Questions on Globalization and Trade Part One

Mark points us to this very fun and persuasive article by Radley Balko on the wonders of free trade and markets which warns, quite astutely, of the dangers of central planning and too much government intervention in the economy.  I’d just like to lay out a few of my beliefs on free trade, protectionism, government intervention and all that nonsense because I think on more levels than not I agree with much of what Mark believes.  This is Part One in a (tentatively) four part series.

Free Trade vs. Protectionism

I share the larger, long-term goal of free trade with my libertarian counterparts.  I think that a world highly interconnected by trade will be a more peaceful and prosperous world, so long as we can also determine ways to adequately protect our environment and find sustainable resources and energy to continue to drive the economy forward.   However, I am more cynical as to the implementation of such widespread trade.  I think that the reality is, with capitalism comes pain.  The formula requires failure, because competition dictates that there be losers and winners.  This is fine when it comes to corporations – a failed corporation, theoretically at least, will be replaced with a better competitor and that’s good for consumers, workers, and investors alike.  However, failure does not stop at the company level, it also effects the human beings who work for these belly-up companies.

This leads to the necessity of social safety nets (discussed more in part 2) but also to the need for some sort of, for lack of a better word, pacing.  I don’t believe in protection as an end in and of itself, but rather as a means to an end.  Protection of national industry should be about maintaining a safe trade balance, a stable employment rate, etc.  And it should be implemented in a temporary fashion, not ensuring the protection of one industry indefinitely, but rather promoting economic stability here at home while we achieve, gradually, freer trade globally.

So if we plan on depleting our blue collar jobs in steel or manufacturing we need to find ways to provide other good blue collar (or better) jobs for the thousands or millions of displaced workers resulting from the demise of those industries; or we need to find ways to protect those industries from foreign competition.   The service economy we’ve begun erecting now has not met the need, and our new service jobs not meet the same standards and wages as the lost jobs in manufacturing and nor are they necessarily jobs that post-manufacturing laborers would be necessarily able to fill.  Perhaps some combination of these efforts needs to happen.  The alternative is a lot of pain for the working class especially as we shift from one industry to another, and that’s simply not an acceptable pill for most Americans to swallow.

So my question to the free-trade advocates is how do we do this?  Do we make the U.S. a better nation to do business in by lowering corporate taxes as some suggest?  Can lower taxes make us more competitive, or do low labor costs trump even that?  Does the government play some role in developing new technologies that we can build here and export, thus providing new jobs or is this too much interference?  And isn’t this a case for high investment in education and in broadening education to include public trade school options for high school students?  In other words, as we move toward free trade and thus inevitably let some major industries die off, do we play any sort of role in providing for those displaced by this transition?  And in the mean time, do we strengthen our own hand by implementing some form of protection – as many of our neighbors overseas and south of the border are almost guaranteed to do?  And finally, what about the trade deficit?  It keeps growing and there is no end in sight….

Next up: Safety Nets vs. Central Planning

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30 thoughts on “Questions on Globalization and Trade Part One

    • I agree – planning is very difficult. But if you know you have a major industry, such as steel, and you know it is faltering, and everyone is predicting that it will go under pretty much in X amount of years, isn’t there some way to reduce the pain of this either through some form of protection or through some sort of plan to transfer workers into new industries. Because right now this industry death creates ghost towns, displaced workers, and is already a massive expense for the government on many levels.

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  1. “Do we make the U.S. a better nation to do business in by lowering corporate taxes as some suggest?”

    This would remove or reduce a cost so yes.

    “Can lower taxes make us more competitive, or do low labor costs trump even that?”

    By eliminating or reducing a cost we would be able to be more competitive, labor is of course another cost which depending on the industry would be either more or less of a factor than labor. More competitive, yes, most competitive, no.

    “Does the government play some role in developing new technologies that we can build here and export, thus providing new jobs or is this too much interference?”

    It depends. If the technology costs a dollar to research, and is given to American and only American corporations to manufacture in America, and their is worldwide demand than yes. If it costs 100 trillion dollars to research, is given to anyone willing to produce it, and their is no worldwide demand then no.

    “And isn’t this a case for high investment in education and in broadening education to include public trade school options for high school students?”

    It would depend if their is demand for the skills taught.

    More later.

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  2. Let’s say that I want to trade my X for your Y.

    Let’s say that you want to trade your Y for my X.

    Given those assumptions: How much more power should we give to the government to ensure that wages don’t stagnate?

    Additionally: I have a trade deficit with Safeway and have outsourced my pizza production to Roadrunner Pizza (636-2112). What powers should the government have to mitigate the bad policies that these relationships will inevitably result in?

