No "Power Imbalance" Under Capitalism

Like Walter Williams and many others, I have a "trade deficit" with my grocer, and I agree with him that it is wrong to analyze foreign trade with that statistic. That said, an article that buys into that fallacy does make an interesting point about the United States and Canada as trading partners vis-à-vis Britain as part of the EU:

For thirty years, free trade conditions have existed between Canada and the US. If there ever was a situation where a power imbalance could lead to the abuse of one party by another, this would certainly be it. One country has one tenth of the other's population, and roughly one tenth of its GDP. The other is, arguably, the most powerful nation on earth by every measure.

The original Canada US Free Trade Agreement -- and its NAFTA successor -- did not harmonise currencies, courts or laws. There is no NAFTA flag, Parliament or anthem. There is no customs union, or equivalent of 'Norway+' or any kind of plus this-and-that. Any cursory reading of the history of these two nations would readily reveal that the United States places great importance in its ability to act independently of other nations, while Canada's history is that of a nation where sensitivity to American power and influence is ever-present. Any sort of union -- customs or otherwise -- would be unacceptable to either side. [bold added]

My discounting of the near-zero "trade deficit" that the author homes in on aside, both countries clearly greatly benefit from free trade. They do so, not because of the closeness to zero of the "trade deficit" -- a fictitious number which is merely an aggregate balance among individuals in the two countries -- but precisely due to the relative lack of bureaucratic constraints on commerce. Britain "[went] along to get along," harmonizing its laws with the bureaucratic EU, and was generally less free than either of the NAFTA partners to begin with. Or, to put it differently, it allowed government coercion to increase over commerce in the name of freedom. It might be helpful in this vein to recall that the idea of "economic power" is a dangerous equivocation:

Image by Frank Mckenna , via Unsplash, license.

What is economic power? It is the power to produce and to trade what one has produced. In a free economy, where no man or group of men can use physical coercion against anyone, economic power can be achieved only by voluntary means: by the voluntary choice and agreement of all those who participate in the process of production and trade. In a free market, all prices, wages, and profits are determined -- not by the arbitrary whim of the rich or of the poor, not by anyone's "greed" or by anyone's need -- but by the law of supply and demand. The mechanism of a free market reflects and sums up all the economic choices and decisions made by all the participants. Men trade their goods or services by mutual consent to mutual advantage, according to their own independent, uncoerced judgment. A man can grow rich only if he is able to offer better values -- better products or services, at a lower price -- than others are able to offer.

Wealth, in a free market, is achieved by a free, general, "democratic" vote -- by the sales and the purchases of every individual who takes part in the economic life of the country. Whenever you buy one product rather than another, you are voting for the success of some manufacturer. And, in this type of voting, every man votes only on those matters which he is qualified to judge: on his own preferences, interests, and needs. No one has the power to decide for others or to substitute his judgment for theirs; no one has the power to appoint himself "the voice of the public" and to leave the public voiceless and disfranchised.

Now let me define the difference between economic power and political power: economic power is exercised by means of a positive, by offering men a reward, an incentive, a payment, a value; political power is exercised by means of a negative, by the threat of punishment, injury, imprisonment, destruction. The businessman's tool is values; the bureaucrat's tool is fear. (Capitalism: The Unknown Ideal, p. 47)

Why do I bring this up? Because focusing on trade balances in this comparison seems quite likely to lead to (or reinforce) an incorrect conclusion: That the sort of trade agreement proposed as an alternative to the EU will lead to a more prosperous despite any other regulation of commerce Britain imposes on itself in lieu of the bureaucracy in Brussels. There is indeed "no NAFTA flag, Parliament or anthem," but there are plenty of individual nations with such trappings that hobble themselves quite effectively without the need to relinquish any part of their sovereignty.

The relative success of NAFTA is a direct reflection of the relative freedom of the individuals in each country and the fact that they are relatively free to trade within or across international borders as they see fit. Indeed, rather than arguing for "another NAFTA", we should, to the extent that these free trade agreements entail anything but promises not to tax or otherwise interfere with trade across a border, question the need to have "a NAFTA" at all.

-- CAV