Putting principles into practice

Free trade good, protectionism bad, is a summary of how most economic textbooks address the area of world trade.

Almost any graph you look at will show that, both in manufactured goods and primary products, growth in world trade has increased since the removal in the 1950s and 1960s of many of the tariffs that had been in place. Graphs of the period before that show that world trade fell during the 1930s (although, in reality, the Depression probably had as much to do with that as tariffs).

Most economists believe that free trade and free-trade areas are good for growth and for the world economy as a whole, and most politicians - when not faced with protesting workers who are worried about cheap overseas competition - seem to like signing free-trade agreements.

George W Bush certainly thinks so - at the Summit of the Americas he said that "trade not only helps spread prosperity but trade helps spread freedom". His statesman-like demeanour was presumably somewhat rattled by the protesters outside - supported by Fidel Castro who, not surprisingly, wasn't invited to the summit of 34 countries of the Americas - who disagreed that trade either spread prosperity or freedom and who claimed that an American free trade zone would benefit big corporations and not the poorer paid workers.

Once again the news reports showed suited politicians looking appropriately serious, while casually clad protesters looked, well, appropriately anarchic, I guess.

The trouble with free trade is that it's one of those wonderful principles that gets dramatically altered in practice. A country may be part of a free-trade area but still make it difficult for exporters to get their goods on the shelf without ever slapping a duty on them. The idea of no tariffs or protectionist measures may well help the flow of goods and services. However, the protesters are also right to say that it will be a bonanza for large corporations whose economies of scale may mean that local industries get squeezed out once the new companies come in.

I'm never quite sure of how I feel about global corporations. On one hand, they bring employment to areas where, perhaps, there had been no major employer before. On the other, their insatiable appetite for constantly increasing profitability may bring short-term employment but very little else to a region.

Despite bringing this employment, some of the big companies also have less-than-perfect records as far as pay and conditions are concerned. And they can just as easily leave when it becomes cheaper to set up business in another country, whether or not they've driven out the local businesses in the meantime.

I still remember the trip I made to the Dominican Republic a couple of years ago and which I wrote about in this column.

The major employer was a tobacco company. The employees were all chain smokers. The company paid twice as much as any other employer. The man rolling cigars in the factory had a hacking cough that appalled me. And in the cafeteria attached to the factory, the main drink you could buy was Coke.

While I support the principle of free trade I think the protesters have a point. But it's a point that will only win the battle the day that travellers to poorer countries don't want to see their favourite burger joint in the main town, or when investors look at measurements other than just share price to value their holdings.

Meanwhile, a battle (of sorts) has been lost by the technology sector, I see. It hardly seems a year since the damn Rich List was published but I suppose it must be. Now the tumbling of the dotcom billionaires from the list underlines, more forcefully than anything else, how things have changed in the cyber world over the past 12 months. Not only that, but Bill Gates has been replaced as the richest man in the world by S Robson Walton, the owner of the Wal-Mart chain.

So it seems that having a shop where people walk in, look at the goods and pay for them at the checkout can still be a profitable venture, which is surely good news for all those retailers who were being told that they were about to lose hefty chunks of money and customers to the on-line shopping experience (although you can, actually, buy on-line at Wal-Mart too). And, of course, the Dunne family still continues to make a healthy appearance in the Republic's wealthiest, despite the fact that you can't shop online with them yet.

Internet shopping was the ultimate free-trade experience - at least at the point of ordering. It didn't matter where the company you were dealing with was located, once they shipped to the Republic you knew that you could get something that was either unavailable or unaffordable here. Most Web-shoppers' first experience of non-free trade would have been when the customs slapped a tax on the latest gizmo that you'd ordered, thus making it less of a bargain than it first appeared. And, of course, if you bought clothes and they didn't fit there was the whole palaver of packaging them up and sending them back again. I tried it and I liked it but, for me, it'll never take the place of an actual shop. Things are never as simple as they first seem. Not for Wim Duisenberg either. Following the Fed's absolutely unexpected rate cut (two unexpected cuts, that's really pushing the boat out, my former colleagues will be getting very stressed by now), it appears that not everyone in the European Central Bank is as confident as its President that Europe will remain untouched by the slowdown in the US. European finance ministers - who'll be at the frontline if and when economies start to falter - are getting more edgy. Duisenberg wants to be in control and wants to be seen to be in control. Unfortunately for him, no matter what he does now, he presents an image of a man whose primary concern is how he is perceived, not how well he is doing. It may be a subtle difference, but then economies can stand or fall on subtle differences. That's globalisation for you.