Free Trade

Noam Chomsky

Excerpted from Secrets, Lies, and Democracy, 1994

Daily Camera, which is part of the Knight-Ridder chain, ran a series of questions and answers about GATT [the General Agreement on Tariffs and Trade]. They answered the question, Who would benefit from a GATT agreement? by writing, "Consumers would be the big winners." Does that track with your understanding?



If they mean rich consumers-yes, they’ll gain. But much of the population will see a decline in wages, both in rich countries and poor ones. Take a look at NAFTA [the North American Free Trade Agreement], where the analyses have already been done. The day after NAFTA passed, the New York Times had its first article on its expected impact in the New York region. (Its conclusions apply to GATT too.) It was a very upbeat article. They talked about how wonderful NAFTA was going to be. They said that finance and services will be particularly big winners. Banks, investment firms, PR firms, corporate law firms will do just great. Some manufacturers will also benefit-for example, publishing and the chemical industry, which is highly capital-intensive with not many workers to worry about

Then they said, Well, there’ll be some losers too: women, Hispanics, other minorities, and semi-skilled workers-in other words, about two-thirds of the work force. But everyone else will do fine. Just as anyone who was paying attention knew, the purpose of NAFTA was to create an even smaller sector of highly privileged people-investors, professionals, managerial classes. (Bear in mind that this is a rich country, so this privileged sector, although smaller, still isn’t tiny.) It will work fine for them, and the general population will suffer.

The prediction for Mexico is exactly the same. The leading financial journal in Mexico, which is very pro-NAFTA, estimated that Mexico would lose about 25% of its manufacturing capacity in the first few years and about 15% of its manufacturing labor force. In addition, cheap US agricultural exports are expected to drive several million people off the land. That’s going to mean a substantial increase in the unemployed workforce in Mexico, which of course will drive down wages.

On top of that, union organizing is essentially impossible. Corporations can operate internationally, but unions can’t-so there’s no way for the work force to fight back against the internationalization of production. The net effect is expected to be a decline in wealth and income for most people in Mexico and for most people in the US.

The strongest NAFTA advocates point that out in the small print. My colleague at MIT, Paul Krugman, is a specialist in international trade and, interestingly, one of the economists who’s done some of the theoretical work showing why free trade doesn’t work. He was nevertheless an enthusiastic advocate of NAFTA-which is, I should stress, not a free trade agreement.

He agreed with the Times that unskilled workers-about 70% of the work force-would lose. The Clinton administration has various fantasies about retraining workers, but that would probably have very little impact. In any case, they’re doing nothing about it.

The same thing is true of skilled white-collar workers. You can get software programmers in India who are very well trained at a fraction of the cost of Americans. Somebody involved in this business recently told me that Indian programmers are actually being brought to the US and put into what are kind of like slave labor camps and kept at Indian salaries-a fraction of American salaries- doing software development. So that kind of work can be farmed out just as easily.

The search for profit, when it’s unconstrained and free from public control, will naturally try to repress people’s lives as much as possible. The executives wouldn’t be doing their jobs otherwise.

What accounted for all the opposition to NAFTA?

The original expectation was that NAFTA would just sail through. Nobody would even know what it was. So it was signed in secret. It was put on a fast track in Congress, meaning essentially no discussion. There was virtually no media coverage. Who was going to know about a complex trade agreement?

That didn’t work, and there are a number of reasons why it didn’t. For one thing, the labor movement got organized for once and made an issue of it. Then there was this sort of maverick third-party candidate, Ross Perot, who managed to make it a public issue. And it turned out that as soon as the public learned anything about NAFTA, they were pretty much opposed.

I followed the media coverage on this, which was extremely interesting. Usually the media try to keep their class loyalties more or less in the background-they try to pretend they don’t have them. But on this issue, the bars were down. They went berserk, and toward the end, when it looked like NAFTA might not pass, they just turned into raving maniacs.

