February, 1993

Fruits of Thought

I Support Free Trade

Free trade is really a relatively simple concept. That is why the fact that our “free trade” agreements, running into the thousands of pages, should clue everyone to the truth: Neither the existing treaties, such as with Canada or with Israel, nor the proposed agreement with Mexico, are really free trade agreements. Even after all the phase-in periods, doing business with other countries does not resemble doing business among the several states of the U.S.

This being said, we should acknowledge that we don’t want the best to become the enemy of the good, and there are still many positive things to come from these free trade agreements.

The big question, of course, is what President Clinton will do, first in terms of the free trade agreement on the table with Mexico, then in terms of expanding the agreements to countries such as Chile, which has already requested a free trade agreement with the U.S.

The economics of free trade are not really questioned. Almost every economist recognizes the merits of allowing people to freely trade in terms of a strategy for maximizing wealth. Even those who might argue that government can help the economy by protecting certain “sunrise” industries against foreign competition are forced to admit that governments rarely are so enlightened as to A) know what the “sunrise” industries of the future will be and B) to resist the political entreaties of those people who are quick to associate their personal interest with the interest of the country.

Free trade is one of the most difficult issues for a politician to support. The problem is that the “losers” from such a policy are usually clear and specific, and the “winners” are often unknown and more generally distributed. As a result, the losers tend to be highly organized and very vocal and passionate on the issue. The winners much less so.

The strategy on the Mexican free trade agreement has been to identify winners by industry to build support for the agreement. In the produce industry, for example, the effort has been to gather segments of the industry who might be winners, say apple shippers who could export to Mexico, to try to counterbalance losers, such as Florida winter vegetable growers.

This strategy has its limits though, both psychologically and with regard to policy. Psychologically, the prospect of possible gain doesn’t quite rouse the passions the way a prospective loss does. Many studies have been conducted on this and they are fascinating. For example, there is a common study where people are given $50 to spend on a sporting event, etc. Very few people use the money to by a ticket to the event. But give people the ticket and then offer to buy it from them for $50, and few will want to sell it. It is sort of a bird-in-the-hand situation.

All this means people who own and work for industries that might benefit from free trade will rarely be as dedicated to fighting for it as those who feel they may go out of business or lose their jobs as a result of free trade.

I suppose textiles might be the classic example. U.S. textile makers claim that free trade could lead to the flooding of U.S. markets with inexpensive imported textiles, that the imports could sell for half the price of U.S. textiles, and so the U.S. textile producers would all close.

This type of example should be examined with a skeptical eye. It turns out that the cost of labor is only one and not necessarily the most significant of factors affecting cost of product and location of production.

In addition, factors such as nearness to customer base, nearness to management and others, all enter into decisions to relocate production. It’s not at all clear that production will be relocated with such certainty.

But even assuming people in the textile industry are correct and everyone in America will buy inexpensive foreign-made clothes rather than more expensive U.S.-made garments, just think about the billions and billions of dollars that, collectively, every family in America would save. Then think about all the products and services these people would spend these billions on!

The problem is those who would enjoy the diffused benefits of free trade sit on the sideline, often unaware they would benefit, while those who bare the concentrated costs participate politically to an extraordinary degree.

The truth is that though produce industry associations have been quite active in Washington working on this issue, by and large, the industry has been relatively quiet. The Florida Fruit and Vegetable Association has been quite vocal, but it represents not just fresh but processed companies, and orange juice is one of the big tariffs that would fall under the agreement.

It is never easy to see your business threatened, and, as a produce industry publication editor, I certainly cannot be indifferent to the effects of free trade on some producers. But it seems to me that resolution has to come, not from suppressing the opportunities of others but instead by broadening all of our horizons. I don’t think the world allows the luxury of waking up in the morning and knowing that we can do things as we did last year. If I am a publisher, I may have to transform my product to meet current industry needs. If I am a grower/shipper, I may have to grow and ship from different places and find new uses for old land.

It’s not easy. I don’t mean to make it sound that way, but when Bernard Baruch was asked what would happen to the stock market, he answered with the only correct answer: it will fluctuate. So do human needs, and so must business people’s way of meeting them. If that is uncomforting to many of us, it is also inspiring, for it means that there is always opportunity for change and for growth. That’s a society I much prefer to the stagnant certainty of the closed market.  pb