Confessions of an Accused Reactionary: A Final Word on Trade
I notice that my views on trade are now being cited and occasionally criticized. This would be unremarkable except that I didn't state what they are. Herewith my confession, written on the overnight flight and emailed from Amsterdam. I agree with Alan Blinder that it's not the most important issue, but it's unavoidable. Please excuse the length of this post. A few words of response to Gene follow at the very end.
1. NAFTA. I favored it.
Already by the late 1960s, Mexico had exhausted the path of inward-looking industrial growth known as the era of "stabilizing development." There was a balance-of-payments crisis, but then for a giddy moment from 1976 to 1982, an oil and debt bonanza kept the dangers at bay. The debt crisis and the oil crash put an end to that. In 1986, Miguel de la Madrid took Mexico into the GATT, lowering tariffs and dealing a further major blow to domestic industry.
By that time, Mexico had no choice except to pursue integration with the United States. Most of what NAFTA accomplished, by way of further Mexican tariff reduction, would otherwise have been done by Mexico's government on its own.. Moreover, US trade barriers to Mexican manufactures (from the maquiladora) were already trivial. Thus NAFTA itself had very little practical effect on trade, except in agriculture (see below).
Why then care, one way or the other? Mexico's top economists in the early 1990s--who were far more influential than their U.S. counterparts--had important reasons. They remembered that in 1982 the Reagan Treasury had given them no help at a moment of dire crisis. NAFTA would tie the two countries together. I heard a top aide to President Salinas make this argument in Mexico City around 1992, and I wrote about it during the NAFTA debate.
The calculation proved correct. Financial crisis hit in late 1994, a year after NAFTA took effect. It was caused by the contested presidential campaign, which drove Mexico to borrow heavily to support the campaign of Ernesto Zedillo. When the election was over the bills came due and Mexico's creditors panicked. The Clinton administration--spearheaded by Larry Summers--took swift action, and the crisis came under control much more quickly than in the 1980s. (It was a case of a Harvard guy bailing out a Yale guy.) Mexico was then able to take advantage of its proximity to the US market during our boom from 1997 to 2000. The prosperity of this period was uneven--Mexico's central and southern regions scarcely grew--but it was genuine and important in the north.
The big cost of NAFTA was to Mexican farmers. After NAFTA Mexican corn production suffered, while the 1995 devaluation raised the peso cost of corn flour purchased from the United States. (Jeff Faux's tortilla comparison undoubtedly has much to do with the effect of the 1995 crisis on the external purchasing power of the minimum wage.) Many farmers were displaced, important maize biodiversity was lost, and it is an open moral question whether the gains from a relatively swift resolution of the crisis outweigh the losses to the rural poor. That's an issue on which any reasonable supporter of NAFTA should have qualms; I certainly have them.
Still, it is surely wrong to blame any significant job loss in the United States on NAFTA. Many jobs left before NAFTA. Others would have left even if NAFTA had not passed. And anyway those which did not leave for Mexico would have left for China. Last I looked, we do not have a free trade agreement with China.
2. China. I favor it.
Much is written about China where little is known. I have some knowledge, partly because from 1993 to 1997 I held the gloriously exaggerated title of Chief Technical Adviser to the State Planning Commission for macroeconomic reform. (What's the difference between Russia and China? Easy: the Russians hired Jeff Sachs and the Chinese hired me.)
The notion that China is a low-wage, slave-labor economy is constantly repeated in these debates, and it betrays ignorance of the actual conditions of the place. It misses especially a crucial distinction, between the wage cost of a Chinese worker, measured in dollars, and the real wage paid to the worker, measured in goods and services or in the resulting quality of life. The former is very low. The latter is not. The difference is that basic wage goods--food, clothing, housing and transportation--are incredibly cheap in China.
How come? The main reason is that China has become a market economy without becoming a capitalist economy. Most firms are not owned privately. They are owned by the state, or the provinces, or townships, or villages, or in cooperatives or joint ventures. As a result they compete and over-compete, and generally don't go out of business even if they can't make money. (China's banks double down on the bad loans.) And they are constantly upgrading quality too, because there is, of course, real money to be made in the export market. What can't be sold to the US at Wal-Mart prices is dumped on the home market, for peanuts, in shops and stalls that line every street. China today is a shopper's paradise, glutted in food and basic consumer goods. The things people don't have?private cars and high-end electronics, for instance? they seem to manage quite well without.
