Globalization Update

February 25, 2008

Well, much to my surprise and chagrin, the class that I was supposed to have on Friday on the topic of globalization was cancelled. Actually, it wasn’t “cancelled” so much as the class went on a field trip to see a play and the teacher failed to share this information with me in advance. Perhaps it’s for the best, as I never know whether the things I produce for my English classes are in any way usable. Since I spent hours preparing, though, I figure I’ll at least make a post on what I may have said in class. Here goes:

Globalization: the Talk

My job today is to talk about “globalization”. The problem is that “globalization” isn’t really a thing in the same way that hats are a thing; “globalization” involves a set of processes and policies taking place in the world. Which processes and policies should be included is basically left to the discretion of individual debaters. As a result, for anti-globalization people, the concept seems to equate with, simply, anything they find objectionable in the world. There are such a huge variety of ideas wrapped up in globalization that it is difficult for pro-globalization and anti-globalization people to have a coherent argument.  The word is problematic, so let’s not use it; let’s talk about something specific: free trade.

I will argue that arguments against free trade suffer from a fundamental defect: they focus on the effect of trade on producers and ignore consumers. This approach is exactly backwards. Everyone is a consumer, but not everyone is a producer, at least not in the auto industry, or the textile industry, or in whatever specific industry you care to name. Production, unlike consumption, is not a something that is valuable for its own sake. Production is desirable only insofar as it actually satisfies some consumer’s demand.

One popular argument against free trade takes this (or a very similar) form: “Trade is fine in theory, but what about the workers who are harmed by it? Imagine a person working for General Motors, making cars. If Chinese companies start offering cheaper cars, GM won’t be able to compete with those prices, and the worker will lose his job. How can you argue that the actual practice of trade is good when it leads to the destruction of American jobs?”

We’re in one of those situations where I want to give an answer that is as concise and snappy as the original scenario, but only a longer discussion will suffice. We are talking about the value of free trade as a policy, but we in looking at this worker, we are only looking at the short-term effects. In fact, we are thinking about only one aspect of the short-term effects, the effect on the producer. By thinking only about the auto worker, we are trying to make a decision on trade based on a view of the consequences that is way too narrow.

First off, let’s ask ourselves: What is supposed to make these particular jobs at this particular moment in time so special? One hundred years ago, the automobile was just starting to be popular. Before cars, people got around on buggies pulled by horses. Naturally, there was, at the time, an entire set of industries focused on producing and catering to these transportation vehicles. Some examples might be horse breeders, blacksmiths, street cleaners (we don’t want that horse manure lying around), riding crop makers, and of course buggy manufacturers. When people started using cars rather than buggies to get around, this whole set of industries suffered; many people lost their jobs. I have no numbers on this, but it seems to me that these industries probably even employed more people than the auto industry. Does this mean the introduction of the automobile should have been prevented?

But why stop at that point in time, anyway? Instead of going back 100 years, let’s look at the situation 250 years ago, when the vast majority of people worked on farms. None of these people used motorized tractors, chemical fertilizers, or genetically engineered grain to grow their crops. As farming techniques became more efficient and allowed farmers to produce more given the same amount of land and cultivate more land per farmer, people were thrown out of work. They couldn’t compete with the new farming methods, and so they had to find other jobs.

In each of the preceding cases, the long-term effects of greater efficiency and product improvements have made us better off than our ancestors. Knowing what we know now, would we say that the horse-and-buggy industry of 100 years ago, or the farmers of 250 years ago, should have protested and put a stop to trade? The buggy makers were better off because the farmers had stopped farming and found other jobs. We’re better off now because both the farmers and buggy makers moved on to other jobs. Assuming there is a short-term loss for people thrown out of work by competition, how long does it take before even they see a net benefit from the more efficient products and methods that caused them to lose their jobs? Is it long enough that even one person can be said to have been a “net loser” from trade in the course of a lifetime? I doubt it, because again, everyone is a consumer, whereas only a limited number of people work in any particular industry. Every person who loses their job because of the dynamic economy and tough competition in their particular industry gains from these exact same factors in every other situation. As Steven Landsburg argued in a recent New York Times op-ed, “Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born.”

The fact that everyone benefits in the long run is only half the point. The short term effects are also positive, when you take the whole picture of trade into account. In 1845, the ingenious writer Frederic Bastiat published an open letter complaining on behalf of the candle-making industry about a foreign source of competition that was interfering with their industry and eliminating their jobs. This foreign competitor was able to produce the good that candle-makers trade in, namely light, so efficiently and cheaply that it could be provided to consumers at practically no cost. If ever there was a case where the success of an important national industry was clearly at stake, this was it.

The foreign competitor is, of course, the sun, and Bastiat proposes that a law be passed requiring all citizens to purchase heavy shades to cover their windows during the daytime, in order to preserve and promote candle-making. In fact, a whole range of industries will be promoted by such a law, all to further the goal of artificially giving people that which they once received for free: light.

Bastiat’s point is this: production is not something to value for its own sake. It is consumption, not production, that we really seek. Production is an instrumental good, valuable only insofar as it provides consumers with something they would not otherwise have. Yes, we could pass a law requiring that all light be provided by candles, which would be a boon to the candle-makers, but it would also be a tremendous waste of resources as we devote more of our time and energy into giving people what they already had. This follows simply from the fact that we’ve lost sight of the purpose of production: to make consumers better off.

We must keep the consumer in mind when making decisions about trade. When a consumer chooses to buy a car or television set manufactured in another country, they send a signal to domestic producers. The signal says, “I don’t need what you are producing; not at the price you offer. I’m getting what I want from another source, so quit doing what you are doing and find a different way to provide me with some benefit.” This is the signal we are ignoring when we cut off trade in the name of “protecting industry.”

Ultimately, these signals shouldn’t be ignored, because they are all we have to go on. The only way that we can sort out how many of our producers should be in the auto industry is via signals from consumers about how valuable that work is. I may decide today that I want to make a career out of folding paper hats, because I think people really need and want paper hats. Odds are, though, I wouldn’t last long at this job, for a very simple reason: nobody does wants my paper hats. They aren’t doing anyone any good. That’s what people with money are telling me, day in, day out, when they refuse to trade their money for my paper hats. “Find something else to do,” they’re saying, “we don’t need your paper hats.” How are we supposed to distinguish between useful industries and non-useful industries if we ignore what consumers are telling us about their usefulness?

I am not trying to set up a false dichotomy by claiming that we have to make a choice between absolutely free trade and no trade at all. My point, however, is that the reasons we have for supporting trade in general apply just as well to every specific instance of trade. Sure, we could restrict trade in certain special cases, but why would we want to, given that trade takes place for the same reason in every instance: it makes the people doing the trading better off. When we keep this simple fact in mind, the standard rhetoric in protest of trade just can’t hold up.

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