Yahoo Finance Terence Corcoran: The 'Freeland Doctrine’s' unfree plan
It looks like the applause for Finance Minister Chrystia Freeland’s speech at a Brookings Institution meeting in Washington on Oct. 11 had barely ended when Goldy Hyder, CEO of the Business Council of Canada, declared Freeland’s analysis of world trade and democracy issues as “the Freeland Doctrine.” The phrase quickly caught on, with noted columnists and commentators hailing the speech as a welcome outline of a new world trade order, one in which “the countries of the non-geographic West need to build a new paradigm” by jointly using economic and trade policies to thwart China, Russia and other world autocracies.
Hyder last week sent a public letter to Freeland congratulating her on her Brookings speech. He said she “eloquently made the case for stronger economic ties among liberal democracies as a counterweight to authoritarian regimes. Your remarks made it clear we must do more than talk — Canada must take concrete action to support those who share our political and moral values.”
The rest of Hyder’s letter, however, was aimed at telling Freeland what Canadian business wants to see in her coming Fall Economic Statement, including fiscal prudence. But more importantly Hyder wants Freeland to issue clear statements on how Ottawa will provide subsidies and regulations that will make it possible for Canadian businesses to build mining and energy projects to fulfil the objectives of the Freeland Doctrine. “In your speech, you promised that the federal government will fast-track ‘the energy and mining projects our allies need to heat their homes and to manufacture electric vehicles.’ ” Without details on the government’s interventions in trade and investment, added Hyder, “it would be impossible for Canadian business leaders to make informed investment decisions.”
Maybe Canada’s Business Council is already alert to the risks posed by a Canadian government that plans to apply the Freeland Doctrine to reshape Canada’s $1.3-trillion annual flow of merchandise exports and imports.
Before the rest of the country gets too enthusiastic about the Freeland Doctrine, it would be wise to step back and look at what it is and what it means. Freeland proposed a new paradigm based primarily on the idea that governments need national trade strategies based on “friend-shoring.” Liberal democracies such as Canada must strengthen their policy co-ordination and co-operation via a model that creates friendly trading blocks.
There is little original here. Friend-shoring was first proposed by former U.S. Treasury Secretary Janet Yellen. “Favouring the friend-shoring of supply chains to a large number of trusted countries, so we can continue to securely extend market access, will lower the risks to our economy as well as to our trusted trade partners,” said Yellen.
Freeland embraced Yellen’s friend-shoring earlier this year as part of a plan to isolate China and Russia by overthrowing the world’s long-term progress toward globalized free trade and replace it with a substitute regime of managed trade. Under free trade principles, decisions on where, when and how to import and export goods are largely undertaken by individuals and corporations searching for opportunity and profits. Governments — politicians, bureaucrats, regulators —do not make decisions about which goods and services are traded, beyond establishing terms of free trade agreements.
Friend-shoring sets governments up as decision-makers on trade, which leads to a new world order of commerce based on political and narrow national interests among states that seem to share political and economic ideals. Raghuram Rajan, an economist at the University of Chicago, warned that adoption of friend-shoring risks turning an already fragile global supply-chain system into an arena for “resurgent protectionism.”
Despite some initial enthusiasm, the doctrine has come under growing criticism. “Friend-shoring runs counter to free-trade principles like comparative advantage, that underpin the current world order,” said one commentary this week. Its potentially harmful effects include higher costs, increased protectionism and even greater political and military conflict.
The major driver behind the friend-shoring theory is the conclusion that somehow the great promise of globalized free trade has not materialized. Freeland says the original idea was that free trade and increased prosperity would bring China, Russia and other authoritarian states into the liberal democratic orbit.
While it is true that some believed that free trade and open global markets would bring about liberal democracy in dictatorships such as China, that optimism was never the prime reason for global trade. When the International Monetary Fund produced a short document in 2001 on the benefits of global trade liberalization, not a word was dedicated to the idea that trade would free the world of autocracies.
Freeland’s claim that the globalized free market has failed is based on a false premise, one suggested by philosopher Francis Fukuyama in his famous 1992 book, The End of History and the Last Man. But even Fukuyama saw the risks. “Market-oriented authoritarians,” he wrote, “have the best of both worlds: they are able to enforce a relatively high degree of social discipline on their populations, while permitting sufficient degree of freedom to encourage innovation and the employment of the most up-to-date technologies.”
In other words, expanded liberal democracy is a secondary possible benefit of free trade, but failing to achieve global liberal democracy in 2022 is no reason to abandon global free trade in favour of a possibly more dangerous global trade conflict based on friend-sharing and managed unfree trade.
