THE MAGIC FORMULA OF THE NEW ECONOMY THEORY “THE PRISONER’S DILEMMA”

The circle: Is new economy so new? Are its contributions really likely to improve economic policy decisions to enhance or optimize the regulating action of the States ? Not to go wrong on the analysis of the behavior of individuals, the basis of all economic decisions, “ Traditional micro economy  had the aim to give body to the intuition according to which the functioning  of competitive markets could be effective. On contrary, game theory underlines the importance of the coordination defects inherent  in the decentralized decisions.” [Chang P ; The microeconomic, collection guides, The discovery, 1993 p 23]

 That summarizes the turn taken by the “new economy” as it defines itself while the major teaching of the 20^th is that this are the centralized organizations that have gone bankrupt in the East and are in crisis in the welfare State countries.

But the new economist can’t stop to this kind of detail. They are hard, instead to demonstrate that the decentralized decisions can’t be “optimal”. Such decisions can’t by optimal by they have the merit to exist. This is a major feature; because optimal solutions will never exist.

It’s like the market economy, it function by ups and downs, which allows it to evolve in adapting and innovating because human perfection is not in this world while the application of models of planned and centralizes organization, considered by their designers as infallible and all powerful, and aimed to solve all economic and social problem never works, despite all disastrous attempts that do the tragic 20^th century history.

The function of the market is precisely to require players to make choices, to make decisions. But error is human and since our childhood is mistaking we learn and we correct our behaviors. And the functioning of economy feeds of these necessarily imperfect choices. The new economists still didn’t integrate the idea that nothing is optimal in this world. A scientific spirit has the duty to interest in what really exists and what exists is necessarily imperfect.

What is the use of a model what would be optimal but imaginary so unenforceable? And who could correct imperfect behavior (From what point of view, what critters?) if not a state itself directed by human beings themselves necessarily imperfects?  Models of contemporary economy assume that we are all unconsciously as a “prisoner” of a narrow selfishness that prevents us to make decisions that a “benevolent agent” – necessarily the State-would be in the right and in the need to take in our place.

It’s for destroying the” parable of the invisible hand” proposed by Adam Smith that the parable  of the prisoner’s dilemma was developed by contemporary economists.

Let’s remember the principle of the "prisoner's dilemma". Two prisoners are accused of committing a crime together and are interviewed separately. The police officer their made the following proposal: "If you keep silence and if your accomplice says, you'll be five years in prison. If you admit both, you are only three years old. It is possible that your accomplice is silent. If you shut you also, may you do only one year in prison.

On the other hand, if your partner does not say anything and if you confess, leave you out in three months. You can see if your accomplice speaks, you have interest to confess; and if your partner is silent, you still have interest to confess. Then, why not confess immediately?"

It appears that if each prisoner follows his self-interest, he’ll find advantage in confessing. Because keeping silent, he takes the risk of staying five years in prison. But confess in not the common interest of the 2 prisoners: in confessing both they’ll be three years in prison. Even thought if they had kept quiet both, they would have taken only a year in prison. This parable is interpreted in a very particular sense, showing notably that the private interest is not the best guide to our decisions when the latter lead to results opposite to the general interest.

Thus, this principle serves as a theoretical pretext to a fundamental questioning of decisions decentralized operating in any process of market. New economists think they have found the magic formula t allowing them to say that the "invisible hand" of Adam Smith is invisible precisely because it does not exist. No to  mention that it is in the general interest that criminals whose guilt is established, be all in prison, it is clear, in this example, we define not the general interest. One merely confounds it, at most, with a "common interest" in this case, the interest of the criminals. . However the interest of criminals is, in fact, a corporatist interest, which has little to do with the public interest (and in the case of criminals, it is even contrary to the public interest).

But since the new economists amuse themself constructing stories in order to arrive at their conclusions, let me tell you another story. What if our prisoners were Bonnie and Clyde, crooks madly in love one another? Out of love for her partner, Bonnie would prefer denounce to save Clyde as Clyde would act in the same way to save Bonnie. In the end, our two brigands would still give themselves up to the authorities. Is this to say that love is not a feeling "optimal" since it leads to decisions that will be harmful to our two protagonists? And how will the State claim to correct this "failure"? In this case, it would have been better being selfish.

Thus, the "prisoner's dilemma" does tells us nothing else that is already known: it may be dangerous to think only of oneself it can be suicidal to think of the other.

The French growth still in the same stalemate

Since I teach economics to my students, I hear in every media that consumption will boost growth and that salaries must thus be sustained or saving reduced to support consumption.

More than 10 years ago now, I warned in Les Echos (Paris) that this would drive us in a dead end. Indeed, in a situation of under-capitalization, which is probably the situation of the French economy, the reductions of savings mays on term reduce consumption [1].

