The World Trade Organization as a structure of liberty.

• Author: McGinnis, John O.

The World Trade Organization ("WTO") can become a force for limited government in our day, just as the Framers' Constitution was in theirs. First, the WTO has structural similarities to the original Constitution of the United States. The WTO enlarges the polity for trade purposes and thereby weakens protectionism around the world by mobilizing exporter groups to battle protectionist interest groups in each country. It therefore sets certain factions against each other in the same way that James Madison suggested in his theory of the large republic. (1) In that respect the WTO actually improves democratic choice, since otherwise democratic nations would be hobbled by protectionist interest groups with undue power. (2)

Second, the WTO helps promote a structure of limited government like that espoused in the U.S. Constitution because it replicates the idea of federalism on the international level. Federalism, in turn, creates a market for governance, and thereby creates incentives for government to provide public goods and appropriate regulation that will attract investment. Today, the WTO and allied agreements on open capital markets allow for the free movement of goods and capital while maintaining a fairly thin structure of government. Inside that structure, nation states make independent decisions about social policy. Just as the Constitution was a great charter for economic growth in the United States by promoting a beneficial regulatory competition among states, so the WTO can be a great charter for international economic growth by promoting beneficial jurisdictional competition among nation states.

1. THE BASIC STRUCTURE OF THE WTO AND FACTIONAL COMPETITION

   The WTO agreements on trade facilitate private transactions and therefore generate economic growth. Trade is ultimately about mutually beneficial contracts among different parties; in the WTO context, the parties happen to be in different countries. The reasons the international community needs the WTO are not entirely economic. Despite the fact that economic theory promotes unilateral free trade as ideal, throughout human history xenophobia and interest groups have conspired to prevent this ideal from being realized. Today, the WTO is a mechanism that attempts to counteract these political tendencies to bring greater prosperity to the world and succor to the world's poorest.

   Even though free trade policies in general are wealth maximizing, special interest groups often try to prevent these types of policies. While competition from overseas goods is beneficial to the consumer because competition lowers prices, overseas competition can hurt local industries and unions. Furthermore, because they are concentrated groups, industries and unions have substantial power in the political process and incentives to lobby the government for favorable policies and to provide campaign contributions and election support to candidates that support protectionist measures. (3) Diffuse groups, such as consumers, have less concentrated power in the political process. (4) While every consumer benefits in some sense from free trade policies, they each benefit to a relatively small degree. Very substantial free rider problems inhibit consumer influence on trade policy. If one consumer contributes to a consumer lobby, other consumers who have not contributed will still benefit from the lobby's actions. In contrast, industries and unions are already organized for other purposes: to manufacture and sell goods and to bargain with management. As a result, consumers have fewer incentives to join organizations aimed at lobbying for free trade.

   Another obstacle that consumers face is rational ignorance--an important truth about modern democracies that should be central to all political discussions of the proper structure of government. (5) Rational ignorance describes the systematic tendency of citizens to pay little attention to political information. The phenomenon occurs because acquiring information about politics is both costly and unproductive. It is costly because, to acquire such information, individuals must invest time that they could be using in other more lucrative or pleasurable enterprises. It is unproductive because, although the principal instrumental use of such information is to guide voting, the vote of any one individual is unlikely to influence the outcome of an election. Because of the effect of rational ignorance and the free rider problem, mechanisms should be devised that will counteract domestic protectionist interest groups that create obstacles to free trade policies.

   The WTO tries to counteract these interest group pressures through reciprocal agreements intended to reduce tariffs and other barriers to trade. The success...