Category: International Trade

From the abstract of a new paper from the NBER, “Globalization and Poverty,” by Ann Harrison:

“This essay surveys the evidence on the linkages between globalization and poverty. I focus on two measures of globalization: trade and international capital flows…. The collected evidence suggests that globalization produces both winners and losers among the poor. The fact that some poor individuals are made worse off by trade or financial integration underscores the need for carefully targeted safety nets.”

Yes, I realize that no one likes the current version of the Comprehensive Immigration Reform bill. But it is possible to make constructive changes without being comprehensive. Here are a couple of recent examples:

1. Assimilation needs to be a priority. The Administration just formed a Task Force on New Americans to help legal immigrants become more fully Americanized. Whether the Task Force will do anything substantial remains to be seen. But it is encouraging that someone in the Adminstration understands that this is an important issue.

2. New rules requiring documentation of legal status for Medicaid go into effect on July 1. There will be problems of course. (The story linked is basically all about how difficult it will be for people to come up with the required documentation, even for people who are here legally and are entitled to Medicaid.) But the principle is sound: enforce the law we already have. The documentation problems can and should be addressed.

We often hear about the “need” for debt forgiveness. Our movie stars and celebrities like to clamour about it being a “moral obligation” and, of course, leaders of developing nations like the idea as well. But is debt forgiveness really going to help out the people of these developing nations? Samuel Gregg, Acton’s director of research, argues that debt forgiveness is not a moral obligation, nor is it necessarily such a great idea for the economies of some of these countries. Dr. Gregg examines the Republic of the Congo as an example of why debt forgiveness is a bad idea.

President Sassou-Nguesso is meeting with President Bush today, and will likely raise the topic of debt forgiveness. The average person in the Congo lives on about $2 a day. The nation does have a well supplied oil industry, although much of the revenue doesn’t ever make it to the marketplace.

Where does this money end up? Likely, it is diverted to extravagent spending for President Denis Sassou-Nguesso (for example, his 8-day, $295,000 trip to New York in 2005) and his entourage. Diverting monies from the oil industry hurts the economy directly by destroying the nations contractual accountability. In order for foreign investment to function well the investor needs to have some assurance that he will see profits and growth. If an economy tends to make money disappear, investment becomes unlikely. Dr. Gregg writes:

Allowing heavily indebted nations to walk away from their debts sends precisely the wrong economic signal to private and public international lenders of capital. Why should they lend any more funds to such countries in the future if they can never be sure their funds will be returned? Developing countries need to develop reputations as responsible borrowers who not only deploy the borrowed funds productively but who also repay their debts as contracted. How will debt forgiveness of a country like the Congo, especially given its extensive government corruption, help the Congo to achieve either goal?

The solutions to the problems of national poverty, especially in developing nations with rich natural resources and motivated, entrepreneurial, citizens lies in holding those nations’ leaders accountable rather than giving in to pleas for more money that can be further diverted into their own, personal treasuries.

For more information about debt forgiveness and solutions to poverty, look into our Impact campaign. The solution to poverty requires more than good intentions, it requires sound economics as well.

Related Items:

White House Press Office, “Remarks by President Bush and President Sassou Nguesso of the Republic of the Congo in a Photo Opportunity,” U.S. Newswire, June 5, 2006.

Associated Press, “Bush, President of Congo Discuss Darfur,” Washington Post, June 5, 2006.

Eli Lake, “Congo Battle Looms Over White House,” New York Sun, June 5, 2006.

Robert E. Wright, “Review of James Macdonald A Free Nation Deep in Debt: The Financial Roots of Democracy,” Economic History Services, May 31, 2006.

Marc Vander Maas, “Bono: Give Us a Call,” Acton Institute PowerBlog, May 19, 2006.

Jordan J. Ballor, “The Myth of Aid,” Acton Institute PowerBlog, May 15, 2006.

Samuel Gregg, Banking, Justice, and the Common Good. Grand Rapids: Acton Institute, 2005.

Jordan J. Ballor, “Movie Review: ‘The Debt of the Dictators’,” Acton Institute PowerBlog, July 21, 2005.

Osvaldo Schenone and Samuel Gregg, A Theory of Corruption. Grand Rapids: Acton Institute, 2003.

Writing in the San Diego Union Tribune, Ruben Navarette explains how the Mexican economy and corruption are related to the U.S. immigration problem. After talking with a Mexican born, U.S. citizen, Navarette observes:

In Mexico, the elites take pride in the fact that Mexicans abroad send home nearly $20 billion a year. But for González, that figure is a national embarrassment – an advertisement of a government’s failure to provide sufficient opportunity for its own people.

So Navarette presses him:

Doesn’t Fox deserve credit for reaching out to Mexicans in the United States? Before Fox came along, these castaways had long been ignored by Mexico’s ruling elite. Not so fast, González said. If Fox really wanted to help the estimated 6 million to 8 million illegal immigrants from Mexico living in the United States, he said, the answer is to create jobs at home so that Mexicans don’t have to leave their country and families to search for work.

Mexicans are not your typical immigrants, it seems.

“We’re not here for the American Dream,” González said. “We’re here to survive.”

When Navarette asks him what he would do if he were Presidente for a day, his companion sounds a lot like an Acton Institute grad:

(1) Tackle police corruption; people have no incentive to be productive if they’re constantly being fleeced and robbed by those who are supposed to protect them.

(2) Stop penalizing employers and small businesses; cutting licensing fees would allow companies to create more jobs and pay higher wages.

(3) Clean up the environment by punishing companies that plunder natural resources and lay waste to the countryside and waterways.

Can we sign this guy up for one of our seminars?

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
Tuesday, May 23, 2006
By

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
Friday, May 19, 2006
By

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
Tuesday, May 16, 2006
By

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).

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
Wednesday, April 5, 2006
By

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.