More than 10 years later, the debate has not advanced.

The teachings of the growth theory and the historical experience show that the State must absolutely control its public finances (stable public deficit, stable public debt) if the government wants to rediscover the path of sustainable growth.

Indeed, if public debt explodes, the State will divert a growing part of households’ savings toward debt financing. These savings will no longer finance private investment of productive sector (eviction effect), which is going to slow the economic growth that fundamentally depends on the accumulation of capital.

In consequence, the economy goes out of its structural path of growth; as a plane losing speed loses its cruise altitude… On term, it’s the crash.

 However, there’s need to realize that nowadays, in France, the payment of debt itself (debt service) occupies the second position of the State budget.

It’s true that the French household savings rate is important, private savings constituting a reaction to the public dissaving (deficit). But a large part of this savings is designated to finance the State debt, though life insurances. In this context, State has no interest to reduce savings on the pretext to reboot consumption in the short term.

However it’s as much savings which is lacking to the productive investment of the private sector thus, on the long term growth. But if business investment declines, then growth will slow and public debt will increase.

In effect, it must be reminded that Maastricht criteria stipulate that for public debt to be stabilized to 60% of the GDP public sector mustn’t be over 3% of the GDP and economic growth must be superior to 2%. It’s a fatal dead end: Debt explodes, State needs more savings to finance its debt and companies can’t find capital to invest anymore. In consequence, growth slows   down and picks…

Despite the political vibrations, it’s the blindness of our political class; prisoner of the blinders of the short term, leading under the fallacious pretext to defend the missions of the State, public finance to derive that has led us to this dead end.

Balanced public finance doesn’t mean that State spends absolutely no more.  But that simply means that these expenses are covered by equivalent revenue. And only a productive and growing economy is likely to generate abundant public revenue with no need to constantly increase the sampling rate which is the surest way to kill the growth in the bud. This is why the comeback of growth is vital for our country.  But the return to growth is something that can’t be decreed and growth isn’t a miracle or a random weather event. It supposes the respect of essential conditions that economic literature extensively recalled since Adam Smith.

[1] “The growth is not a miracle or a fatality “, Les Echos, October, 16^th 2001, Paris.

The basics tenets of the economy

The Circle. Since decades, most clueless accuse economists to understand nothing. It is true that as in all professions, there are charlatans, astrologers and those preferring what is "fashionable" and mays "buzz" than demanding and often unpopular objectivity.  The others are never listened

Everyday, we collect poisoned fruit of a state that no longer plays its role and assumes more duties. The state is a crucial agent of the company as all of society -including its institutions and its economy- who suffers from the failure of a public sector which returns the monopoly in vital areas of our economy. And to interfere in the life of companies, the wanting to enact the "social" and to regulate the economics, state no longer has the means to discharge its essential and irreplaceable police, justice and security missions. Beyond the regrettable fact that rising insecurity increases the risk, and therefore the cost of economic activities, , the indictment of the authority concerned, the serious consequences for the fuel of training of individuals and their ability to work. yet while the Moscow trial ( 1935-196), caught some consequences, the Nobel laureate Kenneth J;Arrow yet very sensitive to social issues and equal opportunities said" " The socialist economy does neither democracy nor individual freedom. I had the naive idea that in the absence of capitalist class, there would be not interest in the operation of one class by another. It had become clear that this vision was not likely. The mysterious failure was the possibility that socialism, focusing the control of the economy in the state apparatus rendered the authorization or even period it inevitable [1]"

Another Nobel price, Milton Friedman, once said «What is extraordinary with the economics law is that all it laws actually in a page, but their simplicity has never been accepted by most people.[2]"

Finally, the professor James Bucchanan himself winner of the Nobel prize in economics, opened the meeting of the Mont Pelerin Society in Potsdam in October 1999 with these words:" "Anyone so little educated and intelligent knows that the liberal doctrine lies in the belief that it is primarily expending the domain of individual decisions that we extend of the issues based on collective projects that can best advance the society [3]"

French don’t like to receive lessons especially coming from American Nobel prize. It would be right to blame the Americans for holding secret the «recipes” for their economic growth. But this is not the attitude they have in reality. The results of economic science are known and moreover are common Knowledge.  But this is because one persists in France to be deaf to these fundamental teachings:  It is because in this blocked country they keep on willing to treat many folders (Pension, education, health, social protection, employment etc…) under the single collective angle that many of these files are now at an impasse.

It’s urgent to recall a few founding principles of economic science that sophisticated models as well as academic jargon  -as well as the official language of wood-  tend to forget by treating problems only with technical and specialized angle.

-Principle 1: Nobody spends someone else’s money as carefully as his own. It’s easy thus to be generous with other’s money while one tend to be rational with his own money.

