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The New Demon

In his new book, ominously titled The Great Betrayal, Patrick Buchanan seeks to show that the economic difficulties and anxieties faced by working Americans today, including large parts of the middle class, are the result of free trade and the pressures of open competition in the world economy. More broadly, Mr. Buchanan argues that the progressive elimination of tariffs and other barriers to foreign trade during the post-World War II era is the chief force responsible for a great many of our nation’s economic and social ills. The villains in his story—his book is as much about the politics of blame as the economics of practical solutions—are the “transnational elites” and the politicians who do their bidding. His answer is protectionism, particularly in the form of new tariffs on goods produced by low-paid foreign labor.

Mr. Buchanan’s argument is worth attention not only for its own claims but because in one form or another, albeit usually without any of his specific protectionist proposals, opposition to free trade is shared in the United States by at least some prominent politicians in both parties as well as by many labor leaders and businessmen. Last November Congress balked at giving President Clinton the “fast-track” authority he had requested to negotiate a new round of multilateral reductions in tariffs and other impediments to the free flow of goods across national borders. Democratic Minority Leader Richard Gephart, who has long expressed reservations about free trade, opposed the President in this debate, and enough Republican congressmen likewise rejected their own party’s leaders (who supported the fast-track legislation) that Mr. Clinton had to withdraw his request before it came to an up-or-down vote.

In the same vein Ross Perot is far from the only politician, or the only businessman, to make opposition to the North American Free Trade Agreement into a rallying cry for opposition to free trade more generally. Mr. Buchanan also approvingly quotes both the longtime AFL-CIO president George Meany and his current successor, John Sweeney, on the unfair competition that amounts to “a stacked deck, stacked against the American worker.”

As we shall see, Mr. Buchanan’s argument is, at bottom, about more than free trade. Although he goes to great lengths to portray it as an attack on big government, his real complaint is against laissez-faire free enterprise, and his proposals for higher tariffs and other new trade barriers are openly interventionist. And while, not surprisingly, he seizes opportunities to portray Democrats (including Mr. Clinton) as at fault, he is also forthright in naming Republicans whom he sees as defenders of the free trade disease that is sapping America’s strength.

Wholly apart from whether free trade is actually at their root, the problems that Mr. Buchanan is concerned about are certainly real enough. Over the past quarter-century most Americans’ wages have failed to keep up with inflation, and most families’ incomes have remained stagnant despite the increase in two-earner households. The average full-time worker in US business now makes $440 per week. Twenty-five years ago the average worker made $517 a week in today’s dollars. In 1996 (the latest available data), the median family income in the United States was $42,300. A decade ago, in comparable dollars, it was $42,700. Even twenty-five years ago, it was already fully $40,100, just 5 percent less than in 1996. Little wonder that so many Americans have lost their sense of getting ahead, and that so many parents now fear for their children’s financial future.

Such trends, and the human difficulties they create, have been especially acute among the industrial workers who are the particular object of Mr. Buchanan’s concern. These men and women usually graduate from high school but not from college. Many of them used to work on assembly lines and in foundries but no longer do so. For the first time since the Industrial Revolution, the number of jobs in US manufacturing is declining. Today only 18.8 million Americans (out of 126 million at work) have manufacturing jobs. Twenty-five years ago there were 20.2 million such jobs (out of just 77 million overall). Since manufacturing firms traditionally provided higher wages and more generous benefits, it is easy to understand all the talk about the absence of “good jobs” despite today’s remarkably low unemployment rate.

Moreover, as Mr. Buchanan emphasizes, incomes in America have also become dramatically unequal. Families who scrimp to buy $12 bleacher seats at the ball park, and know they can’t afford $30 each for “cheap” tickets for a basketball game, read daily about the players’ seven- or even eight-figure salaries. Corporate employees who consider themselves lucky to have jobs that give increases of a percent or two beyond the cost of living know that their firms’ top executives are making millions in salary and further tens of millions on stock options. Each new merger eliminates more of the jobs of people who earn $20,000 to $50,000 and leaves more CEOs worth $20 million to $50 million.

