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  1. Election 2024
3 October 2016

What Liam Fox forgets when he talks about the greatness of free trade

China and India didn't transform thanks to economic liberalism alone. 

By Alison McGovern

Liam Fox. Oh Liam Fox. What an utterly bitter irony that your defence of free trade last week never implied a defence of the European Union – the biggest trading bloc in the entire world.  In a speech that read like a cheap economics primer, the Secretary of State for International Trade gave us the greatest hits of the efficiency of exchange. As if those of us who campaigned for Remain somehow needed to be reminded of the virtue of trade, when trade itself formed our central argument ahead of 23 June’s vote. 

Or as if yesterday we didn’t also see stark warnings from Nissan about the future of much needed investment in Sunderland. We knew Brexit would hit our ability to trade. What is needed now is not a proselytising lecture, but an action plan from a Tory Government that looks bewildered in the face of events.

Could it be coincidence that his words contained more than a whiff of the cold-war-era rhetoric of markets-as-freedom? We know what Tories do when they are in a fix: play the greatest hits of Margaret Thatcher. Tell me if this on trade doesn’t sound just like her:

“Our nation was built upon it, helping us spread our influence around the world exporting not only goods but ideas of commerce, law and liberty.”

Britain. Exporting freedom around the world since 1858.

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But Fox’s speech yesterday missed the point from beginning to end. Take his opening, citing Kirkcaldy’s Adam Smith, hailed as the author of the free trade maxim that we are all economically better off if we act in our own self-interest.  

However, like much British history, Smith’s writings are more complex than they are made out to be. Right-wingers quoting Smith often gloss over the anti-colonialism of his work, and ignore his other great work, The Theory of Moral Sentiments, which opens with the words:

“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”

People, by their nature, care about the well-being of others. British internationalists on the left owe as much to Smith’s work as market economists.

And then there are the factual problems with Fox’s speech. The growth of China has indeed represented many of the gains against extreme poverty over the past twenty years. But were those gains brought about by free trade? Hardly, in any simple sense. Fox specifically references that free trade has radically reduced the cost of electrical goods. It has. But the role of China in producing consumer goods – which lowered costs for middle-class consumers around the globe – can hardly be seen as Smith’s invisible hand in action. Much more the firm and visible hand of the Chinese state.

Then take India, of whom Fox says:

“In 1993, around 45 per cent of India’s population sat below the poverty line; in 2011 it was 22 per cent – and it is no coincidence that in the intervening period India embraced globalisation and started to liberalise its economy. Ask yourself whether there has been a greater emancipator of the world’s poor than free trade.”

Sadly, Fox misses the point yet again.  It just isn’t the case that liberalisation universally reduced poverty in India by 20 percentage points.  The whole country has the same trade policy, but poor states like Manipur, Jharkhand and Chhattisgarh still have poverty rates of above 35 per cent. Goa and Kerala meanwhile, see only 5 and 7 per cent respectively of their population live below the poverty line. Trade matters. But it is hard not to conclude that the relatively powerful state governments of India might also have played (or not played) a role in ending Indian poverty too.

And finally, there is a further terrible irony in Fox’s contribution. As a leading Brexiteer, and campaigner for free trade, it is impossible to see that Brexit win implies massive support from the British public for unadulterated free trade that Fox is arguing for. In fact, it is the opposite. The major reason for the Brexit vote cited by so many is to limit further immigration. But restricting freedom of movement is precisely a restriction of free trade – it is a restriction of where you can trade your labour for pay.

As Fox himself puts it:

“The idea that governments should restrict the right of individuals to exchange their hard work for goods and services at an agreed price in an open market is one of the gravest infringements of personal liberty I can think of.”

Now whilst this is clearly nonsense – the minimum wage is a limit to the right to trade your work for any price in an open market – sadly it is the exact opposite view to that which says that the Government must control where and to who we can trade our labour for the market price. The 52 per cent were promised we could “take back control”, not give it away to market forces.

This speech, though, is not just wrong. It was a completely wasted opportunity.

In many ways – other than the risk of trade barriers – the most important long-term challenge to the British economy is the one that Fox mentions towards the end of his speech, and even then, only fleetingly. That’s productivity. This is the bare fact that per capita, we make less per hour of work than other countries do. And this matters hugely now.  If Brexit has made us all poorer (this is the real effect of the drop in the value of sterling), improving productivity is one thing that could make us all richer. The childcare challenge is stopping too many people see promotion and a better job, and our transport system always lags behind in investment terms.  And these problems are within the gift of the UK Government to deal with. I simply don’t know what they are waiting for.

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