Re: [Pigdog] WTO the rampage!

Kragen Sitaker (
Thu, 16 Dec 1999 12:05:26 -0500 (EST)

Thomas Stewart wrote:
> In a message dated 12/16/1999 1:09:49 AM, writes:
> >Personally, I think we ought to abolish all tariffs and price supports
> >unilaterally, whether other countries do so or not. Let's thank the
> >Japanese consumers!
> thank you and amen.
> The case for free trade is as open-and-shut as the case for evolution, and
> it's startling to hear smart people thinking otherwise, just as it's
> startling to hear educated people spout crackpot dietary notions.

I am relatively uneducated in this regard. Would you mind explaining
the case for free trade?

> Issues like
> the environment can and must and should be dealt with on their own
> considerable merits; the incontestable, considerable merit of free trade is
> that without it you and I and we all would be living poorer, meaner, uglier,
> more dangerous, dirtier, and less prosperous lives.

One of the things called by the name of 'free trade' --- indeed,
perhaps the major motive for the WTO in particular and American foreign
policy in general --- is mobility of capital. When capital is mobile,
localities begin to compete for access to capital, by attempting to
make themselves more attractive targets for investment.

This means that onerous local governmental regulations on business
become relatively ineffectual; if there is somewhere else capital can
move to escape the regulations to decrease its cost of business, it
will. Businesses typically view environmental and labor laws as
onerous governmental regulations, and when "local" means "national, not
worldwide", the result of strong environmental and labor laws can be
the loss of access to capital.

Thus, mobility of capital, and thus free trade, is a powerful
disincentive to national governments to impose environmental and labor
regulations on business.

It can be argued that environmental and labor issues are better dealt
with by labeling than by regulation, or that businesses will adopt good
environmental and labor practices on their own because they are
profitable or because managers are human beings, but these arguments
should be made on their own terms. It is incorrect to assert that
issues such as the environment and labor can be dealt with
independently of free trade.

> In last Sunday's New York
> Times there was a comparison of the "typical" American of 1900 (a male, under
> 15, living in the east, part of a family with an income of $3000 IN TODAY'S
> DOLLARS, x years of school, etc) vs 2000's, a woman, 20s, living in
> California, income $30,000 in today's dollars, etc etc--

I don't think typical Americans are in their 20s; I think it's more
like 40s or 50s.

> and goodly hunks of
> that can be ascribed to freer trade.

Sure. The argument goes back to ol' Adam Smith; bigger markets means
more specialization, more efficiency, and more wealth. That's true as
far as it goes.

> Funny thing--Japan has been stagnant for 7 years, and meanwhile in miserable
> America every middle seat on every bleeping airplane is filled. (not that
> we're holy when it comes to free tradde; I once estimated that we subsidize
> our rice farmers --e.g. with cheap water in Calfiornia-- almost as much as
> Japan subsidizes its rice farmers. Agriculture is the last bastion of this
> stuff, for reasons of land use, small town rural values, environmentalist
> etc--that's the emotinal rationale, though the political fact of the matter
> has to do with big money more often than not, siince these aren't organic
> truck farms.)

Well, agribusiness is only a fraction of the subsidies parceled out by
government to businesses. Today, in addition to tax abatements and
massive government investments in (gifts of?) business facilities
(they're building a stadium in downtown Dayton now with my tax
dollars), we have a patent office granting business monopolies left and
right, numerous large high-tech corporations supported mostly or
entirely by government research money, and rapidly growing
privatization of functions previously performed by government.

The federal government subsidizes an enormous amount of research, and
then permits the results of this research to be patented and
copyrighted by private parties, denying access to the public.

We can expect these things to increase as a consequence of mobility of
capital; governments are competing for investment of capital in their
locality, and offering sweet deals like these is highly effective at
attracting business.

> We have distribution concernes, big ones, global ones of rich and poor. (But
> NOT as bad as they were, not in a basic sense. Sure, you can find figures
> saying that the gap between the Upper East Side and Calcutta is wider than it
> was in the 1950s, expressed in monetary terms. Yes, there are real
> distribution problems. But most of you on this list are too young to remember
> that in the 1950s India's biggest problem was famine, not wage levels. In
> dollar terms, India might be farther behind than it was; but in Maslovian
> terms, in hierarchy of needs terms, the gap has closed, not just there but
> globally.

My perspective on Indian history is very limited, I fear; I would
appreciate any corrections on what follows.

I was under the impression that in the 1950s, India had just won its
independence from the British Empire, which had ruled it for more than
a century, and had engaged in an enormous amount of "trade" with
India --- buying cotton, indigo, and other raw materials, processing
them into clothing and other finished goods in England and Ireland, and
selling the finished goods back to India.

One of the major goals of the swaraj movement, as I understood it, was
to reduce this destructive free trade and replace it with local
industry. I was under the impression that, since the 1950s, India had
been relatively protectionistic and quite socialist.

This would seem to undermine your thesis, if it is correct, and suggest
that in some places, at some times, protectionism can be helpful.

(On the same note, should be noted that Japan did not suddenly become
protectionistic in 1992, just before its economy crashed. It has been
quite protectionistic from 1945 to the present day, including a period
of almost 50 years of rapid growth.)

I wrote something to kragen-tol the other day to try to answer the
question of why free trade (specifically, influx of capital) is
sometimes so beneficial and sometimes so harmful. I am interested to
hear your thoughts on it.

On Economic Development and Free Trade

Economic development is a complicated and difficult process. It's
obviously beneficial to people's economic well-being; as an economist
was recently quoted on kragen-discuss saying, it makes poor people

There are a number of possible obstacles to successful economic
development. The final obstacles to be removed in the US --- and thus,
the limiting factors at the time --- included poor technology[0] and
small markets (which required free trade).

But there are other obstacles too, obstacles often invisible to those
of us in the US, because they have been missing for so long. This is a
major reason for the failure of many well-intentioned social and
economic development projects done by us Yankees in other countries.

Here I list some of the obstacles to economic development some other
countries face:
- kleptocratic government, clan, and organized crime systems, which
suck dry those who are financially successful.
- lack of education among the populace, which has a variety of effects
blocking development.
- extremes of wealth and poverty, which prevent education of most of
the people, stifle innovation, reduce economic competition, and make
domestic markets tiny and tight.
- inaccessible credit, which makes entrepreneurism much more difficult.
- endemic corruption, which makes business dealing much more risky.
Some of the former Soviet republics are full of this. The US has
much more trouble with this than Japan. (Government corruption is a
separate problem.)
- capital-intensive industries. If the equipment you need to do your
job costs more than you make in 1000 years, you're never going to
become an entrepreneur.
- extremely poor human rights --- terrorist repression of unions,
slavery, child labor, artificial obstacles to going into business,
and lack of free speech, for example.
- endemic health problems. (India, for example, has rampant asthma due
to pollution.)
- irrational prejudices against certain races, religions, and sexes.
- cultural prejudice against saving, investing, or innovating.

These are, of course, not binary; they exist everywhere to some degree.

Foreign investment and foreign aid often exacerbate many of these
problems. The current set of free-trade policies tend to be focused on
permitting foreign investment.

Countries suffering severely from some of the above problems will not
benefit from free trade. Free trade can will not make the poor rich in
the face of these obstacles. To the extent that it exacerbates these
problems, it will further impoverish the poor.

[0] I don't mean technology that was poor for the time; I mean
technology that is poorer than today's.

<>       Kragen Sitaker     <>
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