These and other recent developments in American society (for example, widespread drug addiction) that Mr. Buchanan laments are certainly disheartening—indeed, in some cases they are appalling and infuriating. But the question is whether free trade and global competition are their root cause. And the question that follows, for practical purposes, is not whether steps should be taken to deal with these problems but whether a return to protectionism is the right step to take.

The truth of the matter is that the stagnating wages and widening inequalities that now afflict much of the American work force have not one cause but many, and no one knows how much weight to give each of the diverse factors that, taken together, are plausibly responsible. Rapid changes in technology are eliminating some jobs but at the same time creating new ones, even whole new industries, and are also rendering some workers’ skills and training obsolete while placing a premium on what others know how to do. Changes in the organization of already mature industries, typically through consolidation, as with banking and retailing, likewise create hardships for some but opportunities for others.

The inadequacy of US businesses’ investment, which has only recently begun to revive now that the large government deficits of the Reagan-Bush era have dwindled and disappeared, has constrained increases in productivity and hence in wages. (If US investment in new factories and machinery had not shrunk so much as a share of our national income in the 1980s, the number of jobs in our manufacturing industries would not be so diminished today.) So too has productivity been limited by the widely discussed deficiencies of America’s primary and secondary education systems. And especially for workers with little education, immigration policies that often favor unskilled over skilled new arrivals have held down already low wages.

No doubt the rising force of global competition belongs on this list too. But is such competition the main cause of America’s stagnating wages and widening inequalities?

Mr. Buchanan claims it is, although he ducks the challenge of making a direct case for global competition as against other familiar potential causes of workers’ current plight. He recalls the experience of several firms that have either closed down under foreign competition or moved their factories abroad; he describes in some detail the American automobile industry’s loss of a sizable chunk of its home market to Japanese and other car makers. But he makes no effort to estimate the total extent of either the production or the jobs lost in this way. And he ignores altogether any expansion among US firms that are successful exporters. (A reader of Mr. Buchanan’s book would not guess that US exports of manufactured goods, adjusted for inflation, have almost tripled over the last ten years, and have grown by 30 percent over just the past two years.) He publishes charts showing that US economic performance has in some respects deteriorated since the beginning of the “free trade era,” which he dates to the conclusion of the Kennedy Round of negotiated tariff reductions in 1967. But lower tariffs are only one among many factors that distinguish the last three decades from what went before, and he makes no attempt to sort out what is responsible for what.

Instead, the heart of Mr. Buchanan’s book consists of a forceful series of arguments to the effect that tariff protection should be beneficial, while free trade should be harmful, to a nation’s economy and the broader society that it serves. Although much of this ground is familiar, Mr. Buchanan brings it to life by placing these protectionist arguments within the larger setting of American political history. While parts of his historical account are one-sided—for example, he omits the role of immigration and foreign investment in bringing about the strong US economic growth of the nineteenth century—he is surely correct that through much of the nineteenth century the United States was among the world’s most protectionist countries, and that such great American figures as Hamilton, Lincoln, Theodore Roosevelt, and even Jefferson in his later years were convinced protectionists.

Five distinct arguments for tariff protection appear and reappear throughout Mr. Buchanan’s book:

  1. Military preparedness. Even Adam Smith accepted the need to produce at home the military supplies that it would be disastrous for a country to have to do without in the emergency of an armed conflict. Mr. Buchanan appeals to this argument repeatedly, and even offers several striking examples of America’s current dependence on imports for key military needs, such as the computer systems that operate F-16 and F/A-18 aircraft and even M-1 tanks. (He likewise notes that “foreigners today control the US companies responsible for the heat shield of the D-5 Trident missile and the flight controls of the B-2 bomber, the F-117 stealth, and the F-22, the backbone of the twenty-first-century air force.”) But he is curiously vague about suggesting a different policy to this end. Similarly, although he makes much of the vulnerability of our relying on foreign sources for more than half of our oil, as we did before the OPEC price hikes in the 1970s, he offers no specific suggestion for remedying this situation. (He presumably doesn’t favor higher gas taxes, for example.)

