August 20 , 2003
When I was learning economics, almost all economists agreed
that trade was a good thing. Without
it, economies were constrained to produce only what the capabilities of their
workers and the technology they had available would allow.
By engaging in exchange, new products would become
available. But what if everyone
produced the same things but had different skills and technology.
The rules of comparative advantage said that exchange still was mutually
beneficial. Releasing the doctor
from also making the household meal meant that more people received medicine and
more resources were available to make meals.
Furthermore, no one would engage in exchange unless it was
mutually beneficial. Why would you
willingly give away more than you got in value? If there was one principle that almost all economists could
accept, it was that trade was good for the world economy.
At every world economic meeting there are thousands of
protesters who do not agree. They
see world economic integration as a threat.
At a minimum, they see trade as picking the pockets of the poor and
enthralling the working people economically.
Ross Perot said in his presidential campaign that
freer trade will create a sucking sound as jobs rush from the areas
paying higher wages to the world's poor. Instead
of rising up the masses, it will bring down the elite.
The pools of poor will not be filled before the well to do are thrown
down into them.
A little of this thinking is resurfacing as some of the
jobs migrating abroad were receiving above average wages here.
Research by Forrester suggests that outsourcing of back office and
information technology jobs could rise dramatically in the next decade.
And many of these jobs will go abroad.
Are companies willingly undermining their own future by seeking lower
costs for their customers?
Before I argue that the basic economic principle remains
valid--trade is mutually beneficial because it is done willingly and helps both
sides--I will throw in a few caveats. If
goods are produced with socially undesirable techniques, increasing that trade
will create more social problems.
When the communist world tried to compete economically with
the remainder of the globe, they used some of the worst environmental techniques
known. They were willing to trash
their own countries to produce the goods that made them appear equal to everyone
else. Because their people could
not overturn these policies until they overturned communism, more competition
with the communists meant more world degradation.
More recently, school children making fireworks in China
went unnoticed until a tragic accident brought that activity to the world's
attention. If our trade diverts
children from education to work, is the world better off?
I would argue that these are not mutually beneficial
trades, which is true. The
disconnect between governments and socially acceptable production allows such
activity to progress. Indeed,
communism failed only when those societies needed what was being created
elsewhere. The trade that
ultimately required those autocratic governments to change initially added to
the problems those economies were creating.
In short, trade could lead to greater problems for some
time if socially undesirable conditions are being preserved or strengthened by
it. However, the problem does not
lie with the trade but with the disconnect between government and the needs of
their people. The solution is not
to keep trade out but to change the rules so that goods produced for trade meet
Even here, the problem of transition is not simple.
Over 2 billion people on this globe spend most of their time worrying how
they will survive another week. This
is why they let their children pack fireworks, allow polluting enterprises to
weaken their health, accept a government that offers little but sometimes helps
What is child exploitation to us is survival to many
African and Asian households. Refusing
to use goods produced by child labor does not lessen the need of those families.
Indeed, it was less than a century ago that Polish children less than 10
years old were digging in the Pennsylvania coal mines.
We find that activity offensive today because households no longer need
to abuse their children in that way to survive.
Dealing with the problems of the people on the edge of
extinction cannot be met by free markets alone. Failure is a part of a market economy. Where failure is death, they cannot afford such a system,
even though the final outcome will be much fewer households suffering such a
Thus, those protesters have a point. World trade is disruptive. Under certain circumstances, it is dangerous. But they are protesting against the wrong ills. The problem is not the trade but the community structures (governments) that are at the base of the abuse.