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      • Well, then. Perhaps we could take a certain percentage of everyone’s wages and use that money to create a government office in charge of making sure that people who can afford lobbyists can more easily create barriers to entry for competition.

        People who disagree, of course, can be waved away as people who don’t understand how complex emergent properties can become when the number of interrelationships reaches a critical mass.

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    • How do you mean exactly? I’m not sure being able to import cheap labor (which we do anyways) helps much of anything. I’m still a little torn on the immigration question though. But certainly it makes sense that if we are going to move capital and company headquarters all over the globe that workers should be able to move around as well. But then, that gets awfully complicated doesn’t it?

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          • (Preface: Just want you to know that these are fledgling and random thoughts on the subject)

            Workers from other countries would be able to move to the United States and pursue whatever employment they were suited for, so it should balance out.

            Most importantly, this could accelerate an equalization in standard of living. Then businesses wouldn’t hop around looking for the cheapest labor.

            ****
            In my hypothetical I’m not really saying that the autoworker is moving along with the factory to another country, just moving to another country that still employs a person of his talents. Moving to Germany would not necessarily mean a paycut, and the paycut required to work in S. Korea would be compensated for partly by a decrease in the cost of living.

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            • The problem (for Americans, at least) is that an equalization of standard of living means a drastic decrease in our standard of living. There simply aren’t enough resources on the planet to support a Western-world standard of living for all 6.7 billion of us. There are lots of people willing to work for far less than the American minimum wage.

              There will always be a race-to-the-bottom for companies desperate to find some cheaper place to do business, somewhere where corrupt officials allow them to dump toxics into a river, somewhere where they can drill for oil without concern for externalities, somewhere where they can hire 14-year-olds to sew clothes for a couple bucks a day. Capitalism essentially demands a continuous search for whoever can do something cheapest, and that is one of its traits which must be governmentally controlled.

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    • Hrmmmm. I find myself opposed to the massive corn subsidies in this country (no, I’m not a HFCS nut) for a handful of reasons. I’m also against factory farms when it comes to meat production.

      Food subsidies, as they exist, seem to be corporation subsidies rather than food subsidies… I mean, we’re picking a winner in the food producers rather than ensuring that food is produced.

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  3. I confess to a certain ignorance in these matters. Could someone explain to me what ‘free trade’ is and give me an example of where it exists. thanks!

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  4. Do we make the U.S. a better nation to do business in by lowering corporate taxes as some suggest? Yes, but for a number of reasons beyond dealing with the side effects of trade, although that is certainly one reason. I just don’t think it’s a big reason.

    Can lower taxes make us more competitive, or do low labor costs trump even that? To an extent, though not remotely as much as GOP politicians like to claim. The real question, though, is: competitive in what, and who gets to decide the industries in which we need to be competitive? The answer can be easily learned if one signs up for my new class “Special Interest Group Politics 101.”

    Does the government play some role in developing new technologies that we can build here and export, thus providing new jobs or is this too much interference?

    Government should not be doing technological research for technologies that we can export. Again, the real question is “research in what area?” and again the answer can be found in my new class “Special Interest Group Politics 101.” There may be a role for government to play in researching technologies in arenas that we have defined as public goods, ie, national defense and public health. But that research should not be consciously directed to assist private industry. This is particularly true given that there’s no way of guaranteeing that we will be able to have a long-term competitive advantage in the production of a given good that we export. Even if you require that the results be produced by US companies in the US for worldwide consumption, the fact is that it will be easy to reverse engineer. Plus, there’s that whole issue of deciding which companies get the technology.

    And isn’t this a case for high investment in education and in broadening education to include public trade school options for high school students?

    Again, I have no problem with investing in education, as it’s something that is almost universally regarded as a public good. I also fully support bringing vocational education back from the dead – unfortunately, that seems to be in large part a demand-side problem that can only be fixed through cultural changes de-emphasizing the necessity of college. Beyond that, though, it’s not really an argument for increased spending on education – we already spend more money per capita on education at all levels than any other industrialized nation. It is possibly, however, an argument for a more decentralized education system since that would make for a more diversified education system.

    In other words, as we move toward free trade and thus inevitably let some major industries die off, do we play any sort of role in providing for those displaced by this transition?

    I’ve got no problem with strong social safety nets (just with the structure thereof), and I’m open to being convinced on earmarked spending for worker re-training programs if it could be shown that it actually works, by which I mean that it would need to be shown that such programs anticipate employer demand. Alternatively, infrastructure projects may, in some instances, be useful.

