People's Democracy

AS the world economy sinks deeper into recession, the clamour from the advanced capitalist countries, especially the US, for further extending the ambit of "free trade" increases. In fact important segments of the US administration have even suggested that any opposition to a further imposition of "free trade" on the third world under a new WTO round is on a par with the terrorist threat to "civilization", and should be dealt with accordingly. The US Secretary of Commerce has put forward a seemingly persuasive argument in this context: periods of rapid growth in world trade are also periods of rapid growth in world GDP; to ward off the emerging recession and to revive growth in the world economy therefore it is essential that the growth of world trade be given a boost, and for this an opening of markets through the institutionalization of "free trade" to an even greater extent is necessary.

Let us consider the first part of this argument, namely that rapid growth in world trade causes rapid growth in the world GDP. This is neither empirically robust nor theoretically valid. Table 1 gives the decadal growth rates of world GDP and of world exports in volume terms.

It is clear from the Table that notwithstanding a revival of world trade in the 1990s the growth rate of world GDP kept going down steadily across the decades. Of course, the revival of world trade in the 1990s was essentially confined to the period 1994-1997, and after 1997 there has again been a slowing down of world trade, but the robustness of the empirical association between the growth of world trade and the growth of world GDP does remain questionable.

More importantly however even assuming that the empirical relationship is robust there is no theoretical reason to expect that it is the growth in trade that causes the growth in GDP; if anything the causation theoretically is the other way round, namely that growth in world GDP, brought about for independent reasons give rise to growth in world trade.

What we call international trade is simply a manifestation of the volume of transactions occurring in the world economy. Just as in the national economy the volume of transactions depends upon the level of output, and the growth in the volume of transactions depends on the growth in the level of output (and hence employment and income), likewise in the world economy as a whole the volume of transactions, of which, other things remaining equal, the volume of world exports is an indicator, depends on the magnitude of world GDP; correspondingly, the growth in world trade depends on the growth on world GDP.

It depends of course on other factors as well; that is, the "other things remaining equal" proviso does not necessarily hold. But in so far as there is an association between the growth of world trade and the growth of world GDP, the direction of causation underlying this association is precisely the opposite of what has been claimed by the US Secretary of Commerce: growth in world GDP is the cause of the growth in world trade.

But then the question arises: if the growth in world GDP is not caused by growth in world trade, then what is it caused by? Capitalist economies, especially in the monopoly phase, are at nearly all times characterized by the simultaneous existence of unutilized productive capacity and unemployed workers. In other words, they are demand-constrained systems, where the level of output depends on the level of aggregate demand; the rate of growth of output accordingly depends on the rate of growth of aggregate demand.

This may appear odd at first sight since demand after all must also depend on output, and its rate of growth on that of the rate of growth of output. There is however nothing odd or contradictory about the two propositions both of which are correct: demand has two components, an autonomous component, and an induced component whose rate of growth depends on the rate of growth of output. It follows then that the rate of growth of output depends on the rate of growth of the autonomous component of demand. Rosa Luxemburg had argued that for the capitalist world as a whole this autonomous component of demand consisted in the exports to the pre-capitalist sector. Others have attributed this autonomous role to two other factors: innovation-induced investment expenditure and to State expenditure (within which military expenditure is seen to have played a prominent role in post-war capitalism). In recent years, in the US in particular, an autonomous boom in consumption demand which is not preceded by an increase in output but which brings forth an increase in output (and hence further stimulates induced consumption demand) has been seen as causing the boom of the Clinton years.

Recession (in the sense not of cyclical but of protracted crisis) in the capitalist world economy, it follows, results from a slackening in the intensity of operation of these autonomous elements (or what the Polish Marxist economist Michael Kalecki had called "development factors"). The emergence of highly mobile international finance capital has undermined the ability of the capitalist States to shore up activity through their own expenditures; it has also encouraged speculation as opposed to investment, in the sense of addition to productive capacity, in the decision-making of private wealth-holders. And while a recession engendered by these factors was already underway, the autonomous consumption splurge has come to an end, partly because such splurges are necessarily transitory affairs anyway, partly because the speculative bubble on the stock-market that encouraged such a splurge has ended, and partly in the aftermath of the September 11 attacks. This has so completely snuffed out any hopes of a spontaneous climb out of the recession that Bush has announced an anti-recession plan consisting of an enlargement of the fiscal deficit by 85 billion dollars.

Thus the factors precipitating the recession have all lain elsewhere, and not in the slackening pace of the growth of world trade. Indeed, as already mentioned, the nineties have seen, if anything, a rise in the rate of growth of world trade even as world GDP growth has declined. The US Commerce Secretary's obiter dicta on slow growth in world trade causing slow growth in world GDP are therefore entirely unfounded.

Why then does he see things this way? The call for greater "free trade" is not a panacea for increasing "world GDP", but for increasing the output and employment in the advanced countries at the expense of the third world, by exporting unemployment to the third world. The so-called "free trade" after all is only a one way "free trade". It opens up markets in the third world while preserving protectionism in the advanced countries in a myriad ways: openly and directly as with the multi-fibre agreement, through differential tariff rates (where processed items attract higher tariffs than raw materials) as in the case of commodities like leather, and by invoking social and environmental standards. Moreover, in several areas of services where "free trade" is being negotiated, the third world's capacity to export is limited anyway, so that "freeing" of trade is synonymous with a one-way imposition of "free trade". And the same is true of a whole range of goods where the third world's technological capacity is either limited or is getting truncated by the institutionalization of technological monopoly through the TRIPS agreement.

What we have therefore is an attempt to perpetrate de-industrialization on the third world both in goods and service sectors by opening up their economies, in a repeat of the process that Rosa Luxemburg had talked about. But this process is not one that would raise the growth rate of the "world GDP"; it may raise the growth rate of the advanced segment of the capitalist world at the expense of the underdeveloped segment, much the way that in the earlier era theorized about by Rosa Luxemburg the imposition of one-way free trade had raised the growth rate of the capitalist segment at the expense of the pre-capitalist segment of the world.

Many would argue that given the limited size of third world markets not much unemployment can be exported to them anyway, that the above way of seeing things is flawed because the prospective gains to advanced countries from the proposed measures are so limited that they could not possibly underlie these measures.

This argument however misses the point. It is nobody's case that the imposition of one-way "free trade" on the third world would actually succeed in either eliminating the scourge of recession for the advanced countries or even alleviating it significantly. Capitalism is not a planned system, where States work out ways of overcoming crises and pursue them successfully. It is even in its present incarnation a spontaneous and anarchic system. Faced with a crisis, individual capitalist units desperately look for ways to defend themselves, and gang up to bring pressure on the State to adopt measures that would help them. Whether these measures would help the economy as a whole to overcome the crisis, i.e. whether it would be successful in a macroeconomic sense, is not a thought that detains them. And they fight for every inch, even for access to a market that might not exceed 1 per cent of their turnover.

The classic example of this is the TRIPS agreement which a group of MNCs including Monsanto worked out and virtually dictated to the rest of the world by using the good offices of the US Administration. Macro developments under capitalism are typically the outcome of measures put in place under the pressure of a host of particular capitalist interests.

Growth Rates of World GDP and Export Volume (per cent)