Wealth of Nations & the Adam Smith Institute

Buy the Wealth of Nations by Adam Smith.Following on from yesterday’s blog on world poverty, I’ve spotted self-proclaimed free trade supporters, the Adam Smith Institute, making a rather muddled case for the kind of agreements that most often freeze out the developing world.

‘Let’s say that America can buy radios from two countries’, says ASI. ‘It imposes the same tariff on each country’s goods – a level playing field.’ Well, not with American producers, but hey. In this example, America goes on to sign an agreement to remove tariffs from one country’s radios, giving that country a clear advantage. A good thing says ASI because, ‘bilateral agreements act as a healthy competitor to the World Trade Organisation process.’ Hmpf. In truth such agreements tend to be between developed countries or blocks of developed countries, like the EU, and they’re called preferential trade agreements for a good reason. They put everybody else at a disadvantage, by forming the kind of global cartel the real Adam Smith condemned in his Wealth of Nations.

The ASI answer to that is that the bilateral partners benefit. And they do. But ASI forgets that economic activity produces externalities; real costs to third parties. In this case somebody’s radio industry pays the price. Economist Jagdish Bhagwati has a book out detailing 400 of these agreements, which he calls a spaghetti bowl. A more accurate description would be barbed wire. If we faced up to the true cost of easy option preferential agreements and worked instead to create a level playing field for all – genuine free trade – the whole world would be a richer place.

Jack Nicholson didn’t say it best in Easy Rider; ‘They’ll talk to ya and talk to ya and talk to ya about individual freedom [free markets]. But when they see a free individual [market], it’s gonna scare ’em’

2 thoughts on “Wealth of Nations & the Adam Smith Institute

  1. I’m not sure we really disagree. Bilaterals have their problems. I’m a believer in unilateral, non-discriminatory removal of trade barriers. The question is whether bi-laterals have any merit, and I think that if nothing else is going to happen, I’d rather have the bi-laterals.

  2. Well I tend to agree with your analysis, although I can also see what Alex is saying – true free trade would be much better, but in the absence of that then bi-laterals are at least a beginning. Not an ideal situation, though.

    Unfortunately in the wealthy countries it sometimes seems easier to continue to dole out subsidies to poorer countries, rather than allow them to trade their way out of poverty. The wealthy democracies find it difficult to sell true free trade to their electorates, given the possible negative effects on employment in the short term. Democracy is great, and I wouldn’t have it any other way, but it does sometimes hinder market forces.

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