Socialist policy on trade

Submitted by martin on 9 February, 2008 - 9:07 Author: Paul Hampton

A revolutionary alternative to both “free” trade and “fair” trade is the perspective held by the Alliance for Workers’ Liberty (AWL). It is based on the core ideas of Marxists a century ago, applied to the circumstances we live in today.

Karl Marx and Frederick Engels first wrote about world trade in the 1840s, when British capitalism was the dominant industrial force in the world economy and free trade had just become the commercial policy of the British government.

In England the Corn Laws that had kept the price of food high (and the landowners rich) were repealed in 1846, sparking a great international debate on the question of free trade. Both Marx and Engels published articles and delivered speeches on the question.

The first innovation they made was to refuse to be bound by the dichotomy: free trade or protection. As early as 1845, Engels wrote to Julius Campe: “We have no intention of defending protective tariffs any more than free trade, but rather of criticising both systems from our own standpoint. Ours is the communist standpoint…” (MECW 38, p34)

Marx against free trade

Their most detailed treatment of the question was Marx’s Speech on the Question of Free Trade, delivered in Brussels in January 1848, just before the Communist Manifesto was published. (MECW 6)

The speech is imbued with scepticism about the “free trade sophisms” of the manufacturing class. Marx railed against the “sudden philanthropy of the factory owners”, who argued that free trade benefited the working class. He argued that the bosses’ opposition to a shorter working day revealed their hypocrisy.

Marx believed that “all this cant will not be able to make cheap bread attractive to the workers”. He argued that free trade was about the British bourgeoisie dominating the world market: “England would form one huge factory town, with the whole of the rest of Europe for its agricultural districts.”

Against arguments that free trade would provide cheap food and higher wages, Marx pointed to the destitution of the handloom weavers in Britain and India. He argued that by unleashing competition, free trade was likely to drive down workers’ wages. Marx also disputed the argument that free trade facilitated a natural division of labour between countries. The free traders failed to understand that “one country can grow rich at the expense of another”.

To the question, “what is free trade under the present condition of society?”, Marx’s answer was: “It is the freedom which capital has to crush the worker.”

Marx argued: “When you have overthrown the few national barriers which still restrict the progress of capital, you will merely have given it complete freedom of action. So long as you let the relation of wage labor to capital exist, it does not matter how favourable the conditions under which the exchange of commodities takes place, there will always be a class which will exploit and a class which will be exploited.”

He added: “All the destructive phenomena which unlimited competition gives rise to within one country are reproduced in more gigantic proportions on the world market.”

Yet Marx concluded his speech with the following declaration: “But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favour of free trade.”

Why did Marx come out in favour of free trade, even in that qualified sense? He did not have in mind an actual vote, in a referendum or similar, for free-trade government measures. He was “voting” metaphorically, asserting that between the two bad capitalist alternatives, free trade and protection, free trade at least had the merit of pushing along the contradictions of capitalism.

Marx against protectionism

Marx’s arguments about protection were stated cryptically in the 1848 speech, where he said: “To burden foreign corn with protective duties is infamous, it is to speculate on the hunger of the people”.

Marx had attended a free trade congress in Brussels in September 1847 for which he prepared a speech (which was never delivered). Engels wrote an account of the conference, summarising Marx’s view, and a fragment of the speech dealing with protectionism has survived (The Protectionists, the Free Traders and the Working Class, MECW 6).

Marx argued first that: “If they [the protectionists] speak consciously and openly to the working class, then they summarise their philanthropy in the following words: It is better to be exploited by one’s fellow-countrymen than by foreigners.”

He also chastised the protectionists as at best defenders of the status quo. He wrote: “…the conservation of the present state of affairs is accordingly the best result the protectionists can achieve in the most favourable circumstances. Good, but the problem for the working class is not to preserve the present state of affairs, but to transform it into its opposite.”

Further: “The system of protective tariffs places in the hands of the capital of one country the weapons which enable it to defy the capital of other countries; it increases the strength of this capital in opposition to foreign capital, and at the same time it deludes itself that the very same means will make that same capital small and weak in opposition to the working class.”

