Free Trade as a panacea?

[Merko]

(split off from this thread)

Trade enriches every country which engages in it, and the more they trade, the richer they get. The IMF tries to encourage trade.

I am not anti-trade. However, you (and the IMF) make it far too simple. For example, it is not beneficial for a country to replace the inefficient small farms that feeds the majority of the population with large farms producing export crops like flowers, coffee, sugar, fruit, or whatever - if this means this population will now be living in urban slums. Which is very often the case.

However, this is a different subject. We seem to agree that raw materials are cheap and always will be. Maybe we then also agree that production of raw materials cannot alone make a country rich (except for special cases like oil or diamonds, and these resources usually don't last forever), and that to become rich, poor countries need to industrialise. Our difference seems to be on the matter of how to industrialise a country.

Your causation is backwards. You didn't read my link, did you? Corruption is the result of failed societies, which in turn leads to poverty for most corrupt countries, but those failures are due to INTRINSIC aspects of those societies, not extrinsic circumstances.

Oh, the causation definitely goes both ways. Poor countries get corrupt, corrupt countries get poor. Just witness many of the former East bloc countries. When real wages for government employees fell sharply, corruption soared. Which then came back to hurt their economies in a very bad way (of course there were also many other causes working in a positive direction, simultaneously, but this one is easily observable).

My point is that we can state the obvious, that corruption hinders development, but we cannot reasonably expect corruption to just 'go away'.

Additionally, it is wrong to label corruption purely an intrinsic failure. Someone is paying those bribes, and that someone is very often corporations from rich countries. High-level bribes are usually not kept in the country but are moved to banks in rich countries (or tax havens protected by rich countries). It is very easy to tell these countries to 'blame themselves' and to automatically attribute all failures to intrinsic factors, but clearly there are both intrinsic and extrinsic factors.

No, actually, it doesn't. Saudi Arabia tried exactly that: they tried to establish a plastics industry (makes sense, they've got the raw materials), they invested heavily in the necessary capital, but the enterprise failed. Why? Because they couldn't turn a profit, because corruption sapped all their efforts. It was not because of lack of money.

I completely agree, but I never claimed this either.

To industrialise a nation you need:
- money;
- a government that actively fights corruption;
- a government that actively promotes industrialisation;
- freedom to protect fledgling industries;
- peace.

Probably some other things as well. But the point is that if either of these conditions are lacking, it will fail. This is why I'm asking you to give a single example of a country that has industrialised without using trade barriers in the initial stage. If you do that, we can start digging up figures for actual levels of tariffs etc. But I don't feel like I should be the only one digging for facts here.

Aid has never lifted a country out of poverty, but trade has.

I agree, but aid can be beneficial nevertheless. For example, by reducing the risk of war, which would prohibit a country from moving out of poverty. Or improving the level of education, which will increase the chances of successful industrialisation. Etc.

Wrong. First off, "profits" are not some thing separate and different from income for a corporation.

Let me again recommend Adam Smith's Wealth Of Nations. He explains the difference between profits and income quite well, too.

You have GOT to be kidding me. It provides the opportunity for jobs at wages higher than the country can otherwise provide. How is that NOT to the country's advantage?

Sure, it might help to get some people through the day. At the same time it might have negative impacts, for example causing an unsustainable migration where self-sustaining peasants move to the cities to work in these factories, then become jobless when the company moves on or downsizes, and getting (even) worse off as an end result. My point is not that these corporations are evil. They may frequently be of some little help, and sometimes of considerable damage. But they will never lift these countries out of poverty.

For instance, early in the Bush presidency he moved to put in place trade barriers to protect American steel companies. Was this a good thing?

I believe it was not. The US is not a poor country, but very rich. The US is not dependant on its steel industry, even though there are certainly cities, maybe even regions, that are. If for some reason the US steel industry collapses, the US could and should help these cities and regions to find other uses for their labour.

You very well describe the negative effects trade barriers on steel could have for the US. These effects are severe because the US is a highly industrialised country. If there was no industry using steel, the adoption of tariffs on foreign steel would have much smaller negative effects.

My point, and I fully expect you not to accept it, is that government messing about in the economy often has significant unintended consequences and many if not most of the times progressive rhetoric is just simplistic pablum that ignores the reality of a complex situation.

I agree, but just because something is difficult does not mean it should never be tried. And my argument here is that no country has ever managed to industrialise without very active government interference, including the use of trade barriers to protect the industry during a development phase. We should use this experience, rather than relying on phony, oversimplistic theories that have never been proved in practice and that can very reasonably be suspected of being popular because of their benefit to powerful special interests.

 

[Ziggurat]

I am not anti-trade. However, you (and the IMF) make it far too simple. For example, it is not beneficial for a country to replace the inefficient small farms that feeds the majority of the population with large farms producing export crops like flowers, coffee, sugar, fruit, or whatever - if this means this population will now be living in urban slums. Which is very often the case.

And what, pray tell, drives that transformation? Why do small farms become unprofitable and large farms become profitable? Your scenario is offered in a vacuum, with no indication of the driving forces involved.

However, this is a different subject. We seem to agree that raw materials are cheap and always will be. Maybe we then also agree that production of raw materials cannot alone make a country rich (except for special cases like oil or diamonds, and these resources usually don't last forever), and that to become rich, poor countries need to industrialise. Our difference seems to be on the matter of how to industrialise a country.

Basically, yes - though some small countries have another way to get wealthy as well: tourism (which is a form of trade).

My point is that we can state the obvious, that corruption hinders development, but we cannot reasonably expect corruption to just 'go away'.

I do not expect it to. But when you reduce the power of government, you reduce the damage that corruption does. Trade barriers also increase the power of government, and lowering them decreases that power.

Additionally, it is wrong to label corruption purely an intrinsic failure. Someone is paying those bribes, and that someone is very often corporations from rich countries.

It is an internal failure when they cannot and will not police their own governments against corruption. Again, I point you to Spotting the Losers:
"National success is eccentric. But national failure is programmed and predictable. Spotting the future losers among the world's states becomes so easy it loses its entertainment value."
And the common factors among the losers are indeed intrinsic cultural aspects.

To industrialise a nation you need:
- money;
- a government that actively fights corruption;
- a government that actively promotes industrialisation;
- freedom to protect fledgling industries;
- peace.

Probably some other things as well. But the point is that if either of these conditions are lacking, it will fail. This is why I'm asking you to give a single example of a country that has industrialised without using trade barriers in the initial stage.

If you get the last four, you WILL get the first one, because it will be profitable for corporations to invest. And the fact that trade barriers exist never means the help. They don't, and the idea that their presence means they are causative is a logical fallacy. They do not protect the industry with the best prospects (in fact, they can only protect an industry which does NOT provide the country with outside money), they protect the industry with the best political connections. There can be merit in not dropping barriers completely overnight to give the economy time to adapt, but raising them in the first place is always a mistake.

If you do that, we can start digging up figures for actual levels of tariffs etc. But I don't feel like I should be the only one digging for facts here.

You aren't. I already gave you average tariff levels for the US (2.8%), the EU (2.7%), and Cameroon (61%). I'll throw in a few more, too: South Korea (5.9%), China (15.7%), and India (29.5%). It is no coincindence that China is surging ahead of India.

I agree, but aid can be beneficial nevertheless. For example, by reducing the risk of war, which would prohibit a country from moving out of poverty. Or improving the level of education, which will increase the chances of successful industrialisation. Etc.

Can aid be beneficial? Sure. And it can be (and often is) harmful, too. It is particularly useful in disaster relief, but as a method of lifting countries out of poverty, it has never worked. Trade, on the other hand, has managed to lift countries up economically, and quite a bit.

Sure, it might help to get some people through the day. At the same time it might have negative impacts,

Nice slight of hand there. You have turned a definite good (a job which workers would prefer to work at than any alternative they have, and which raises wages) into a hypothetical, which lets you compare it to a hypothetical negative.

They may frequently be of some little help, and sometimes of considerable damage. But they will never lift these countries out of poverty.

Wrong. They are doing PRECISELY that in China.

You very well describe the negative effects trade barriers on steel could have for the US. These effects are severe because the US is a highly industrialised country. If there was no industry using steel, the adoption of tariffs on foreign steel would have much smaller negative effects.

That makes absolutely no sense, and I'm rather surprised that you didn't realize the obvious problem yourself. If there were no domestic industries using steel, then either steel was being bought directly by consumers (in which case a tariff hurts ever consumer directly), the steel would all be export-bound in which case tariffs would be irrelevant, or the steel industry would not have any consumers and so wouldn't be worth protecting in any way at all. In no case is a steel tariff both helpful to the steel industry and to the country's economy as a whole. In no case does the benefit to the steel industry even outweigh the harm to the economy as a whole. And nothing about us being rich or industrialized makes that any fundamentally different than any other industry.

 

[Merko]

And what, pray tell, drives that transformation? Why do small farms become unprofitable and large farms become profitable?

I'm sorry, but you obviously have no real idea of what you're talking about here. The small farms are not 'profitable'. They provide the families living there with food, and a small suprlus that can be traded for the few necessities these families can not grow themselves. This is how most of the world population lives. Too bad these people don't even enter the equation of most 'modern' economic theory..

I do not expect it to. But when you reduce the power of government, you reduce the damage that corruption does. Trade barriers also increase the power of government, and lowering them decreases that power.

