Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

The Problem With Free Trade, and How to Solve It

Written by johnleemk on 12:05:22 pm Feb 25, 2007.

The problem with free trade rarely is the idea that it's free or that it's trade. Nobody objects to a trade that makes both parties better off, and nobody objects to freedom that doesn't infringe on others' rights.

The problem with free trade is that whatever long term benefits it brings, in the short term, it can be extremely painful for a society and a nation to adjust to. The "creative destruction" that occurs when markets open up forces many companies to close their doors, and as a result leads to a severe bout of unemployment.

To make matters worse, the trend these days is towards skilled labour-based industries. Therefore, the newly-unemployed often find that their old training and education cannot be applied to the new industries that spring up thanks to trade.

How can these problems be resolved? The typical solution that many advocate is to continue the tradition of protectionism. Until we are ready for the change trade brings, the argument goes, we should continue to close our doors to the world.

The issue here is that:

The solution then cannot be further protectionism. What has to be done is simple. Open the doors to trade. There are many more targeted ways to address the problems that come with free trade.

Take, for example, the problem of increased unemployment and bankrupted firms. The solution is not to artificially protect employees in sectors that the global market no longer can support, or to artifically prop up firms that should not be alive.

The solution is to provide incentives that will keep the retrenched busy, and to provide incentives that will bring about new firms in sectors that the global market demands. We can kill two birds with one stone by making capital easily available to whoever needs it.

The number one deterrent to most new enterprises is a lack of capital. In a capitalist society, capital is power. To fully harness the efficiencies that trade brings, we must have the firms that can produce the goods the global market is demanding. We must also see to it that the unemployed can find work.

Surely, then, there are many bright and talented people amongst the unemployed. They can take government loans and start their own businesses. These businesses will then employ the entrepreneurs who, for whatever reason, failed, and also those unemployed who did not dare take the leap and start their own firm.

A problem, of course, is that many of the unemployed will be unemployable in the new industries. Here, the solution is training. Many cannot afford to go for training — either they have to work to support their family, or they can't even afford to pay for training.

The government can solve this, again, by providing the necessary funds. Those who want to prepare themselves to work in an up and coming sector can apply for a government loan, and then once they are working, pay it back.

These are of course just some of the most obvious and straightforward solutions to the problems attendant with free trade. I am sure many of you readers will have your own ideas. Is free trade viable? Workable? How can we keep it from harming our countries and societies? Send me your thoughts, and I'll follow up on them.

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Infernal Ramblings is a Malaysian website focusing on current events and sociopolitical issues. Its articles run the gamut from economics to society to education.

Infernal Ramblings is run by John Lee. For more, see the About section. If you have any questions or comments, do drop him a line.

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