Marx and Engels also acknowledged the fact that the advanced powers protected their infant industries in the early stages of industrialisation. Pre-dating the arguments of the fair traders by 150 years, they conceded the justice of new industrial powers protecting their own infant industries. Only that protection would either become a way of bring the new industrial power into free trade, or mutate in conservative protection.

In The German Ideology (1845–46), discussing the development of English industry 1650-1800, they wrote: “Manufacture was all the time sheltered by protective duties in the home market, by monopolies in the colonial market, and abroad as much as possible by differential duties… Manufacture could not be carried on without protection, since, if the slightest change takes place in other countries, it can lose its market and be ruined; under reasonably favourable conditions it may easily be introduced into a country, but for this very reason can easily be destroyed.” (MECW 5)

Discussing Germany in 1847, when industry was just beginning to develop there, Engels wrote in an article, Protective Tariffs or Free Trade System: “The bourgeoisie cannot, in fact, even maintain itself, cannot consolidate its position, cannot attain unbounded power unless it shelters and fosters its industry and trade by artificial means. Without protection against foreign industry it would be crushed and trampled down within a decade.” (MECW 6)

Engels also said that protection would help the capitalist class sweep away the old ruling classes. He wrote: “the bourgeoisie in Germany requires protection against foreign countries in order to clear away the remnants of the feudal aristocracy.”

And Engels argued that in these circumstances, “the working class has an interest in what helps the bourgeoisie to unimpeded rule”, since “only when the field of battle has been swept clean of all unnecessary barriers” would the decisive battle between the working class and the capitalist class take place.

But Engels reiterated that those “who advocate the protective system never fail to push the well-being of the working class… The intelligent among (workers) know very well this is a vain delusion… whether protective tariffs or free trade or a mixture of both, the worker will receive no bigger wage for his labour than will just suffice for his scantiest maintenance”.

Marx and Engels oppose free trade and protectionism

Marx’s mature writings on trade are scattered in various journalistic articles. However it is clear from plans when he drew up in the 1850s and 1860s for Capital that he thought it was a vital issue for socialists. In fact Capital was to be one of six books devoted to political economy, with the last two on foreign trade and on the world market.

In his more substantial economic works, Marx made it clear that foreign trade is important for the operation of the law of value; for abstract labour; for the rate of profit and crises.

Between the late 1840s and the 1880s, Marx and Engels continued to expose the hypocrisy of advocates of both policies of protection and free trade, and to assert the paramount interests of the working class.

For example, in Pauperism and Free Trade, written in 1852, Marx denounced the increase in poverty despite the regime of free trade. He wrote: “Either side of the bourgeois commercial policy, free trade or protection, is, of course, equally incapable of doing away with facts [such as poverty] that are merely necessary and natural results of the economical base of bourgeois society.” (MECW 11)

In 1864, in his inaugural address to the International Workingmen’s Association (the First International), Marx argued that free trade will not “do away with the miseries of the industrious masses”. (MECW 20)

Discussing Britain and the opium trade in 1858, Marx wrote: “While openly preaching free trade in poison, it secretly defends the monopoly of its manufacture. Whenever we look closely into the nature of British free trade, monopoly is pretty generally found to lie at the bottom of its ‘freedom’.” (Free Trade and Monopoly, MECW 16, p20)

Marx and Engels also supported the demand by colonies and other newly industrialising countries to protect their industries. In 1862 Marx commented favourably on the desire by Australia and other colonies with self-government that wanted protection for their industries, “while England preached free trade”. (On the Cotton Crisis, MECW 19)

Later in 1867, reflecting on the relationship between England and Ireland, Marx wrote in a letter to Engels: “What the Irish need is… protective tariffs against England. From 1783–1801 every branch of industry in Ireland flourished. By suppressing the protective tariffs which the Irish parliament had established, the Union destroyed all industrial life in Ireland. The little bit of linen industry is in no way a substitute… As soon as the Irish became independent, necessity would turn them, like Canada, Australia, etc., into protectionists.” (MECW 42)

But Marx and Engels retained their scepticism about protection. For example in Capital Volume 1, published in 1867, Marx wrote: “The system of protection was an artificial means of manufacturing manufacturers, of expropriating independent labourers, of capitalizing the national means of production and subsistence, and of forcibly abbreviating the transition from the medieval to the modern mode of production.” (MECW 35)

