Global business-as-usual is not working

You think Quicken is a nightmare? In 2,000 B.C., businessmen kept their financial records on clay tablets. Linguists who deciphered a cache unearthed in the Middle East were struck by how broadly goods were traded — from Central Asia to Europe — and by the enormous risks small-business owners took to turn a profit.

In a recent New York Times Magazine piece ("The V.C.s of B.C."), Adam Davidson tells of a merchant who trusted a stranger to deliver two donkeys laden with tin and textiles to a market 600 miles distant and, for a small cut, to return the proceeds of a successful trade. The stranger agreed to the terms, took the donkeys and was never heard from again.

The thief, it would seem, was merely following the laws of unfettered global trade. In this, he was no different from his modern counterparts. Commerce has always been with us, Davidson writes, and neither tariffs intended to protect a nation's workers nor regulations to protect the environment nor trade deals like NAFTA and the TPP that try to level the playing field among players will have much impact on the bottom line.

Davidson is correct in his portrayal of the idealized winner-take-all free trader of today. He's wrong about the role of government. Our modern global traders don't have to steal outright but merely manipulate the system of regulatory supports, from U.S. Federal Reserve stimulus to tariffs to tax relief, that benefit them and that, given their financial clout, they are able to procure through expensive lobbying efforts at all levels of government.

Meanwhile, China is portrayed as our untrustworthy trade partner. Even as free-traders deny the impact of trade restrictions, they say the Chinese are gaming the system to their advantage through currency manipulation and by erecting all manner of barriers to Western goods and, like the trader immortalized on those clay tablets, stealing whatever they can. Free-traders also criticize China's practice of social engineering. Yet its top-down job-creation strategy is what's driving global growth. When its vast peasant class had nowhere to go but up, unleashing the profit motive was Beijing's only hope of staving off a political shake-up that might have ended the iron grip of the Communist Party.

Herein lies the fallacy of the free-trade shibboleth, and why I'm fearful for the future of the free world. Western democracies use the excuse that China's government and business interests are one and the same (hence the term China Inc.) to rationalize their own abdication of their responsibilities to their citizens' long-term best interests, by increasingly allowing themselves to be governed by the so-called free global trade agenda.

Multinational businesses, working in concert with each other (and with the consent of the governed, thanks in part to writers like Davidson), are taking over the role of global governance.

That reference to "candid information" suggests, to my ear, that today's financial results are not presented truthfully. Ordinary citizens are actively discouraged from understanding the big picture. Either certain facts are left out or numbers are spun to persuade the public that global trade is not merely a good thing (just look at the numbers) but relatively unrestricted. Ergo, restrictions are not a good thing.

Davidson says his own historical research in Iraq (he was there covering the war, which he supported) revealed that even in a time of all-powerful despots — that would be any time before the 18th century — "some citizens had enormous power over their own livelihoods, achieving wealth and power through their own entrepreneurial endeavors."

You don't have to go back 4,000 years to find businessmen collaborating with tyrants. Why wouldn't they allow "independent" merchants to flourish, as long as they got their share of the proceeds with which to build armies to protect their source of revenue?

So imagine — fast-forwarding to the 21st century — if global trade were truly "free" of those pesky rules that "politicians and businesses decided to impose on the rest of us." Davidson says it would be a nonevent because trade is beholden only to a thing called the Gravity Model, which "simplified, means that trade between two markets will equal the size of the two markets multiplied together and then divided by their distance." The model "gets its name from its mathematical similarity to the equation in physics that describes gravitational pull."

Hortacsu's comparison of then and now revealed the unerring logic of the Gravity Model. The two worlds matched perfectly — but with another key difference that neither Davidson nor Hortacsu acknowledges.

But getting back to those trade policies foisted ineffectually on the free-traders by governments, what would Hortacsu's comparison of then and now look like without them? There is no way of knowing, of course. Instead of comparing today's traders with the ancients, how about comparing now and now, and now with the future? What would the true cost of shipping cheap food worldwide be if oil and agriculture weren't subsidized? What would it cost oil companies if they had to foot the bill for crop losses due to drought in California — and in poverty-stricken Africa, where government can't step in to help farmers, as it does here in the U.S.? What if Coca-Cola and Pepsi had to pay the costs of the obesity and diabetes that are caused in part by their products?

Interestingly, Pepsi is scrambling to diversify its product line. General Mills is trumpeting its green buildings to divert attention from mounting layoffs as consumers wake up to the myriad ill effects of its core business. Cargill recently announced its exit from the hog-confinement business. I'm sure Davidson would agree this is a smart move: Better to take your winnings and get out before someone points the finger of blame and financial accountability in your direction at some later date, when the real costs of this unnatural and unsustainable industry are tallied up.

Who will pay when the current Chinese slowdown, whose real causes are also not being discussed (e.g., how do you grow an economy whose workers are being replaced by robots?), causes a ripple effect on stock markets worldwide that even the most heavy-handed of government manipulations (in the form of bank bailouts and interest rate cuts and currency re-evaluations and wealth distribution to create a new consumer class) can't stop?

We need to have an honest discussion about the real costs of everything we buy and sell, without government intrusions of the type Davidson says don't matter. They do matter. Enormously. Global business-as-usual is destroying the human habitat. We are only accelerating our species' demise with our glib, ideology-driven rationalizations regarding our wonderfully "free" global economy.

Let's add another number to the new and improved Gravity Model for 2015. Let's factor in time. How many years do we have left to design the miracle technology that free-traders are certain will fix our sustainability problem, given the right "market conditions" and enough capital?

Someday we'll reserve global trade for all but the most expensive products and develop relatively self-sufficient local economies that are actually much more like the ones those clay tablets describe than the global economy that today's free traders champion.

Someday a donkey may indeed be the most cost-effective mode of transporting healthy, fresh food from farm to table. It may also be pressed into service to haul precious metals from mines that will carry no risk of contaminating water, because water will have become more precious even than gold.