  2. Infant” industries. Another classic argument for tariffs, associated in America with Alexander Hamilton, is that newly developing industries often need protection before they can hold their own against foreign competitors that have had a big head start. A modern variant of this argument, put forward by prominent economists including MIT’s Paul Krugman, my Harvard colleague Elhanan Helpman, and Princeton’s Gene Grossman, is that some industries can produce efficiently only if they deal in large volume, so that firms need to grow to a certain size before they are able to compete. Mr. Buchanan makes these arguments in his book, but what is consistently missing in his account is the idea that once industries develop sufficiently, they should no longer need protection. Mr. Buchanan wants his tariffs to be permanent.

  3. Tariffs as a bargaining chip. Nobody denies that the US would be better off if other countries did not impose tariffs on their imports of our products. As a tactical device, therefore, some people suggest that we impose our own tariffs against countries that most heavily tax our goods, in the hope that we can then negotiate a mutual reduction. Mr. Buchanan proposes to single out Japan in this way, calling for an extra tariff on Japanese autos and auto parts. But here, too, he seems to envision such special tariffs as permanent. He does not favor the idea of tariffs as a bargaining chip to help negotiate freer trade, mostly because he does not want trade to be freer.

  4. Free trade and “special interests.” John Stuart Mill, in his Considerations on Representative Government, embraced laissez-faire principles, including free trade, in part out of concern that if the government were to interfere in commercial affairs the inevitable lobbying by monied interests would corrupt the underlying democracy. Mr. Buchanan turns Mill’s argument upside down by claiming that free trade fosters lobbying and corruption, while under protectionism businesses would have no need to press their special interests. He is certainly right that the form of quasi free trade we enjoy today has not blunted the force of special business interests in politics. Few firms seek outright tariff protection these days, but many try to have the government impose rules and regulations that put their foreign competitors at a disadvantage. In some cases the methods by which they do so, such as campaign contributions that are obviously tied to politicians’ intervention in their behalf, are indeed corrupt. But Mr. Buchanan’s assumption that all this would end once a new tariff were in place seems at best naive.

5.“Unfair” wage differentials. The heart of Mr. Buchanan’s plea for protectionism is the huge difference between what American workers earn and the wages in many other parts of the world. Moreover, US regulations protect Americans from having to work, as some foreign workers do, under unsafe and unhealthy conditions. This further widens the differential, which in the end amounts to a direct extra cost to the businesses producing in the United States that are trying to compete with foreign products.

Mr. Buchanan seeks to neutralize this difference in cost by imposing on products from low-wage countries (not Western Europe or Japan) an “equalization tariff” sufficient to render their cost equal to ours. For example, if a textile firm here pays its workers $8 per hour while a competitor in Thailand can get the same work done for the equivalent of $2 an hour, and if labor expenses account for two thirds of total US production costs, Mr. Buchanan would equalize the situation by imposing a 100 percent tariff on imports of the Thai goods. If the wage differential were even greater, the required equalization tariff would be higher than 100 percent.

The equalization tariff is an old idea—though, as we shall see, not a very good one—and Mr. Buchanan traces its pedigree in this country to Lincoln, Theodore Roosevelt, and others. In all likelihood many of his current-day fellow party members will be surprised, or even embarrassed, by his claim that “this is sound Republican doctrine.”

The more important issue, however, is that according to this particular argument for protectionism, tariffs should be both general and permanent. The military preparedness argument applies only to highly specialized products; the infant industry argument calls for protection of particular industries, and even then only during their early phase of growth; and the bargaining chip argument favors imposing tariffs in the explicit hope of soon removing them. But there is no reason to think workers throughout the world will catch up to the American level of wages, and surely most Americans (including me) would join Mr. Buchanan in hoping that US workers will always have the world’s highest earnings. For America, therefore, an equalization tariff is a permanent tariff.