Marx and Engels also advised their supporters in the German Social Democratic Party (SPD) on the issue. At the SPD congress held in Gotha in 1876, the party passed a resolution that stated: “The socialists of Germany are not interested in the fight between free trade and protection which has arisen within the ranks of the propertied classes. The question is merely one of expediency, to be decided in each instance upon its merits: the troubles of the working classes have their root in the general economic conditions as a whole.” (August Bebel, My Life, 1912)

They also advised the SPD representatives in Parliament to abstain or vote against measures such as protective tariffs. In 1879, Engels wrote to August Bebel: “In the case of all other economic questions, such as protective tariffs… Social-Democratic deputies must always uphold the vital principle of consenting to nothing that increases the power of the government vis-à-vis the people. And this is made all the easier in that feelings within the party itself will, of course, invariably be divided in such cases and hence abstention, a negative attitude, is automatically called for.” (MECW 45)

When one of the SPD deputies, Max Kayser, spoke in favour of and voted for protective tariffs in 1879, Engels backed those who criticised Kayser harshly, on the grounds that the socialists opposed Bismarck’s government in general and indirect taxation in particular. (Circular Letter to August Bebel and Others, MECW 24)

Engels after Marx’s death

Marx died in 1883, and it was left to Engels to develop their position on trade policy in the light of new developments. Engels was quick to recognise that England was no longer the workshop of the world, and by the 1880s faced rivalry from France, Germany and especially the United States. (England in 1845 and 1885, MECW 26)

In the same article, Engels registered that free trade had created divisions in the working class, with some sections of the British working class benefiting from England’s industrial monopoly.

But Engels was confident that the class struggle would revive as England’s dominance was challenged. He used the preface to the first English edition of Capital Volume 1 to analyse these developments, commenting that “free-trade has exhausted its resources”. (Preface to Capital November 1886, MECW 35)

In 1888 Engels published a pamphlet, On the Question of Free Trade in 1888, which included the key articles and speeches from the 1840s, and a new introduction analysing developments over the last 40 years. It is clear from the introduction that his basic attitude remained the same as the one he shared with Marx. (MECW 26)

Engels wrote: “The question of Free Trade or Protection moves entirely within the bounds of the present system of capitalist production, and has, therefore, no direct interest for us socialists who want to do away with that system.”

But he added: “Indirectly, however, it [free trade] interests us inasmuch as we must desire as the present system of production to develop and expand as freely and as quickly as possible: because along with it will develop also those economic phenomena which are its necessary consequences, and which must destroy the whole system… From this point of view, 40 years ago Marx pronounced, in principle, in favour of Free Trade as the more progressive plan, and therefore the plan which would soonest bring capitalist society to that deadlock.”

Engels devoted the bulk of his introduction to addressing the question of protection. Firstly he repeated the argument that all the advanced capitalist countries had protected their industries in their infancy. He wrote: “It was under the fostering wing of protection that the system of modern industry — production by steam-moved machinery — was hatched and developed in England during the last third of the 18th century.”

However Engels was sceptical whether protective tariffs would achieve the intended result. He argued: “Protection is at best an endless screw, and you never know when you have done with it. By protecting one industry, you directly or indirectly hurt all others, and have therefore to protect them too. By so doing you again damage the industry that you first protected, and have to compensate it; but this compensation reacts, as before, on all other trades, and entitles them to redress, and so on ad infinitum.”

Engels pointed out that the “transformation of Germany from an agricultural to a manufacturing country” under the Zollverein, a customs union of the then-divided German states with limited tariff protection around it, proved that “even nowadays, in spite of the enormous start that English industry has got, a large country can work its way up to successful competition in the open market with England.”

Engels introduced two other important arguments. First, he ridiculed the Russian government’s protective tariffs that aimed to make it “an entirely self-supplying country, requiring from the foreigner neither food, nor raw material, nor manufactured articles, nor works of art”. In words all too relevant to Stalin’s later follies, he poured scorn on those “who believe in this vision of a Russian Empire, secluded and isolated from the rest of the world”.

