Free Trade in South America: A Tale of Two Countries' Economic Growth (or Decline?)
Stanford, Jane H., SAM Advanced Management Journal
... you reject abstract theories; abundance, cheapness, concerns you little. You are entirely occupied with the interest of the producer, whom you are anxious to free from foreign competition. In a word you wish to secure the national market to national labor...
Frederic Bastiat, French Economist, 1882, from the "Petition of the Candlemakers"
In the 19th century, Bastiat satirically portrayed France's protectionism of the country's domestic industries. This propensity toward protectionism was staunchly maintained by Frenchmen, she averred, even though foreign goods or services might be obtained at a reduced cost to the very people who vowed exclusion. But Bastiat claims that the French chose an isolationist position when the country could benefit from cheaper production "to encourage labor, to increase the demand for labor" (p. 388). In the satire, France's rationale for this standpoint is that producer and consumer are one and the same; therefore what most benefited the producer would be of most benefit to the consumer.
In depicting the irony he sees in this defense of protectionism, Bastiat uses France's candlemaking industry as the "victim" and the sun as the foreign interloper who is undermining the candlemakers by offering free sunlight. In this treatise, the French economist parodies the contradiction in wanting to protect domestic industry from foreign competition, while, as consumers, wanting to have an abundance of less expensive goods and services:
And does it not argue the greatest inconsistency to check as you do the importation of coal, iron, cheese, and goods of foreign manufacture... while at the same time you freely admit, and without limitation, the light of the sun...? (p. 389)
Does history repeat itself? Or, do we conscientiously take the lessons from the past and apply them to our current situations to avoid the costly mistakes of yore. If this were true in the case of modem trade practices then certainly countries would eschew protectionist doctrines. The parochial petition of the candlemakers would not be echoed anew.
But, unfortunately, history does have a habit of repeating itself. Even in an era of unparalleled trade, the vestiges of the candlemakers are still evident. Their desire to create a healthy economy based on continuous growth and equilibrium in demand and supply -- with domestic producers only -- is still strong over a century later.
The globalization of trade continues to accelerate as the new millennium approaches. Follow-the-leader strategies are being widely employed as an increasing number of countries seek ways to hone their competitive skills in the international marketplace and develop strong economic infrastructures within their domestic markets (Fites, 1997; Kennedy, 1996). In most situations, the strategy to emulate has been one predicted upon a free market philosophy (Reinicke, 1997; Thurow, 1992). One common result of this trading frenzy is the development of regional trade pacts between neighboring countries (Scholte, 1997; Ohmae, 1995). In some cases, these regional pacts will set the stage for the concentric enhancement of membership into regional trading blocs (Frankel, 1997).
Countries included in trade accords typically have five dominant characteristics that will permit the free trade principles of comparative advantage and demand/supply to work relatively unfettered (Devereux, 1997; Frankel, 1997; Kennedy & Koehn, 1996; Hodgetts & Luthans, 1994; Naisbitt, 1994). First, businesses are largely profit-making entities owned and managed by the private sector, as opposed to being state-owned or managed. Second, these businesses have a propensity to seek opportunities external to their own domestic markets, as opposed to being confined to national boundaries. Third, direct foreign investment is encouraged by government, as opposed to protectionist policies to limit or exclude foreign investors from domestic markets (Crow, 1992). …