Wrong. In the lawless land, corruption is rule, not exception. By letting private companies handle these things, the corruption continues, you just give up any hope of coming to terms with it through public scrutiny and regulations requiring open bookkeping, etc.

It is an internal failure when they cannot and will not police their own governments against corruption. Again, I point you to Spotting the Losers:

Which is a ridiculous piece that pretends it would somehow be surprising to be able to predict that poor countries will remain poor. And which even gets it wrong, many of the 'failure factors' have been present in succeeding economies.

And the common factors among the losers are indeed intrinsic cultural aspects.

Except they are not even common. China restricts freedom of information, has low prestige assigned to work, and the extended family or clan is the basic unit of social organisation. Citizens of many very poor countries, I'll name Sri Lanka because I know a researcher on the subject, value education very highly. In the West as well as Japan, women were subjugated at the time of industrialisation and only gained more equal rights after these countries moved out of poverty. I could pick dozens of holes here, but basically that article just lists a few negative observations someone did in a few poor countries, and mistakenly accepts them as a rule-bound cause. Covariation is not causation.

You aren't. I already gave you average tariff levels for the US (2.8%), the EU (2.7%), and Cameroon (61%). I'll throw in a few more, too: South Korea (5.9%), China (15.7%), and India (29.5%). It is no coincindence that China is surging ahead of India.

Good, you have one example of a poor country with high tariffs. Where did you get the figures from? Perhaps we could find comparable figures for Botswana, Namibia and Madagascar from the same source?
I'm a bit sceptic about the percentage figures though, because there are many kinds of trade barriers and all of them cannot be easily translated into an equivalent tariff percentage. But if you can give me a source for those figures, I'll try to find out if they are reasonable approximations or not.

But as you see from your own figures, China and India (who are both doing well) both have high tariffs compared to industrialised countries. South Korea is probably even further ahead, after all they are highly competitive with both cars and consumer electronics, two of the most advanced industries.

Nice slight of hand there. You have turned a definite good (a job which workers would prefer to work at than any alternative they have, and which raises wages) into a hypothetical, which lets you compare it to a hypothetical negative.

We were discussing what lifts a country out of poverty. I said that this kind of investment is of very little help in that process. If it keeps some people fed then that is very good, but like foreign aid, it cannot lift the country from poverty.

Wrong. They are doing PRECISELY that in China.

Uh, and here I was under the impression that the vast majority of Chinese industry was owned by.. the Chinese. And that they are even buying more and more companies in the rest of the world, more so than we are buying Chinese companies. But you think I'm wrong here?

That makes absolutely no sense, and I'm rather surprised that you didn't realize the obvious problem yourself. If there were no domestic industries using steel, then either steel was being bought directly by consumers (in which case a tariff hurts ever consumer directly),

Yes, it will hurt consumers. Steel is not a great example of something where tariffs can help an industry, because it is not a consumer product. But to the extent it can help, yes it does hurt consumers in the short run. And it is beneficial to the elites that own these industries (and the workers there, if they are sufficiently organised). But it is an investment. Rather than getting slightly cheaper (and better) products now, consumers will buy their own products, which can then get better and eventually may be able to compete in a global market.

But you didn't answer me: Is there a country that was industrialised without using high barriers of trade? In that case, which one? I maintain that every country that did so used high barriers of trade, including the US, all of the EU, Japan, China, India, South Korea, just to name a few.

And do you believe that South Korea (let's use this example) could have exported their cars and electronics, if the first versions had to compete equally with foreign products on the home market?

 

[Ziggurat]

I'm sorry, but you obviously have no real idea of what you're talking about here. The small farms are not 'profitable'. They provide the families living there with food, and a small suprlus that can be traded for the few necessities these families can not grow themselves. This is how most of the world population lives. Too bad these people don't even enter the equation of most 'modern' economic theory.

That in no way, shape, or form answers my question. People don't stop doing what they're doing just because someone else does it better. They stop doing what they're doing when something else becomes preferable to do. And that's the part of the dynamic you've done nothing to explain. So to tell me I have no idea what I'm talking about when I asked a question, and to respond to that question with something that utterly fails to address the question, is kind of ironic.

Wrong. In the lawless land, corruption is rule, not exception.

You confuse the rule of law with the power of government. In most of the world, they are not synonymous.

By letting private companies handle these things,

What things? Tariffs? I'm not proposing letting private companies levy tariffs, I'm proposing less tariffs total. In countries like Cameroon, tariffs don't represent a necessary component to the maintenance of law and order, they are a patronage system in which people are rewarded with the ability to levy tariffs for essentially personal gain. The power to decide what gets taxed and how much, or even to enforce (or overlook) those laws on goods with high tariff rates, are a power that countries are better off with no one having.

Which is a ridiculous piece that pretends it would somehow be surprising to be able to predict that poor countries will remain poor. And which even gets it wrong, many of the 'failure factors' have been present in succeeding economies.

Did you even read the essay? Yes, countries can succeed with one or two of those failures. But not a single country succeeds when it's got more than a few of them, and the countries with most of them do more than just fail, they fail spectacularly. And that happens even when they're rich (Saudi Arabia, for example). This isn't about predicting that poor countries will remain poor, because some poor countries really are getting richer, and some rich (or not very poor) countries are getting poorer.

Except they are not even common. China restricts freedom of information, has low prestige assigned to work, and the extended family or clan is the basic unit of social organisation.

No. They place significant prestige on work, and they're VERY nationalistic. The communists did a damned good job at enforcing that, and it's stuck. National identity is not subsumed by any tribal loyalties.

Citizens of many very poor countries, I'll name Sri Lanka because I know a researcher on the subject, value education very highly.

And what of the other factors? Having six of the seven faults is going to doom any country.

In the West as well as Japan, women were subjugated at the time of industrialisation and only gained more equal rights after these countries moved out of poverty.

Irrelevant, as you'd know if you paid attention to the link. The world today is not like the world was when Japan and the US industrialized. Faults which were mild a century ago can be catastophic now. Relative merits and demerits matter, and relatively speaking, the US and Japan never were particularly oppressive towards women.

Good, you have one example of a poor country with high tariffs. Where did you get the figures from?

I told you the first time I listed that figure: the book "The Undercover Economist", which got the data originally from the World Bank. Here's some slightly different data on the topic:
http://devdata.worldbank.org/wdi2005/Table4_13.htm
Note at the bottom, column 6: taxing international trade represents VERY little of the government's income, but it represents a huge part of the income for poor countries.

Perhaps we could find comparable figures for Botswana, Namibia and Madagascar from the same source?

Not in the book itself, unfortunately, but maybe the world bank site has it buried somewhere. I don't have time at the moment to look in more detail.

But as you see from your own figures, China and India (who are both doing well) both have high tariffs compared to industrialised countries.

China IS industrialized, if the word has any meaning at all. What they are not is rich. It is comparably wealthy to India, but it has a much higher economic growth rate than India, which has a much higher tariff rate than China.

Yes, it will hurt consumers. Steel is not a great example of something where tariffs can help an industry, because it is not a consumer product. But to the extent it can help, yes it does hurt consumers in the short run. And it is beneficial to the elites that own these industries (and the workers there, if they are sufficiently organised). But it is an investment.

Yes. It's an investment that will not pay off, which is not surprising because it's not made with the money of those who will be benefiting.

 

[Merko]

That in no way, shape, or form answers my question.

It does. Small farms don't transform because they become 'unprofitable'. Your question was worded in a way that it does not have an answer. I instead pointed out the flaw in the question.

They stop doing what they're doing when something else becomes preferable to do.

Yeah. Like, perhaps, someone is driving them off their lands. Then something else becomes preferable indeed. But this is getting silly.

You confuse the rule of law with the power of government. In most of the world, they are not synonymous.

Not perhaps synonymous, but a government with less power certainly can't enforce laws as strictly as a strong government.

In countries like Cameroon, tariffs don't represent a necessary component to the maintenance of law and order, they are a patronage system in which people are rewarded with the ability to levy tariffs for essentially personal gain.

That is quite possible, and that's not what I'm advocating. Look, I already stated repeatedly that tariffs can be applied unwisely. Cameroon is probably such a case, although I know very little about it.

The power to decide what gets taxed and how much, or even to enforce (or overlook) those laws on goods with high tariff rates, are a power that countries are better off with no one having.

I don't understand how a government that is powerless to even enforce import tariffs or charge taxes would be able to uphold any sort of law.

No. They place significant prestige on work, and they're VERY nationalistic.

I think that prestige can everywhere be gauged reasonably objectively by looking at wages. China has extremely low wages for workers. So I think it is fair to conclude that the prestige of work is very low. Additionally, from what I've heard, many workers in the Chinese industry still go to work there in their youth, with the hope of getting enough money to be able to buy their own farm where they can start a family.

If you really meant to say that nationalism was beneficial, perhaps you shouldn't have phrased it as the family being the basic unit of social organisation being detrimental. They are not mutually exclusive, you know. And I doubt nationalism is that important anyway for economic growth. My country, Sweden, has had one of the highest growth rates for comparable countries in the last decade or so, while at the same time being arguably one of the least nationalistic countries.

But anyway.. we're drifting away from the topic here.

And what of the other factors? Having six of the seven faults is going to doom any country.

Those faults are extremely subjective. Is Sri Lanka dominated by a restrictive religion? I think not, they have several religions. Do they have freedom of information? I think pretty much so. Are women subjugated? They had a female president for years (a rather strong one I think).