Second, Engels was sharply critical of the big power protectionism — “the worst of all” — that developed in the 1870s in Germany and England — often under the slogan of “fair trade”. In England, the Tories had helped create the National Fair Trade League in the early 1880s. Engels was clear that such protectionism was reactionary, simply creating “rings” and “trusts” of national capital such as the German iron magnates and the US Standard Oil Company. By the 1880s he believed protection was unnecessary for Germany and the US.

Engels summed up the dilemma facing other countries where one power — in this case the English — dominated world trade. In a letter of 18 June 1892 to Nikolai Danielson, he wrote: “In my view this universal reversion to protective tariffs is not a mere accident but the reaction against England’s intolerable industrial monopoly. The form which this reaction takes, as I said before, may be wrong, inadequate and even worse, but its historical necessity seems to me quite clear and obvious.” (MECW 49)

In another letter to Danielson, 22 September 1892, accepting that some industrially underdeveloped countries like Russia might need protection, Engels wrote: “the question of protection is one of degree only, not of principle.” (MECW 49)

But in the long run, even if protection did assist the development of capitalism, it would also be developing its gravediggers, the working class. Engels reiterated the point in his 1888 introduction: “Protection is a plan for artificially manufacturing manufacturers, and therefore also a plan for artificially manufacturing wage labourers. You cannot breed the one without breeding the other.”

Engels continued to assess free trade and protectionism in the final years of his life. In an article, The American presidential election, written in November 1892 he explained how the United States had used protective tariffs to build up its own industry to catch up with England. Having done so, these tariffs had become a fetter to industry. He made a farsighted prediction: “Once established on the world market, America – like, and through England – will irresistibly be driven further along the path of free trade.”(MECW 27)

Engels’ last word on these issues was a political intervention criticising his own supporters in France. In February 1894 the French Chamber of Deputies discussed the issue of tariffs on corn. French socialists Jean Jaurès and Jules Guesde spoke in favour of a state monopoly on grain imports. Engels wrote to Paul Lafargue condemning their stance as “out and out protectionism” that would benefit only the large landowners. (6 March 1894, MECW 50)

In short, Engels maintained and developed the position he and Marx had set out for over 40 years — refusing to be bound by the parameters of bourgeois policy, and seeking to orientate the working class to take an independent stance.

Marxists after Marx and Engels

Later Marxists shared the approach of Marx and Engels. For example in 1894 Lenin wrote: “Although they stress primarily and most emphatically that the problem of free trade and protection is a capitalist problem, one of bourgeois policy, the Russian Marxists must stand for free trade, since the reactionary character of protection, which retards the country’s economic development, and serves the interests not of the entire bourgeois class, but merely of a handful of all-powerful magnates, is very strongly evident in Russia, and since free trade means accelerating the process that yields the means of deliverance from capitalism.” (The Economic Content of Narodism, 1894, CW Volume 1)

In 1898 Rosa Luxemburg argued that for the advanced capitalist states, tariffs were no longer about infant industries but primarily about inter-capitalist competition. She wrote: “Tariff policy and militarism have played their vital and therefore progressive and revolutionary part in the history of capitalism. Without protective tariffs, the growth of large-scale industry in particular countries would have been impossible. Today, however, the situation is different. In all major countries, and particularly in those that are most active in operating a tariff policy, capitalist production has reached roughly the same average level. From the standpoint of capitalist development, it is nowadays a matter of complete indifference whether Germany exports more goods to England or England to Germany… Given the present mutual interdependence of the various branches of industry, protective tariffs on certain commodities cannot but raise the cost of producing other commodities within the country, thus yet again paralysing industry. But from the standpoint of the interests of the capitalist class, it is quite otherwise. Industry may not need protective tariffs for its development, but industrialists need them to protect their markets. This means that tariffs no longer serve as a means of protecting a developing capitalist industry against a fully mature one but become a weapon used by one national group of capitalist against another. Furthermore, tariffs are no longer necessary as a means of protecting industry so that it can create and dominate a home market. They are, however, an indispensable instrument for the cartelisation of industry.” (Tariff Policy and Militarism, in Tudor eds. Marxism and Social Democracy 1988)

Rudolf Hilferding, in his book Finance Capital (1910), wrote: “The proletariat avoids the bourgeois dilemma — protectionism or free trade — with a solution of its own; neither protectionism nor free trade, but socialism, the organisation of production, the conscious control of the economy not by and for the benefit of the capitalist magnates but by and for society as a whole.”