But despite this enormous media barrage and the government attack and huge amounts of corporate lobbying (which totally dwarfed all the other lobbying, of course), the level of opposition remained pretty stable. Roughly 60% or so of those who had an opinion remained opposed.

The same sort of media barrage influenced the Gore-Perot television debate. I didn’t watch it, but friends who did thought Perot just wiped Gore off the map. But the media proclaimed that Gore won a massive victory.

In polls the next day, people were asked what they thought about the debate. The percentage who thought that Perot had been smashed was far higher than the percentage who’d seen the debate, which means that most people were being told what to think by the media, not coming to their own conclusions.

Incidentally, what was planned for NAFTA worked for GATT-there was virtually no public opposition to it, or even awareness of it. It was rammed through in secret, as intended.

What about the position people like us find our selves in of being "against," of being "anti-," reactive rather than pro-active?

NAFTA’s a good case, because very few NAFTA critics were opposed to any agreement. Virtually everyone-the labor movement, the Congressional Office of Technology Assessment (a major report that was suppressed) and other critics (including me)- was saying there’d be nothing wrong with a North American Free Trade Agreement, but not this one. It should be different, and here are the ways in which it should be different- in some detail. Even Perot had constructive proposals. But all that was suppressed.

What’s left is the picture that, say, Anthony Lewis portrayed in the Times: jingoist fanatics screaming about NAFTA. Incidentally, what’s called the left played the same game. James Galbraith is an economist at the University of Texas. He had an article in a sort of left-liberal journal, World Policy Review, in which he discussed an article in which I said the opposite of what he attributed to me (of course-but that’s typical).

Galbraith said there’s this jingoist left- nationalist fanatics-who don’t want Mexican workers to improve their lives. Then he went on about how the Mexicans are in favor of NAFTA. (True, if by "Mexicans" you mean Mexican industrialists and executives and corporate lawyers, not Mexican workers and peasants.)

All the way from people like James Galbraith and Anthony Lewis to way over to the right, you had this very useful fabrication-that critics of NAFTA were reactive and negative and jingoist and against progress and just wanted to go back to old-time protectionism. When you have essentially total control of the information system, it’s rather easy to convey that image. But it simply isn’t true.

Anthony Lewis also wrote, "The engine for [the world’s] growth has been…vastly increased…international trade." Do you agree?



His use of the word "trade," while conventional, is misleading. The latest figures available (from about ten years ago-they’re probably higher now) show that about 30% or 40% of what’s called "world trade" is actually internal transfers within a corporation. I believe that about 70% of Japanese exports to the US are intrafirm transfers of this sort.

So, for example, Ford Motor Company will have components manufactured here in the US and then ship them for assembly to a plant in Mexico where the workers get much lower wages and where Ford doesn’t have to worry about pollution, unions and all that nonsense. Then they ship the assembled part back here.

About half of what are called US exports to Mexico are intrafirm transfers of this sort. They don’t enter the Mexican market, and there’s no meaningful sense in which they’re exports to Mexico. Still, that’s called "trade."

The corporations that do this are huge totalitarian institutions, and they aren’t governed by market principles-in fact, they promote severe market distortions. For example, a US corporation that has an outlet in Puerto Rico may decide to take its profits in Puerto Rico, because of tax rebates. It shifts its prices around, using what’s called "transfer pricing," so it doesn’t seem to be making a profit here.

There are estimates of the scale of governmental operations that interfere with trade, but I know of no estimates of internal corporate interferences with market processes. They’re no doubt vast in scale, and are sure to be extended by the trade agreements.

GATT and NAFTA ought to be called "investor rights agreements," not "free trade agreements." One of their main purposes is to extend the ability of corporations to carry out market-distorting operations internally.

So when people like [Clinton’s National Security Advisor] Anthony Lake talk about enlarging market democracy, he’s enlarging something, but it’s not markets and it’s not democracy.