I think this theory falls apart because it is just too fuzzy. You'd need to make it more defined to even make it falsifiable.

However, my theory is still simple: Countries need to be able to have high tariffs during a development phase, in order to industrialise.

Irrelevant, as you'd know if you paid attention to the link. The world today is not like the world was when Japan and the US industrialized.

That's something for you to prove, not me. I think the world is in many fundamental ways the same. In particular, I think countries still need to use tariffs to industrialise. You still haven't provided a single example to prove me wrong. Surely this should be very easy, if, as you say, low tariffs are key to industrialisation? How can something be the rule, if there is not a single example that follows it?

I told you the first time I listed that figure: the book "The Undercover Economist", which got the data originally from the World Bank. Here's some slightly different data on the topic:
http://devdata.worldbank.org/wdi2005/Table4_13.htm
Note at the bottom, column 6: taxing international trade represents VERY little of the government's income, but it represents a huge part of the income for poor countries.

I don't see how this data would help in any way. There is no way to find out if a country has high or low tariffs from that table. A country with very high tariffs on some goods should get little or no income from it. A country with low tariffs on a major trade item may get very considerable income from it. The main reason for the high percentage poor countries get from such taxation is however that they get very, very little income from taxes on salaries, capital and profits. Implementing a working income tax system is a huge and very important undertaking for such countries.

The laissez-faire think-tank Heritage Foundation provide a subjective rating of countries' level of free trade:
http://www.heritage.org/index/indexoffreedom.cfm

(click on 'trade' to sort by that index)

According to them, Botswana, Namibia and Madagascar have a high level of free trade. Of course, I do not agree with Heritage Foundation's definition of economic freedom. However, I don't think it is possible to get a useful and comparable measure of barriers of trade that is not subjective in some way. So at least it's somewhere to start, even though we should bear in mind that this source has a clear agenda.

China IS industrialized, if the word has any meaning at all. What they are not is rich. It is comparably wealthy to India, but it has a much higher economic growth rate than India, which has a much higher tariff rate than China.

China has been industrialising in the last decades, using the high barriers of trade selectively to protect their industry. They are now lowering their tariffs because they are getting competitive in more and more areas (see http://www.heritage.org/index/country.cfm?ID=China).

India is also industrialising, with the help of selectively high barriers of trade. They are behind China in development however, so their tariffs are higher.

 

[gtc]

I'm sorry, but you obviously have no real idea of what you're talking about here. The small farms are not 'profitable'. They provide the families living there with food, and a small suprlus that can be traded for the few necessities these families can not grow themselves. This is how most of the world population lives. Too bad these people don't even enter the equation of most 'modern' economic theory..

How do you define profitable? The imputed rents (in terms of food and shelter) that such a farm produces meets my definition of profitable.

I also don't think Sri Lanka is a particularly good example.

The Sri Lankans I have met do tend to value education. However, the government has attempted to foster Sinhalese (and to a lesser extent Tamil) culture by replacing English as a language of instruction. This has affected the education of the substantial minority of native English speakers (many of whom now attend the unregulated English language International colleges (which teach little Sri Lankan history and culture) and has left the Sinhalese and Tamil students ill-equipped to work in jobs in the service sector which require English. The government also affected the quality of tertiary education by using quotas attempting to redress the percieved underpresentation of Sinhalese speakers (and hence over representation of Tamils). See Wikipedia for more on this policy.

Interestingly, the only Sri Lankans I have found who do not value education are the children who hang around tourist areas and who ask foreigners to buy them a pen to do their homework. The proffered 'aid' is then sold back to the store owner. Unfortunately, the students earn enough in a day's 'work' to keep them out of school.

The Buddhist religion is also a very significant force in Sinhalese society and Sri Lankan politics (particularly the way the LTTE uprising is managed) is greatly affected by the Buddhist clergy. Tamil politics appears, to me, to be less influenced by Hinduism.

Finally, what does your friend who researches Sri Lanka think about the impact of nationalisation and import substitution in the years up to 1980 (including the name change to the Democratic Socialist Republic of Sri Lanka)?

 

[Ziggurat]

Yeah. Like, perhaps, someone is driving them off their lands. Then something else becomes preferable indeed. But this is getting silly.

Perhaps? Does that mean you're merely speculating?

If someone is driving them off their land, the problem is a property rights issue, not a free trade issue.

Not perhaps synonymous, but a government with less power certainly can't enforce laws as strictly as a strong government.

So? Bad laws are not worth enforcing.

I don't understand how a government that is powerless to even enforce import tariffs or charge taxes would be able to uphold any sort of law.

I'm surprised. This one takes amazingly little imagination, because the examples are quite famous already. The US government is powerless to prevent me from saying almost anything I want to say, in contrast to many governments around the world. Is the US government weak in comparison, or unable to uphold laws? No, not in the way you mean it. Restricting the role of government reduces its power, but need not reduce its capability to perform the roles which it retains. There's no contradiction there.

I think that prestige can everywhere be gauged reasonably objectively by looking at wages. China has extremely low wages for workers. So I think it is fair to conclude that the prestige of work is very low.

No, actuallly, you cannot conclude this logically. Markets do not assign prices based upon prestige, but upon supply and demand. The prestige associated with something could drive either supply OR demand upwards relative to the other. If working is prestigious, then more people will want to wrk (despite low wages), supply increases, and price drops. This is basic economics, and you're failing it miserably. China's wages are low primarily because their labor pool is HUGE and individual woerker productivity is low. You don't need to look at prestige to figure that out. In countries (like Saudi Arabia) where work has low prestige, you don't necessarily find low wages (wages there are high enough that they can import laborers), what you find are lots of people unwilling to work.

Additionally, from what I've heard, many workers in the Chinese industry still go to work there in their youth, with the hope of getting enough money to be able to buy their own farm where they can start a family.

Sounds pretty damned industrious to me (and working a farm is definitely work). You're contradicting your own claim.

If you really meant to say that nationalism was beneficial, perhaps you shouldn't have phrased it as the family being the basic unit of social organisation being detrimental. They are not mutually exclusive, you know.

I didn't phrase it that way, the paper did. If you weren't unable to understand what the author meant by that (and apparently you did not), that's not my fault.

And I doubt nationalism is that important anyway for economic growth. My country, Sweden, has had one of the highest growth rates for comparable countries in the last decade or so, while at the same time being arguably one of the least nationalistic countries.

Not in the sense YOU mean, and perhaps we need a better word for this than "nationalism". Swedish citizens are probably quite law-abiding, am I correct? People don't do that unless they place a lot of trust in their national society, and not merely in their tribe. In this sense, they are NOT a family/tribe centered society (as, for example, Afghanistan is).

That's something for you to prove, not me. I think the world is in many fundamental ways the same.

I ALREADY pointed out why that notion fails: these problems are major problems because they put countries with them at major COMPETITIVE disadvantages in a global economy. The smaller the role of international trade, and the more other countries share those same problems, the less they become COMPETITIVE disadvantages. Unless you're totally clueless, this points rather directly to the sexism that the US and Japan had during industrialization not being competitive disadvantages at all.

In particular, I think countries still need to use tariffs to industrialise. You still haven't provided a single example to prove me wrong.

I've shown why tariffs always hurt. You have not shown why they do anything other than protect specific industries but rather help the economy as a whole. You have claimed that targeted tariffs are necessary to development, but you have not shown that tariffs can in general remain high and still achieve economic growth.

Surely this should be very easy, if, as you say, low tariffs are key to industrialisation? How can something be the rule, if there is not a single example that follows it?

Example of WHAT, though? Example of a country not making at least a few mistakes regarding tariff policy?

I don't see how this data would help in any way.

Of course you don't. But then you don't believe that import and export tariffs provide the same net effect, either.

There is no way to find out if a country has high or low tariffs from that table. A country with very high tariffs on some goods should get little or no income from it. A country with low tariffs on a major trade item may get very considerable income from it.

Average tariffs are dollar-averaged: they are not averaged on the basis of the number of categories of goods used. A high tariff on goods with little imported or exported has little effect on revenue, to be sure, but it also has little effect on the average tariff rate.

China has been industrialising in the last decades, using the high barriers of trade selectively to protect their industry.

Yes, but it's the industries where they LOWER the barriers, and are thus able to trade, and export, significantly, where they're getting all their new wealth. They are lowering barriers selectively (which, as I mention, does have merit in giving economies time to adapt), they are not raising them.

India is also industrialising, with the help of selectively high barriers of trade. They are behind China in development however, so their tariffs are higher.

Other way around: they are behind China because they started lowering barriers later than China.

 

[Agammamon]

"I am not anti-trade. However, you (and the IMF) make it far too simple. For example, it is not beneficial for a country to replace the inefficient small farms that feeds the majority of the population with large farms producing export crops like flowers, coffee, sugar, fruit, or whatever - if this means this population will now be living in urban slums. Which is very often the case."


Yes it does. Its called comparative advantage - you do what you do best and I'll do what I do best and we'll trade our surpluses.

The reason people live in those urban slums is that the opportunities for wealth are greater there that on a tiny plot of land breaking your back from sunrise to sunset to get barely enough to eat. People have CHOSEN to emmigrate to the cities for as long as there have been cities.

With large scale agriculture you get benefits from scaling (which decrease the cost of food) and environmental benefits (less land used to produce food).