Like Marx and Engels, Hilferding recognised that free trade created the conditions for capitalist development. “There can be no doubt, therefore, that at an advanced stage of capitalist production free trade, which would amalgamate the whole world market into a single economic territory, would ensure the highest possible labour productivity and the most rational international division of labour.”

However, Hilferding believed that the epoch of free trade had passed, to be replaced by an epoch of finance capital and protection, big power rivalry and war. Rosa Luxemburg, writing in 1913 in The Accumulation of Capital, argued that the period of free trade had been “just a passing phase in the history of capitalist accumulation”.

Lenin in his book Imperialism (1916) made the same point. He wrote: “England became a capitalist country before any other, and by the middle of the nineteenth century, having adopted free trade, claimed to be the ‘workshop of the world’, the supplier of manufactured goods to all countries, which in exchange were to keep her provided with raw materials. But in the last quarter of the nineteenth century, this monopoly was already undermined; for other countries, sheltering themselves with ‘protective’ tariffs, developed into independent capitalist states.” (CW 22)

Lenin also quoted Hilferding approvingly, that “the reply of the proletariat to the economic policy of finance capital, to imperialism, cannot be free trade, but socialism. The aim of proletarian policy cannot today be the ideal of restoring free competition — which has now become a reactionary ideal — but the complete elimination of competition by the abolition of capitalism.” (Finance Capital, 1981, p366, Lenin CW 22, p289)

And Trotsky summed up the attitude to protection very clearly, in an article, Disarmament and The United States of Europe (16 May 1927). He wrote: “Tariff barriers are erected precisely because they are profitable and indispensable to one national bourgeoisie to the detriment of another, regardless of the fact that they act to retard the development of the economy as a whole.”

This outlook was largely forgotten with the rise of Stalinism. Much of what passed for “Marxism” in the last 70 years has been little more than a Stalinist gloss on protection, with the autarky practiced by the USSR in isolation from the world market held up as the model. This was the very opposite of the original Marxist approach.

Marxists today

We cannot simply read off our attitude today from the views of earlier Marxists. If nothing else, they taught us to face reality squarely and study the world as it is. Their time and ours are very different.

The US does not operate as England did under free trade, as “the workshop of the world”, with other countries as its “dependent agricultural districts”. US firms have been exporting manufacturing production and employment to the “Third World”. Trade patterns and investment flows are very different from those of the 19th century.

The system of politically independent states which organises today’s “Empire of Capital” - or what we call the “imperialism of free trade” — is different from the old colonial empires. And the world financial architecture of US hegemony, represented by the IMF, the World Bank and the WTO, is markedly different from that of the time when the gold standard, the City of London, and England dominated the world economy.

Under US hegemony, capitalist “free competition” has in fact been restored and even expanded beyond the scope it had in the 19th century. A world market dominated by a few huge corporations — where each one is always able to seize on another’s weakness to invade its markets — may paradoxically be more intensely competitive than one dominated by a larger number of smaller firms, each of them with a more circumscribed market.

The general spirit of the admonitions of the Marxists of a hundred years ago against any working-class policy geared to restoring the presumably softer capitalism of yesteryear — then, small-firm capitalism as against the monopoly capitalism of high imperialism — today warns us against policies which aim to restore a bygone, softer capitalism characterised by more protection, tariffs, and national barriers.

Some basic ideas remain valid. First, the working class needs a trenchant critique of what is. Just as Marx and Engels criticised both the free traders and the protectionists of their day, so we should criticise both US “free trade imperialism” and those who want a “multipolar” world in which the European Union can vie with the USA.

The fair-traders and WTO-reformers of today are not to be equated with the Tory protectionists of a hundred years ago. But their ideas do have much in common with the “socialism of fair exchange” advocated in the mid 19th century by Pierre Joseph Proudhon and others. They thought that social equality could be ensured by rejigging the rules of capitalist market economics to bring them into line with their theoretical claims of equality and justice. Marx snorted: “To clamour for equal or even equitable redistribution on the basis of the wages system is the same as to clamour for freedom on the basis of the slave system”.

