A few thoughts on free trade

by Geoff Hart

Previously published as: Hart, G.J. 1988. A few thoughts on free trade. Canadian Forest Service, Sault Ste. Marie, Ont. Staff Newsletter, August:12–14.

Free trade: one can be for it or against it, but one can hardly ignore it these days. Free trade between the United States and Canada will affect every one of us to a greater or lesser extent, whether we pay attention to all the inflated rhetoric or not. And not paying attention is tough, as we are constantly being bombarded by the latest news stories on the matter. Since I wouldn't want to be accused of being untrendy, here are a few of my own thoughts on the matter:

Am I for or against free trade? On the whole, I'd have to say that I'm against it. I am familiar with some very strong arguments in favor of free trade; even opponents of the legislation have been forced to admit that free trade will, on average and if properly managed, be good for the country. This can be seen by the eagerness with which most provinces have welcomed the federal government's negotiations, despite the fact that accepting the deal as currently proposed will (as Premier [David] Peterson [of Ontario] has noted) require some loss of provincial powers concerning trade. In the space allotted to me, I'll try to cover some points that seem to have been lost in the shuffle. (As no one seems to know precisely what "free trade" actually is at this time, I will work on the basis of what seems to be agreed upon by most sources: a gradual phasing out of tariff barriers over a ten-year period, after which formerly protected industries will sink or swim on their own merits.)

The first objectionable thing that comes to mind concerning free trade is that it implies a return to American isolationist policies, with the tacit assumption that Canada will follow along: rather than aiming towards increasing diversification of markets, a free trade agreement will merely improve on those markets that are already strong. It is hard to see how North American governments can criticize the European Economic Community for preferential trade practices while at the same time trying to set up what is effectively a North American Economic Community, with identical goals and practices. Furthermore, it has long been recognized that the Canadian economy follows trends in the American economy, which is a natural consequence when one considers how much of Canada's prosperity comes from trade with our nearest neighbor. It disturbs me that free trade ties the Canadian economy even more closely to the economy of a nation in decline (The Rise and Fall of the Great Powers, by Paul Kennedy, Random House Books, gives details).

We should be diversifying our international trade, not relying ever more on an old partner that has never placed our interests on an equal level with its own and that will become increasingly less able to afford Canadian products and services. In fact, if the 21st century is to be the century of Japan and the Orient, as many experts predict, we should be investing now for a future that will lie increasingly with the Pacific Rim countries. I am not suggesting that we tie ourselves exclusively to the Japanese and ruthlessly abandon a nation that has, on the whole, been a good and trusted neighbor; I am, however, suggesting that we pay attention to the changes that are occurring in our world, and plan accordingly.

A second thing that disturbs me about free trade lies in the nature of the industries that most strongly support it. Almost universally (with notable exceptions such as the manufacturers of steel), the industries and the provinces that support the deal are those with a heavy stake in natural resources; diversified industries and provinces, in many cases, oppose the deal. (As a test of this statement, ask yourself which American industries are against free trade. The majority are natural resource producers, including public utilities. Those that support free trade are those that have traditionally been prevented from obtaining market dominance in Canada by the old Foreign Investment Review Act.) The problem with this approach is that it encourages us to remain a natural resources power, and history has shown that nations that rely primarily on natural resource exports become dependent on and are dominated by the nations that import these products. Canada should be moving away from natural resources; that is, we should increase our emphasis on producing more valuable manufactured products (e.g., fine paper rather than pulp) and services. If we fail to do so, we shall certainly become a "first world" nation that has the equivalent economic and political clout of a "third world" nation.

This sort of discussion could very easily drag on for a long time, and the principles involved become far more obscure than I have hinted at thus far. What concerns me most of all is the human aspect of free trade, which is something that has been largely buried under all the economic rhetoric. (After all, economics deals with dollars, not people; people are too difficult to deal with comfortably unless they are reduced to ridiculous abstractions.) Take, for example, the average worker in an industry that will be adversely affected by free trade: read any newspaper for a good list of these. Include in your tally those industries, such as the winemakers, that expect to lose out directly and others, like some tire producers, that are only employers in Canada because this gets them around tariff barriers. The government has conceded that employees in these industries will eventually lose their jobs after a "phase-out" period of some ten years, during which time tariffs will be removed gradually. The federal answer to this is to provide job retraining programs to ease the transition. Two things make me question this strategy:

