Category: International Trade

I have argued on this site that the last thing America needs is European style government-by-demonstration, and that the massive street demostrations over illegal immigration perhaps were a sign of the Left’s intention to import exactly that style of guerilla theater politics into America. Now Mexico seems poised to illustrate that point: the free market candidate for president is leading the pack. According to the WSJ, but the two leftist parties are threatening to disrupt society and dispute the election if he wins:

On July 2 Mexico will hold the most closely contested presidential election in its history. That in itself wouldn’t be a problem if all the candidates were committed to the democratic process. But in recent weeks two of the three main campaigns have jointly pledged to challenge election results in the streets with massive unrest if their candidates don’t win. If that happens, Mexico will be thrown into chaos and Mexicans will be the losers.

A poll by Zogby International last week gave Felipe Calderón a five percentage point lead over Andrés Manuel López Obrador and 12 points over Roberto Madrazo.

That’s good news for Mexico. Mr. Calderón of the National Action Party offers the best chance to deepen the market-oriented economic reforms necessary for strong growth and job creation and to ease the exodus of Mexicans abroad. Mr. López Obrador of the hard-left Revolutionary Democratic Party, on the other hand, would return the country to nationalist populism and a closed economy. Mr. Madrazo of the Institutional Revolutionary Party is marketing a mixture of both, publicly siding with the left while privately pledging support for centrist reforms.

Yet even if Mr. Calderón can hold the lead, Mexico may be heading for trouble. The PRD and the PRI have announced that they are forming a united front to reject the election results if neither one wins….

This situation would weaken the country’s institutions, raise uncertainty and fears of anarchy, with potentially serious financial instability and economic disarray. Emigration would mushroom. The long awaited Mexican miracle of fast growth and job creation — stemming migratory outflows — would be lost for at least another six years, if not for much longer.

This would be a disaster for the entire hemisphere. Americans can only hope and pray that Calderon wins by a wide margin. As Hugh Hewitt is wont to say, "If it ain’t close, they can’t cheat."  Let’s hope it isn’t close.

Blog author: kschmiesing
posted by on Tuesday, May 23, 2006

A couple years ago I wrote a commentary that didn’t exactly defend outsourcing, but did recognize its benefits and argued that it could be done morally if done correctly. I won’t pretend that my writing is read widely enough to generate voluminous responses of any sort, but that piece did elicit a significant number of responses, many of them negative. Several correspondents, who had no personal connection to me, ostensibly knew a great deal about me, including my salary and the type of vehicle I owned. The salary estimate was high by about 250 percent. The car model guess was closer: I’ve never owned a Lexus but I did drive a Lincoln at the time (ten years old, it cost me $3500).

All this by way of introducing an interesting piece by Martin Davis on NRO today. The source of the rancor from some of my outsourcing critics was the assumption that my job as an academic was “safe” and that I, therefore, had the luxury of looking at the issue from a position insulated from the competition that beleaguered manufacturing and tech workers confronted. As I thought at the time, it’s shortsighted to think of any kind of job as “safe.” After all, who would have thought 20 years ago that American computer programmers would be threatened by the advances of Indian tech workers?

As Davis’s article suggests, it turns out that education jobs are vulnerable to foreign competition as well (when not artificially protected, of course). And yet, my view of outsourcing remains unchanged. Good thing I don’t have payments to make on a Lexus.

Blog author: mvandermaas
posted by on Friday, May 19, 2006

The Rock Star, sounding kind of Acton-ish:

Bono acknowledges that four years ago when he toured Africa with then U.S. Treasury Secretary Paul O’Neill, bringing private sector with him would never have crossed his mind.

“…I could see so many of the pieces intersected with commerce, trade and entrepreneurial spirit.”

It’s a signal of changes in Africa over the past decade, but in part it’s Bono’s own advocacy that has helped shift attitudes toward the African agenda.

