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COLUMN RIGHT : Honest Free Trade Won't Fly : Government will never agree to letting go of its crushing powers over business.

May 12, 1991|PAUL CRAIG ROBERTS | Paul Craig Roberts is the William E. Simon Professor of Political Economy at the Center for Strategic and International Studies in Washington

American environmental groups, together with the AFL-CIO, are working feverishly to kill President Bush's initiative for a U.S.-Mexico free-trade agreement. The two professional lobbies employ the usual assortment of specious arguments that make honest people throw up their hands in despair. The greenies and the unions would save their time and what is left of their credibility by simply walking away from the issue, because once Congress and the federal bureaucracy realize the implications of the trade agreement for their own power, it will be defeated.

The real issue in the free-trade agreement is the power that government wields over U.S. business. The business climate has become extremely hostile. The regulatory, tax and legal environments have deteriorated markedly and impose unprecedented costs and uncertainties.

Permit processes inflict unpredictable and endless delays on business plans. An explosion in tort liability has rendered contracts meaningless. Every product and service and every decision to hire, fire and promote is now a potential lawsuit. Accidents have been criminalized. Normal business expenses cease to be deductible. Legislators, regulators, judges, juries and plaintiff lawyers see America's businesses as resources to be plundered. Universities routinely teach that businessmen are crooks. As our streets become less safe, prosecutors focus more energy on "white-collar crime."

Many forward-thinking people have concluded that it is foolish to site any business, other than a local retail or service establishment, in the United States. Sophisticated investors have caught on, too, and are shifting more of their assets into globally managed investment funds that reduce investors' exposure to the anti-business climate in the United States.

This is an enormous change in thinking. Our advantages in communications, infrastructure, capital markets and free banking have always been compelling reasons to produce here the goods intended for our own market. It is extraordinary that government policy has failed so badly as to offset our natural advantages.

A free-trade agreement with Mexico would let U.S. businesses escape the clutches of our government and the endless harassments and liabilities that are unique to the American business climate. It is not cheap labor and free sewerage that attract our firms to Mexico and elsewhere outside our borders, but less-predatory government.

Nothing better demonstrates the deterioration in the U.S. business climate than the fact that Mexico, a notoriously corrupt country, is, even without a free-trade agreement, increasingly becoming the location of choice of U.S. businesses.

True global goods markets would dramatically curtail the powers of government over economic life and thus are desperately feared both by politicians and the organized interest groups that draw their own power from the government's.

The likely fate of the U.S.-Mexico free-trade agreement can already be discerned. We will have a "free trade" agreement with Mexico as long as Mexico adopts our regulatory codes, our tax code, our attitude toward product liability, our labor regulations and so forth. The argument of the political left, which continues to romanticize big government despite the evidence of the 20th Century, is that when you import a nation's products, you are also importing the tax, welfare and regulatory policies embedded in the products. Therefore, it is not free trade unless the other countries mimic our high-cost policies.

This attitude is overtaking the noble dream of a European free-trade community. As 1992 approaches, the European left has concocted the notion of a "social charter" to replace the economic charter. Under the articles of the social charter, products from European Community members such as Portugal and Greece would be defined as "social dumping" and be prohibited under the free-trade agreement unless those countries adopted the expensive regulatory, welfare and labor policies characteristic of France and Germany.

In this way the left wing has turned free trade into a protective device for government power. Governments, such as our own, that use their tax, regulatory, and legal systems to drive up the cost of business are demanding in the name of a "level playing field" that other governments do the same. Instead of competition, which would reduce government's burden on the economy, there is collusion to protect high-cost government regimes. This is the new tactic of the left, and as it serves perfectly the self-interest of big government, it may well succeed.

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