When Does Trade Become Extortion?

When does trade become extortion? Economists say never, at least in principle. Free trade is a voluntary exchange between two parties who both stand to gain from the trade. Where’s the extortion?

Let’s consider a criminal transaction in the airport of some backwoods country. A customs agent says you have to pay him a thousand dollars under the counter to get your visa stamped so you can enter the country. An economist behind you in the line approves of this. It’s a win-win transaction. The agent gets a thousand bucks and you get to enter the country. Plus, you’re free to take it or leave it. What’s not to like?

Now imagine yourself a peasant back in that same country. You used to grow everything you needed. But the landowner just agreed to use the land for a new export crop. He offers you a deal. Plant the new crop, which you don’t even get to eat. But he’ll pay you enough to buy food for you and one of your three children. Win-win. The landlord gets a bigger profit, and you’ll have one child alive to look after you in your old age instead of none. You’re free to take it or leave it. Yay, freedom. The landlord’s chief economist is cheering. World GDP is rising.

What do these two scenarios have in common? There’s an imbalance of power.  Someone’s in a position to make you an offer you can’t refuse, like any two-bit gangster.

What do these two economists have in common? They both cut their teeth on economic models that say perfect competition evens out all the power in society — so let’s assume perfect competition so we can claim free trade is always benign.

It ain’t. Power is never evened out. Most trade involves big bullies somewhere along the chain, and it turns into extortion in one way or another — in ways you don’t even know. There is a free trade utopia at the core of every Economics textbook. Everybody is happy. But it doesn’t describe much on this little planet of ours.

Free trade and all its universal benefits are as big a scam as benevolent bankers. But that’s a subject for another rant.

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