Fall, 1997

From the Editor

Expansion Equals Prosperity

The political institutions of the United States were not primarily designed to ensure the efficient function of government. These institutions were developed in the crucible of the American revolutionary experience in which King George III of England was perceived as tyrannical, and a proximate goal in designing the American governmental system was to make the development of such tyranny difficult.

This quest to avoid tyranny led to an ingenious political structure characterized by a diffusion of power between the states and the federal government and a separation of powers between the executive branch of the federal government and the legislative and judicial branches of the federal government.

How frustrating – indeed, almost anarchical – must the situation look to non-U.S. governments and even businesses looking for clear guidance as to American policy. Just look at the current heated debate on “fast-track” authority for the President.

Dating back to the time when the North American Free Trade Agreement (NAFTA) was negotiated between the U.S., Canada and Mexico, it was widely assumed that Chile would be next to join the association. Indeed, the Chilean membership would be the launching point for an eventual expansion of the free trade agreement to include all of the Americas.

Chile is a relatively small country, which already runs a $2 billion a year trade deficit with the United States. Chile is a stable political democracy and has an innovative capitalist economy. Chile has few enemies in the U.S. Indeed, even agricultural disputes are moderated greatly by the fact that Chile’s southern hemisphere location is principally used to produce counter-seasonal product when such produce is not generally available in the U.S. from domestic sources.

Yet, Chile’s otherwise unobjectionable participation in NAFTA has gotten caught up in the maelstrom of separation of powers in the U.S. All treaties negotiated with foreign governments must be submitted by the President to the Senate for ratification. In many cases legislation must pass both the House of Representatives and the Senate before a treaty can be implemented.

However, few governments would chooses to negotiate with the U.S. knowing that the country’s arduously negotiated agreements would be subject to not merely ratification but amendments.

After all, such a process gives opposition legislators and various special interests an opportunity to renegotiate compromises that have previously been settled via negotiations with the executive branch.

To deal with these facts, Congress has, since 1974, granted the President “fast-track” authority. Under this authority, foreign trade agreements are subject to a yea or nay vote in Congress, with no opportunity for amendments. This authority has lapsed and Congress has, up to now, refused to renew such authority.

This has little to do with Chile and much to do with a general frustration about competing with the rest of the world. As a country of almost unimaginable wealth, the United States has chosen to spend some of its wealth to enhance the environment, ensure food safety, protect workers, etc. Yet these rules are, of course, not implemented by every country in the world.

In truth, the arguments against free trade made by political opponents in the U.S. are disingenuous. In truth, few ever come out and oppose free trade. The economic consensus that free trade is a powerful force for prosperity is simply too strong for politicians to want to be on the wrong side of the issue. So the opposition attempts to add a caveat: trade must be free…and fair. Yet fairness is a chimera. As best as one can determine, free trade opponents insist that every country must be like the United States before we can have fair trade. Such opponents forget that part of what makes trade desirable is that different countries are at different stages of development.

Of course, other countries will have different standards for labor, for pollution control, etc. The United States itself had different standards when it was in a different stage of development. After long experience with foreign aid, the slogan “trade, not aid” has been adopted by most attentive thinkers as the surest and most cost-effective route to worldwide economic development.

In the end, the debate over fast-track authority for the President is the last gasp of mercantilism. It is the almost plaintive wail of those who reject the world becoming more complex than they can understand, or control.

The glory is that what is good for the world really is good for the United States. There are markets that are inaccessible to the U.S. because the people are too poor to buy U.S. products; it is only with the expansion of prosperity that markets for U.S. products can expand.  EXP