The Standard (China)
The myth of free trade
What are we to make of the US State Department’s decision not to use Lenovo’s computers for security- sensitive work? It’s clearly a continuation of the attitude that saw CNOOC awkwardly blocked in its takeover bid for Unocal and the embarrassing kerkuffle over Dubai Port’s acquisition of US-based port assets. In this world of so-called free trade, do politics and business mix?
Monday, June 12, 2006
What are we to make of the US State Department’s decision not to use Lenovo’s computers for security-sensitive work? It’s clearly a continuation of the attitude that saw CNOOC awkwardly blocked in its takeover bid for Unocal and the embarrassing kerkuffle over Dubai Port’s acquisition of US-based port assets. In this world of so-called free trade, do politics and business mix?
One of the many things politics and business have in common is a sense of paranoia. Both politicians and corporate bosses fear being out of control of any given situation. As a result, both devote considerable effort to maintaining a white-knuckled grip on whatever levers of power they can grab.
Free trade, whereby politics and business are mutually exclusive pursuits, effectively loosens this grip. It’s one reason why free trade doesn’t actually exist.
Asian countries have for decades openly mixed business and political agendas into a cocktail that has had its successes as well as its faults.
The rise of Japan’s zaibatsus and keiretsus, of Korea’s chaebols and of China’s lumbering state-owned sector are testimony to the prevalence, and mighty force, of the progeny of business and politics.
But, these are just some of the more high profile examples. Most countries, including those in the West, have maintained industrial policies which have been entirely focused on identifying businesses most likely to grow, nurturing them, and helping them to grow, mainly to provide jobs and taxpayers - and perhaps a bit of glamour - for dowdy public servants.
There need be nothing wrong with such policies. It’s totally appropriate that governments seek to protect their constituents. That can go too far of course and become over-politicized economic nationalism or pork-barreling, but the point remains that some economies need help and good governments should be there to do it. Sometimes, that means closing the floodgates of trade and investment.
The coming of the free trade era put an end to many industrial policies as such (including tariffs and import quotas), but no country has entirely cut the ties between the private and public sectors. That the United States, the nominal home of the free trade revolution, can take such actions against Chinese businesses is evidence that industrial policy is alive and well.
Indeed, much of its impetus derives fear of the other, which in turn draws on the fact that the global markets and political networks are rife with distrust and deception. It’s a political closed loop of denial, subterfuge and misunderstanding.
Not exactly how a global system should be founded and nowhere near free. This is, in effect, one of the indicators of the lie of free trade. Free trade has never existed, even when trade was carried out between two people in a tiny village marketplace. Either the buyer or the seller, or both, has an unequal position. At least one party has an agenda. At least one of the traders is wary of the other to some degree, and generally the other one knows it.
Yet, everyone seems to keep assuming that a free trade environment can be banked on: that the United States will happily accept CNOOC’s dollars or Lenovo’s products. Then all go into paroxysms of shock and horror when it is revealed that free trade is a virtual reality at best.
Pro-free traders see open trade between unencumbered commercial entities as a kind of global solution, via which all problems, from poverty, to environmental destruction to the prevalence of war, will be eradicated.
That may or may not be the case. But the reality is that we will never know, as free trade, in its pure sense, has never and will never exist. It is a giant myth. As such, some degree of apprehension is an appropriate response to certain forms of foreign investment and trading.
Once we can confront the flimsiness of the free trade ideal and admit that every deal has varied implications, the sleight of hand that characterizes so-called global free trade might begin to be broken down and something called fair trade might yet emerge.
If China thinks it can undervalue its currency, fail to clamp down on brand pirating, keep an atrocious human rights record, or restrict foreign direct investment itself, and still gain free access to big international markets like the United States, it has another think coming.
The cases of CNOOC and Lenovo, with all their accompanying posturing, bluster and embarrassment, need not have happened as they did. Both cases reveal China’s misconceptions surrounding the concept of free trade and the nature of capital markets generally (recall the missteps of China Life and CCB for instance), which has led Chinese bureaucrats and business leaders to make naive and specious assumptions on its workings and on China’s place within it.
James Rose is editor of www.corporategovernance-asia.com