Principle 2: The key of the raising of the standard of living is to develop savings, capital, education and technology training

Principle 3: In any voluntary exchange when they have accurate information, the buyer and seller are both winners; so an increase in trade between individuals, between croups or between countries is beneficial to both parties.

Precept 4: Given the universal reality of limited resources and unlimited asks, concurrency is a universal fact that can’t be abolish by governmental decree. But competition doesn’t exclude cooperation.

Principle 5: Since most individuals aren’t self-sufficient and almost all natural resources must be transformed to become usable, individuals – Workers, owners, capitalist, entrepreneurs etc..- must work together in the aim to produce goods and services of value. But the cooperation doesn’t exclude cooperation.

Principle 6: Differences of talent, intelligence, knowledge and property lead to specialization and comparative advantage for each individual, company or country. Wanting to do everything is inefficient.

Principle 7: Information about market‘s behavior is so diverse, important, changing and pervasive that it’s can’t be fully understood and calculated by a central authority. 

Principle 8: Profit and loss are the market mechanisms that indicate what has or doesn’t have to be product in the long term.

Principle 9: Do something implies to renounce to other thing what you have liked to do too.

Principle 10: Prices are determined by the subjective buyer estimation (request)and the subjective seller estimation (offer),and not by any production objective cost.

Principle 11: It always exists a dose of objective risk and uncertainty about the future, especially when people are free to make choices, learn from their mistakes and change their mind. What makes difficult any prediction on the future and any attempt to failure, at least in a society of freedom.

Principle12: The increase in wages on the long term can be achieved by greater productivity i.e more capital investments for each worker, the chronic unemployment is a consequence of the action of the government which sets the rate of pay above the market clearing level.

Principle13: Controls on prices, wages, and rents can’t benefit to society as a whole. In the end these controls may create shortages, back market, a deterioration in the quality and services. Free meals, that doesn’t exist…

Principle14: Deliberate attempts to depreciate the currency or to artificially lower interest rates, or to engage in easy money policies lead to inflation, cycles of prosperity/recessing and economic crises.

The money is an expression of wealth, it is not wealth.

Principle 15: The government must stick to what private companies can’t do. It must not engage in business that the private sector handles better than him or a fortiori,  prevent companies from doing what they could do at least as well as he  ( enacting a public monopoly, for example)…

The understanding of these principles doesn’t imply to have a PHC in economics. Economics is interested in how people organize, operate and evolve in society and how they reach others objectives by mobilizing resources. The consumer doesn’t make this or that decision because an expert proved it was optimal to do so, expert –competent-   concludes to this model that allows him to predict this out because he has observed consumers to do so.

But our leaders are still surrounded by experts considering that business located within the French territory must behave according to their models and their political choices. Hence the illusory claim to regulate the economy and format the society. May the State restore the conditions of freedom , may the State ensure the protection of human rights of property ( which is the liberty  to dispose of the fruits of his work) , of the freedom of movement and the freedom to work;  may State cease interference in social and economic  and there will be economics mechanisms to develop according to the precepts set out above.

 

1)      [1] In Feiwel,  g.(ed )(1987), Arrow and the foundation of the theory of economic policy, London, Macmillan.

2)      [2] The full text of this speech was published in summer 2000 in the Independent Review, quarterly magazine published by the independent Institute of San Francisco.

3)      [3] Idem

The return of the TOBIN tax: Must international transactions be taxed ?

The circle: Since François Hollande wants to link human rights to democracy in the francophone countries; one must remember that it's also essential to recall the close link between the human rights, the quality of the institutions and of those who make them function. This is why it's necessary to oppose the mad project of the Tobin tax.

In microeconomics, there is a basic law which has substantial implications both on national economy and global economy.

Beyond the mathematical expression which -if misunderstood- is likely to miss the bulk of the economic message, it’s needed to understand its meaning.

This act is known as Law of diminishing marginal returns which is for an economist almost a natural law…

Indeed, it’s in our biological nature of human beings: We have to accumulate and recovery a stock of calories (by consumption) to be able to provide energy (for production and labor.) When you have poor performance in a domain, it’s easier to increase your performance than when you already have reached a high level of performance. More a potential is approached, more opportunities to increase its performances have sold out or it takes to increase this potential itself (structural reforms).

So, I tell my students that it’s rather easy to spend a 5/20 to a 10/20 note - which makes a 100% progression- by seriously working. But we easily understand that, in progressing, we can’t maintain the same progression rate of 100% and it’s extremely difficult to pass 17/20 to 19/20 in the image of the high jump champion who wants to increase his record of a small centimeter. The last “small centimeter is harder to win than the first “small centimeter” even if they are objectively the same size. In LucBesson’s movie “The big blue”, Jean Reno who play the role of a diver who wants to beat the record of diving in apnea says: “One meter in the background hasn’t got the same length as a meter in the surface!”.