An equalization tariff also presents specific practical difficulties, and The Great Betrayal gives no indication that Mr. Buchanan has thought them through. To begin with, if the tariff succeeds in depressing American demand for foreign products, the US trade deficit will shrink, at least initially, and the dollar will appreciate in value. But a higher dollar will widen the differential in labor cost that the equalization tariff is supposed to neutralize. Would the tariff then go up in response? (In the example above, a 25 percent rise in the exchange rate between the dollar and the baht would reduce Thai wages to $1.50 per hour in dollar terms; in order to equalize production costs the tariff would have to rise from 100 percent to 118 percent.) If so, the dollar would appreciate yet further. Would the tariff go up yet again? Where would the process stop?

Lincoln and Theodore Roosevelt did not think about this problem when they advocated an equalization tariff, presumably because they did not imagine a world of flexible exchange rates set by market supply and demand for different currencies. But we do live under market-determined exchange rates, and so such questions are not only pertinent but important.

What, moreover, about the resulting damage to US exports? Not only the equalization tariff but the other anti-import mechanisms that Mr. Buchanan proposes—a 15 percent general tariff on goods even from high-wage countries in Western Europe, the special anti-Japanese measures, and others—would all drive up the dollar, and as a result American products would become more expensive to foreign buyers. Some part of the decline in US imports would therefore be offset by a parallel (though presumably smaller) decline in US exports. In the end the net reduction in the US trade deficit might be fairly modest.

Strangely, Mr. Buchanan completely ignores the costs that his proposals would impose on American workers and firms in export businesses—most of whom are, after all, in the manufacturing industries that are his main concern. He also chooses to disregard the possibility that other countries might respond to our new tariffs by raising their tariffs on our own goods (the bargaining chip argument in reverse), which would impose further costs on our exporters.

Third—and here is the fundamental tension between protectionism and free markets—an equalization tariff would remove much of the incentive for US industries now competing against imported goods to work harder and more efficiently to innovate, invest, and improve their products more generally. The main reason American workers earn far more than Thai workers is that Americans are so much more productive. That higher productivity is in turn the result of decades of investment and innovation and strategic management, in one industry after another, together with the more widespread education and the superior training of our work force. Once an equalization tariff were in place, any export industry that improved its efficiency would see its gains neutralized by the resulting reduction in its level of tariff protection.

Under such a tariff, increases in US firms’ productivity become equivalent to increases in foreign firms’ wages, in that both reduce the differential between production costs here and costs abroad. Either way, the tariff declines. Conversely, under an equalization tariff US firms would have little incentive to resist steps that reduce their productivity (for example, padding payrolls and providing cushy executive perks), since in that case the resulting tariff increase would offset the resulting wider cost differential.

The fundamental point is that protectionism causes economic damage through a dynamic process. It is not enough to calculate who loses jobs when foreign imports gain a share of our markets, and who will be able to buy goods more cheaply. What also matters is how markets and companies and individuals change over time. Permanent, general tariff protection will dull the incentives to make changes that boost productivity; and it will therefore reduce the medium- and longer-run growth of both productivity and wages. The specific form of protectionism that Buchanan advocates, an equalization tariff, is especially insidious in just this way.

Isolated bits of rhetoric notwithstanding, The Great Betrayal makes clear that Mr. Buchanan is no fan of free markets. It is true that he tries, in one chapter, to distinguish the “free trade” that he so vigorously opposes from “free markets,” which he supposedly favors. But in the end his angry denial that free-market outcomes have any claim to superiority could just as well have been written by John Kenneth Galbraith, Senator Edward Kennedy, Robert Reich (whom Mr. Buchanan quotes approvingly), or Robert Kuttner:

Neither the national economy nor the free market is an end in itself. They are means to an end. A national economy is not some wild roaring river that must be allowed to find any course it will, to be admired for its raw power and beauty. It is to be tamed for the benefit of the nation. The same holds true for the market. While an unfettered free market is the most efficient mechanism to distribute the goods of a nation, there are higher values than efficiency. To worship the market is a form of idolatry no less than worshiping the state. The market should be made to work for man, not the other way around.