China still has extreme poverty, but it's mainly in the West and the Southwest. China's poorest people are completely cut off from world trade. China's export industries in contrast offer good wages and good living by local standards. As I have written in a recent column for Mother Jones, the security checkpoints at the special economic zones face outward. They exist to control entry. No one checks the exits.
As a result of this system, living standards in urban and coastal China are not low. Public health is good, literacy universal, housing adequate, food is excellent, life expectancies approach Western standards, and human misery appears quite rare.
How does China get away with this in the globalized, free-trade, dog-eat-dog world? The answer is partly that while China has liberalized trade up to a point, it has not liberalized its capital account. As a result, incomes earned in China are invested in the country. If Chinese residents could legally sell RMB for dollars, a huge outflow would occur and the currency would fall?not rise. The Chinese government remains, I hope and trust, too smart to let this happen.
We have lost jobs to China. Presently, however, we are losing very few, because most that could be lost have already left. And China is an excellent market for some of our high-wage industries, so its continued success is in our interest. Boeing, notably, sells a lot in China--as a passage through China's maze of new, efficient and pleasant airlines will quickly establish.
Mexico, whose industries do compete, up to a point, with China, is losing a larger share of its manufacturing jobs to China than we are. And Mexico is not alone; China's success is a challenge to every other Third World country that wishes to compete for industrial markets. That's not because China is evil, but because the Chinese formula is hard to beat.
3. CAFTA. I opposed it.
CAFTA was mainly a vehicle for U.S. special interests, especially in pharmaceuticals and agriculture. Central America is not an industrial region, so the manufacturing tariff issues were not especially central. Instead, CAFTA enforced extended "intellectual property rights" and forced open agricultural markets, using bully-boy tactics to get what U.S. constituencies wanted.
Unlike NAFTA, CAFTA holds out no promise that the US will come to the financial rescue of Central American republics when they need it. It's a pity that the Central Americans didn't feel they could spurn the deal.
The general problem here is two-fold. First, poor countries should not have to pay rich country prices for important medicines. People in poor countries should get the goods at, the marginal cost of production at most. (In many cases, the best way to achieve this is through compulsory licensing, so that goods are produced locally.) The problem is, of course, that this invites rich-country consumers to buy up poor country goods for consumption in the rich lands. The solution? It may lie in recognizing that Big Pharma doesn't need to be as rich as it is.
Second, it is not often a good idea for poor countries to specialize in food exports. Such agriculture often takes on a plantation cast, driving small producers off of valuable land. This deepens food poverty. Nutrition standards are far lower in Honduras, say, where the valuable land is taken up with fruit for export, than in China, where it is tilled to support local consumption. There are exceptions, where niche farms sell to rich markets (South African wines, grapes from Chile, Danish hams for that matter). But the big staples of Third World farming, such as coffee, bananas and cotton, are not among them.
4. Is protection ever justified?
The answer to this question is, yes, protection is sometimes justified. Shoot me.
David Ricardo, who gave us the doctrine of comparative advantage, the bedrock of free trade arguments, assumed constant returns to scale would prevail as specialization proceeded. But this is not generally the correct assumption. Rather, countries are divided between diminishing and increasing returns sectors, agriculture being the former and industry the latter.
It is very hard for most countries to become fully developed on agricultural exports alone, for three reasons:
-- because the principle of diminishing returns applies with especial force in this sector,
--because food export prices fall when excess supplies appear,
-- and because countries hit environmental limits.
The path to developed-country living standards lies through the absorption of the population into sectors that generate increasing returns. Sometimes, this has to happen behind protective walls. Countries that liberalize trade and find themselves forced to specialize in resource-intensive activities (the case of Russia, and Indonesia) and export agriculture (the case of Mongolia, and of many African countries) face demographic disaster, for there is no way that large urban populations can be absorbed back into farming. China and India owe their successes in no small part to their protectionism, and so do such fully graduated former developing countries as Korea and Japan.
A failure to understand this point is inexcusable in well-trained economists. The failure to understand it in the transition economies led to the spectacle of American economists becoming complicit in an enormous human tragedy in the 1990s.
