19th century activist could provide lesson to misguided trade protesters

It is unfortunate that British social activist Richard Cobden wasn’t able to make it to Seattle earlier this month to join the protestors who said they were concerned about justice and treatment of the poor.

He might have enlightened them with a moral insight that has been conspicuously absent in recent public debate about the WTO. Cobden knew that most trade restrictions are a regressive tax on the poor, and he spent much of his life in a passionate crusade to eliminate them.

Cobden has been dead for more than a century. But in the three decades preceding his death in 1861, the English-speaking world knew no more energetic or articulate crusader for social justice than Richard Cobden.

Born into poverty, Cobden earned wealth as a textile mill operator while still in his 20s. A devout Christian, he then used most of his wealth to crusade against import tariffs that raised the price of food and for efforts to promote international peace.

Cobden recognized that trade restrictions favored the politically powerful Tory party. He knew that import tariffs are essentially an excise tax on consumer goods. Taxes on consumer goods, particularly on necessities such as food, are generally very regressive, that is, they take a proportionately bigger bite out of the pocketbooks of the poor than of the rich.

Tariffs to keep British wheat and barley prices high did not hurt the traditional elites or the growing middle class. But they were a harsh yoke on the great mass of laboring poor.

The same is true today.

The United States participates in something called the Multi-Fibers Arrangement, a multinational agreement to restrict textile and apparel exports from developing countries to the wealthy countries. This arrangement raises the price of clothing in the United States.

Most studies conclude that it cost the average U.S. household of four about $350-$500 per year in higher clothing costs. This is a huge tax for working class families earning less than $10 per hour and buying clothes at K-Mart or Penney’s. It’s negligible, however, for those who can afford Burberry’s or Armani.

The same is true for restrictions on sugar imports that raise the price not only of sugar, but also of bakery products, soda, and any other food or beverage that contains sweeteners. Such restrictions take another $100 to $150 out of the pockets of a typical household every year. Again, this is only a double latte every second or third day for Silicon Valley yuppies, but a big bill for a single parent who cleans hotel rooms.

Such taxes on clothing and food might be justified if they raised the incomes of other poor people, but they do not.

A study in the early 1980s showed that consumers paid about $140,000 in higher clothing costs to protect one textile job in the U.S. that paid $18,000 in those days. There are much more effective ways to increase the income of the poor, ranging from adult job training to the Earned Income Tax Credit.

It was pretty clear that the Seattle meeting had a high possibility of failing even before it began. Congress is unwilling to give the current president “fast-track authority” to negotiate new trade agreements. By giving such authority, Congress retains its constitutional authority to ratify treaties, but agrees to vote either yes or no on the whole agreement and not pick and choose which details it likes or dislikes.

Some see this as an abrogation of democracy. But it is a practical necessity in that other nations are disinclined to spend time and energy negotiating an agreement including the U.S. only to see the Congress try to rewrite the treaty in response to domestic political pressures.

Moreover, there now are more fundamental differences among the United State, the European union, and the developing countries than there were before any previous round of trade negotiations. The time simply is not right.

There will likely be a lull before any new initiatives. This lull gives us an opportunity for a broad national debate on the pros and cons of international trade and investment, a debate on economic, social, political and moral costs and benefits.

Much rhetoric has centered on how the postwar trend toward freer trade only benefits multinational corporations and hurts everyone else. Most of the rhetoric is backed only by post hoc assertions such as one that CEOs’ earnings increased faster than those of manufacturing workers since NAFTA and the Uruguay Round were concluded.

Those opposed to trade already are making their case forcefully. Many argue, from very thin evidence and weak logic, that trade hurts the poor.

Economic theory and empirical evidence support the opposite conclusion. Restrictions on trade hurt the poor.

It is too bad that we don’t have a passionate Quaker like Richard Cobden to help make that case.

© 1999 Edward Lotterman
Chanarambie Consulting, Inc.