Mr. Buchanan is clear, therefore, in putting the national interest first: “The economy is not the country; and the country comes first.” He quotes with approval the Austrian philosopher Wilhelm Roëpke to the effect that “there is more to the whole of life …than maximizing GNP.” Similarly, he curtly dismisses the classical argument against protectionism—that is, that the gain to people who buy foreign-made goods outweighs the loss to people who would otherwise produce those goods domestically—saying “the national interest must take precedence over any consumer demand for foreign products.”

But what is the national interest? For Mr. Buchanan, “manufacturing is the key to national power.” Part of his rationale, which derives naturally from his historical perspective, is geopolitical. Buying essential goods from foreign suppliers constitutes a form of dependency. If a country lacks some natural resource, like oil or chromium, there may be no alternative to importing it; but he has little patience for the idea of importing goods that in principle we could make ourselves. His other reason for concentrating on manufacturing is more plainly economic: “Not only does it pay more than service industries but the rates of productivity growth are higher and the potential of new industry arising is far greater.”

Even apart from the fact that the earnings differential in favor of manufacturing in the United States is modest ($13.17 per hour on average in 1997, versus $12.26 on average for all US business), and even if we discount the modern emergence of service industries (for example, telecommunications and computer software) that deliver strikingly rapid productivity growth and have generated vast new industrial potential, the problem is that only 15 percent of American workers are employed in manufacturing.

As a result, while Mr. Buchanan laments the stagnation of Americans’ living standards, he pays no attention to the further erosion of average US living standards overall that would result from the loss of the gains from trade. Similarly, while he professes to speak for all Americans (other than members of the “transnational elites”), he would not hesitate to force low-and middle-income workers to pay more for their cars and computers and cameras in order to subsidize the jobs of their higher-income fellow citizens who make those products. (Mr. Buchanan further compounds this poor-to-rich redistribution by proposing to use the proceeds of his various tariffs to reduce income taxes not for incomes in general but for income earned from investment and saving. Since high-income taxpayers disproportionately engage in those activities, he is, in effect, using the tariff to impose a tax on lower-income citizens and rebating the revenue to high-income people.) Indeed, the well-being of the 85 percent of working Americans who do not earn their living from manufacturing never directly enters his argument.

Does it make sense to believe that manufacturing, apart from specific military needs, is “the key to national power” today, just as in Alexander Hamilton’s time? What would Hamilton have thought, for example, about the growing importance of computer software? How about the financial industry? Historically, from Spain in the sixteenth century to Britain in the eighteenth and nineteenth centuries to America for much of this century, foreign investment—one country’s using its capital to finance industry and commerce in another—has been a well-recognized way of gaining national influence and power. Even so far as manufactured goods are concerned, why do the US industries that compete against foreign producers in our home market matter more for American national power than the US industries that export into foreign markets?

Questions such as these highlight the deep inconsistency between protectionism and free markets. A tariff is a tax, and any time the government imposes a tax on some activities but not others it implicitly gives those other activities a subsidy. Yes, of course, other considerations—such as national defense, or basic decency with respect to the poor and handicapped, or protection of the environment—sometimes do outweigh market efficiency; and that is why taxes and subsidies are appropriate instruments of public policy. But this does not remove the need to think through carefully and explicitly just why any specific set of taxes and subsidies is warranted; nor does it somehow make protectionism compatible with free markets.

Mr. Buchanan’s book presents an especially striking contrast, in just this regard, with The Commanding Heights by Daniel Yergin and Joseph Stanislaw, president and managing director, respectively, of Cambridge Energy Research Associates.1 The central theme of their new book is the turn toward free markets, and away from government direction, in so much of the thinking of the last twenty years.

The Commanding Heights documents the rise of Thatcherism in Britain, of Reaganism in America, and of similar movements in countries both large and small across the world. The dominant themes in this discussion are the reduced role of direct government influence on economic activity (for example, deregulation and dismantling of government planning activities), the heightened reliance on private market incentives (for example, through lower taxes and more selective welfare payments), and resistance to price inflation (mostly by tight monetary policy). Mr. Yergin and Mr. Stanislaw have much to say about the turn toward capitalism in Russia and Eastern Europe; the continuing attempt to combine free-market economics and Communist politics in China; the privatization of previously state-owned companies not only in these countries but even in those that already had private enterprise (Conrail in the US, British Telecom and British Airways in the UK, ENI in Italy), and the greater openness to private investment in many regions of the developing world. They describe widespread disenchantment not just with socialist-style central planning but with government regulation generally; and they call attention to the opening of private capital markets in one developing country after another.