When holding these sorts of discussions its important to keep in mind the choices these people can actually make - WE wouldn't choose to work in a sweatshop, WE wouldn't choose to live in a slum, but WE don't have to. But if your choice is between making three dollars a day on subsistence farming or 3 dollars an hour sewing tennis shoes, which job would you really like to have.

You're not anti-trade, you just don't trust people to make those tradeoffs correctly.

 

[Agammamon]

Economies don't have to industrialize to become wealthy - the single largest export of the Phillipines is Phillipinos, working abroad and sending money home.

Industry is becoming a smaller and smaller part of advanced economies - services (not manufacturing) dominate in the US. Right now agriculture is what 3rd world countries do best, if we want them to become rich (and be able to afford things like ecosensitivity)our best course would be to REMOVE the trade barriers on agriculture - a clear example of where free trade helps and governmental barriers hurt.

 

[Merko]

If someone is driving them off their land, the problem is a property rights issue, not a free trade issue.

Exactly.

So? Bad laws are not worth enforcing.

So all laws are bad laws? How else could it be a good thing to reduce the power of the government? But wait, I think this is explained..

Restricting the role of government reduces its power, but need not reduce its capability to perform the roles which it retains.

Ok, you just have a very different definition of power than I have. Certainly I think such a government still has the power to enforce the laws you disagree with, in my opinion it merely chooses not to do so (perhaps through democratic elections).

No, actuallly, you cannot conclude this logically. Markets do not assign prices based upon prestige, but upon supply and demand.

No, but it goes the other way round. There are generally two sources of prestige: money and exclusivity. The latter applies to certain occupations which are very difficult to obtain, but that do not necessarily have to be well paid: university professors, supreme court judges, movie stars, olympic medalists etc. In our case, there is no exclusivity, and the pay is lousy. That is nothing new, even Adam Smith remarks that Chinese workers in his time were worse paid than their European counterparts, and thus held lower in esteem.

China's wages are low primarily because their labor pool is HUGE and individual woerker productivity is low.

I would say they are low because China does not have freedom of organisation and thus there are no unions driving wages up. We can compare this with South Korea, where the unions are constantly under attack by the government, but still have a strong position in several sectors, driving wages up and creating a growing Korean middle class.

You don't need to look at prestige to figure that out. In countries (like Saudi Arabia) where work has low prestige, you don't necessarily find low wages (wages there are high enough that they can import laborers), what you find are lots of people unwilling to work.

No, what you find is lots of people able not to work. The Chinese are not working because there is such a high prestige involved with it, but because they need to do it for survival. Saudis very often don't.

Sounds pretty damned industrious to me (and working a farm is definitely work).

Then we have a confusion of terms again. I was naturally assuming you were referring to paid labour rather than just anything that requires any sort of exertion.

I agree that idleness is indeed not promoting industrialisation. However, let me once again point you to Adam Smith (he did after all state so many things clearly regarding economics): Idleness is not the cause of poverty, but the result of a lack of investment. Wherever there is opportunity, industriousness will appear.

I didn't phrase it that way, the paper did. If you weren't unable to understand what the author meant by that (and apparently you did not), that's not my fault.

Like I said, that theory is way too fuzzy to be useful, and if it is open to such wide interpretation, that proves my point.

Not in the sense YOU mean, and perhaps we need a better word for this than "nationalism". Swedish citizens are probably quite law-abiding, am I correct? People don't do that unless they place a lot of trust in their national society, and not merely in their tribe. In this sense, they are NOT a family/tribe centered society (as, for example, Afghanistan is).

I would phrase that as the level of confidence prevalent in a society. It is indeed very important. But it is again very much an effect of affluence, in the dog-eat-dog society, breaking rules is much more to your advantage.

I ALREADY pointed out why that notion fails: these problems are major problems because they put countries with them at major COMPETITIVE disadvantages in a global economy.

There is no sense to that, there were indeed huge differences between different nations in each of these areas when the western countries industrialised. Additionally, the value of your theory approaches zero when you can effectively never verify it because it is supposedly only valid for non-verifiable cases (the present, which we cannot evaluate because we need a longer time period).

I've shown why tariffs always hurt.

You have not. You have presented a bogus theoretical argument which lacks logic and goes contrary to all empirical observation.

You have claimed that targeted tariffs are necessary to development, but you have not shown that tariffs can in general remain high and still achieve economic growth.

I have not claimed that tariffs should remain high forever. However, you will find a lot of countries with very high growth on that list, countries that have high tariffs and have had it for a long time. India, China, Brazil, South Korea would be some rather uncontroversial examples.

Example of WHAT, though? Example of a country not making at least a few mistakes regarding tariff policy?

Example of a country applying low tariffs in general, and specifically for many of the main export products, before and during the time when these products were established as a major part of the total export. I would accept Heritage's rating of what is a low level of trade barriers if you want, if you can suggest another workable measurement we can consider it.

Of course you don't. But then you don't believe that import and export tariffs provide the same net effect, either.

Certainly not, because that is a bizarre theory belonging in the la-la-land of anti-empirical macroeconomics.

Average tariffs are dollar-averaged: they are not averaged on the basis of the number of categories of goods used. A high tariff on goods with little imported or exported has little effect on revenue, to be sure, but it also has little effect on the average tariff rate.

Such a definition is nonsense. A country applying a 100% tariff, in effect a ban on exports, would then end up with a 0% average tariff rate, because no dollars were collected in tariffs.

Yes, but it's the industries where they LOWER the barriers, and are thus able to trade, and export, significantly, where they're getting all their new wealth. They are lowering barriers selectively (which, as I mention, does have merit in giving economies time to adapt), they are not raising them.

When countries become competitive in some area, they reduce trade barriers in that area - not the other way round. This is easily proven by looking at the timelines - the increase in exports in these areas comes before the tariffs are lowered - if they are lowered at all.

Other way around: they are behind China because they started lowering barriers later than China.

How did China achieve high growth in the last decade by lowering tariffs now, afterwards? I think a requirement for causality is that cause must precede effect.

Yes it does. Its called comparative advantage - you do what you do best and I'll do what I do best and we'll trade our surpluses.

The problem is that the poor countries do not have any comparative advantages, there is nothing that they do best. Currently. They need to make a focused effort to create such areas for themselves.

The reason people live in those urban slums is that the opportunities for wealth are greater there that on a tiny plot of land breaking your back from sunrise to sunset to get barely enough to eat. People have CHOSEN to emmigrate to the cities for as long as there have been cities.

Most people have still chosen not to migrate to urban areas. However, you miss one crucial point: people are usually free to migrate to the urban areas, and do so very much for the reasons you describe. They are however, usually not free to migrate back to the countryside, where they have no land waiting for them. While someone may have decided, ten years ago, that the urban area was better - and perhaps it was, at the time - this may not be true now. And it may not be true for their children, who are never given the choice.

With large scale agriculture you get benefits from scaling (which decrease the cost of food) and environmental benefits (less land used to produce food).

I agree with you in principle, in practice other effects may set in and turn these advantages to disadvantages. This is usually related to the issue of ownership and control. But with all else being equal, I agree.

Economies don't have to industrialize to become wealthy - the single largest export of the Phillipines is Phillipinos, working abroad and sending money home.

That cannot seriously be called a real export, though. And it doesn't make the Phillipines wealthy, and never can, for obvious reasons (a subset of Phillipinos working cannot put the Phillipines on par with nations where the entire work force is utilised).

Industry is becoming a smaller and smaller part of advanced economies - services (not manufacturing) dominate in the US.

I'm not sure this is correct. It is definitely a popular claim, but although services are definitely growing, the backbone still seems to be manufacturing, when looking at actual statistics. But it doesn't matter, advanced services are an industry as well, but we need to be very clear about what services we are referring to here. People working as housemaids or sign-holders do not make a country rich.

Right now agriculture is what 3rd world countries do best, if we want them to become rich (and be able to afford things like ecosensitivity)our best course would be to REMOVE the trade barriers on agriculture - a clear example of where free trade helps and governmental barriers hurt.

They do not do agriculture well. Best, perhaps - it's about the only thing they do. But they are inferior even in this area, so it cannot ever make them rich. We could indeed remove our trade barriers on agriculture, and it could provide some help to these countries in the form of capital accumulation allowing for investment in more lucrative areas.

 

[Ziggurat]

No, but it goes the other way round. There are generally two sources of prestige: money and exclusivity. The latter applies to certain occupations which are very difficult to obtain, but that do not necessarily have to be well paid: university professors, supreme court judges, movie stars, olympic medalists etc. In our case, there is no exclusivity, and the pay is lousy.

All the jobs you listed have very low supply, and very high demand from workers, so pay scales are low. Why they are in demand is irrelevant to the price. Same thing in China: wages are low because the supply of workers willing to do those jobs (the demand) is large compared to the supply of such jobs. The low wages have nothing to do with China not valuing work.

I would say they are low because China does not have freedom of organisation and thus there are no unions driving wages up.

How do unions drive up wages? Simple: by restricting the supply of workers for the jobs in question. I'm amazed how few people realize this basic reality.

We can compare this with South Korea, where the unions are constantly under attack by the government, but still have a strong position in several sectors, driving wages up and creating a growing Korean middle class.

Unions do not, and cannot, create a middle class. The only thing that can create a middle class is increased productivity for workers. Large numbers of workers can only be well-paid if their labor is WORTH lots of money. And unions do absolutely NOTHING to increase productivity.

