http://www.multinationalmonitor.org/hyper/issues/1994/10/mm1094_06.html
Multinational Monitor: Why are you opposed to so-called global free trade and GATT?
James Goldsmith: Global free trade has become a sacred principle of modern economic theory, a sort of moral dogma. That is why it is so difficult to persuade our politicians and economists to reassess its effects on a world economy which has changed radically. I believe that GATT and the theories on which it is based are flawed and that, if they are implemented, they will impoverish and destabilize the industrialized world whilst at the same time cruelly ravaging the Third World.
MM: What is the economic theory on which GATT is based?
Goldsmith: A leading theoretician of free trade was David Ricardo, the early-19th century British economist. He developed two interrelated concepts: specialization and comparative advantage. According to Ricardo, each nation should specialize in those activities in which it can have a comparative advantage relative to other countries. Thus, a nation should narrow its focus of activity, abandoning certain industries and developing those in which it has a comparative advantage. The results would be that international trade would grow as nations export their surpluses and import those products that they no longer manufacture, efficiency and productivity would increase and prosperity would be enhanced. But these ideas are not valid in today's world.
MM: Why not?
Goldsmith: During the past few years, four billion people have suddenly entered the world economy. They include the populations of nations such as China, India, Vietnam, Bangladesh, and the countries that were part of the former Soviet empire, among others. These populations are growing fast. Barring catastrophes, they are forecast to reach over 6.5 billion in 35 years. They have very high levels of unemployment and those who do find jobs offer their labor for a tiny fraction of the pay earned by workers in the developed world. For example, 47 Vietnamese or 47 Filipinos can be employed for the cost of one Frenchman. Until recently, these four billion people were separated from our economy by their political systems, usually communist or socialist, and because of a lack of technology and of capital. Today all of that has changed. Their political systems have been transformed, technology can be transferred instantaneously anywhere in the world [via] microchip, and capital is free to be invested worldwide, wherever the anticipated yields are highest.
The principle of global free trade is that anything can be manufactured anywhere in the world to be sold anywhere else. That means that these new entrants into the world economy are in direct competition with the work forces of the developed countries. They have become part of the same global labor market. Our economies, therefore, will be subjected to a completely new type of competition. For example, take two enterprises, one in the developed world and one in Vietnam. Both make the identical product destined to be sold in the same market, say France or the USA; both can use identical technology; both have access to the same pool of international capital. The only difference between the two is that the Vietnamese enterprise can employ 47 people for the cost of only one Frenchman. You do not have to be a genius to understand who will be the winner in such a contest. In France, as in most developed nations, an average manufacturing company pays its employees, including social costs, an amount equal to about 30 percent of volume. If such a company decides to maintain in France only its head office and sales force, and to transfer its production to a low-cost area, then it will save about 20 percent of volume. Thus, a company with a volume of $500 million will increase its pre-tax profits by $100 million per year. If, on the other hand, it decides to maintain its production in France, the enterprise will be unable to compete with low-cost imports and will perish. It must surely be a mistake to adopt an economic policy which makes you rich if you eliminate your national work force and transfer your production abroad, and which bankrupts you if you continue to employ your own people.
MM: Won't high tech jobs replace those that move offshore?
Goldsmith: High tech industries can, indeed, survive and prosper under these circumstances. That is because they are highly automated and therefore employ only a few people. So labor is a minor item in the overall cost of the products that they make. But obviously the fact that they employ very few people means that they are incapable of employing very many. As soon as they need to employ many, they will be forced to move offshore. For example, IBM is moving its disk drive business from America and Western Europe to low labor cost countries. Boeing has also announced that it will transfer to China production of parts of certain of its planes to China.
In France, proponents of global free trade constantly say that the exporting of such high tech products as very fast trains, airplanes and satellites will create jobs on a large scale. Alas, this is not true. The recent $2.1 billion contract selling very fast French trains to Korea has resulted in the maintenance for four years of only 800 jobs in France: 535 for the main supplier and 265 for the subcontractors. Much of the work is carried out in Korea by Asian companies using Asian labor. What is more, following the transfer of technology to South Korea, in a few years time Asia will be able to buy very fast trains directly from South Korea and bypass France. As for planes and satellites, the numbers employed in this industry in France have fallen consistently. Over the 5 years from 1987 to 1992, they have fallen from 123,000 employees to 111,000 and are forecast to fall to 102,000 in the short term.
MM: Won't the growth of the service sector compensate for the jobs lost in manufacturing?
Goldsmith: I am afraid that even service industries will be subjected to substantial transfers of employment to low-cost areas. Today through satellites you can remain in constant contact with offices in distant lands. That means that companies employing large back offices can close them and shift employment to low-cost areas. SWISSAIR has recently transferred a significant part of its accounts department to India, for example.
