MAIN EVENT. A Good Place to Get Started --- a.k.a "Table of Contents"
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MAIN EVENT. A Good Place to Get Started --- a.k.a "Table of Contents" |
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The recent Civil Disobedience that occurred in Seattle, would --- if Mr. Smith were reincarnated --- bring a smile to the gentlemen's face. Granted the participants had agendas far removed from a 17th Century philosopher's -- labor, environment not with standing. The existence of the World Trade Organization (WTO) however brings the specter of a return to mercantilism on a global scale. The WTO will, consequently, bring a reduction in civil liberties and economic choice to the citizens of this planet.
Mr. Smith was born of the mercantile system and noted its inefficiencies. "Nations tolerably well advanced as to skill, dexterity, and judgment, in the application of labour, have followed very different plans in the general conduct or direction of it; those plans have not all been equally favourable." It is out of this inefficiency that he proposed the free exchange concept that has been the basis of capitalism. The belief that free exchange would automatically define the exchange rate of the goods by supply and demand has been demonstrated over the past two centuries. Fundamentally capitalism requires three factors to be successful:
The reader may be asking -- "What does that have to do with WTO?" Quite simply, it pertains to the review of the organizations' mission statement:
A central precept of the WTO role is to facilitate the free flow of goods around the globe for the benefit of all. Gosh who can disagree with that goal?
On the surface, one cannot, until you look again at the requirements for a free flow of goods. Nor will one see the effects all at once. The world economy is a very big place and it will take a very long time --10 to 50 years to see the results.
The WTO will initially be able to codify and simplify the scramble of trade
agreements that exists. All well and good. However, in the long term there will be problems. They lie in the following areas:
The WTO is chartered to bring about an efficient market. If however, trade
requires inefficiency to exist, then will the WTO not counter the fundamental precepts that brought about the trade to begin with? Will it become necessary that allocations be defined based on the number of programmers that can be allowed to be trained to bring about the efficiency desired? Will India, a nation that enjoys an advantage in the cost of its labor, be denied the use of that very
advantage?
Over time the WTO, lead by the nations of the Atlantic Rim that currently
enjoy an economic advantage in certain industries,will try to lock that advantage into their favor. I imply no subterfuge on the part of these
nations as it is simply human nature.
If I am a trader, say in a rare good, and can use this good to my advantage, am I not wise to do so? Is that rationale? Certainly! Can we not expect nations to be rational in aspects related to their economies? But of course.
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The police power on the globe currently resides in the individual nations that comprise this world. The WTO has no power beyond those specified in its
charter. Would it be expected that this would be the status quo? This
author does not believe this to be so. Let us take the scope down a notch and limit our discussion to the US, for a moment.
Prior to the industrial period, no organizations existed to policethe issuance of commercial paper (stock, bonds, debentures, etc). There was no need. Abuses occurred, however, and a demand was made to regulate the market and the Securities and Exchange Commission (SEC) was born. The SEC at first had limited powers to those of registering the securities traded. However, over time, further abuse occurred and further powers were bestowed on the agency. We are now at the point today that the SEC possesses the power through injunction to:
All without evidence prior to the fact.
The point is that we shall experience the same progression with the WTO.
At
first, it will be simplification and codification. Next, it will be the granting of enforcement powers. Finally, the ability to admonish and adjudicate will result.
Not only that, but what is the basis of representation? Go to the WTO web site and look at the background of the participatory members. See any judges, grandmothers, steelworkers, burger flippers or average world citizens at the table? Of course not. This group consists of the
politicians of the individual member states. Hmmm, one says, that is how representative democracy works. So, what is wrong?
The fact is that the economic interests of those that produce the goods, management and labor alike are not represented.
On the whole, a large part of the national economies today have economic factions that represent their individual constituents. Labor unions representing their members are in a struggle to extract a parity ratio of the economic benefit of production. Additionally, management attempts to maximize the economic benefit of production for themselves (back to that exchange idea again...). These interests are not represented in the WTO.
Remember that the primary purpose of the WTO is economic, not political.
Therefore, should the Chairman of General Motors not be sitting alongside a
representative of Polish Solidarity, hammering out policy rather than Mr.
Clinton and Mr. Blair? Are not labor and management closer to the root of what maximizes their outputs, rather than a bunch of twice removed political appointees?
