Free Trade and Vice
- posted by Jim Leitzel @ 11:06 PM

Dani Rodrik, Tyler Cowen, and others, have been debating the merits of trade controls. (Economists tend to support most movements towards freer trade, so to non-economists the debate might sound a bit like arguments among various Trotskyite factions.) But their debate presents another opportunity to talk about the intersection between trade policy and vice policy. (Here’s one of the more recent harpings on this issue, from December 3, 2006.) The bottom line, for me, is that for the traditional vices, I am very chary of allowing commitments to free trade to override domestic vice controls.

The fact that alcohol, tobacco, gambling, drugs, and other traditional vices have been problematic for hundreds of years is strong evidence that these are not ordinary commodities. Any standard liberal policy orientation, whether it be towards free trade, free speech (advertising), or free competition (antitrust), comes under significant pressure when faced with these troubling habit-forming goods. To insist on one-size-fits-all policies, applicable to ketchup and alcohol alike, is apt to produce outcomes that are sufficiently undesirable that liberalism in general (including free trade) might be discredited, or motivate a policy shift to strikingly illiberal policies (such as prohibition) targeted specifically at the vicious goods or activities. Vice should operate as an exception – a limited exception, but a clear one – from many of our more general policy doctrines.

Unfettered trade typically serves the interests of domestic consumers, while lowering the relative prices of imported goods. When it is vice goods that are among the imports, however, we are much less certain that consumers, as well as society more generally, are made better off. The lower prices will lead to more consumption, and if that consumption is both “rational” and does not have significant externalities attached, then the usual presumption that domestic consumers are made better off should apply. But vice goods are sufficiently marked by both potential departures from rational consumption and by externalities that there is good reason to question the standard presumption. The laudable ends that generally are served by commitments to free trade (and free competition and free speech) are not similarly served in their application to vice.

So I believe in vice policy exceptionalism. In practice the question often will amount to whether the exception is made by banning the vice good (and its advertising and trade, of course), or by allowing the vice while controlling competition, trade, and advertising. That is, vice policy exceptionalism is all but inevitable: the only issue is what form it will take. I prefer that vice constitute a differently treated legal activity, while prohibitonists prefer to make vice goods exceptional via illegality. Allowing free trade to trump domestic vice policies will tend to bolster the hand of the prohibitionists, perhaps leading to more constraints upon trade than my version of vice policy exceptionalism. But this is dangerously close to the sort of political argument at which economists have no expertise!

Much more can be said along these lines, especially concerning the possibility that allowing a vice policy exception will result in an expanded definition of vice, one that covers all goods and services that meet with official displeasure -- thereby hollowing out our overall commitments to free speech, trade, and competition. But that discussion is for another day.

The current manifestations of this debate have been a Vice Squad staple. They include the US-Antigua internet gambling case (March 31, 2007), EU alcohol rules (February 19, 2007), and snus (February 7, 2006).

Labels: free trade, Rodrik