Emerging countries can have insolent growth rates of 10% for year ( nowadays, their rate is around 5%) because they were very low, they had a low level of capital accumulation and therefore a high level of the marginal return on capital. But let’s just look at the consequences of such a proposal in an open economy. The capitals, which circulate freely, go to invest into the countries ( direct investments) offering the best returns, that is to say in these emerging countries, which specifically permits to these countries to find  funding to finance the investments.

Thus the accumulation of capital increases, what feed the growth of the countries and by repercussion, the world economy. In consequence, he level of capital per worker will increase and so the marginal yields (the supplement of performance obtained with each dose of investment) will decrease to the point where capital will be invested in countries with higher  yield so with a best growth potential,

It is thus visible that the international mobility of capital can exploit all deposits growths at the global level, generating a process of caching up of the country growth: Taking off countries have the stronger growth potential (bare is very low) they attract the capital that will precisely feed this growth (they can raise the level of the bare) . But, there, on behalf of a static and ideological view which assimilates the free movements of capital to a necessarily guilty speculation, governments will rush to put in place a taxation of financial movements, following blindly the proposals defended by ATTAC.

The drama is that they will justify the implementation of this tax using an obviously noble – and therefore not open to criticism - : The support to the development and the fight against poverty in the world. However the help (the product collected by the tax) is generally collected by states and paid from top to these states. These states, benefiting from the help often have corrupt, immoral, inefficient political regimes; these regimes are at the origin of the poverty of their own countries, it’s precisely this corruption which endorses these sates, making them last, despite the fact people flee their countries. Indeed, billions that water from the top the governments of the countries helped this way, are rarely found in basic funding channels that contribute to the financing of the economy unlike many flows of direct investment that irrigate economy by the base and by multiple channels.

Equatorial Guinea is a small country of 500 000 habitants among the richest in Africa siting on a oil windfalls. President Teodore Obian Ngueme Mbasogo, in place since 1974 (Sic!) ,has appointed his own son as oil minister. His son, thus promoted bought himself a private yacht estimated at more than $200 millions. Indeed, independent economists have estimated that if this amount had been recycled in the local economy, the average income per habitant would be 2000 euros per month. At this time, the president of this country came to negotiate a relief of the debt, claiming the poverty of the African people. And the international institutions accepted, fearing to be accused of “rascism” or neo-colonialism by the” good consciences” totally undocumented. And this same phenomena can happen in Madagascar, Comoro, Algeria…

In the same time, local corrupt regimes continue to be supported by international assistance while ours  experts propose to tax international capital flows and speculation accused of being responsible for misery in the world although that these tax are specifically intended to these massive aids that reinforce, in endorsing, such regimes. In addition, the implementation of tax, curbing the international movement of capital (which is its displayed and researched goal) is precisely at the origin of the slowdown of the growth in these countries which compromises their development.

Once again, whether at the national level or at the international level, tax offers to repair what in fact it has itself caused: On one side the state break the leg and on the other its offers to be the savior, wining the monopoly in the provision of crutches. But as the tax has to be justified over the long period, state will break the leg again when it’s fixed so that the economy is at its growth potential. You are structurally handicapped. Emergent countries, opening to direct investment and international trade, exploited the full potential of the growth of the opening and became today the locomotive of the world growth. Globalization is not the problem; the problem comes from structures that are inadequate.  In a open economy, even if the French saving is abundant, it will go to place in the emerging markets that offer the best returns. Is it then needed to protect oneself and to opt out of the global capital market and therefore of the freedom of movement of the capital which is corollary? No, because our blockages is internal and structural. Yet again, they are related to a static vision (Keynesian approach) when it’s not Marxist (hatred of capitalism necessarily harmful         and exploiting the masses;) of the economy wild broadcast by parrots media.

Misery and end of growth often come from a choking ignorance of economic laws simple but that you refuse to understand while theirs implication are considerable including the keys of wealth and growth.

This is the message that has to be spread among our friendly French speaking countries in Africa.

Monetary, financial and fiscal things

In economics matters as anywhere else, in all disciplines of knowledge, it’s important to well appoint things to design them, distinguish them and avoid fallacies and confusion.

There is a domain of the economy where the confusions and contradictions abound, it’s about who is accountable to the currency finance and the budget. The currency was invented by men to facilitate trade in goods and services, such as so an instrument for the exchange of resources. But money is not wealth. Wealth, it’s the set of goods and services to meet our needs. And the goods and services are specifically produced to meet our needs, when producers have turned to consumers demands. Although the currency addresses the need to Exchange, we trade in fact the goods and services. It’s therefore an intermediate need.

