4 ms·

>I'm having a hard time with the statement as a super-majority of economists agree that liberal trade is a net boon Not the OP but familiar with some of these

by phillmv 11y ago

>I'm having a hard time with the statement as a super-majority of economists agree that liberal trade is a net boon Not the OP but familiar with some of these arguments. Free trade is held to be pareto optimal outcome - you and I get cheaper tshirts, people in bangladesh get higher incomes because of tshirt manufacturing, everyone is better off because of comparative advantage, etc. However, if we distinguish between development or industrialization, then free trade provides strong disincentives wrt investing in capital intensive industries where one does not have a comparative advantage. If I have capital to invest in Bangladesh, it does not make sense for me to try to create a high-end equipment factory; German manufacturers are way more efficient and effective, so it will be very hard for me to compete. The competitive advantage of my region is cheap-labour, so all investment will be biased towards that. Unfortunately, this means that it's very hard to create high-value-added industries that can substantially raise average incomes. If we look into the historical record, we find that the industrial revolution was a period of high tariffs and protectionism; the British empire had a great advantage in acquiring raw materials but IIRC, the French textile industry was more efficient at the time. As a result, they were incentivized to export raw resources and import high value added materials. This is a loser's game. Instead, with the application of high tariffs British manufacturers were now able to compete and thus were incentivized to develop their own industry. Again, IIRC, you can basically take every well-industrialized nation and look back to the period where they gained their industrial edge and you will find high tariffs and protectionist policies aimed at protecting and developing their own internal industries. (This is a decent segue into talking about how pareto optimal outcomes, without taking the initial distribution of resources into account, aren't automatically moral or just http://www.interfluidity.com/v2/5537.html http://www.interfluidity.com/v2/5537.html ) TLDR: free trade makes things cheaper, and spreads money around, but it does not automatically make poorer countries substantially richer.

tomp 11y ago
I'm not sure your argument is valid. People in Bangladesh are competing by offering their cheap labour becaus that's the most effective way for them to compete, and the best investment of their time/money. Sure, you could make a high-tech plant in Bangladesh, but it would cost you much more (in time and money) than making one in Germany. Instead, you first invest into a low-cost low-skill plant, make the workers' lives a bit better, they can afford better education, and so on, and very soon you'll have high-tech companies there as well. I think the main problem with free trade is completely different - that countries don't just compete on cheap labour, but also (mainly?) on lack of regulation - the West tries to pass laws protecting the workers, people's health, the environment... but companies simply product their products elsewhere where these protections don't apply, and then sell these products in the West with comparatively low tarrifs - destroying the local competition that actually abides by all the health/conservation/safety laws.
- astazangasta 11y ago
  >Instead, you first invest into a low-cost low-skill plant, make the workers' lives a bit better, they can afford better education, and so on, and very soon you'll have high-tech companies there as well. This is confusing - if the goal is to have high-tech companies there, and it should be, why wait? If it's more expensive, spend the money - it's an investment. Why spend years and years crawling along on low-margin sales of labor? The workers lives will be "a bit" better, but this sort of accumulation will be extremely anemic. It's hard to get ahead sewing T-shirts. Meanwhile, compare Korea or Japan, which built actual industries instead of pursuing their comparative advantage and became economic powerhouses.
  - bediger4000 11y ago
    I believe that Japan has historically had maybe not "high tariffs", but other protectionist policies: http://www.huffingtonpost.com/ian-fletcher/japan-the-forgotten-prote_b_850269.html http://www.huffingtonpost.com/ian-fletcher/japan-the-forgott... I think that Japan is an example of a very protectionist economy that built up internal, high tech factories and educated workforces. It's a counter-example to the free trade argument.
    - astazangasta 11y ago
      Nearly all developed economies are counter-examples. Korea is the same way, as is the US, England, etc. All of these nations used tariffs to protect their native industry while they were developing. The same argument could be made for China, that they liberalized slowly over a period of decades to protect their native industry.
      - RodericDay 11y ago
        This sounds like some stuff I read from a Ha-Joon Chang book once. Who or where can I read more along these lines? I am Peruvian so the topic is extremely interesting to me.
  - baddox 11y ago

by phillmv 11y ago

tomp 11y ago

I'm not sure your argument is valid. People in Bangladesh are competing by offering their cheap labour becaus that's the most effective way for them to compete, and the best investment of their time/money. Sure, you could make a high-tech plant in Bangladesh, but it would cost you much more (in time and money) than making one in Germany. Instead, you first invest into a low-cost low-skill plant, make the workers' lives a bit better, they can afford better education, and so on, and very soon you'll have high-tech companies there as well. I think the main problem with free trade is completely different - that countries don't just compete on cheap labour, but also (mainly?) on lack of regulation - the West tries to pass laws protecting the workers, people's health, the environment... but companies simply product their products elsewhere where these protections don't apply, and then sell these products in the West with comparatively low tarrifs - destroying the local competition that actually abides by all the health/conservation/safety laws.

astazangasta 11y ago
>Instead, you first invest into a low-cost low-skill plant, make the workers' lives a bit better, they can afford better education, and so on, and very soon you'll have high-tech companies there as well. This is confusing - if the goal is to have high-tech companies there, and it should be, why wait? If it's more expensive, spend the money - it's an investment. Why spend years and years crawling along on low-margin sales of labor? The workers lives will be "a bit" better, but this sort of accumulation will be extremely anemic. It's hard to get ahead sewing T-shirts. Meanwhile, compare Korea or Japan, which built actual industries instead of pursuing their comparative advantage and became economic powerhouses.
- bediger4000 11y ago
  I believe that Japan has historically had maybe not "high tariffs", but other protectionist policies: http://www.huffingtonpost.com/ian-fletcher/japan-the-forgotten-prote_b_850269.html http://www.huffingtonpost.com/ian-fletcher/japan-the-forgott... I think that Japan is an example of a very protectionist economy that built up internal, high tech factories and educated workforces. It's a counter-example to the free trade argument.
  - astazangasta 11y ago
    Nearly all developed economies are counter-examples. Korea is the same way, as is the US, England, etc. All of these nations used tariffs to protect their native industry while they were developing. The same argument could be made for China, that they liberalized slowly over a period of decades to protect their native industry.
    - RodericDay 11y ago
      This sounds like some stuff I read from a Ha-Joon Chang book once. Who or where can I read more along these lines? I am Peruvian so the topic is extremely interesting to me.
- baddox 11y ago