The first is the modern Canadian welfare system. A large number of Canadians on welfare are unemployed because they lack job skills that would perhaps enable them to become employed. Yet, rather than provide training for these people, the government has for the most part been content to provide them with enough welfare money to survive on, but not enough to allow them to improve their skills. That is, the amount of money provided by welfare is not enough to allow these people to train themselves, and as a result they remain unemployed and a continuing drain on the system. Instead, why not provide what has become known as "workfare"? The way that this works is that the government pays the employee a salary (identical to the welfare payment already being paid, or sometimes better when the company also contributes) and, in exchange for the cost of training, the company receives nearly free labor. The end result is a trained worker who is now employable by the very industry that gave him a job (and at little or no initial cost to the industry). Whether or not we should have a welfare system in the first place is not the issue here: the simple fact is that modern North American politics guarantees the continuation of this system, and with this in mind, we should at very least attempt to make the system work. [Author's note: Workfare, of course, must pay a "living wage" for it to be practical for workers, and companies must be given strong incentives to employ those they have trained rather than merely replacing them with more "free" employees in the future.—GH]

Workfare has been tried worldwide, and has achieved some notable successes. But if the government has not implemented a system that works, despite a welfare problem that it has been aware of for many years, what are the odds that it will be able to implement a nationwide retraining program for those who will lose their jobs to free trade? More to the point, can it (will it?) implement such a program by the time free trade comes into effect? If you think so, perhaps you would like to buy some condominium property I'm developing in a nearby spruce bog. I haven't heard much said about this problem in the news, but perhaps it should be mentioned a little more loudly.

The second problem concerns the retraining itself. Put yourself in the position of employees who have been told they will be retrained because their jobs will be phased out some time in the next decade. If you have a university degree in computer science, I doubt that you're worried... for the foreseeable future, you can pick and choose between jobs. But if you are the average office worker, farmer, etc., what will you retrain to be? What will happen to the lifetime you invested in learning your trade and achieving some degree of seniority? Are you guaranteed another job when your current one is traded away? Will you have to move to another part of the country to to get this job, and who will pay for the move? Nothing is guaranteed in this life, but it's a bit frightening to have the feeling that your own efforts are rendered irrelevant by an inadequately thought-out government policy.

If your employment derives from land that you own, who will buy the land when you must move away to take a new job? A case in point: many British Columbia vineyards expect to be driven out of business very soon after free trade is implemented, which means the value of their land has dropped enormously even before the treaty has been concluded. [Author's note: Despite compelling evidence from experts at the time I wrote this essay, this prediction proved overly dramatic and premature, as was the case with much of the fuss over free trade.—GH]

Why not sell the land anyway, and learn another profession? If so, who will buy the land? If the land was worth as much as you invested in it, you'd still be able to keep it and grow grapes or another agricultural crop. In fact, the only people who are likely to be willing to buy your land for a reasonable price are the American winemakers, or condominium developers and rich land speculators. Although I tend to accept the notion that an industry should be required to stand or fall on its own merits, I believe that the human side of the equation is more important. Somehow I feel that the impersonal forces of a solution that lets the market decide the fate of real humans (as opposed to corporate citizens) is morally bankrupt.

Having said all this, and, having glossed over many of the issues to make a point, I can still say that free trade could be good for Canada. But for this to happen, our government is required to act responsibly in the interests of the people who elected it. Before any deal is signed, there must be a retraining mechanism in place, and viable economic strategies for improving our trade with the rest of the world must be developed. Until both are in place, I don't see much good coming from free trade in the near future. One can always console oneself with the cynical but realistic words of an anonymous jaded diplomat (perhaps John Turner [a former Canadian prime minister] in an earlier incarnation): "Treaties were made to be broken."

[A look back from 2005: As a rant, many parts of this one haven't stood up well to the passage of the years, but instead provide interesting insights into some of the common opinions held at the time. Other aspects proved far too timid, as the victims of "globalisation" can attest. Now, nearly 20 years later, I find that Paul Kennedy was not so much wrong, as his many critics claimed at the time, but rather premature. And although Japan remains strong, China is clearly the economic powerhouse to be reckoned with.—GH]