The financial question consists to respond to the need to transfer the consummation power in the future in the best conditions, knowing that this always involves a risk. Robison Crusoe on his island is confronted with this crucial problem if he wants to survive while nobody helps. If there are 1000 grains of wheat, it will be decided to eat 80 for immediate consumption but it will be soon realized that, if he wants to eat tomorrow, he must saw 20 grains. And to sow (i.e. invest) must be previously doesn’t consume, so save 20 (20% saving rate). In the modern economy, it belongs to the banking system and the financial market to solve this problem, i.e. to reap the swings households to secure then steer it towards more productive investments. It will be noted that for Robison alone in his island, the issue of the Exchange doesn’t arise. He hasn’t got any money. Therefore he lacks money to solve the problem. On the other hand, there is a financial issue to solve: Stock and rescue the 20 spared grains (protect them from renders and bad weather) and choose the best land for sowing in the aim to draw maximum performance. Because he wants to be able to eat tomorrow, he must invest today. This is called inter temporal arbitration in the heart of the financial problem.

Finally, all economic agents, be they households, companies and the State must manage a budget which is to make its necessarily limited revenue expenditure. In others words, each of the agents must make choice under budget constraint; Being free and sovereign, this is not to say to everything you want to, but be able to make choice given the constraints; The differences between adults and children, is that adults have to make choice, and making a choice that is the definition of a rational behavior in Economics [1]. This is not because your account is register in a bank the bank is to manage your budget. It’s your responsibility to bring revenue is the same way yours then to use them the way you want to as long as accounts are balanced.

Certainly, if you are constantly discovered at fall in the debt, one day a bailiff will come and seize your property. It is almost the same for the State or for companies. A company that is losing its customers without reading loses the confidence of the shareholders or its bankers until the day when it is key to the door.

The budget constraint is therefore necessary at all because it is registered in the economic laws; European Treaty or not, this is the “golden rule” applied to the state. In France, it is that it feels the need to include a rule so basic and so obvious in the constitution and that there are opponents to cry at loss of our “sovereignty . A sovereign State is free to do whatever it wants of the public money which is responsible as long as it respects the budget constraint. Given the magnitude of our samples, the French State has a considerable body of public money. But it is up to politicians to make the trade-off required. Do not know how the choice i.e. prioritize priorities, is to lose its freedom and sovereignty, as for a business or a household; For example, a State that  is unable to control its public deficits at the fall in the debt is at the mercy of its creditors; Being sovereign , is to be responsible for. And it is not the banks that are responsible for the debt. These are politicians who have failed to make the choice, wanting to meet everyone, feed the inflation of public expenditure. They did not take their responsibilities.

Then, it was believed for a long time in France that State was above economical laws, what was only applied to ordinary mortals (enterprises and households) and that it could therefore escape the budget constraint, cleverly maintaining a confusion between the monetary and the fiscal. Keynes himself didn’t defend the idea that a policy of revival by the budget deficit could be supported by a policy of monetary easing. In brief, if State revenues were insufficient to finance ever increasing public expenditures, it was enough to increase the money supply (windsurfing ticket). Yet, since 16^th century no one ignores the mechanical link between the quantity of money and the level of prices. The any artificial increasing of the money supply (What Jacques Rueff called “False rights”) brings a rise in the general level of prices (inflation) in sort of what the State gives you with its right hand; inflation takes it of you with left hand.

That is why economists of the 20^th century qualified inflation as “disguised tax”. Similar to the tax, inflation operates a levy on households’ consummation power in belittling the currency value. Of course, we were told for years, in the aim to justify the inflationist reflex that inflation encouraged people to get into debt because they would pay in “Monkey’s money”. But inflation is like that rat that eats Robinson’s grains; it eats up saving, badly needed investments. However, to be able to borrow, people have to risk their savings. Inflation, which plunders the lenders, comes destroying the confidence necessary to the good functioning of financial transactions. Finally, above strictly economic consideration, inflation is the sneakiest tax, precisely because it’s a disguised tax; it escapes any democratic control and is never vote in the parliament. It needed centuries to conquest democracy i.e. the fact to give people right to mission its representatives for controlling the use that was made of the money that had been collected as a tax, because public money is first private money. But it’s not because it becomes a public good that it could miraculously escape economics laws, including budget constraints.

Every time in history, all countries who forgot these essential truths, lost their economic rand and finally their sovereignty and their freedom.

[1] Having been, during my studies, a “pawn” in a college of a beautiful neighborhood of Aix, I had the occasion to notice the educational damage in children who had all the pocket money they wanted, their parents being unable to say “no” to them. Transmit a heritage to the children is not enough; you must above all give them an education.