“I think it is bizarre that Africa got me interested in commerce,” chuckles the U2 lead singer in an interview with Reuters. “I am an activist but I looked at the mosaic of problems facing this magical place and I could see so many of the pieces intersected with commerce, trade and entrepreneurial spirit.

“And I’m saying, I believe that Africa can compete with China in terms of offering jobs to its people in the apparel sector, I believe Africa can compete with India in terms of offering jobs to people in the IT sector, if this problem of business efficiencies and strangulation of red tape and corruption can be dealt with,” he said. Africa’s political leaders know the influence he wields. Lesotho’s Minister of Trade and Industry Mpho Meli Malie is one of those who knows that having Bono pitch for Lesotho’s apparel sector could bring new investments. “A celebrity like Bono and with his organization DATA they should be able to penetrate and encourage some of the brands to consider Lesotho as a destination,” said Malie.

The more that Bono and his fellow advocates turn their attention to private sector and entrepreneurial solutions to Africa’s problems, the better. And Bono – if you’re out there – Give us a call, will you? Let’s talk.

Blog author: dphelps
posted by on Tuesday, May 16, 2006
Sir Bob, Free Trader?

The May 16 Independent is guest-edited by the ubiquitous Bono and sports the RED brand–another Bono project where a share of the profits from the mag will be donated to fighting AIDS and poverty in Africa. (Other companies with RED brands include Converse, American Express, Armani, and GAP.) See the issue for yourself (where you will find a critique of subsidies, as well as Nelson Mandela giving props to RED as well as an interview with commedian Eddie Izzard–two men who much too rarely share a marquee).

What is of special interest to PowerBloggers is the article by Bob Geldof, founder of Live8, titled: Aid isn’t the answer. Africa must be allowed to trade its way out of poverty. This is the same Bob Geldof who has been lobbying for huge aid packages for twenty years, the same Bob Geldof who said “We must do something, even if it doesn’t work.” It quite something that this same fella who wrote the following:

In a time of weak world leadership, when the WTO negotiators are failing so miserably, let us remind their bosses – Bush, Chirac, Merkel et al – that we agree with them when they argue that, long term, “aid isn’t the answer”, and that the continent of Africa and its people must trade its way into the global market and sit where it rightfully belongs, negotiating as equals with the rest of us.

As always, I have no interest in questioning the intentions of Bob and Co.–I think they are the noblest of intentions, and I think more people ought to share their zeal for the poor. But could this admission that long term aid isn’t the answer mean that projects like the ONE Campaign are losing their luster? Or are people realizing that governments can’t solve poverty, but maybe the corrective is individual charity and free trade amongst free peoples?

And it is also worth noting that the cover art for the mag includes “Gen. 1:27″–I will save you the trouble of looking it up: “God created man in his own image; in the divine image he created them; male and female he created them.” I am curious how far Bono has parsed out the implications of this statement, as this verse lays the foundation for many of Acton’s economic arguments (for example, see here).

Blog author: jballor
posted by on Thursday, May 11, 2006

You can read my piece today responding to an article in the New York Times over at National Review Online, “Free Workers & Free Trade.”

The NYT piece passes on the allegations of numerous immigrant workers at garment factories in Jordan that they have been lured into the country, had their passports taken, and then forced to work long hours for illegally low wages. There’s an implicit critique of the free market system, and large retailers like Wal-Mart and Target, in the article, blaming them for the de facto conditions of slavery.

I, in turn, examine the culpability at various levels, including the responsibility of the factory owners, the duties of the Jordanian government, as well as the “unique ability for American companies to use their economic leverage to push for an end to foreign labor exploitation.”

Blog author: jballor
posted by on Wednesday, April 5, 2006

Large numbers of migrant populations going out of a particular area or nation should be viewed in large part as a signal of something. There are reasons for people to pick up and move, and policy and governing bodies would do well to examine these reasons.

