The Archdruid in his weekly report last Thursday defended the virtues of trade barriers and customs tarrifs between trading countries. It's an unusual argument to hear today, when free trade is widely accepted, in economic terms, as being beneficial. He argues that trade barriers between countries help establish a trade equilibrium, and he observes that free trade between nations has resulted in the past, and is resulting today, in enormous inequalities in wealth, along with increased poverty.
Donald Trump has persuaded Ford not to transfer their small car production to Mexico where costs are lower. This is good news for American Ford workers, but bad news for Mexicans. Mexicans on average will be poorer; the American car workers will be richer, and the American public will be slightly poorer, having to pay more for their Fords. Economists will tell you that as a result, mankind overall is worse off as a result.
Let's imagine a large island, a continent that is a single country. Business goes on as usual. Goods are traded freely across its entire surface, people move about according to their desires and money flows where it will within the border. This is normal national management and it proceeds as well as the government of the day can make it.
Now let's imagine that accidents of history, war and politics have resulted in this same continent being divided into three different countries, each taking about 1/3 of the area, with borders dictated by nothing but the hazards of time and chance. Suddenly trade barriers between these areas are a good thing? Why should that be? Our Archdruid argues that they reduce inequality, and he might well be right, but what is the difference between our continent of one country, and the same continent divided into three countries, that necessiates trade barriers in order to reduce inequality?
Britain comprises three nations: England, Wales and Scotland. When Wales play Scotland at rugby, it's an international match. The three nations form a free trade area, with monetary union, free movement of goods, services and people, and it has been successful for .... well, a long time. It's so transparent that many people forget that it is a successful example of monetary union and free trade between nations. The difference between Britain and our hypothetical continent of three countries is that Britain is centrally governed, and has a central and universal tax system; fiscal union.
When companies are free to move money into different countries with different tax regimes and different costs of business, the money tends to flow to the most advantageous place and stay there. What doesn't happen is that it gets freely distributed around the countries where the company operates, and it doesn't get taxed everywhere either. (Apple for example sits on an enormous cash pile held outside of the USA, and has, I believe, borrowed money in the USA because it's cheaper than paying the tax).
Is this the root cause of the increasing transfer of wealth to the 1% (or 0.1%)? Does this mean that the people arguing for fiscal union in Europe are right? Noting as an aside that the tragedy of the commons applies to the planet as a whole and not just bits of it, do we need a world government?