From the GATT to WTO (II)

Because exchanges regulate the economy, regulating the regulator does not make any sense. This same philosophy is then applied at the international level, since human beings, not countries, make exchanges. Countries do not act, people do. Saying "France exported" or "China sold to Paris" is distorted language. In reality, individuals who live in France and constitute an enterprise called Renault have created cars that have been bought by consumers living in Spain. Hence, an American Senator will be reproached by Californian farmers for the economic competition caused by cheaper Mexican tomatoes. In the same way, French farmers lobbied to impose “community preference”, a policy which forces German people to buy in priority agricultural goods produced within the EU (i.e. in France). It might seem beneficial to promote local economy. Yet, what would our living standing standard be like if we were to live solely on what we produce? I live in Perpignan: should I only drink Catalan wine? I can buy wine produced in my area if I do like it, yet I am also free (depending on my tastes and my budget) to buy Bordeaux or Italian wine. Trade derives from freedom and prosperity from trade. Local economy will grow if American people discover and buy wine from my area.

The latest negotiations between governments at WTO have shown that mercantilism is back. Mercantilism is the denial of liberalism. Mercantilism regards the economy as a zero-sum game (what one country/individual earns is lost by another country/individual). They transpose their visions of antagonistic political forces to the economy, turning economic exchanges into economic wars the way they turn the ideas of different religions into religious wars. Protectionism is self-infliction, in peace time, of the measures our enemies would impose on us in wartime. Imposing a blockade or a state of siege on a city or a country is the best way to force it to surrender. It aims at stifling the enemy by forbidding trade. Such “imposed protectionism” is a powerful weapon which usually leads to stagnation. The opposite–free trade—produces prosperity.

This applies to all economic activity. From an economic standpoint, services are like goods: they are both produced by trade. Hence services may create markets. If producers and consumers ask the State to take part into such exchanges, the State will be forced to defend one side against the other. It will have to choose since it can neither promise to raise and reduce prices at the same time nor guarantee an equilibrium since the very notion of equilibrium is only meaningful when markets are free. The only feasible regulation and the only answer a real statesman should give is: “The State lets you trade freely !” The market transforms conflicts of interests into complementarities. For producers to exist, they need consumers; for consumers to subsist, they need producers. Producers and consumers share a common interest, the general interest, when concluding a deal: they must find an equilibrium price. If the State acts in favour of any corporation (of producers) or lobby (of consumers), force and economic war replace trade.

From the GATT to WTO (I)

"Commerce, that enriched British citizens, contributed to make them free, and this liberty then spread commerce"

Voltaire (1694-1778)

In the beginning, the General Agreement on Tariffs and Trade, created just after the Second World War in 1946, reflected a desire to draw a lesson from the conflicts of the interwar period. It was widely understood that the war resulted from the rise of nationalism, the exacerbations of mercantilist tensions, and the attempt at economic self-sufficiency by warlike nations. The German war economy tended toward autarchy. Germany refused to rely on the countries it would later attack. Some will argue that such an economy managed to reduce unemployment. But at what price? No one is unemployed in a prison; unemployment (that was then called idleness) was forbidden in the USSR. What is important is not jobs but the freedom to create wealth. It was widely held that the interwar fragmentation of the world economy degenerated into armed conflict. The attempt to create an open trade environment, it was believed, would be conducive to more pacific international relations.

The GATT emerged as the means of promoting “free trade”, deemed to be essential to peace. Its purpose was to persuade countries to dismantle their protectionist systems (each country was willing to do so only if ensured that the other ones would do the same). And it worked rather well. The post war period was peaceful and trade, as well as growth, increased. Europe was rebuilt and caught up with the US, as did Japan, a country that became one of the wealthiest in the world within 30 years. The emerging countries (NIC) showed, as they took part to international trade, that poverty was no Southern fatality and growth no Western property. In fact, the same people who, in the West, deplore poverty in the South, became apprehensive when such countries got wealthier (will they steal our industry and jobs?). GATT acted step by step: the “Kennedy Round” (achieved in 1967), the “Tokyo Round” (achieved in 1979) and more recently the “Uruguay Round” (achieved in 1993). From negotiation to negotiation (these “Rounds”) tariffs reduced gradually but substantially in many industrial sectors, and more countries joined the agreement.

Difficulties arose when negotiations reached such sensitive subjects as agriculture and services. During such conferences as Punta del Est (September 1986) and Montreal (1988) States became more involved in regulating trade even though they were supposed to reduce their influence in international trade according to the GATT. Agriculture, for example, is widely considered to be a State matter since this sector gets subsidized and prices are controlled by the national administrations. When the GATT was transformed into World Trade Organization—a body designed to regulate international trade–it was a step toward mercantilism. The goal was not to bring about free trade but rather to set up a mechanism of enforcement that would tempt countries toward reprisal and regimentation and litigation. But the very idea of regulating trade leads to complicating international relations.

