The indifference of free trade

As Britain’s withdrawal from the EU finally approaches, we must shake off the indifference of our current leaders and confront head-on the question of industry and trade.

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Every rail journey tells a story, and the route from New York to Philadelphia is no exception. This ninety-mile route weaves its way through New Jersey and towards Pennsylvania, taking passengers past airports, suburban sprawl, wetlands and forests. But this trip also reveals a darker, more depressing scene — acres of industrial dereliction which should, ordinarily, shame any society.

The scale is breath-taking. Countless factories, which once stood as America’s workshops, now stand empty and defiled with graffiti. Once these solid, sturdy brick buildings with metal casement windows were full of workers and supported countless homes and families. Now they are empty and boarded up — monuments to the golden age of unionised post-war American industry.

The ultimate cause of this state of affairs — a pattern which we have reproduced in Britain — is forty years of indifference by those who govern us to what is made, where and by whom. Free trade ideology is the cause, and dereliction the result.

Friedrich Hayek’s liberal ideas possess an elegant theoretical simplicity, but when applied in practice for an entire generation they’ve resulted in the comprehensive gutting of the west’s industrial capacity. In return we’ve drawn in cheap goods produced elsewhere, often in near slave conditions.

This is a system which can’t determine the difference between cost and value, and pushed the U.K. into near-beggary amid the recent pandemic.

Free trade purists have persistently mistaken the short-term interests of corporations and their executives for the national interest. In reality, the two are quite distinct and they don’t always align: if a corporation decides to close a factory and offshore its production to China, the corporation increases its profits at the expense of the domestic jobs and communities it supported.

However, this pursuit of short-term profitability is also self-defeating for the long-run interests of corporations. Outsourcing jobs to cheaper labour markets undermines the economic foundations of the nation and hollows out our economy — in the absence of a corporation investing in the economy and its employees spending their wages on goods and services, growth has to be maintained through debt.

This is precisely the pattern we’ve seen play out across the west. In the U.S., the combination of household and government borrowing accounts for 74.8 per cent of corporate profits, and in Britain household and government borrowing accounts for 63.4 per cent of profits. Debt is being used not for productive investment, but as a crutch to consumption.

It’s worth asking why this happened. Ultimately, it is because the corporate class pursued its own interests against the interests of their fellow citizens.

The people who closed factories in New Jersey or Doncaster and shipped the jobs overseas put their own interests above society.

For them, the ties didn’t bind. Fellow citizens didn’t matter, and the idea of prioritising the interests of their countrymen was ignored and often treated as taboo. Christopher Lasch gave us a hint of this collapse of solidarity in his seminal 1994 book The Revolt of the Elites in which he argues that our elites have become tourists in their own countries.

According to Lasch, our elites morphed into 'world citizens, but without accepting any of the obligations that citizenship in a polity normally implies'.

The symptoms of the macroeconomic effects of de-industrialisation are persistent trade deficits. Up until the 1970s, politicians used to concern themselves about such things, but no more.

These persistent trade deficits have had consequences for the real economy. The basic equation of international trade helps explain why. Ultimately, our imports can only be paid for in three ways: by selling goods we make today, by selling assets we made yesterday, or by issuing debt. The net effect, therefore, of running persistent trade deficits is for a nation to own less and owe more.

In the long run, this strategy inevitably results in a society becoming gradually poorer and selling off its productive capacity.

Yet, the Conservative Party’s reaction to the basic arithmetic of trade deficits is to market the second category (selling assets we made yesterday) as something positive; as Foreign Direct Investment (hereafter 'FDI'). However, the FDI label is misleading. Rather than generating investment in new endeavours or industries, most FDI foreign investors taking equity stakes in long-established assets, businesses, or pieces of infrastructure — it represents a literal selling off of the family silver.

As Britain’s withdrawal from the EU finally approaches, we must shake off the indifference of our current leaders and confront head-on the question of industry and trade.

A sensible policy would be to reverse the globalist free trade model which has gutted our industrial capacity and weakened our resilience to shocks. Instead, the U.K. should pivot to a softer form of international trade which allows W.T.O. tariffs and some trade friction where necessary, and permits us to build a more sustainable and equitable economy.

It will involve mandating the Bank of England, the Treasury and BEIS to pursue policies aimed at strategically narrowing the U.K.’s trade deficit, increasing manufacturing from its current low point of twelve per cent of GDP and to reduce imports from their currently high level of thirty-two per cent.

Re-shoring, import substitution, re-industrialisation and factory openings must become the order of the day.

The generation who read Hayek and became free trade fundamentalists must confront the world they’ve created.

In much of the west its legacy is empty factories, beggared indebted households and, in the U.S., an opioid epidemic that is costing thousands of lives.

As you reach Philadelphia’s mighty 30th Street Station — a beautiful neoclassical cathedral to the railroad — you're reminded that magnificence can only be achieved if a society is genuinely willing to grasp it. The enemy is indifference.