When business close facilities and open elsewhere, it is usually because the destination location has a better economic and business-friendly environment. So the natural course of action when examining this phenomena is to ask what is it about the place that these businesses are leaving that makes it inhospitable? Michigan’s single-business tax is a great example of a contributing factor on a statewide scale.

Similar analytical methods should be applied to the question of individual or personal immigration. There is a reason that so many residents of the country of Mexico want to leave: there is better opportunity for flourishing in the United States. In particular, the primary motivation for many immigrants is economic opportunity, but the yearning for other sorts of freedoms (religious, political) can be the motivation for immigration as well.

In an article on NRO today, “The Economics of Immigration,” Larry Kudlow makes this same point regarding economic opportunity. He writes, “As long as the American boom beckons, Mexicans in search of prosperity will continue to stream to this country.” The movement of people from Mexico to the United States says a lot about immigrants’ opinions regarding the comparative advantage of living in the US.

A long term answer to immigration reform must include the economic reform of Mexico. Mass immigration out of a country is a symptom of poor economic conditions in the originating nation (other freedoms being equal).

Kudlow writes, “Instead of an Asian or Irish Tiger, Mexico has become a poodle-like Chihuahua, with economic growth of less than 2 percent a year and per-capita growth at less than 1 percent. That’s pathetic. In an age when free-market reforms are sweeping emerging economies worldwide, Mexico should be growing at 8 to 10 percent each year.”

If immigration is a symptom of economic disease, the cure is development, prosperity, and stability in Mexico. And on that score, investment in the manufacturing sector in Mexico, as in the case of outsourcing, is a good thing.

Actonites know about all the benefits of globalization.

Most of these benefits are economic but also have much greater and often unseen social impact as well. Increased international trade in goods and services promotes division of labor and an efficient use of scarce resources, resulting in lower-priced, higher-quality products. The poor are often the greatest beneficiaries as both producers and consumers. People all over the world come to recognize their increased interdependence, not only with their local grocer or tailor, but with others in faraway lands.

Only the most xenophobic and nationalistic foes of economic and social progress would be against globalization, right?

Wrong.

In nearly every country of the world, including those who have thrived in the last 10-20 years of increased trade, globalization is under attack and in danger of being reversed.

See here for the troubles being reported in Europe, here in the United States, and here in India. And there’s plenty more out there.

This most recent backlash against globalization shows how fears of insecurity prey on mass perceptions and how arguments in favor of economic efficiency are rarely strong enough to resist these fears.

Readers of the Acton PowerBlog know how important religious leaders can be in shaping moral arguments and more of these leaders need to understand just what is at stake here. A collapse of the global economic system resulting from increased protectionism would be an unmitigated disaster for everyone.

There are reports that Pope Benedict is planning a social encyclical on work. It would be a perfect opportunity to re-examine John Paul II’s groundbreaking “Centesimus Annus” and the more recent trends the world has seen.

Blog author: jballor
posted by on Monday, March 20, 2006

I was intereviewed for this article in yesterday’s New York Times, but I apparently didn’t make the cut. Nevertheless, in “Fair Prices for Farmers: Simple Idea, Complex Reality,” Jennifer Alsever does an excellent job bringing to light some of the dangers that are inherent with external and artificial adjustments to the price mechanism.

In the case of the fair trade food movement, the price floor is set artificially at a certain amount, determined to meet or surpass the subsistence needs of the local farmer. For coffee, this is currently set at $1.26 per pound by the fair trade community.

Alsever writes, “Despite good intentions, most consumers who shop according to their social convictions don’t know how much of their money makes it to the people they hope to help. Critics say too many fair trade dollars wind up in the pockets of retailers and middlemen, including nonprofit organizations.”

The problem is that the fair-trade certification organizations themselves, and also the retailers, can add several layers of increase into the price of a fair trade commodity. We might say that the fair trade consumer, who is presumably already willing to pay more than the market price, has a greater level of acceptable price elasticity.