Mr. Yergin and Mr. Stanislaw tell this story well, drawing on their own lengthy interviews with many of the key figures in this transformation—Mrs. Thatcher, Helmut Schmidt, Valéry Giscard d’Estaing, Domingo Cavallo, and George Shultz, among others. While they do not dwell on the problems that concern Mr. Buchanan—they discuss unemployment in many countries, but neither “poverty” nor “inequality” appears in their index—they do recognize that the changes they describe sometimes have heavy human costs:

The move to the market may bring a higher standard of living, better services, and more choice. But it also brings new insecurities—about unemployment, about the durability of jobs and the stress of the workplace, about the loss of protection from the vicissitudes of life, about the environment, about the unraveling of the safety net, about health care and what happens in old age.

In consequence, they write, “People turn to government to provide shelter from the constant demands of the market.” As George Shultz bluntly put the point in their interview with him, “Markets are relentless.”

Even so, the dominant tone of Mr. Yergin and Mr. Stanislaw’s book is not just to describe the worldwide turn toward free markets, offering up fascinating accounts of major turning points and telling incidents along the way, but to celebrate this change and the people who brought it about. Even when they discuss such matters as unemployment and the dismantling of the social safety net, their emphasis is on the increasingly widespread perception that anti-poverty programs and other major elements of the welfare system that emerged in many countries in the early postwar decades have failed.

Similarly, Mr. Yergin and Mr. Stanislaw recognize the dangers of inadequate regulation of bank lending, and overextended real estate investment, which were important causes of the economic collapse in Asia that occurred after their book was published. But they do not emphasize these matters. In their discussion of the continuing expansion of the US economy, they do not specifically confront the stagnation of American wages and increasing inequality that so concern Mr. Buchanan. Instead, their account of the advance of free-market philosophies and free-market policies, in one country after another, at times even has the flavor of triumphalism.

It is interesting, therefore, to speculate about how Mr. Yergin and Mr. Stanislaw would treat the ongoing financial crisis in Asia or the latest turmoil in Russia. A growing number of economic policy makers suspect that it was a mistake for the governments of these countries, as well as international institutions like the World Bank and the International Monetary Fund, to assume that the market’s capital allocations were necessarily correct. Instead, these crises resulted, in significant part, from poor decisions by both borrowers and lenders. Especially in the Asian countries that have faltered, the immediate problem that made what happened a crisis is that their banks took unhedged positions, borrowing in dollars (or sometimes in yen) and relending in their own currencies. No government authority told them to do so. Indeed, perhaps more effective government regulation and supervision would have prevented them from taking on such large, unprotected risks. Moreover, it is not plausible to blame market participants’ mistakes on faulty information caused by lack of government transparency, since there is no evidence that lack of transparency in financial dealings actually mattered for distinguishing which economies did and did not have crises.

Judging from their book, I suspect that Mr. Yergin and Mr. Stanislaw would recognize these problems in bank lending and real estate as instances of the failure of the market to work as it should, and hence as evidence of the need to maintain some ongoing regulation (such as limits on how much banks can borrow in one currency in order to relend in another). But to show that Asia’s failure is also in large part the result of insufficient reliance on free markets they would also point to Indonesia’s cronyism involving both government and business; the government-directed lending by Korean banks to the country’s industrial conglomerates (the “chaebols”); and the pervasive “administrative guidance” carried out by Japan’s Ministry of Trade and Industry, and especially its Ministry of Finance. They would also rightly note the wild-frontier character of Russia’s raw caricature of capitalism, in which nobody pays taxes and no rules apply (although most of the thinkers on whom The Commanding Heights focuses are hardly enthusiasts of either taxes or government-imposed rules).

