FAIR TRADE AND THE NATION-STATE

 

Erle Frayne D. Argonza

 

[Writ 23 March 2008, Quezon City, MetroManila]

 

In a recently written book by me titled Fair Trade and Food Security: Framework and Policy Architecture (Kaisampalad, 2004), I was able to gather clear evidences of the failures of free trade policies. Not only free trade but the whole policy regime of economic liberalization—that paved the way to globalization—had downgrading effects on our currency, agriculture, and industry here in my home country.

 

I argued right then for a policy reform in the direction of fair trade. The totality of policy change should be the re-crafting of the entire policy architecture, which if commensurately followed can become fitful guides for foreign policy and diplomacy.

 

In the light of the massive acceptance of liberalization policy frameworks in the 80s and 90s, I gave their advocates a chance to prove the potency of free trade and laissez faire in general. In the long run, free trade is unsustainable, and can only be perpetuated, as shown by the experiences of the previous centuries, by imperialism.

 

Autarchy, which was experimented in the Hapsburg empire, is more of a hermitage option that can work only if, as the Hapsburg had fittingly shown, the domain for intra-trade exchange and distribution is large enough. The option, even for nationalist economics, is for the conduct of overseas trade. But whether his has to be a free trade option is contentious.

 

The British Empire, which calls itself by the euphemy British Commonwealth of Nations, is still alive today. That empire was built precisely because it is the only way by which Great Britain, or England, can sustain its trading edge through the power of the ‘stick’. But this empire, the last among the ancien regime formations, is now crumbling, and cannot hold water for long as the member nations continue to assert their sovereignty.

 

Globalization based on free trade had already crumbled, as we can see. Unless there is another perception out there. It had failed. What I am arguing for now is that globalization can succeed only if it takes into consideration the interests of nations and marginal sectors within them rather than be based on the interests of a chosen few of financier oligarchs and their TNCs.

 

The contention from the article New Nationalism is shown en toto below.

 

Let ‘unbridled free trade’ give way to ‘fair trade’.

 

In the international trade scene, the President had declared it emphatically: “no to unbridled free trade!” Fair trade should be the game in trade, not free trade. This does not mean a full return to protectionism, which proved counterproductive in the past. Protectionism had only served rent-seekers, who did not engage in full-scale S&T innovations that could have propelled us to advance in product development, achieving world-class standards in many of our articles of industry & trade quite early. Returning to a regime of protectionism is surely out of the question.

 

Permit articles of imports to come in, employ this strategy to meet ‘commodity security’ and keep prices at competitive rates, while minimizing the possibility of shocks. This should also challenge domestic market players to become more competitive, precisely by engaging in dynamic research & development or R&D, resulting to higher-level product innovations (intended for the domestic market). Meanwhile, continue to institute a regime of ‘safety nets’ and strengthen those that have already been erected. However, where ‘infantile enterprises’ are barely out of the take-off stage, e.g. petrochemicals and upstream steel, provide certain tariff protection, but set limits up to that point when dynamic R & D have made production more cost-efficient, permitting thereafter competitiveness in both the domestic and global market. The latest move of government to provide the greatest incentives on upstream steel, for instance, is a right move, as it will entice market forces to install our long-delayed integrated steelworks.

 

DOMAIN OF WEALTH OF NATIONS: BOTH DOMESTIC & OVERSEAS

Erle Frayne Argonza

 

[Writ 23 March 2008, Quezon City, MetroManila]

 

 

The antiquated debate regarding which domain should be the main source of national wealth—whether domestic or overseas—is still alive today. In the article of New Nationalism, I argued that in the emerging context of post-industrialism, this debate has become futile and unproductive. Instead of stressing a domestic versus international mindset, I argued for a both/and frame.

 

Admittedly, the overseas domain as a source of wealth is as palatable as it used to be during the era yet of the city-states of Northern Italy (Venice, Florence). This has become the backbone of mercantilism, which in turn became the backbone of nationalist economics. Old Nationalism henceforth carried the pro-mercantilist banner of seeking wealth primarily from international operations. But this time around, this position has to be revised in the light of import-substitution success.