Today, activist groups constantly inveigh against the WTO, on grounds that it represents a  “savage liberalism” that Washington would impose on the global economy. Were the world truly liberal, such organisations—which are really “international administrations” financed by public money—would never exist. They are part of the general impulse to “regulate” the world economy. From an economist's point of view, such administrations are not necessary; exchange alone will regulate the economy. Exchanges enable opposing interests –buyers vs. sellers, employers vs. employees, lenders vs. borrowers--to coordinate supply and demand. Such equilibriums are as dynamic history. Economic actors' interests inevitably appear in conflict in the short run: what is given to the wage earner at a time t is simultaneously being taken from the share-holder or the owner. Yet, they turn out to be complementary in the long run: in order for one to be employed, enterprises must be created; to create enterprises, people have to contribute their skills or capital. ...

AFFIRMATIVE ACTION, SOCIAL TERRORISM, AND TRADES UNION FREEDOM: THE FAILURES OF THE FALLACIOUS CONCEPT OF ‘SOCIAL JUSTICE’

The tendency to confuse the rhetoric of racism and exclusion with the functioning of the market economy is a disturbing sign of deep intellectual regression and mental manipulation.  The moral and philosophical foundation of market individualism is not a smug cult of blind egoism, but rather a commitment to judge individuals without regard to attributes such as skin colour, ethnic origin, religion, socio-economic status, or sex.  An individualistic society refuses to consider people on the basis of such attributes, insisting that before one is a man or a woman, a peasant or a professor, black or white, blue or white collar, one is an individual.

As long as we hold supreme the value of the individual - a value which can neither be dissolved in a group nor reduced to the sum of specific attributes - a just society can only be founded on a respect for individual choice.  Only a State of Rights can guarantee such justice.  Justice cannot favour bosses over workers or unions over employers.  It cannot serve men at the expense of women either.  Because justice must, first and foremost, protect the individual, it cannot grant certain groups special rights or privileges.  The fallacious concept of ‘social justice’ perverts the concept of justice for it multiplies the rights granted to some specific groups - be they women, young people, or workers - thereby breaking the social fabric and compromising the very principles of the State of Rights.  Certain union rights, for example, would allow workers to disregard the importance property rights and the freedom of movement.  In fact, those who reason in terms of class, caste, and ethnicity are those who incite class, gender, and race warfare.¹  They do not admit and can not even conceive of the autonomy of the individual and turn the State into the instrument of the power of some social groups.  To borrow from Marxist logic, the State becomes an instrument for the dictatorship of the proletariat.  For Hitler, the National-Socialist State was the instrument of an ethnic cleansing campaign that resulted in the decimation of European Jewry.  For Stalin, the State was a means to free society from the bourgeoisie, a mindset which led to the deportation of the kulaks and the confiscation of their belongings.  Just as Marxist analysis - which is the basis of all left-wing thought - considered the economy to be a battlefield for two rival classes (the capitalists and the proletarians), it provides an ideological framework in which the State of Rights turns into the Welfare-State and democracy into social-democracy.  Since classical liberal thought refuses to lock individuals into groups, it cannot allow the State to become the arbitrator of conflicts between particular groups who purport to represent the general interest.  The function of the State is to protect individual liberties so that the individuals are free to engage into contractual relations.²  Economic relations and economic agents - firms, for example - will arise from such contracts.

Let us consider that individual A is seeking to hire someone but refuses to employ individual B.  If we adhere to the principle of individual freedom, the government should not forbid A’s decision and there is no need for A to justify himself.³  If, as an employer, A believes the employment of B to be detrimental to his company, A has the right refuse B a position.  The freedom to contract is not the obligation to contract: it implies freedom to choose.  If B is a woman, this decision may be considered to be sexist discrimination.  If B belongs to some ethnic minority, it could be seen as racial discrimination.  In an open and free society, there is a real possibility that B is a woman, foreign, or from another ethnic group since it is precisely in such a society that the labour market is open to anyone, regardless of his or her attributes.  In traditional societies, women rarely work.⁴  Multiplying affirmative-action measures and quotas reduces the freedom to contract since it regulates individuals’ choices (and hence their preferences since choices illustrate individual preferences).