No, what you find is lots of people able not to work. The Chinese are not working because there is such a high prestige involved with it, but because they need to do it for survival. Saudis very often don't.

Saudis can get away with it to an extent, but you also find little value placed on work in many dirt-poor African countries as well. In some places, the men will often sit around drinking during the day, making the women essentially provide for their families. Their economies, and even their personal livelihoods, suffer because of such attitudes, but they do it anyways.

Then we have a confusion of terms again. I was naturally assuming you were referring to paid labour rather than just anything that requires any sort of exertion.

I'm refering to any productive acctivity. Working for a wage counts. Farming counts. Pushing rocks up and down hills for no reason does not.

I would phrase that as the level of confidence prevalent in a society.

Phrase it as you will. But what Ralph Peters refers to as family/clan-centered societies do not have much confidence in the larger society outside their families and clans. Another terminology for basically the same thing is trust models: in other words, your default level of trust of those around you. Clan-centered societies are low-trust societies.

It is indeed very important. But it is again very much an effect of affluence, in the dog-eat-dog society, breaking rules is much more to your advantage.

No, actually, it isn't. The differences in trust models go back to a time period when there wasn't much difference in affluence between countries with different trust models. What happened was that high-trust societies progressed continuously, while low-trust societies got stuck.

There is no sense to that, there were indeed huge differences between different nations in each of these areas when the western countries industrialised.

What country had an important competitive advantage relative to the US because of differences in gender roles? None.

Additionally, the value of your theory approaches zero when you can effectively never verify it because it is supposedly only valid for non-verifiable cases (the present, which we cannot evaluate because we need a longer time period).

Wrong. It's been valid for the past fifty years.

You have not. You have presented a bogus theoretical argument which lacks logic and goes contrary to all empirical observation.

The only observation you've pointed to is that industrial nations have used tariffs to protect certain industries. You have not presented any evidence that this was actually a necessary component to their industrialization. The fact that trade balances is not some bogus theory, it is plain common sense, AND demonstrably true. Because we export as much as we import (and yes, dollars ARE exports), if we restrict exports, imports MUST be restricted as well, and vice versa. Import tariffs therefore have the same net effect on the economy as export tariffs, they just distribute the damage differently.

Certainly not, because that is a bizarre theory belonging in the la-la-land of anti-empirical macroeconomics.

And yet, you cannot actually demonstrate why this is not so. You cannot show that exports and imports aren't balanced, and you cannot show that restricting imports doesn't also restrict exports. All you can do is come up with childish labels for what you cannot disprove but are nonetheless convinced MUST be wrong.

Such a definition is nonsense. A country applying a 100% tariff, in effect a ban on exports, would then end up with a 0% average tariff rate, because no dollars were collected in tariffs.

No. If you dollar average tariff rates with zero dollars in trade, then you get a divide-by-zero and the rate becomes undefined, NOT 0%. Jeeze, your math is apparently even worse than your economics.

When countries become competitive in some area, they reduce trade barriers in that area - not the other way round. This is easily proven by looking at the timelines - the increase in exports in these areas comes before the tariffs are lowered - if they are lowered at all.

Once a product becomes competitive for export, there's no reason to keep tariffs high even for domestic protection, because if it's competitive for export it will also be competitive domestically without tariffs. So yes, of COURSE tariffs will drop after the industry becomes competitive, but that says nothing about whether this course of events was better for anyone other than those in the protected industry. And it does not mean that the overall economy is better off because of those tariffs. With tariffs in place, investments get diverted from industries which are ALREADY competitive internationally into industries which are not competitive but are protected. This is inefficient and wasteful. And the cost to the economy of having to pay higher prices for domestically-produced non-competitive products puts a drag on those industries which are already competitive - it reduces the ability of those industries to export more goods.

How did China achieve high growth in the last decade by lowering tariffs now, afterwards?

They have been continually lowering tariffs for quite some time - this is hardly new.

The problem is that the poor countries do not have any comparative advantages, there is nothing that they do best. Currently.

Wrong. First of all, you misunderstand the meaning of the phrase "comparative advantage" as used by economists - it means something different from what you seem to believe. A comparative advantage is not what you do better than anyone else, it's the thing that you do better than all the other things you could do. Simple example: California farmers could grow coffee better than Columbian farmers could. Yet they don't. Why? Because California farmers are better at growing OTHER things than coffee, and Columbian farmers are better at growing coffee than they are at most other things. Columbia has a comparative advantage in coffee, and California does not, EVEN THOUGH Californians would be better at it than Columbians, and it's why coffee comes from Columbia and not California. Plenty of poor countries have competitive advantages already.

They do not do agriculture well. Best, perhaps - it's about the only thing they do. But they are inferior even in this area, so it cannot ever make them rich.

They have a comparative advantage in agriculture (which again doesn't mean they're better at it than we are), and if trade barriers were lowered, they would indeed export food to developed countries. That alone is not enough to make them rich, yes. But it will make them richer than they are now, and if they invest effectively with the money they earn (which they are more likely to do than their governments are to effectively use loans and development aid), they could indeed start to become truly developed.

We could indeed remove our trade barriers on agriculture, and it could provide some help to these countries in the form of capital accumulation allowing for investment in more lucrative areas.

Exactly. Trade, not aid, using the exports they have which are already competitive.

 

[Merko]

The low wages have nothing to do with China not valuing work.

Well, I just think you have a very weird and unusual value system then. But there's no point in arguing it.

How do unions drive up wages? Simple: by restricting the supply of workers for the jobs in question.

Absolutely. I've heard union leaders claim the same, so I'm afraid you can't claim to have invented the theory.

Unions do not, and cannot, create a middle class. The only thing that can create a middle class is increased productivity for workers. Large numbers of workers can only be well-paid if their labor is WORTH lots of money. And unions do absolutely NOTHING to increase productivity.

Wrong twice over. First, unions shift the distribution of riches. Instead of it all ending up in some secret bank account in the Caribbean, it's distributed to many families. These families spend the money - locally. This creates more demand for products and services, which again drives the economy.

Second, unions increase productivity. By making sure the workers get their part of the share, a mutual agreement can be made where workers strive to improve the quality and quantity of production. Without unions, workers naturally assume that if they work too fast, the company will need less workers and they will be fired. No amount of overseers can counter this completely - and overseers do no actual work, and are thus a source of inefficiency.

In some places, the men will often sit around drinking during the day, making the women essentially provide for their families.

That's because of the lack of opportunity, not because of some basic cultural trait. The men did the same in European countries when we were poor. In the US, labour was in high demand from the very start.

If you want to gauge the willingness to work, put up a sign asking people to do some work for a dollar an hour, five dollars an hour, ten dollars an hour.. you will find that in the poorest countries, the most people will be willing. They are not lazy. There's just very little opportunity.

The differences in trust models go back to a time period when there wasn't much difference in affluence between countries with different trust models. What happened was that high-trust societies progressed continuously, while low-trust societies got stuck.

Nope. Before industrialisation, the western countries were also low-trust, by any objective measure.

What country had an important competitive advantage relative to the US because of differences in gender roles? None.

I could mention some that had a disadvantage. But it is you, not me, that attributes a major importance to this advantage. I think it really only kicks in once the society becomes relatively affluent. At that point, not using the capacity of the female half of the population fully becomes a serious drawback. Before then, it is of little importance since the majority of the population is not productive anyhow.

Wrong. It's been valid for the past fifty years.

Well, if you make that claim, I think it's just plain wrong. But it's very hard to prove either way since the claims are so vague.

The only observation you've pointed to is that industrial nations have used tariffs to protect certain industries. You have not presented any evidence that this was actually a necessary component to their industrialization.

Agreed. But you have provided not a single example of a developed country that has not used tariffs to protect its industries as they developed.

We have seen that all developed countries used tariffs.

We have seen that several countries with low tariffs do not develop.

From this, we can clearly see that protecting industries with tariffs does not prevent industrialisation - and may well be beneficial. There is absolutely no evidence at all that it would be harmful.

Import tariffs therefore have the same net effect on the economy as export tariffs, they just distribute the damage differently.

If they distribute the 'damage' differently, they obviously do not have the same effect on the economy. Let's say I want to buy a car from you. It costs ten thousand dollars. Now consider the proposition that if you give me the car and ten thousand dollars, it all has the same net effect on the economy, it just distributes the damage differently.

You will surely realise how silly this is. Getting paid - rather than having to pay - for parting with property clearly affects the overall economy. It is just the same with tariffs. It is beneficial to some, to the detriment of others. Frequently, the 'others' are located abroad. But even within a country, it makes sense to promote industries that can enrich the country, at the cost of parts of society that do not.

And yet, you cannot actually demonstrate why this is not so. You cannot show that exports and imports aren't balanced, and you cannot show that restricting imports doesn't also restrict exports.

I agree that it is true in the long run, but I do not consider the trading of a country's property in exchange for import goods to be 'exports'. Exports commonly refers to goods or services produced in a country, not the sale of previously aquired property. Thus, in the short run, the imports may exceed the exports, or vice versa. This makes the country poorer or richer, respectively.

No. If you dollar average tariff rates with zero dollars in trade, then you get a divide-by-zero and the rate becomes undefined, NOT 0%. Jeeze, your math is apparently even worse than your economics.

You're being silly. Let me give a more realistic example, then.

