tariffs and quotas. Neither are they subject to the cut-throat competition and violent recessions and depressions typical of the capitalist market. Instead they remain permanently adjusted factors of local, regional and global progressive socio-economic development. PROUT defines protection by fundamental principles of basic self-sufficiency, economic self-determination, decentralized economy, and economic democracy. As long as local minimum necessities are not met and local refining industry is not built up, basic protection remains a hedge against foreign exploitation. Likewise, PROUT’s system of free trade does not open doors for speculators and profit-seekers by removing toll barriers, etc. Instead it offers societies with only a marginally diversified resource base and also the economically disadvantaged opportunities to trade their surpluses. By trading with those in a corresponding situation, all kinds of economies may open up to mutual cooperation, natural growth, and eventual mergers of socio-economic units.

References

1 Wikipedia: http://en.wikipedia.org/wiki/Protectionism 2 “Policy Priorities for International Trade and Jobs”, by the International Collaborative Initiative on Trade and Employment. Released May 24, 2012. 3 Wikipedia: http://en.wikipedia.org/wiki/World_Trade_Organization 4 www.reuters.com/article/2010/04/08/us-usa-cotton-brazil-idUSTRE6374Z920100408 5 “Decentralized Economy – 1”, P.R. Sarkar, PROUT in a Nutshell Part 21 and Proutist Economics 6 “Socio-Economic Movements“, P. R. Sarkar, A Few Problems Solved Part 9 and PROUT in a Nutshell Part 13 7 “Economic Dynamics”, P.R. Sarkar, A Few Problems Solved Part 9, and PROUT in a Nutshell Part 13, and Proutist Economics 8 “Various Occupations”, P.R. Sarkar, Human Society Part 1. Copyright The author 2012