So, we move forward through time... Policies are instituted by the WTO to
attempt to bring 'efficiency' to markets. Trade differentials are legislated to equality through tariffs and allocations such that it is no longer beneficial to trade peanuts. Economic policies sour on a global front. A downturn is experienced in the world economy. The WTO is, of course, taking some of the heat. The members feel a call to action (its human nature to want to
help) to remedy the situation. The chairman of the WTO outlines a plan that
can, given enforcement powers, right all that is wrong with the world. The member states grant the request.
A struggle ensues on how to manage the situation. Markets in various exchanges collapse, and a round of trade barriers go up to prevent trading with the transgressor. All, obviously, is not right with the world...
At this point, one may ask "what is the next step?" Global depression? War
over economic policy and access to resources? Enforcement of martial law by
external forces? All possible considering that it would not be to the
transgressor's advantage under the current rules to keep trading. They shall not suffer quietly. So, the other trading members needing the cobalt or tin or programmers will ultimately have to resort to coercion or force to extract the goods or services.
The last unforeseen factor is the velocity of change occuring in the global
market. At the current time, the economic entities (G7, WTO, NAFTA) meet on
an infrequent basis. Capital markets meet at the speed of light chasing the
sun around the globe. At any instant, somewhere in the world an exchange is trading billions in capital trying to equalize the inefficiencies of the marketplace. How can it be resolved that organizations, that may be tasked meeting only every year or so, be capable of moderating the outcomes of market transactions occurring every second?
This is the velocity dichotomty that will be the unhinging of the WTO.
Additionally, the market velocities are increasing. Economic changes are occurring that conceive, birth, grow, mature and expire in the period of a
year or two. Witness the Internet economy. Netscape, a darling of Wall Street just three years ago, is now a small appendage in the AOL product portfolio today. Currency opportunities speculated on by traders may last only minutes before the window closes. Whole industries can be created or eliminated before a single WTO session could be created to review the situation.
Demonstrators, such as those in Seattle, will be seen again whether in
London, New Delhi, or Tokyo. The average world citizen sees this for what's
its worth -- taxation and marginalization of individual interests. Only next time the numbers will be bigger, the voices louder and the interest keener. Clinton blinked in Seattle -- the next meeting between us vs. them should be an eye popper. 
"'Most of the arts and professions in a state,' says by far the most illustrious philosopher and historian of the present age, 'are of such a nature that, while they promote the interests of the society, they are also useful or agreeable to some individuals; and in that case, the constant rule of the magistrate, except perhaps on the first introduction of any art, is to leave the profession to itself, and trust its encouragement to the individuals who reap the benefit of it.' [Emphasis added by the author. --- Ed.] The artisans, finding their profits to rise by the favour of their customers, increase as much as possible their skill and industry; and as matters are not disturbed by any injudicious tampering, the commodity is always sure to be at all times nearly proportioned to the demand..." --- Adam Smith, Book 5, Wealth of Nations
Given those factors, Mr. Smith's "invisible hand" would come into play to define the exchange in both nature and value. Multitudes of exchanges of the same product or good ultimately define a market for those products or services. Multitudes of markets gives rise to whole economies.
The WTO is the only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.
Velocity of change
Trade occurs due to inefficiency. Capitalism abhors the vacuum of inefficiency. For example, a demand exists for programmers in the United States and a surfeit of inexpensive trained programmers exist in India. Is it not rational, according to Mr. Smith to expect that a flow of personnel would occur between the two countries? Of course. However, is it happening? Yes. Witness the rise in H1B visa applications to the United States as well as the expansion of divisions of major software companies in India. There is an inefficiency that capitalism is attempting to equalize. No economic minister required -- just an Indian wishing to better his or her condition and a company trying to fill a need.
A Gambian peanut farmer is capable of producing peanuts cheaper than a Georgia farmer. However, it is a good bet that the peanut allocation system in the US will be utilized to codify this disparity into the future. Gambian peanuts will be fed to local cattle, rather than go to the US that has the highest per capita consumption of peanut butter.
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Event # 196: FALLOUT
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IMF 'shock remedies' similar to what were experienced in South Korea are
implemented. Ultimately, a country like the US, Brazil or Russia breaks
from the fold, out of enlightened self interest (that damn invisible hand
effect again).
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