Country A has 10% tariffs on electronics, and 20% tariffs on rice. It imports 100 million dollars worth each of electronics and rice.
So let's do the maths:
(10% * 100M + 20% * 100M) / (100M + 100M) = 15% average.

Now A raises the tariffs on rice to 50%. Understandably, the rice imports almost disappear, down to 1 million dollars worth.

This gives:
(10% * 100M + 50% * 1M) / (100M + 1M) = 10% average.

So by raising a tariff, and making no other changes, we have actually lowered the average tariff rate, as defined by you. This is obviously nonsense, and that is why we need another way to judge whether a country has high or low tariffs.

Once a product becomes competitive for export, there's no reason to keep tariffs high even for domestic protection, because if it's competitive for export it will also be competitive domestically without tariffs.

I agree completely. This is why it is wise to drop tariffs at this point, and that is why most countries do it.

So yes, of COURSE tariffs will drop after the industry becomes competitive, but that says nothing about whether this course of events was better for anyone other than those in the protected industry. And it does not mean that the overall economy is better off because of those tariffs. With tariffs in place, investments get diverted from industries which are ALREADY competitive internationally into industries which are not competitive but are protected.

This assumes that there are internationally competitive industries, which is not the case for undeveloped countries.

They have been continually lowering tariffs for quite some time - this is hardly new.

They have lowered them after they fulfilled their purpose. First development, then lowered tariffs. Agree?

A comparative advantage is not what you do better than anyone else, it's the thing that you do better than all the other things you could do.

You are correct, what I was referring to is properly known as absolute advantage. That is what a country needs in order to become affluent.

They have a comparative advantage in agriculture (which again doesn't mean they're better at it than we are), and if trade barriers were lowered, they would indeed export food to developed countries. That alone is not enough to make them rich, yes. But it will make them richer than they are now, and if they invest effectively with the money they earn (which they are more likely to do than their governments are to effectively use loans and development aid), they could indeed start to become truly developed.

First of all, it is not the poor countries that have trade barriers to block food exports. It is misleading to talk about 'lowering barriers' without referring to what barriers are lowered. A poor country lowering the barriers on, say, electronics, does not mean prospective importers of food products will lower their barriers on food. In practice, we know that this is not the case.

Second, yes they could do this, but if any attempt to start up a more advanced industry is swept away by competing foreign products before it has a chance to compete, it is of no use. In fact, the result is that the money gained from food exports isn't even invested domestically in the first place, but instead moved out of the country. This is what we see in much of the world today.

 

[Ziggurat]

Wrong twice over. First, unions shift the distribution of riches.

Yes: they shut out workers who would work for less, thereby decreasing the wealth of people who are NOT union members and must work for even lower-paying jobs than they could get if the union didn't shut them out.

Instead of it all ending up in some secret bank account in the Caribbean, it's distributed to many families. These families spend the money - locally. This creates more demand for products and services, which again drives the economy.

Higher costs to owners also discourage investment and drive up costs, hurting the local economy.

Second, unions increase productivity. By making sure the workers get their part of the share, a mutual agreement can be made where workers strive to improve the quality and quantity of production. Without unions, workers naturally assume that if they work too fast, the company will need less workers and they will be fired.

What utter nonsense. There is no such thing as working too fast, unless you're in a command economy. And the worker who is working too fast wouldn't be the one fired in any case. Quite the reverse: without union protection for your job, you had better NOT be the slow worker.

Significant improvements in productivity come from three sources: education, technological advances, and capital investment. And unions are not the source of those things.

No amount of overseers can counter this completely - and overseers do no actual work, and are thus a source of inefficiency.

Oh, THAT is funny. You're claiming worker oversight introduces inefficiency, but somehow unions (and their dues) do not. Yeah, right.

Nope. Before industrialisation, the western countries were also low-trust, by any objective measure.

Not by the standards of much of the world, they weren't.

I could mention some that had a disadvantage.

In other words, your point about the US and Japan advancing despite poor women's rights by contemporary standards had no relevance to the argument, since it was not a disadvantage at all compared to their competitors at the time.

But it is you, not me, that attributes a major importance to this advantage.

Yes, I did. And you tried unsuccessfully to show that I was wrong to place importance upon it.

I think it really only kicks in once the society becomes relatively affluent. At that point, not using the capacity of the female half of the population fully becomes a serious drawback. Before then, it is of little importance since the majority of the population is not productive anyhow.

Wrong: it ALWAYS matters. Take Afghanistan under the Taliban, for example. Women were not only not allowed to have jobs, they couldn't even go out alone. That made even traditional women's activities like simply shopping for food, let alone something like helping out with farm work, much more difficult and inefficient. Even traditional domestic work (and traditionally women DID quite a lot of work in western countries, even if not at jobs) is much less efficient under such circumstances, and that hurts even the poorest of countries. Similarly with family planning: when women have no say in the issue, children grow up in worse environments, and that has a real and significant impact regardless of the wealth of the country.

We have seen that all developed countries used tariffs.

So? All developed countries also have wasteful pork-barrel government spending, too. You wouldn't argue that such spending is an important part of their development, would you?

We have seen that several countries with low tariffs do not develop.

And that most countries with stagnant economies have high tariffs.

If they distribute the 'damage' differently, they obviously do not have the same effect on the economy.

I said they have the same NET effect. The difference is between whether the damage is spread across the whole economy (import tariffs - slightly higher prices for all consumers) or concentrated among a few (export tariffs - lower profits for exporters of the goods in question). The brake that it puts on trade is the same either way, though (because imports and exports must balance), and slowing trade reduces the creation and accumulation of wealth.

I agree that it is true in the long run, but I do not consider the trading of a country's property in exchange for import goods to be 'exports'.

And what, pray tell, is the difference between "goods" and "property"?

This assumes that there are internationally competitive industries, which is not the case for undeveloped countries.

No, it doesn't ASSUME that, it describes what YOU already selected: cases where a country does become industrialized with competitive industries.

They have lowered them after they fulfilled their purpose. First development, then lowered tariffs. Agree?

That's what happens to particular industries, but it's a poor model for the economy as a whole. Development cannot happen in the first place without trade, and trade depends upon something being competitive NOW. Only the industries which are already competitive can provide the wealth needed to make new industries competitive, and trade barriers of any kind hurt the industries which are already competitive (because again, imports and exports must balance). And yes, even poor, undeveloped countries can be competitive on something now.

First of all, it is not the poor countries that have trade barriers to block food exports. It is misleading to talk about 'lowering barriers' without referring to what barriers are lowered.

Oh, I know that quite well. It is rich countries which put up agricultural trade barriers. And we shouldn't do it because it hurts them AND because it hurts us, just as their trade barriers on non-agricultural goods hurt them and us. The difference is that since third-world countries represent so little of our trade, but we represent so much of theirs, they suffer proportionately more than we do. But knocking down trade barriers is still what we AND they should be doing. And the IMF is not the problem in this regard.

A poor country lowering the barriers on, say, electronics, does not mean prospective importers of food products will lower their barriers on food. In practice, we know that this is not the case.

Sure. But if they can buy from us for cheaper, they'll also be able to sell TO us for cheaper, which will help overcome the barriers we place on food. And the only possible way for them to increase their imports from us is to increase their exports to us.

Second, yes they could do this, but if any attempt to start up a more advanced industry is swept away by competing foreign products before it has a chance to compete, it is of no use.

Why would you assume that must be the case? A competitive company could easily invest in a poor country to make a factory (Nike, for example), taking advantage of lower labor costs but providing all the capital necessary to make it competitive. And companies do exactly that, and it dumps money into the local economy. That's rather exactly what the whole "outsourcing" hubub is all about. But they won't do it in a poor country that's too corrupt, because it's too risky.

 

[Merko]

Yes: they shut out workers who would work for less, thereby decreasing the wealth of people who are NOT union members and must work for even lower-paying jobs than they could get if the union didn't shut them out.

There is no logic in this. Either there are enough jobs for these 'shut out' people. Then they will get jobs, with union wages. Or there are not enough jobs. Then some people would be out of a job in any case - and those who got one would get less pay.

Additionally, if the workers get better pay, they will spend it in their local community and create more jobs there.

Higher costs to owners also discourage investment and drive up costs, hurting the local economy.

It is always a trade off. Too low wages, and the society has no advantage at all of the company. Too high wages, and the company goes out of business. A well working union will not drive a company out of business.

What utter nonsense. There is no such thing as working too fast, unless you're in a command economy.

True. A privately held company is a command economy.

And the worker who is working too fast wouldn't be the one fired in any case. Quite the reverse: without union protection for your job, you had better NOT be the slow worker.

You can only get so far with management by fear. Unions offer a way to make workers improve company profits for their own sake, rather than reluctantly. Additionally, yes, it is frequently the people who work too fast that get fired. You're assuming that it will only be a few people. In the real world, increased efficiency often makes a large percentage of the workforce redundant at the same time.

Significant improvements in productivity come from three sources: education, technological advances, and capital investment. And unions are not the source of those things.

You seem to forget what you considered so important recently: industriousness, or not being lazy. When workers have no self-interest in improving productivity, doing so is very difficult.

Oh, THAT is funny. You're claiming worker oversight introduces inefficiency, but somehow unions (and their dues) do not. Yeah, right.

Certainly union dues can be seen as inefficiency, but considering a comparable spending on, say, overseers, the unions are a very good way to spend that money, in terms of how productivity can be increased.

