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Post by cjm on Jul 14, 2017 18:17:28 GMT
Globalisation: the rise and fall of an idea that swept the world A very interesting article. It fails, however, to explain the *failure* of open borders in economic terms - or logic, for that matter. The traditional economic wisdom was simply that tariffs make everybody worse off. Getting rid of barriers, allowing free exchange across borders, was supposed to allow each territory to specialise, and to do whatever it was it could do better than the neighbour. That way all would share in the others' expertise and its cheaper (but good) products as a result of economies of scale and specialisation. Why try to build cars (for example), when your country is, say, ideally suited to agriculture and your neighbour is a boffin at building cars. With all concentrating on their unique advantage you get cheap cars (well, cheaper than you could build them yourself), while your neighbour gets food at cut rate prices. Perhaps the answer is to be found in monopoly formation in each country or the likelihood that in some cases some countries could make a mix of products at very competitive prices. In any event, whether the economic argument holds for uncontrolled immigration, I doubt very much, but also wonder whether the classic economic arguments went that far.
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Post by cjm on Jul 16, 2017 11:07:37 GMT
Continuing certain strands of thought in an exploratory fashion only.
The main problem in finding the weak points in the comparative advantage argument, as it relates to trade between countries, is the large number of economic possibilities facing countries. It is also unlikely that the situation will remain fixed and stable. One may find (for example) that as China becomes more prosperous, that the cheap labour (which perhaps fueled its growth), start demanding higher wages. This over time will erode the initial advantage of cheap labour.
In an economy driven by the services sector (as in the more developed world), one can imagine that a comparative advantage becomes less likely. Education may be very much on par and knowledge does not know borders. There is very little incentive to prefer one country over the next.
Even in the more mundane occupations, there are instances where there is very little initiative to move an industry from country A to B or for either to produce whatever at a marked advantage. Many countries can produce a range of products on par with the rest. In agriculture, for example, how much better can one country be at milk production than the other? Even if it is better, what about the cost of moving the products about and what about the unseen costs of having high levels of cattle herds concentrated in areas, while a spread may be much better. Think pollution, animal diseases etc.
I have a suspicion that the comparative advantage idea ultimately has relevance only for a few isolated industries benefitting from geography and minerals.
One also runs into the issue of monopolies. These industries falling under the rubric of strong comparative advantage, most likely are few in number. This lends itself to extortion if the products are in high demand. Here again things get complicated. How does one measure up (for example) cheap food against cheap cars. I withold my food to force your prices down. Who will yield first? Then one can have a number of countries ganging up against the rest. If you cars become expensive enough, I might decide to build my own and eat my own food.
Is it possible to regulate all this by means of tariffs?
Another point is to what extent sharing in the comparative advantage of another country benefits the beneficent country as a whole. Is it not a case of the benefits mainly landing in the pockets of certain industries while other sectors are left destitute. One thinks here of the US moving jobs abroad at the cost of Americans. The benefits flowing from that (let us assume, the benefits come in the form of cheap TV sets imported into the US), will hardly benefit American workers who are left destitute through job losses. The industries involved in the US now have higher profits. Some of that goes into luxury houses for the CEOs or expensive holidays in Paris. Some also go into taxes which are again distributed to the destitute.
All in all my mind spins and I have not even touched on the weaknesses of capitalism as a theoretical tool (the absence of perfect knowledge).
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Post by Trog on Jul 17, 2017 7:21:57 GMT
I persist in believing that the problems underlying free trade all relate to the equivalence of societies.
Free trade between the UK and the USA should work well - the standard of living is comparable, they are both subject to a largely WASP world view, they have comparable concepts of justice and and honour. They are secular democracies with power distributed and attenuated across a very wide range of civil structures.
To be a citizen of the USA is very little different from being a citizen of the UK. Or of Germany, for that matter.
Contrast that with being a citizen of the USA instead of being a citizen of Taiwan, for instance, which is like living in a different universe. My conviction is that free trade becomes extremely problematical in those circumstances, particularly with regard to the distribution of economic advantage amongst the have/havenots of the more democratic partner. In those circumstances, additional measures are needed to equalise and 'normalise' the discrepancy in equality.
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Post by cjm on Jul 17, 2017 7:32:24 GMT
Contrast that with being a citizen of the USA instead of being a citizen of Taiwan, for instance, which is like living in a different universe. My conviction is that free trade becomes extremely problematical in those circumstances, particularly with regard to the distribution of economic advantage amongst the have/havenots of the more democratic partner. In those circumstances, additional measures are needed to equalise and 'normalise' the discrepancy in equality. I take it you mean equality between the haves/have nots of the democratic power? |
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Post by Trog on Jul 17, 2017 7:45:04 GMT
I take it you mean equality between the haves/have nots of the democratic power? No. I mean creating an artificial equivalence between the two disparate societies to normalise trade. Basically, I'm saying that free trade between the US and USA should be problem-free and unregulated, for instance, because US society is almost exactly the same (equal to) UK society. But free trade between the USA and China is very different, because it is between profoundly different societies. So, the regulations needed to normalise trade between the USA and China should be such that, for a trader in the US, there is no perceivable difference (and no perceivable advantage) between trading with the UK and trading with China. |
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