MAY DAY has been reclaimed symbolically from the vision of socialism that put workers first and left them last. It is now again a lighthearted celebration of spring. But the associations still linger. This season has been chosen as the favourite for fringe protests against global trade and finance and against free markets in general. Being the anniversary of our invasion of Iraq does not help. If and when such intrinsically negative protests eventually fade to nothing, however, May Day will surely remain an occasion to worry about the poor parts of the world.
In trade terms, however, this week has been dominated by bullying attempts by the European Union and the United States, which are generally rich, to keep out imports of textiles from China, which is rising rapidly but still relatively poor.
China was smart. It joined the World Trade Organisation just in time to benefit from a 25 year battle for wealthy countries with uncompetitive textile industries to dismantle barriers to imports from cheap labour countries. This would push textiles back to the early phase of economic development, a role they had played long ago in Manchester, Bolton, Leeds and Bradford.
No sooner has China opened the taps to full-power export of clothing, however, than producers in southern Europe and America have summoned their lawyers and politicians to stem the flow by fair means or foul. Typically, they are complaining about the rate at which imports of specific targeted products are accelerating, the disruption this causes to local producers and the remedies needed to ensure that local firms can continue in business.
These claims are legitimate under trade law, but they are morally illegitimate. Developed countries imposed a seemingly endless delay to ending quotas specifically so that their own industries could adapt, prepare to match the new importers or redeploy their efforts and capital elsewhere. More than a decade passed for home industries to adjust. Many companies did. Those that failed, for one reason or another, now expect their governments and EU commissioners in Brussels to save them from their own folly.
Importing countries had so long to adapt that their slimmed clothing industries were not thought to be at most risk when barriers fell at the start of the year. Far from it.
The unintended victims of free trade, it was said, would be the people from developing countries whose existing exports would be displaced by even cheaper exports from China. Parts of South and South East Asia, North Africa and Latin America would be the losers. Many of them were not terribly efficient but had received preferential treatment because they were poor and presented no serious trading threat.
These losers have been left to fend for themselves, albeit they should also have prepared for change. They do not have the power to exert any influence over global trading practices, unless their complaints are sponsored by the US or EU.
Chinese textiles demonstrate the cultural gulf between rich and poor countries. When we think about trade we think differently. That is why the current trade round, which rich countries have dedicated to the poor, is still failing to deliver the farm trade reforms developing countries most want.
No wonder the top job at the World Trade Organisation has become bitterly contested between rich and poor. The current contest featured three candidates from South America and the Indian Ocean and a French civil servant with the unlikely qualification of having been the EU’s trade commissioner. Two have now fallen out, leaving Pascal Lamy and Uruguay’s Carlos Perez del Castillo. We back M Lamy. So does George W Bush, a rare distinction. His election would extend France’s remarkable success at filling top jobs at international organisations with top class bureaucrats. M Lamy is bright and well liked, a star. Yet friends of free trade may secretly hope he will fail.
US markets are waking up
AMERICA’S big financial markets have long been a glittering relic of times past. No longer. Spurred by the crash of 2000-03 and by the invasion of the Europeans, they are responding with amazing speed.
The venerable Chicago Board of Trade is the latest to stir from its slumbers. A week after changing from a mutual to a profit-maximising company, the CBOT is planning a public offering of shares to see how much investors think it is worth. The board has fallen behind its old rival the Chicago Mercantile Exchange, which went public three years ago and now clears the CBOT’s transactions. The contrast between the two made clear which way the future lay. The Merc is expanding its share of several growing markets and has switched from men shouting to electronic trading on the European model.
Nasdaq, whose challenge came and went with the internet bubble, has now bought Instinet from the control of Reuters. This will boost the distribution of the market that trades Microsoft shares by incorporating online brokerage. Nasdaq, which is also a quoted company, has product links with the Merc, though as yet there seems little urge to merge.
By these standards, the progress of the New York Stock Exchange looks hysterical and eccentric. Through a scheme orchestrated by Goldman Sachs, the NYSE would switch in one go from a mutual form of organisation to being the subject of a reverse takeover by Archipelago, a youthful electronic trading network. No wonder seat-owners are questioning this deal.
The remarkable feature is that stock market investors will never get an opportunity to value the world’s biggest stock exchange. Through the agency of a quotation on the Big Board, investors have been able to decide what the Merc is worth and will doubtless do the same for the Chicago Board of Trade.
Any deals will be valued on that basis. The value of the NYSE will essentially be determined by Goldman Sachs. The bank appears to have a series of potentially conflicting interests in the transaction but that is hardly the point. Why would brokers agree to a bank rather than a free market valuing the company they own?
The London Stock Exchange has not been so foolish. But it would now be crazy if it agreed an uncontested bid from its rival Euronext, assuming that is permitted, without exploring all the transatlantic possibilities that have suddenly opened up.
The reel thing
THE FILM documentary Enron: The Smartest Guys in the Room is playing to distressingly small audiences in New York. This is not a reflection on the film. People have just moved on. The financial crash epitomised by Enron’s arrogance and accounting fraud has been exorcised. The guilty men symbolically blamed for parting investors from their cash have been identified. The guys are on trial. America has closure.
That is a pity, because key features of Enron can be endlessly repeated. Kenneth Lay and Co sold deregulation and financial markets as a sure path to efficiency. That is normal but not if, as in energy markets Enron operated in the US and Britain, they can be manipulated to achieve the aims of their promoters at the expense of producers and consumers.
In spirit, at least, the UK equivalent might be Railtrack: The Movie, featuring efforts by smart financiers and Stephen Byers, the worst ever Transport Secretary, to use financial markets and company law to destroy a company. In this case, however, there is as yet no closure for investors. Crown immunity operates so guilty men are just standing for re-election.
