This article was developed as a case for free trade during the first Mulroney administration and published in The Gazette, Montreal, Tuesday, February 9, 1988.
As the final debate on free trade rages in Parliament and the nation, Canadians continue to be confronted by conflicting statistical forecasts about the future of our economy.
Some reports present attractive prospects for growth under a free trade agreement. Others paint disparaging pictures of lost jobs and dying industries. The growing mosaic of political, cultural and commercial opinion has probably produced more confusion than conviction.
Given a somewhat conflicting array of “hard facts” and “information based” reports from a wide variety of interested parties, perhaps we should take a moment the general question of trade at a more philosophical level.
Regarding the free-trade proposal Canadians might begin by reflecting on some generally accepted economic principles. The case for trade is really the case for specializing in certain types of production and trading for goods in which we do not specialize. Most economists agree that living standards would be drastically reduced if we tried to replace specialization and exchange with complete self-sufficiency.
Economists also concur that this principle holds true for exchange between individuals, cities, regions, provinces and, of course, nations. It works best when each party has an absolute advantage in producing one product compared with another. But, it still works if one party enjoys an absolute advantage in all fields of production; because, chances are, it has a greater advantage in some than it does in others.
Economic texts are full of examples of this principle. It is called “relative efficiency” or “comparative advantage” If the top attorney in town were also the best typist around, she is still unlikely to do her own typing. Since she can earn a higher income practicing law, she seeks to exchange part of her income for someone else to do her typing. As a result, more legal services are made available, more typing gets done and an additional job is created.
In the final analysis, specialization and exchange make more goods available to more people. In the long run the process of production is made more efficient resulting in more goods at lower prices. Viewed on a grander scale, this translates into a gain in the total output to be divided among nations; a larger pie, so to speak.
Nevertheless, nations do not always choose to trade freely. Tariffs, quotas and bureaucratic red tape are often put in the way of the free flow of goods across political borders. This prevents the full benefits of specialization and exchange from reaching consumers.
Still, some people defend protectionism on a number of grounds. They may say that the nation needs time to build a more diversified economy and that this cannot be done without protecting certain home industries; or, new national industries cannot survive unless they are protected from competition. They often launch a political and cultural appeal for national self-sufficiency.
Protectionist measures in pursuit of so-called economic sovereignty are justified through the imagery of contrived conflicts between small and large, us and them or Canadians and Americans.
In reality these divisions are simply a smokescreen for a much more profound conflict. That is the conflict between the past and the future, between our present industries and those that may one day replace them. As George Gilder has said, “It’s a struggle among established factories, technologies, formations of capital and the enterprises that may soon make them worthless.”
As economic history has often demonstrated, such new ventures are often unidentifiable and incalculable even by the most sophisticated economic forecasters. But they are as unstoppable as the wind and the sea. No tariff, quota or regulation could save the local buggy-whip manufacturer from the unpredictable ingenuity and fierce ambition of a Henry Ford.
Long-term growth means the replacement of existing plants, equipment and products with new and better ones. Protecting the old against the new may offer short-term political advantages in terms of money and support, but it will mean a static economic future and limited opportunities for our children.
William Brooks teaches history and economics at Lower Canada College. He is a director of the St. Lawrence Institute, which promotes the values of liberal democracy and free-market economics.