However, unions will of course also increase wages, which is good for society, but not for the company owner.

Wrong: it ALWAYS matters. Take Afghanistan under the Taliban, for example. Women were not only not allowed to have jobs, they couldn't even go out alone.

So what? How large a percentage of Afghans had a productive job, by modern standards? 5%? That quota could be filled many times over by competent men. Only when a society is running out of competitive men, does the introduction of women into the workforce have a very significant impact on the overall wealth.

Of course, that does not mean I think poor countries should not care about inequality. They should, and it should be expected to be marginally helpful for the economy as a whole. But the immediate economic advantages would not be any major reason.

So? All developed countries also have wasteful pork-barrel government spending, too. You wouldn't argue that such spending is an important part of their development, would you?

I do not believe that 'wasteful pork-barrel government' is a well-defined, empirically verifiable concept. I'm arguing that using tariffs to protect fledgling industries is a logically coherent concept, which has been successfully tried many times.

I also argue that lowering all tariffs before industrialisation has taken place does not work. This is because this strategy does not make sense logically, it has never worked, even though it has been tried several times.

And what, pray tell, is the difference between "goods" and "property"?

If you had bothered to read the very next sentence, you would have had it explained. Export goods are things that are produced in the country (for some reason we dropped services here). Property is the accumulation of riches from all of history. By selling off some of that previously aquired property, we can sustain a negative balance of trade - until we're broke.

No, it doesn't ASSUME that, it describes what YOU already selected: cases where a country does become industrialized with competitive industries.

Yes, for a developed country, it is so. But for an undeveloped country, tariffs are helpful. Agree?

That's what happens to particular industries, but it's a poor model for the economy as a whole. Development cannot happen in the first place without trade, and trade depends upon something being competitive NOW.

That is why undeveloped countries need tariffs. The tariffs make these industries competitive on the local market now.

Why would you assume that must be the case? A competitive company could easily invest in a poor country to make a factory (Nike, for example), taking advantage of lower labor costs but providing all the capital necessary to make it competitive. And companies do exactly that, and it dumps money into the local economy. That's rather exactly what the whole "outsourcing" hubub is all about. But they won't do it in a poor country that's too corrupt, because it's too risky.

However, these companies always take the profit out of the country again, making the investment of little help for the development of the country. There is just no accumulation of capital that can help to develop the country, these companies just chip in to reap the rewards of what has already been achieved. Which can help a few people putting food on the table, but again, does not significantly help the economy as a whole.

 

[Ziggurat]

There is no logic in this. Either there are enough jobs for these 'shut out' people. Then they will get jobs, with union wages. Or there are not enough jobs. Then some people would be out of a job in any case - and those who got one would get less pay.

This is yet another lump sum fallacy. The number of available jobs is not a fixed quantity. It (just like everything else) varies with price. If the price of a job goes up, the number of workers an employer will hire will go down. Unions lock out people who would be willing to work at lower wages, and prevent the creation of jobs that employers would offer at lower wages but will not at higher wages.

Additionally, if the workers get better pay, they will spend it in their local community and create more jobs there.

The location of spending makes little difference to the creation of a middle class: if you spend more locally, you spend less elsewhere, and if people elsewhere spend more locally, your area will receive less money from them. So this is irrelevant to the creation of a middle class.

It is always a trade off. Too low wages, and the society has no advantage at all of the company. Too high wages, and the company goes out of business. A well working union will not drive a company out of business.

And a well-run company without a union won't drive its workers into poverty either. If the wages a company offers are too low, the company will find that it cannot compete with other companies who offer higher wages and can select the best and most productive workers. But what determines "too high" or "too low"? Productivity. And once again, unions are NOT the driving force for productivity increases.

True. A privately held company is a command economy.

No, actually, it isn't. A company (private or not) is not an economy at all. Nor are companies which must operate using their own market-earned income equivalent to governments which can operate with money taken from others through non-market means (ie, force).

You seem to forget what you considered so important recently: industriousness, or not being lazy. When workers have no self-interest in improving productivity, doing so is very difficult.

I haven't forgotten that at all, but let's return to that for a moment. How do unions promote industriousness? Well, generally, they don't: that's not their job. In fact, the protections they DO offer (such as job security) can even discourage industriousness. After all, why work too hard if you can't be fired, or if your promotion depends upon seniority more than ability (a pretty common "fair" approach in unionized environments)?

So what? How large a percentage of Afghans had a productive job, by modern standards? 5%?

No: almost ALL of them are productive, because the relevant standard isn't whether or not it's AS productive as a job in an advanced country, the standard is whether or not it's productive at all. The only non-productive jobs are jobs which don't produce anything of use, and surprise-surprise, that's mostly confined to governments. Furthermore, I'm not just talking about jobs, I'm talking about WORK. And we already went over this: work is a more important concept, especially in undeveloped economies. The amount of domestic work (stuff that women traditionally do but which is NOT considered a "job") that gets done has a huge impact on quality of life for the very poor.

Only when a society is running out of competitive men, does the introduction of women into the workforce have a very significant difference on the overall wealth.

Boy, did you ever miss my point. The oppression of women under the Taliban extended far beyond them not entering the "workforce". It made it much harder to do even non-"job" work, and no, there really was NOT an excess of men waiting in the wings to do all that stuff.

I do not believe that 'wasteful pork-barrel government' is a well-defined, empirically verifiable concept.

Depends on what you want it for, but here's an easy, empirical definition: capital investments which have returns far below their costs.

I'm arguing that using tariffs to protect fledgling industries is a logically coherent concept, which has been successfully tried many times.

Yes, it's coherent: it works to protect the particular industry in question, and it's successful at that. That says nothing about whether that advances the economy as a whole.

I also argue that lowering all tariffs before industrialisation has taken place does not work. This is because this strategy does not make sense logically, it has never worked, even though it has been tried several times.

Where has it been tried without success, and can you verify that there were not other more important reasons for the lack of economic growth?

If you had bothered to read the very next sentence, you would have had it explained. Export goods are things that are produced in the country (for some reason we dropped services here). Property is the amalgamation of riches from all of history. By selling off some of that previously aquired property, we can sustain a negative balance of trade - until we're broke.

I read the next sentence, I just also noticed something you did not: that what you suppose is a clear distinction is in fact nothing of the sort. What is the difference between goods and riches? What's the difference between being produced in the country and being acquired "from history" (as if that were a location)? Is there some time limit or something? If it was produced this callendar year it's produced goods, but if it got stored in a warehouse since last year it's aquired riches? And what if part of it was imported prior to exportation (such as car parts made in mexico, assembled in the US, and shipped back out)? Where something first originated is not what determines whether or not it's an export in such cases, nor is the date of manufacture.

That is why undeveloped countries need tariffs. The tariffs make these industries competitive on the local market now.

Yes, at a cost to those consumers and to exporters of undustries which are already competitive. We've been over this already.

However, these companies always take the profit out of the country again,

The only way to get foreign investment is if they can profit from that investment. Are you advocating not having foreign investment in undeveloped economies? Are you seriously suggesting that a LACK of investment will help them out?

making the investment of little help for the development of the country.

Again, we've been over this too: they leave wages, which DID NOT come out of the pockets of their fellow citizens, and which therefore INCREASE the wealth of the country in question. That is most certainly of benefit for those countries.

There is just no accumulation of capital that can help to develop the country,

Wrong again. They leave money, the most malleable form of capital. That also increases government tax revenues, something I suspect you're quite fond of.

 

[Ziggurat]

double post

 

[Merko]

This is yet another lump sum fallacy. The number of available jobs is not a fixed quantity. It (just like everything else) varies with price. If the price of a job goes up, the number of workers an employer will hire will go down.

Not necessarily. The number of workers in any specific industry is determined by the demand for its product and the efficiency of the production. Low wages may lower the price and therefore increase demand, but that is not a given, and certainly doesn't happen locally. If wages in an export industry of any but the largest countries decrease, it won't alter the price of its product in the market, only increase the profits.

Even if the company owners decide to use what is saved from lower wages towards reducing the price, the increase in demand and thus the increase in production is in no way guaranteed to end up even in the same gross amount of wages being paid as before the wage decrease.

The location of spending makes little difference to the creation of a middle class: if you spend more locally, you spend less elsewhere, and if people elsewhere spend more locally, your area will receive less money from them. So this is irrelevant to the creation of a middle class.

No, this is just not accurate. Wealthy US and European shareholders don't spend a lot of money in local South Korean markets. Korean workers do. Increase the Korean wages, and the Korean local markets flourish. Reduce the flow of profits to bank accounts in the US and EU, and it won't affect the Korean local markets one bit.

And a well-run company without a union won't drive its workers into poverty either. If the wages a company offers are too low, the company will find that it cannot compete with other companies who offer higher wages and can select the best and most productive workers. But what determines "too high" or "too low"? Productivity. And once again, unions are NOT the driving force for productivity increases.

Considering that there is a very large global surplus of labour, your theory doesn't hold well. Unfortunately, it pays very well to drive workers to starvation and death. Not in every industry perhaps, but certainly for the vast majority of workers.

No, actually, it isn't. A company (private or not) is not an economy at all. Nor are companies which must operate using their own market-earned income equivalent to governments which can operate with money taken from others through non-market means (ie, force).