    And in the mean time, do we strengthen our own hand by implementing some form of protection – as many of our neighbors overseas and south of the border are almost guaranteed to do?

    Absolutely not. If, as you say, you have a long-term goal of free trade, then imposing more protectionist policies takes you in the opposite direction. There are few things more permanent than a “temporary” government program. Beyond that, protectionist policies beget retaliatory protectionist policies, which beget more retaliatory protectionist policies. Not good.

    And finally, what about the trade deficit? As I suggested in the other thread, what about it?

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    • I suppose my concern then is not so much with free trade but with maintaining a viable work force, a strong set of safety nets, etc. If this can be done I see less of a need for protection of the tariff variety. But somehow the American worker does need to be protected. And I think this might best be achieved with a broader – dare I say Europeanization – of our welfare apparatus. Now I don’t mean that exactly, because I know employment and other factors in the European economy make that very unappealing for Americans – but I do think that we need more than what we have, and it should be a higher priority so that we can manage the programs we do have well.

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      • Well, it depends on what European country you’re talking about. Those who emphasize government size as being the essential concern hate Denmark, but if you want a government with limited economic powers other than a social safety net, there is no more limited government in the world. Not surprisingly, perhaps, Denmark continues to have a very low unemployment rate combined with, obviously, a very large social safety net. Not that we should use Denmark as an instruction manual – extrapolating from a tiny and homogenous country to the US is even less reliable than using other countries as a model for what to do in the US in the first place. But the point is that it’s clearly possible to combine safety nets and limited government in a way that minimizes unemployment, maximizes trade, and guarantees a minimum standard of living. High unemployment seems to be more closely correlated to the extent of government power over the economy than it does to the size of safety nets.

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    • Mark, you wrote most of what I would’ve written but I do have two questions for you. (and of course anyone else can jump in on these)

      1.) On government sponsored R&D, wouldn’t you say that differential concerns apply by industry? For example, scientific/medical research tends to be fairly well diffused through journals and collaboration in a way that contrasts with commercial industries. So NIH research is more easily made available to Pfizer, GSK, etc… Whereas, much murkier/tougher(?) guidelines would apply in commercial industries? Like say DARPA work on a faster jet engine?

      2.)

      It is possibly, however, an argument for a more decentralized education system since that would make for a more diversified education system.

      American education is pretty diverse and – if I recall correctly – the most decentralized in the industrial world. So, how much more decentralized are we (you) talking about here?

      Relatedly, might less continuity in education between locations affect labor force mobility?

      So that was three questions, whoops. As always, thoughts/answers appreciated.

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      • I’ll jump in on the education question. With regards to oversight, i.e. how a school system is run, I definitely don’t believe in Washington or state governments controlling school districts. Each one is unique and has its own challenges which can’t be addressed as well at a higher
        level.

        With that being said, I am 100% in favor of a national curriculum for a variety of reasons. That would actually improve school systems immensely and as just one example, it would answer your question of a mobile workforce. If parents knew that moving to another state would not effect their children academically, I can guarantee they would be more-inclined to pursue jobs in other places that may allow them to advance economically. (Of course this completely blows Front Porch Republic’s love of ‘place’ out of the water.)

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  5. I wonder, is there an argument for industrial/product protectionism based entirely or mostly on sentiment.

    For the most part I agree with Mark (faux shocked expression) but this free trade, consequences of discussion is largely guided by the “good for people” metrics (economy, efficiency, social good/justice, etc…)

    What about the “what people want” metrics?

    Shouldn’t the British protect Stilton (with subsidies or tariffs) because it’s a British cheese?

    I’m wondering where in this discussion, would that fit into? Protectionism not based on stemming a trend of rising domestic inequality, not based on national defence, not based on long term financial/trade goals, but instead based on intrinsic value to the national identity.

    What do you think? I don’t think – given the dynamic nature of our economy, protection of the old precludes the development of the new. After all our national commitment to rail didn’t impinge the development of the auto or plane.

    This is an admittedly low-brow comment but it seems that as valuable as this conversation is it’s stuck (or ultimately reduces down to) economic value. Shouldn’t we at least be talking about other values?

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    • It may well be worth keeping in the conversation. On the other hand, I’m not sure how much value it should have – presumably if something is so intimately tied with national identity like that, then the question of where it’s made will play a not insignificant factor in the consumer’s decision. It’s kind of the same concept as why so many people are willing to pay an arm and a leg for an authentic Gucci handbag even though you could get a bag of similar quality for a fraction of the price, just without the label. (The fake Gucci market is not relevant for purposes of this discussion since the fakes are usually of lesser quality).

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