 

In the Philippine case, we have been having it both ways. On the one hand, our manufacturing sector’s products are largely consumed 86% of the time for the domestic market, indicating the optimization of the import-substitution aspect of our development efforts. On the other hand, our overseas employment and investments have been churning out a whopping Net Factor Income from Abroad or NFIA worth 11% of the GDP.

 

New Nationalism, to my mind, should rather have it both ways, as culled from this and other parallel experiences in emerging markets. At this time particularly, Foreign Direct Investments or FDIs by Philippine-owned or controlled companies has begun to take off and contribute to our national coffers. Add to this our exports worth 40% of GDP, and remittances from labor export of worth 10% of GDP, and one can see the broad picture of the potency of the overseas domain as source of national income.

 

Below is the entire subsection on the domains of wealth production culled from the New Nationalism article.

 

Generate wealth from both external and domestic markets.

 

Various stakeholders in the past were divided along the question of what should be the driver of growth & development (demand-side discourse): the external, or internal market? The followers of the ‘externalists’ were the ones behind the export-oriented development strategy, whose rationalizations for massive exports were quite poor recycles of the mercantilist contention that wealth should be produced more from out of the external markets (colonies during the time of empires). The ‘internalists’ were the ones behind import-substitution strategies, whose rationalizations were poor photocopies of Keynesian demand-side formulations.

 

In today’s context, it is wiser to view both the external and domestic markets as synergistic spheres for accumulating national wealth and meeting head-on the demands for delivering welfare. The external market discourse can work only in circumstances where a domestic demand has failed to develop, which in our case was the pre-1990s economy. By the late 1990s, it was clear that a significant change had taken place on the demand side of our economy, as folks were buying a lot of articles of commerce at a time of crisis. The middle class population is rising relative to the entire population, whose households’ needs have become more differentiated and have leaped beyond the bounds of ‘rice-and-galunggong’ expenditures. Today, Filipino families purchase around fifty-three percentum (53%) of their household needs from supermarkets, malls and large retail centers, even as the wet markets and sari-sari stores are declining in importance. These changes are real, and we cannot be blind to them by continuing to harp on an export-driven growth.

 

We must then fast-track large-scale redistribution schemes, such as to witness the rise in purchasing powers of our own people. This cannot be done outright during the next three (3) years, as we face a fiscal dilemma of crisis proportions. But beyond 2007 lies new opportunity fields. The fiscal route to stabilization will have been solidly achieved by then, and the nation can embark on more ambitious endeavors aimed at increasing incomes, reducing unemployment and poverty and increasing domestic consumption.

 

As the domestic market catches up in stabilizing the economy and producing national wealth, stakeholders shouldn’t be remiss in improving the competitiveness of our export products. Our great advantage is that we have ample supplies of skilled labor, with wages still relatively low. The power sector is also quite rich in supply of electricity, even as new projects are now being planned to neutralize possible supply problems in the short run. Hopefully, power supply would stabilize and electricity cost would decrease, contributing thus to rendering our exportable articles more competitive enough. Save for capital goods and petroleum, large volumes of which our producers continue to import, the other factors of production are within our hands to control and manipulate, inclusive of rent and interest rate. It is hereby argued that, with such factors controllable enough, we can optimize conditions for rendering our exportable articles maximally competitive and continue to permit the external market to be a source of substantial wealth. What more if we produce all of our essential capital goods, thus further bringing down the cost of production, given that the price of other factor inputs also go down?

 

SAVE THE PHYSICAL ECONOMY

Erle Frayne D. Argonza

 

[Writ 23 March 2008, Quezon City, MetroManila]

 

Globalization is not only destroying the nation-state. It has also been destroying the ‘physical economy’ that is the economic foundation of the nation-state. All in the name of the greed of the financier oligarchs, who bred the monstrous ‘virtual economy’ founded on predatory finance.

 

The New Nationalism, as contended in my meaty article on the same, argues strongly for a restoration of the physical economy of affected nations. The USA, which produces 22% of the world’s gross economic output, is now in the phase of advanced decay as its physical economy had been looted and eventually destroyed by predatory financiers. There is now way that we citizens of the global community can’t be concerned about this, as the eventual crumbling of this megalithic economy will redound to global economic turbulence that can lead to global war.