Of course companies are economies. Large ones even have complex systems for internal distribution of funds and resources. If this is not an economy, then I don't know what would be. Companies take money by force just as for states. The force is usually provided by the states, through the judicial system, that enforces the contracts that are the basis of this aquisition. States are no different, they operate using their market-earned income. Just as states are limited to their subjects and the resources present in the country, so are companies limited to their employees and the resources of the company. But all that is there, is up for the taking.

After all, why work too hard if you can't be fired, or if your promotion depends upon seniority more than ability (a pretty common "fair" approach in unionized environments)?

Because it pays you better. You'll get to keep your share of the increase in productivity, because, through the union, you have part of the power over the company. Remove the union, and the owner may decide to increase your wages.. or decrease them, because there are plenty of people in line for a job.

It's economic incentive. Adam Smith explained it very well in the Wealth of Nations: slaves are the least productive, indentured servants work considerably harder, and farmers on leased land still better. But best of all works the farmer that owns his own land. Unionised labour would perhaps fall somewhere in between the indentured servant and the leased-land farmer.

No: almost ALL of them are productive, because the relevant standard isn't whether or not it's AS productive as a job in an advanced country, the standard is whether or not it's productive at all.

Your boozing lazybones aren't productive at all. Ok, they usually give a hand at the farm every now and then. Definitely expendable.

The only non-productive jobs are jobs which don't produce anything of use, and surprise-surprise, that's mostly confined to governments.

How naive.

Furthermore, I'm not just talking about jobs, I'm talking about WORK. And we already went over this: work is a more important concept, especially in undeveloped economies. The amount of domestic work (stuff that women traditionally do but which is NOT considered a "job") that gets done has a huge impact on quality of life for the very poor.

Yes, but it doesn't make the country richer.

Where has it been tried without success, and can you verify that there were not other more important reasons for the lack of economic growth?

I already gave you three examples: Botswana, Namibia and Madagascar.

We could also delve deeper into specific examples of how fledgling industries have been washed away by foreign products. However, I don't have the time. You'll have to search on your own.

I read the next sentence, I just also noticed something you did not: that what you suppose is a clear distinction is in fact nothing of the sort. What is the difference between goods and riches? What's the difference between being produced in the country and being acquired "from history" (as if that were a location)?

Well, I think a year is a well defined time period. If we import more than the value we produce in a given year, we have a trade deficit. If we do this long enough, we go broke and we can't import so much.

The difference lies in production. Export goods are produced in the present, riches were aquired in the past. We can well live on riches for a while, but not forever. Here's a quote for you, you can probably guess the source: " It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased".

Is there some time limit or something? If it was produced this callendar year it's produced goods, but if it got stored in a warehouse since last year it's aquired riches? And what if part of it was imported prior to exportation (such as car parts made in mexico, assembled in the US, and shipped back out)? Where something first originated is not what determines whether or not it's an export in such cases, nor is the date of manufacture.

You can make it infinitely complex, but that doesn't change the fact that there are actually some values that are produced in the country in question. Those values have to pay for the imports, otherwise those warehouses will get empty. I don't think the Mexicans will supply parts for your scheme unless they are paid for it..

Yes, at a cost to those consumers and to exporters of undustries which are already competitive. We've been over this already.

Yes we have. And again, there are no significant industries that are already competitive. Yes I used the wrong term; they have relative advantages, but they are not competitive.

The only way to get foreign investment is if they can profit from that investment. Are you advocating not having foreign investment in undeveloped economies? Are you seriously suggesting that a LACK of investment will help them out?

Foreign investment may frequently give some small advantage, and sometimes a considerable disadvantage. It will not drive development or industrialisation. It will not lift a country out of poverty. For that to happen, capital accumulation must occur within the country, and the country must develop its own industry.

Again, we've been over this too: they leave wages, which DID NOT come out of the pockets of their fellow citizens, and which therefore INCREASE the wealth of the country in question. That is most certainly of benefit for those countries.

But these wages are very low, and will frequently be offset by increased importation of useless trifles. The country may frequently be no better off than if the worker had stayed on the farm. Sometimes, it may be worse off.

Wrong again. They leave money, the most malleable form of capital. That also increases government tax revenues, something I suspect you're quite fond of.

It is very difficult to tax foreign investment capital. The IMF will certainly cry high and loud at any attempt. However, if this is done successfully, then foreign investment can indeed be useful.

 

[Ziggurat]

Not necessarily. The number of workers in any specific industry is determined by the demand for its product and the efficiency of the production. Low wages may lower the price and therefore increase demand, but that is not a given, and certainly doesn't happen locally.

What do you mean, "certainly doesn't happen locally"? If it can happen at all, it can happen locally, which means you're plain wrong on that point. And frankly, when talking about the economic welfare of a country, it doesn't MATTER if ten jobs are created in one town or one job is created in each of ten different towns.

If wages in an export industry of any but the largest countries decrease, it won't alter the price of its product in the market, only increase the profits.

Which will attract further competition into that market, and drive prices down until profits within that industry are similar to profits in other industries. Geeze, this is basic economics, and you're flubbing it badly.

Even if the company owners decide to use what is saved from lower wages towards reducing the price, the increase in demand and thus the increase in production is in no way guaranteed to end up even in the same gross amount of wages being paid as before the wage decrease.

Of course not. You could also get a lowering of prices as well, which becomes an effective wage increase to consumers of the products they're selling.

Considering that there is a very large global surplus of labour, your theory doesn't hold well.

No, actually, there isn't really much of a surplus. First off, so much of that "surplus of labor" exists in markets which cannot be tapped safely by investors, such as corrupt countries and places without the infrastructure necessary to exploit that labor (it's no coincidence that China's industrial boom is mostly coastal, so that little is required in the way of road/rail). But perhaps more fundamentally, a surplus means more than can be used. Which is yet another lump sum fallacy: there is no limit to the potential uses of labor. Labor sits idle primarily because non-market forces prevent its utilization.

Unfortunately, it pays very well to drive workers to starvation and death. Not in every industry perhaps, but certainly for the vast majority of workers.

Not in a free market, it doesn't.

Of course companies are economies. Large ones even have complex systems for internal distribution of funds and resources. If this is not an economy, then I don't know what would be.

That's like saying companies are countries, because they have some of the same superficial structures. Well, they aren't.

Companies take money by force just as for states. The force is usually provided by the states, through the judicial system, that enforces the contracts that are the basis of this aquisition.

Contracts are ENFORCED by force, but they are entered into willingly in a free market, and that's the key (and blindingly obvious) difference. Nobody is forced to enter into a contract.

States are no different, they operate using their market-earned income.

Wrong. You have no choice when it comes to taxation from the state: you cannot choose not to participate. Jeeze, this is so basic, how can you possibly be so stupid that you don't get this fundamental difference? Or do you get the difference, but think that I'm so stupid I won't be able to see it?

Just as states are limited to their subjects and the resources present in the country,

Are you claiming states own everything within their borders? Because that's not the opinion of most citizens, ESPECIALLY not in a free market. They tend to believe they have rights to their private property.

so are companies limited to their employees and the resources of the company. But all that is there, is up for the taking.

No, it isn't. Employees can quit: citizens cannot opt out. And the "resources of the company" are the things owned by the company. My house is not owned by my government, but my government still has the power to tax it. The company I work for doesn't.

Because it pays you better.

Free rider problem. Look it up.

Remove the union, and the owner may decide to increase your wages.. or decrease them, because there are plenty of people in line for a job.

Which would be to your detriment, but to the benefit of someone earning LESS than you who would then get a job better than the one you've got.

Unions protect their members ONLY, they do not protect the middle class as a whole.

Yes, but it doesn't make the country richer.

Wrong again. Suppose, for example, I rip the shirt I'm wearing, making it useless. I have lost some wealth, and am poorer because of it. Suppose my wife stitches it up, so that it's almost as good as new. Her labor has made me richer. Or suppose I'm an Afghani peasant, and my wife fixes the roof on our house with new thatch (or whatever they use). My house is now more valuable, and I have gained wealth. I am richer because of it. This stuff matters, PARTICULARLY if you're poor.

I already gave you three examples: Botswana, Namibia and Madagascar.

And you gave no indication that low tariffs were a cause, or even a contributor, to their lack of growth.

Well, I think a year is a well defined time period.

You did not previously define that as the cutoff, however. Is that the definition you want to use? If so, it's an arbitrary and meaningless cutoff, making the distinction you tried to make rather useless.

If we import more than the value we produce in a given year, we have a trade deficit. If we do this long enough, we go broke and we can't import so much.

If our production falls, we cannot continue to export at high levels idefinitely, that is true. It is the falloff in our ability to export at high levels which would prevent us from being able to import at high levels. Nothing about what you said changes or contradicts my position in any way: imports and exports balance each other, which means that if you restrict imports you WILL restrict exports.

But these wages are very low, and will frequently be offset by increased importation of useless trifles.

Very low by whose standards? Ours? Not relevant. Theirs? Nope, by their standards, the wages are high. That's why they take the jobs: because they can earn more money in those jobs than by jobs produced locally. And who defines "useless trifles"? If you think that's really the problem, then your complaint is really that people choose to buy the wrong things, and so should not be allowed to make their own choices. You'll have to forgive me if I don't give that argument much weight.

It is very difficult to tax foreign investment capital.

And very easy to tax the wages of workers, and since the wages of workers in foreign-owned factories are higher, the tax revenues are higher. I thought that would have been obvious, but apparently it wasn't to you.