But however these more recent bouts of turbulence turn out, Mr. Yergin and Mr. Stanislaw leave no doubt that over the last two decades there has been a

shift from an era in which the “state”—national governments—sought to seize and exercise control over their economies to an era in which the ideas of competition, openness, privatization, and deregulation have captured world economic thinking.

In short, the world has “changed its mind” about “where the frontier between the state and market is to be drawn.”

It is striking, therefore, that Mr. Buchanan has changed his mind as well—but in the other direction. While here and there he pays lip service to free markets, the more forcefully argued parts of his book—as well as the inherent logic of his case for permanent, general tariff protection—reject any presumption in favor of free markets over government direction. For all the reasons Mr. Yergin and Mr. Stanislaw explain, these days he doesn’t have much company among either Republicans or Democrats. Similarly, Mr. Buchanan’s resentful admiration for Japan’s government-directed economic strategy looks eerily out of date now that that country has been suffering from financial crisis and a stagnant economy for the better part of the 1990s.

But if nothing succeeds like success, it is probably also true that nothing fails like failure. Much of the turn toward free markets that Mr. Yergin and Mr. Stanislaw document was a consequence of disillusionment with government, born of disappointment with the economy’s performance in country after country where the government was perceived to be in charge. Today, as they show, free markets are mostly perceived to be in charge. As long as the outcome seems favorable, free markets will attract more and more adherents, including those of both the zealous and the complacent variety. But if economies take a bad turn, not only in Asia or Russia but in advanced countries as well, the pendulum whose movement Mr. Yergin and Mr. Stanislaw trace could swing back. If it does, free trade might be just one of the aspects of free markets that would then be subject to a new disillusionment.

As we have seen, and as Mr. Buchanan shows in far more detail, the last two decades have been fairly sour ones for a large part of America’s work force. Just within the last few years, however, matters have started to improve. Median family income in 1993 was the same as in 1973, after allowing for inflation. By 1996, the median income was up more than 5 percent from 1993; and with the recent strong economy it is safe to assume that that increase has continued through 1998. Moreover, jobs are now easy to find. The denial by Congress of the president’s fast-track authority notwithstanding, Mr. Buchanan is thus far having little success in attracting support for his actively protectionist proposals. If the current business expansion continues for another two years, he will have chosen the wrong horse to ride into his party’s 2000 presidential primaries. His proposal to reduce legal immigration is similarly attracting much less public interest today than similar proposals received several years ago when many more Americans were unemployed.

As nearly always happens when the economy has shown steady growth, some observers now predict a lasting expansion based on a renaissance of permanently enhanced productivity growth. (Robert Davis and David Wessel articulately present this idea and its link to the spread of new technologies in their new book, Prosperity: The Coming Twenty-Year Boom and What It Means to You.2 ) They could be right. But it is far too early to declare an end to the wage stagnation and widening inequalities that have marked most of the last quarter-century in America; and if they continue, the nation’s public debate is likely to shift dramatically. The world could “change its mind” once again. Both free markets and free trade may become objects of yet a new round of disillusionment.

If Mr. Buchanan’s book is any guide, however, the reaction to renewed economic disappointment would shape not only the content of our national debate but its political tone as well. As his title suggests, free trade for him is not just bad policy. It is a “betrayal” of America. In his text it is often “treason.” Moreover, Mr. Buchanan regards this crime as deliberate, motivated by a consistent tendency on the part of “bankers, lawyers, diplomats, investors, lobbyists, academics, journalists, executives, professionals, high-tech entrepreneurs,” and especially government policymakers—including politicians of both parties, many of whom he does not hesitate to name—to identify their own interests with that of other countries, and to place those other nations’ interests ahead of America’s. (How his own longstanding commitment to free trade fits into this pattern is left unexplored.) It would never occur to a reader of The Great Betrayal that anyone had ever advocated lower tariffs in the honest belief, even if mistaken, that free trade is beneficial to America.

