Trade This presentation discusses trade - the basic points. The concept of "self-sufficiency" was discussed (slide show number 6) which introduced some basic concepts of trade with respect to economic development and decentralisation. Even one hundred years ago, the Japanese recognised that free trade locks an undeveloped nation into poverty. Sadamasu Oshima, a leading Meiji period (1868 – 1912) intellectual, said, “the ultimate implication of the theory of free trade is that agricultural nations must remain agricultural and industrial nations must remain industrial”. (From A History of Japanese Economic Thought by Tessa Morris, p.61). No less an economist than Joseph Stiglitz, winner of the 2001 Nobel prize in economics, has acknowledged the defects of free trade and the free market economy. His best selling and controversial book "Globalisation and its Discontents" argues that globalisation as it is currently practiced is not in the best interests of developing countries. He said in an article he wrote for The Guardian newspaper, London (29/10/2003): "I have always been struck by the divergence between the policies that America pushes on developing countries and those practised in the US itself." "Those in Mexico, Brazil, India and other emerging markets should be told a different message: do not strive for a mythical free-market economy which has never existed. Do not follow the encomiums of US special interests ..." A less well known economist but speaking from the practical experience of New Zealand after 15 years of neo-liberal economic policies, Prof. Tim Hazeldine, turns the notion of exporting on its head and argues that a nation has to import so much because it exports so much. He argues against the promotion of tourism as an earner of foreign currency. He agrees with other observers such as Hazel Henderson, that the policy of export led GDP growth is a failure. Important points concerning trade (similar to those in relation to economic self-sufficiency) are: Prout promotes self-sufficiency in the essentials of life. Trade in raw materials is a sign of a weak economy. Minimise imports of essentials – food, medicines, clothes, housing requirements, educational needs. Avoid dependence on tourism – fickle and destructive. Avoid export of raw materials - value add before export. Export surplus and specialty goods mainly. Barter trade wherever possible on an international level. Establish trade blocs between equally developed countries. There are two kinds of barter trade: * between country and country - sometimes called bilateral barter trade; * across many countries - multilateral barter trade. Bilateral barter is not so efficient in a domestic economy, but multilateral barter can be very efficient in the international economy. Prout favours barter on the international level wherever possible. Barter trade is increasingly practiced by multinational companies around the world. One advantage is that barter trade is not subject to fluctuations in currency exchange rates, and this can apply even if the swap is made at one point in time or different points in time. However, there are costs involved and as with any transaction these need to be considered in coming to a deal. Although no currency exchanges are required, nevertheless the goods would typically be valued in an international currency such as the US dollar. The difficulty of arranging three way swaps - that is, A exports to B who exports to C who exports to A - is overcome through a clearing house system. Modern computing power and communications are overcoming this disadvantage. Some have argued that the Internet now makes possible a return to the ancient Egyptian kind of store-house economy. Ordinary two-way barter is less flexible than money. Eg, "But I don't want 10 dental checkups! I want my roof repaired." Simultaneous barter means that all parties agree to the deal at the same moment, even if the goods may be delivered later. The decision to trade the various items is made at a single time. Ordinary two-way trading is usually simultaneous and goods/services may be delivered at the same time or a different time. An example of a simultaneous two- way trade (different time) for services is: A says "I'll walk with your kids to school today if you'll walk with mine tomorrow." B says, "OK." At that moment, the deal is struck and the decision to do both actions is determined, though the actual carrying out of the actions is at a different time. Multilateral barter is more flexible and useful at the international level. Multilateral barter is barter among 3 or more people. For example: A, B and C can make a deal where A provides coal for B, B provides trains for C, and C gives A numerous used motorcycles. An example of non-simultaneous multilateral barter is: A gives something to B, A doesn't know what A will get in return, or when. A might get something from C six months later. Simultaneous multilateral barter allows the parties to check things out first, ask questions and find out what products they will be getting – before they agree to a deal. It has similarities of what people do when buying something with money, but in barter no cash changes hands. An example of simultaneous multilateral barter is: If B wants something from A, B doesn't have to wait until A wants something from B, which might never happen. A can get what is required from C. The chances of a 3 to 5 person loop (or more) joining A and B are much higher than the chance that A will want something directly from B. Barter is not subject to inflation or economic recessions, and is especially useful when unemployment is high, or in economically depressed regions. Compare barter to international trade using currencies. Some features of the system of multilateral trade practiced since WW2 is that the system initially relied upon fixed exchange rates and international currencies were tied to the gold standard. This system broke down due to war financing, eg the USA financed its war in Vietnam. The resulting inflation was exported to all the countries of the world and the USA could no longer sustain dollar convertibility with gold. The subsequent system of floating exchange rates has the advantage that countries may be insulated from one another's inflation (to some extent). However the serious defect is that floating exchange rates have opened up world markets to currency speculation. Currency speculation now represents around 95% of foreign currency transaction. Less than 5% are required for real trade. The sums of money sloshing around the world are so great, that no currency, not even the Stirling block, is able to withstand speculative pressures. This means that traditional monetary and fiscal policy is no longer effective and countries are subject to the whims of international currency speculators. While Prout advocates barter as the best system of international trade, barter is not always appropriate or convenient. However it is possible to arrange multilateral trading in such a way that it is somewhat independent of the currencies of the individual trading nations. Mutual credit clearing houses would serve the purpose. The idea would be similar to the plan that Keynes promoted on behalf of Britain at the Bretton Woods agreement in 1945. However his proposal was rejected by the United States who wanted a system to advantage itself. An excellent book on an international mutual-credit trading system is "The Future of Money" by Bernard Lietaer. He describes the concept of an international currency known as the "Terra".