TransFair USA, the certifying body in the US, “generated $1.89 million in licensing fees from companies that used the logo. It also spent $1.7 million on salaries, travel, conferences and publications for the 40-employee organization.”

“Farmers often receive very little,” said Lawrence Solomon, managing director of the Energy Probe Research Foundation, a Canadian firm that analyzes trade and consumer issues. “Often fair trade is sold at a premium, but the entire premium goes to the middlemen.”

Of course, these are the self-professed middlemen who cut out the layers of middlemen under a market based, free trade system. Those were the “bad” middlemen, while TransFair apparently represents the “good” sort of middleman.

One other aspect of this tinkering with the price mechanism is that the fair trade movement does nothing to recognize the reality reflected by purchasing power parity (PPP). So, writes Alsever, “a price that is fair in one country may not be in another. In Brazil, ‘$1.26 per pound for coffee is a fortune,’ said Kevin Knox, a coffee consultant in Boulder, Colo. ‘In the forest in the mountains of Mexico, the money barely is enough to justify doing it. Their yields are small, and the costs of production are higher.’”

These are just a few of the problems that arise when people try to artificially manage the price mechanism. When it is allowed to do its job, the market price of something provides a lot of good information. It can tell us, for example, that the supply of coffee far outstrips the demand, and so some coffee growers should think about getting into another product or industry. It would be in their best interests to do so, and the best interests of all of us, so that the world doesn’t end up with too much coffee and too little of something else.

The economic ignorance behind the fair trade movement leads me to believe that it really is just a sort of passing fad, especially popular among naïve church groups, which will at some point be replaced by far more effective methods of alleviating poverty around the world, such as micro-enterprise development (for more on this, see groups like Five Talents, Opportunity International, and Kiva). It’s hard to see real staying power behind a movement that thinks the answer to the reality of poor coffee farmers is simply to subsidize the production of commodities of which we already have an oversupply.

For more on some of the emotional and psychological reasons people are willing to pay more for fair trade items, see “Absolution in Your Cup: The real meaning of Fair Trade coffee,” by Kerry Howley. The fair trade movement currently lack the ability to enforce their pricing schemes through the coercive power of the state, so they must rely on other tactics.

Here’s a brief note about a recent National Bureau of Economic Research working paper, “Service Offshoring and Productivity: Evidence from the United States.”

According to the NBER digest, “service outsourcing is doing more than fueling an economic boom in the tech-savvy provinces of India. It is also playing a major role in one of the big economic stories of the last decade: the surging productivity of American manufacturing firms.”

For more on this, check out Anthony Bradley’s commentary, “Productivity and the Ice Man: Understanding Outsourcing.”

Richard Longworth

An interesting news story on local Grand Rapids television last night concerning the long awaited closing of an Electrolux plant. While the story was fair and optimistic, I got a bit of a kick out of soundbite from Chicago writer Richard Longworth who said: “A wonderfully decent way of life is now just being undermined by productivity, by the global economy.” Now, losing a job can be a terrible thing (its worth noting, though, that one of the workers in the story seemed glad to have the chance to “do something new” with his life–so sometimes change can be good as well). But regarding the idea of lives being undermined by globalization, I couldn’t help but thinking of the insight of former President of El Salvador Francisco Flores, who will be featured in our next issue of Religion & Liberty:

Francisco Flores

[S]ome people say that they’re against trade because they will be losing jobs. What these critics don’t realize is that the choice is not between giving a job to a Salvadorian or giving it to an American citizen. That’s not the choice. The choice is whether you will allow your enterprises to survive or not. If you allow your enterprises to create a more efficient division of labor and become more competitive by creating alliances throughout the world, then your corporations will survive. If you keep them closed in, then what will happen is that other corporations throughout the world will construct these alliances, you will lose the competitive edge you have, and you will not only lose jobs, you will lose the companies.

Stay tuned for more from Flores and others in this quarter’s R&L.