Mr. Buchanan seeks, in effect, to give free trade a status in American political demonology once reserved for communism. Advocacy of either is a treasonous betrayal of America’s vital interests, and the advocates themselves are at best dupes, more likely traitors. Indeed, “free-trade theory is first cousin to socialism and Marxism.” Those who embrace free trade today are not merely the “elites”—the standard villains in modern-day populist rhetoric from the right—but the “transnational elites,” people with multinational economic involvements, whose patriotism is suspect because their allegiance is to policies that (in Mr. Buchanan’s eyes) advance foreign interests.

In yet a further effort to place the free trade threat he perceives today on a par with yesterday’s Communist menace, Mr. Buchanan even seeks to enlist America’s religious constituencies in his protectionist crusade. He does so partly by attributing to free trade and global competition the fact that so many American mothers of young children now work outside their homes. “Thus is free trade antifamily.” But as the reference in his title to sacrifices “to the Gods of the Global Economy” suggests—elsewhere the sacrifice is “on the altar of this Moloch”—Mr. Buchanan’s theme is more explicitly religious. His argument here is that free-trade ideas grew out of the thinking of nineteenth-century economists and philosophers, “almost all of whom were possessed of a deep animus toward church, state, and empire”:

Free-trade ideology is thus a product of a shift in perspective from a God-centered universe to a man-centered one. It finds its intellectual roots in the minds of men, most of whom were pacifists and atheists…. It is remarkable that Godly men and women celebrate such dogmas and such dogmatists!

While it is true that many of the thinkers who wrote about free trade were not devoted to religion, and a few were avowed atheists, the same can be said about many if not most other developments in science and philosophy in the English-speaking world of the eighteenth and nineteenth centuries.

Mr. Buchanan goes still further, seeking to establish political links that are not there by the device of consistently omitting the adjective “classical” whenever he refers to the nineteenth-century political economists, all firm advocates of free markets, whom most people nowadays call “classical liberals.” Notwithstanding the strong support for free trade during the last twenty years among such conservatives as Milton Friedman, Ronald Reagan, Newt Gingrich, and Phil Gramm—each of whom he mentions by name—in Mr. Buchanan’s mind free trade was then and is now a “liberal” idea. A reader would not know from Mr. Buchanan’s book that it was Presidents Reagan and Bush who first promoted the North American Free Trade Agreement, or that this treaty had far stronger support among Republicans than Democrats in Congress. For Mr. Buchanan it is simply “Bill Clinton’s NAFTA.” Similarly, despite the support of all presidents of the last forty years, including Mr. Reagan and Mr. Bush, for successive rounds of multilateral tariff reduction under the General Agreement on Tariffs and Trade, to Mr. Buchanan it is “Clinton’s GATT treaty.”

In the end, however, Mr. Buchanan’s argument is about more than free trade versus protectionism. It is about the consequences of free markets. The victims in his story are not businessmen trying to get the government off their backs but workers who are down on their luck and often without jobs. Whether his account is right or wrong, its real villains are not “faceless” government bureaucrats and unworldly academic theorists but the well-to-do in general (“Third Wave professionals with their portfolios and pensions”) and in particular the owners and managers of America’s most successful businesses. Mr. Buchanan may not want to admit it, but his gripe is with the entire panoply of economic policies that foster free-market activities but then fail to address their sometimes heavy human costs.

Mr. Buchanan is right to lament the plight of Americans who lose their jobs as the result of foreign competition and who, along with their families, often face what may be a permanent decline in their economic fortunes. He also commands sympathy when he points out that some of today’s entrepreneurs and business managers are amassing such huge fortunes that the distribution of wealth in America is becoming skewed in a way we have not seen since the Gilded Age in the industrial North and the plantation era in the antebellum South.

But he is wrong to think these developments are uniquely the consequence of free trade. They are mostly home-grown, in large part brought about by the relatively slow rates of productivity growth that result from our inadequate investment in both industry and education, as well as by highly uneven transitions, over which we have less control, to new technologies. He is wrong, too, to think that protectionism would reverse the developments he deplores. The problems he addresses require different solutions.

September 9, 1998

  1. 1

    I should acknowledge that I know both Mr. Yergin and Mr. Stanislaw, and I have participated in conferences sponsored by their firm.

  2. 2

    Times Business, 1998.

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