I was reminded of a Dionne Warwick song recently and the lyrics resonated with me:
‘What the world needs now is love sweet love, / It’s the only thing that there’s just too little of, / What the world needs now is love sweet love, / No, not just for some but for everyone,…’
If you replace the word ‘love’ with the word ‘trade’ it’s exactly the sentiment we should be expressing. We unequivocally need more not less trade – not just here in the UK, but in every country around the world.
Realising the benefits of free trade
It’s 250 years since Adam Smith wrote about the benefits of free trade and capitalism, describing how specialisation acts as a driver of economic growth and, along the way inspiring David Ricardo’s treatise on international trade and the impact of comparative advantage. Its premise, that a country that trades for products it can get at lower cost from another country is better off than if it had made the products at home, rings true today.
In 1846, the British Government repealed the Corn Laws, paving the way for unilateral free trade. And yet here we are in 2017 arguing about whether free trade benefits those engaged in it or not. That argument should have been won 200 years ago.
Net gain for the UK economy
It’s true, as Ben Broadbent pointed out, that globalisation can lead to some loss of employment in some sectors. In the 1970s, for example, lower tariffs saw clothing imports increase and the UK’s clothing sector saw a 90% decline in employment. However, lower prices for imported clothes led to households having more disposable income.
In summary, the UK saw a £15bn loss of income for those employed in the clothing sector, but a £36bn gain from consumers buying more affordable goods – which means a straightforward net gain for the UK economy as a whole.
Across the same period, there has been a net gain in employment, with a record 32m people employed in the UK and the lowest level of unemployment since 1975.
Trade driving global income growth
So the economy grows, employment and income increase through free trade; reinforcing the argument that it should be seen as the key factor in increasing global income, not the reason for growing inequalities and a widening gap between rich and poor.
And yet, in a recent survey, respondents were asked whether they thought that global poverty in the last 20 years had doubled, stayed the same, or halved. Only 5% got the answer correct, which was that global poverty has halved over the last 20 years. When so many are so ill-informed, the prospects for global trade seem bleak. Where the issue lies is that globalisation and fast paced technological change are often confused – clearly one feeds closely into the other. But it is technological change (the prizing of the highly skilled), as well as lack of education and affordable housing that truly drives inequality in social and economic terms.
Learn the lessons of history as we look to the future
But trade is an easy target. It plays into our fear of otherness and allows us to pass off the issues we have with productivity, living standards and wage growth as being the fault of outsiders, rather than confronting our own inadequacies.
As we approach a crucial point in the UK’s future trade relations, we must learn the lessons of the past. We must remain absolutely focused on increasing trade and ensuring we play a key role in supporting globalisation for the benefit of future generations in the UK and around the world.