The working class needs an independent policy — it should not be bound by the two bourgeois policies of free trade and protection. Workers do not have to side with “their own” national capital for protection, or with cosmopolitan capital for free trade. Neither policy will ultimately raise working class living standards — and neither will do away with the fact of exploitation at the root of wage labour.

Second, Marxists favour free trade because it hastens the development of capitalism, principally by creating its gravediggers, the working class. Since the eighteenth century, as capitalism developed in Europe, North and South America, Oceania and in parts of Asia, large working classes were created, often with powerful labour movements. Since 1950 the working class has grown in size and social weight worldwide as capitalism developed. According to ILO figures, countries such as China, India, Brazil, Mexico, South Korea, Indonesia and South Africa, had 38 million industrial workers in 1950. By 2000 they had over 310 million industrial workers, an eight-fold increase in half a century. This suggests that for workers the route to self-emancipation is by pushing through globalisation, rather than by reversing it.

Does this mean socialists support the IMF, the WTO and neoliberal policies? No, it does not! We are opposed to their structural adjustment and apparent trade liberalisation policies precisely because it is the working class that suffers and the capitalists who benefit from them. But we also understand that their abolition is no panacea — capital could continue its daily destruction, and maybe even worse, if these institutions were destroyed.

Snappy demands like “withdraw from the WTO” (adopted by the Australian Socialist Alliance) or “no to the euro” (common on the British left) have under their militant gloss no content beyond the discredited, national-capitalist policies of yesterday.

The WTO and IMF are not autonomous forces. They reflect the power of states and corporations. We have to tackle that power. The “empire of capital” cannot be tackled successfully without the working class overthrowing the capitalist states. Those states, the “executive committees of the bourgeoisie”, are still the most reliable guarantors of capital accumulation, and therefore states have to remain the focus of opposition movements. The big capitalist states are still much bigger and more potent concentrations of capitalist power than even the biggest multinational corporations. To argue, as for example do writers in Le Monde Diplomatique and theoreticians of ATTAC, that our task is to “restore the state” which is in danger of being overwhelmed by the corporations and the international institutions, is fundamentally to misestimate our enemy.

And what about protectionism? Marx and Engels were careful to appreciate circumstances where protection might be acceptable — for example in Australia and Ireland in the 1860s to support infant industries, and where it was not, such as Germany and the US in the 1880s, to protect trusts. We might make an analogy here by opposing the subsidies and other “support” by the US, the EU and Japan for their own agriculture, textiles, steel, etc, and by supporting preferential treatment for less developed economies.

Workers cannot have any truck with the protectionism of rich world governments, even under the guise of saving jobs. For one thing, it is capital not our brothers and sisters abroad that decides where the jobs go; and no protective tariff will prevent capital setting up shop elsewhere. Marx and Engels taught that under capitalism the market determines wages and employment, but so does the class struggle. And only an end to the wages system will guarantee jobs and a living wage for all.

We can also agree with Marx and Engels’ arguments against self-sufficiency and exclusion from the world market. We should argue against those who advocate localisation as the solution to poverty, inequality and the environmental crisis. “Socialism in one country” was a Stalinist monstrosity — socialism in one locality would be an even further step backwards.

Finally, Marx and Engels understood that large firms were the organic product of capitalist development, through the processes of concentration and centralisation of capital. Their answer to this was not “break up the monopolies” but public ownership under workers’ control. That should be our approach towards the multinationals.

To support small-scale, local, or national capitalism against the multinationals — implicitly or explicitly — is to turn our faces backwards instead of forwards. Very often it means supporting the backward, more crudely exploitative capitalist against the one whose large scale of operation at least creates a better basis for large-scale workers’ organisation.

Social and democratic control over the multinationals requires more than just nationalisation (i.e., in one country). It requires global control. But the fact that so few multinationals now dominate the world economy makes global socialist planning nearer to hand than ever before — if only we can generate a level of international working-class organisation and solidarity as extensive as the global interconnection of capital.

References

Gary Buckman, Globalization: tame it or scrap it?, Zed Books 2004

The Economist www.economist.com

Colin Hines, Localisation: A Global Manifesto, Earthscan 2000

Angus Maddison, The World Economy: a Millennial Perspective, OECD 2002

Marx and Engels,

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