 

In East Asia we all witnessed the horror of the economic meltdown in the late 1990s. Though the impact of that meltdown is hardly felt today, we saw the horror of it just the same. We peoples of the region simply felt so helpless as the contagion smelted the mightily growing economies here, beginning by destroying the currencies and ending with the crash of the physical economies.

 

Incidentally, East Asia has a better chance to weather the storms being caused by predatory globalization. The physical economy here has better chances of being secured, even food security has better chances of crystallizing contrasted to the crashing economies of the USA and Europe.

 

The lesson should be clearly read by every development practitioner: destroy not thy physical economy if you want peace and development to go on in sustained levels. Absent the physical economy, and the nation will crumble, leading to civil disturbances and uprisings and even to global conflicts among the world powers.

 

Below is the entire subsection regarding the physical economy culled from the New Nationalism article.

 

Continue to stimulate growth through the ‘physical economy’.

 

This writer strongly argues that the greatest driver of the economy must be the ‘physical economy’. By ‘physical economy’ we refer to the combination of (a) agriculture, (b) manufacturing, (c) infrastructure, (d) transport and (e) science & technology (S&T) whose results further induce ‘production possibilities’ in the sectors a-d. An economy that is prematurely driven by the service sector, growing at the expense of the physical economy, will create imbalances in the long run, failing in the end to meet the needs of the population. A premature service-driven economy would be subject to manipulations by predatory financiers, who would do everything to destroy the national currencies and consequently the physical economy of the nation as well. An economy driven by derivatives and every kind of speculative pursuit is a ‘virtual economy’ such as what has dominated the USA since the era of Reaganomics.

 

I would hazard the thesis that our national economy moved to a service-driven phase prematurely. Look at all the fiasco after our ‘physical economy’ had rapidly declined in GDP contributions since the early 1990s, as the service economy advanced in its stead! Relatedly, the over-hyped Ramos-era ‘Philippines 2000’ economy was largely a ‘bubble economy’ driven by speculation and portfolio capital, and was more in kinship with the ‘virtual economy’ than any other one. We have not fully recovered from the bursting of that bubble, even as we are now threatened with another bursting of sorts—of the debt bubble, leading to fiscal crisis.

 

It pays to learn our lessons well from out of the immediate past experiences. And the clear message sent forth is: get back to the physical economy and re-stimulate the concerned sectors, while simultaneously perfect those services where we have proved to be competitive, e.g. pre-need sector, retail, restaurant/f&b. We should also strive to learn some key lessons from other countries’ positive experiences such as China’s, whose economy continues to grow enormously, and grow precisely because it is the physical economy that primarily drives it up and lead it—at an enormously rapid rate—towards development maturity, permitting China to outpace the USA’s economy on or before 2014 (using GDP Purchasing Power Parity indexing).

 

NEW NATIONALISM: BASIC CONTENTIONS

Erle Frayne D. Argonza

 

[Culled from: E. Argonza, “New Nationalism: Grandeur and Glory at Work!”]

 

Being an advocate of new nationalism or neo-nationalism, I outlined in the original article a number of contentions about this emerging ideology. I would prefer to treat the body of ideas as ‘policy framework’ than as ideology, given the new trend to veer away today from anything ideological.

 

1.      Strong nation can thrive and grow amid globalization.

2.      Make room for value-based and integrated frameworks.

3.      Go back to basic needs.

4.      Shift intervention from the ‘provider state’ to the ‘enabler state’.

5.      Promote synergy with civil society in the development path.

6.      People are the most important assets, revise accounting systems.

7.      Evolve from ‘capitalist markets’ to ‘social markets’.

8.      Continue to stimulate growth through the ‘physical economy’.

9.      Generate wealth from both external and domestic markets.

10.  Let ‘unbridled free trade’ give way to ‘fair trade’.

11.  Continuously open the market to external investors.

12.  Concur stewardships with communities affected by extractive industries.

13.  Strengthen national banking and the monetary system.

14.  Reform the international financial system.

 

I will elaborate on each of these contentions in some other pages later.