If a White individual rejects someone of another colour, does his action imply that the entire White population rejects the entire Black population on the basis of skin colour?  If a man cannot tolerate a particular woman, does it mean that all men are sexist?  This is likely to have been the case in traditional collectivist societies that negated individual autonomy.  Modernity precisely aimed at breaking away from such kinds of societies.  If - once more - we admit the individualistic principle of the autonomy of thought - freedom of thought which is in fact intimacy - the individual’s choices should not be regulated since A’s choices only involve himself, not the group with which A might be identified.  In fact, such identification is always problematic, relative, and subjective since one can be assigned to several groups at once.  If A is a White woman and B a Black man: should B claim racism or sexism?  Is A’s choice typically ‘feminine’ or ‘White’?  Considering the individuals with respect to their attributes is a dead-end that leads to conflict and exclusion.  Such measures of ‘affirmative action’ derive from views on society that negate the individual and consider society to be merely a jumble of perpetual struggles between antagonistic groups.⁵  Market economies can only flourish in a society based on the notion of individual freedom: which implies the State of Rights as opposed to the Welfare State, and Republican Justice as opposed to some ideal of social justice. 

The generalisation implied by policies of affirmative action - which have shown their limits in the USA and are beginning to blossom in France - is precisely one of the consequences of the fallacious concept of social justice.  One other outcome is a kind of ‘social terrorism’ that consists of the extension of ‘union rights’ in such a manner that they conflict with the respect of fundamental individual rights: freedom of movement, freedom of thought, private property.  French citizens are frequently held hostage in such situations as the Bové case,⁶ when truck drivers blockade roads or when workers threaten to pollute the environment with dangerous chemical substances so as to influence negotiations in their firms.  It is not possible to expect help from our elites when people like Corine Lepage⁷ affirm that a unionist cannot be detained because of his union activities.  This is not the point.  A teacher cannot be arrested for simply teaching.  However, if he happens to be a paedophile, he must be removed from his position.  Teachers, as well as unionists, have a duty to obey the law.  What is the legitimate limit to union activities?  What if youngsters start to burn cars en masse or a coalition of homeless people decides to rob shops?  Are these youngsters to be forgiven because they are ‘young’ or the homeless because they are ‘poor’ in the name of ‘social justice’?  Some peculiar attributes would become magnified even though justice has to be blind to be fair.  The issue is not to blame anybody for being young, poor, rich, or in a union.  The issue is to curb any individual who breaks laws protecting property and the person, no matter whether he or she is young, poor, rich, or in a union.  No one, not even a minister, a president or a unionist is above the law.  The French Revolution was necessary for such a principle to become constitutional.  Prior to the French Revolution - according to some divine right - those who made the laws liberated themselves from any obligation to obey them.  Nowadays, the welfare state has given birth to a new category of people who can escape the law for an array of arbitrary reasons.

The concept of ‘social justice’ weakens republican equity by strengthening the social incentives of those breaking the law.  Terrorists and bombers also legitimise their acts by asserting their noble grounds.  Hence one should not be surprised to find that farmers or truck drivers block the roads violating freedom of movement for people and goods, or that disgruntled workers abduct their employers.  Acknowledging ‘social justice’ legitimises this kind of violence just as one is trained to think that, due to great economic ignorance, the perpetrators are the victims of an unjust economy.  There is an insidious slip from ‘social justice’ to ‘social terrorism.’  The State pretends to be an arbitrator with powers to redistribute wealth yet it leads to the creation of inextricable conflicts.  In a country where the market economy is not free, violence replaces contracts.  There are only two ways to acquire wealth: it can be done either by respecting private property rights, a constitutional right that Mr Bové’s union activities knowingly violate, or by the negation of private property rights and exchange, a move which leads to pillage, violence, and latent civil war.  In such a context, French competition will continue to decrease and the social edifice upon which the French model was built will ultimately collapse.

Notes

1  Usually such people cannot admit that an individual has independent thoughts.  So, if I assert an argument X, they will say: “the economists say X”, or “White men think X” or “civil servants advocate X” depending on the group they will identify me with.  That is why they cannot understand how a civil servant can defend classical liberal thesis.

2  Writing from a minarchist rather than an anarchist perspective.

3  Let’s take the example of a restaurant owner who refuses to hire a girl because she wears an Islamic scarf.  As an individual, I might be shocked by such a decision and I can decide to boycott this restaurant, yet I have no right to ask the State to compel him to hire the girl.  Actually, freedom of expression means the government should not forbid any idea, any political party or newspaper but this does not mean the government should fund the press or political parties.  If I find this or that TV program stupid or shocking, I can switch the channel or stop watching TV but the government must not censor any program.

4  Similarly, in India, people from the lowest castes cannot become civil servants.

5  Such a view could be considered Darwinist since it reduces society to a struggle between ‘species’, the species being here social groups.  Individualism does not exist in the animal kingdom for the creatures only exist as members of a larger body, their specie.

6  José Bové is a unionist in the agricultural sector who has campaigned for the protection of French agriculture from the free market pricing and multinational companies.

7  Corine Lepage was a minister of the environment from the same political party as Jacques Chirac and who defended Bové’s destruction of generically modified crops on private land.