Category: International Trade

This article, by California Western School of Law Professor James Cooper concerns me quite a bit. A legal specialist in Rule of Law, Cooper has been trying to establish legal reforms in Mexico that would make its judicial system more transparent. He isn’t getting anywhere:

By implementing more transparent, efficient and
participatory criminal judicial procedures, there may exist a better sense of fair play in judicial proceedings, and a reduction of instability and unpredictability. But that would require some action on the Mexican government’s part.
Last year, I constantly heard the mantra that
“It’s an election year,” code for “Don’t hold your breath for change.” Reforming Mexico’s justice system, with both high-and low-level corruption, according to Transparency International, coupled with a complete mistrust of law enforcement officials and the judiciary, would have to wait.
So would any sense of closure concerning the more than 300 murders of women, many of them working in the maquilas that dot the border town of Ciudad Juarez. So would the endless numbers of defendants languishing in Mexican jails, without charge or even evidence of crimes for which they had been detained. So would charges against the rich and powerful elite who enjoy an impunity seen in places such as Colombia and elsewhere throughout the region.

Once again, virtue, or lack thereof, is the determining factor in a country’s economic success. His indictment of the country’s elites is particularly damning:

Mexico’s upper class has demonstrated little interest in making things better even though its members are the ones getting kidnapped, forcing them to send their children to school with armed guards. Instead, they are making the move stateside, buying up homes in La Jolla, condominiums in Coronado and frequenting Fashion Valley. …
In the meantime, the country only a few miles away with its hard-working people, will continue to languish in a society riddled with public insecurity, public distrust and private enrichment. Mexico and Mexicans deserve better.

I agree.

I have been quite concerned for some time about the shrill debate over illegal immigration and its potential fallout for free trade. I have argued, at Acton events and elsewhere, that no long-term solution to the flow of illegal immigration from Mexico is possible, without significant economic growth in Mexico. U.S. per capita GDP is 6.5 times greater than the Mexican per capita GDP. The public service infrastructure in the US is far superior to that in Mexico. Taken together, a Mexican, even uneducated and working at the worst jobs in America, can substantially improve his standard of living in the US. Until something is done to equalize the incomes, the pressure for immigration, legal or otherwise, will be enormous.

Therefore, I was relieved to hear that Senator John Cornyn is proposing a North American Investment Fund to improve the infrastructure of Mexico. At the same time, I am distressed to see so many conservative publications denouncing this and other moves as attempts to compromise US sovereignty. See here and here, for instance. I am at a loss: if we want to control immigration, we have to do something about the earnings gap. If every attempt to help Mexico through free trade or infrastructure support is attacked as an affront to US sovereignty, what exactly do these people think is going to help?

Blog author: kschmiesing
posted by on Tuesday, August 29, 2006

Tension between China and Taiwan is one of the more troubling matters in geopolitical affairs. Now AsiaNews reports that trade between China and Taiwas increased by 15 percent in the first half of 2006.

It’s been said that “where goods cross borders, armies don’t,” a reference to the fact that historically nations with commercial ties rarely go to war against each other. Without reading too much into one trade report, it may be a hopeful sign for the prospects of peace in southeast Asia.

From the “why didn’t we think of that first” department:

The trade which can lift peoples out of poverty is assailed from many directions. A motley assortment of protectionists and anti-capitalists use every argument they can lay their hands on to protect their interests. From the CAP to ‘food miles,’ the effect is to deny poorer people the chance to gain wealth by selling us what they produce. Those who embrace free trade as an instrument of good can now express their support for poorer peoples by proclaiming an intention to buy their produce.

Yes, you can now have your own trendy wristband to show your support for free trade, courtesy of the Adam Smith Institute.

Blog author: kschmiesing
posted by on Thursday, August 10, 2006

US News and World Report has a little feature on a drapery company that has expanded into more distant markets and thereby grown. The article identifies trade agreements and technology as paving the way for such expansion by many small, local businesses.

Decreasing tariffs and regulation and improving technology—these are examples of what economists call “lowering transaction costs,” which improves efficiency and benefits producers and consumers alike.

The US News article highlights an American business, but, even more crucially, opening international markets also helps producers in the developing world.

Unlike the flooded market for conventional coffee products, the specialty coffee market enjoys increasing demand along with limited supply. This means that the potential exists for developing countries to increase the quality and quantity of their coffee production to meet the demand.

Rwanda is a case in point, and shows how market pressures help to effectively and efficiently signal which and in what quantity such commodities should be produced. As Laura Fraser writes in The New York Times, “From the late 1960’s until the genocide, most of Rwanda’s coffee was sold to Rwandex, a virtual monopoly controlled by the postcolonial government, for whatever price the company would offer, so farmers had no incentive to pick out the bad cherries.”

The government monopoly stifled any incentives to innovate and improve quality, since there was no potential for increased profits. More recently, however, under the administration of President Paul Kagame, the coffee industry has been liberalized and Rwandan growers are now enjoying the increased ability to compete freely with other specialty growers around the globe.

Over the last decade, “Worldwide, overproduction of high-yielding varieties caused conventional coffee prices to bottom out, but specialty coffee prices remained relatively strong. President Kagame liberalized coffee trade, sold the government’s interest in Rwandex and began working with A.I.D. to develop specialty coffee.”

According to the International Coffee Organization, Rwanda’s production of coffee has remained relatively steady between the years 2000-2005. But with the increased competitive incentives and profit motivations, the quality of Rwandan coffee has blossomed.

Writes Fraser, “Partly because of abundant labor, which allows farmers to pick through and hand-sort cherries, the coffee that goes to market is exceptionally clean, or free of imperfect beans.”

“Geoff Watts, who oversees coffee buying for Intelligentsia Coffee and Tea Inc., a premium roaster based in Chicago, said, ‘Rwanda’s gone from zero to sixty, from a complete unknown in the specialty coffee industry to becoming the source of some of the cleanest coffees in East Africa.’”

“Five years ago, all Rwandan coffee sold at the C-grade, or lowest-quality, price. Now, demand for fully washed Rwandan coffee (about 7 percent of the crop) far exceeds supply.”

The liberalization and opening the Rwandan market to freely compete has allowed the specialty coffee industry to thrive, without artificial incentives of “fair trade.” The incentives of the market are helping reward an area that has natural resources well-fit for the production of quality coffee. Coffee exports now account for about thirty percent of Rwanda’s exports, or about $35 million.

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?