Alan Blinder writes that free trade is just like creative destruction--technological change. That may be. But back in 1821, in the third edition of his Principles of Political Economy and Taxation, David Ricardo himself acknowledged that the Luddites had a point. "The opinion of the laboring classes," he wrote, "that the introduction of machinery is sometimes against their interests, is not founded on prejudice and error, but is conformable to the correct principles of political economy." No one citing Ricardo on trade should neglect his wisdom on this matter.
5. What about labor and environmental standards?
I favor them. Standards may well contribute to more rapid human development of poor countries, and to greater sustainability in resource use. But if one asks a developing country to refrain from exploiting its children and raping its resources, then a reasonable trade-off requires one to permit it to pursue industrial strategies instead.
And no one should expect labor or environmental standards to be an effective barrier to imports from the Third World.
6. What general principles can we take away?
Bretton Woods -- growing trade with stable currencies and regulated capital flow -- remains my ideal. But of course it's been over thirty years, and the world has changed. So for now, I'd be content with a few reasonable approximations.
Priority one is more effective regulation of capital flow. It was debt crisis, and not tariff reduction, that was the catastrophe of Africa, Latin America and other parts of the developing world during the 1980s and 1990s.
But two countries avoided the crisis, China and India, and they did it with capital control. Their record -- a quarter century of solid growth -- shows us that capital control works. Extending some system of effective, stabilizing financial regulation from large countries that can do it on their own to the small countries that cannot would be a major step forward.
Meanwhile, let's back off from forcing open trade down other countries' throats. If they want it, as Mexico did, fine. But as the Buenos Aires summit showed, the rest of Latin America doesn't want the FTAA. Why force it on them? Let's get the government out of the business of pimping for Big Pharma, Big Insurance, and Big Banks.
That said, I'm against putting up trade barriers to manufactured imports. As the globe's financial and technological leader, our task is to find a way to achieve full employment without it. The important point to remember is, we did it before. Five years ago, to be exact. There's nothing impossible about it.
7. And finally, a word of response to Gene.
I don't dispute that Gene's formula for a savings credit would help some lower-income households. In my first post, I said it would. I do dispute that it would accomplish very much.
The measures I propose would work better, and benefit far more working households. A higher minimum wage. Freedom to form unions. Universal health insurance. Expanded Social Security. And support for home ownership.
These are tried and proven measures. Gene's rebuttal gives no argument against them. I was pleased to have Jason on my side on most of these steps, and I agree with him, and with Gene, that expanding the EITC should be added to the list.
Being a practical, down-to-earth sort--call me an economist, I can take it--my position is, why experiment with a new idea when a good old idea is right at hand?
And these ideas are popular, too. Embracing a true progressivism, in all the old-fashioned meanings of the word that I remain attached to, might just win us a few elections.
<i>As a result of this system, living standards in urban and coastal China are not low. Public health is good, literacy universal, housing adequate, food is excellent, life expectancies approach Western standards, and human misery appears quite rare.</i>
I lived in China as a student in 1996-1997, and while I agree with much of what you say, that last part does not jibe with my experience. Homelessness and begging is - or at least was - rampant in China. Even in Beijing, where I went to school, it was a rare day that I did not get accosted by half a dozen beggars, many of whom were children. And with rare exceptions (like Kunming, where I stayed briefly), it just gets worse when you move south and west.
Maybe there's been some improvement - but I'd have to see it to believe it. In the circles I moved in, there was also a great deal of fear of the police, and anger at the totalitarian state. That's a different kind of misery, to be sure - but it's misery all the same.
November 11, 2005 3:19 PM | Reply | Permalink
First, the Chinese people are not free. You'd never know it reading Galbraith's piece, but all of these economic policies were forced on the Chinese people by a dictatorial government that the people had no role in choosing. And they enforce that dictatorship by throwing people into jail or reeducation camps if they dare challenge the regime. They censor the internet. They throw journalists in prison. Women are forced to have abortions or to be sterilized. Christians and Buddhists cannot practice their religion. And they will never, ever hold a free election. One can say many things about such a place; "human misery appears quite rare" isn't among them.
Second, the Chinese government is notoriously corrupt. Those state-owned enterprises ensure that the bulk of the profits of the country's economic boom accrue to the regime itself-- which loudly proclaims itself Communist!-- and the well-connected elites that are its friends. No business can operate on anything more than a local level without making grease payments, large and small, to state-connected enterprises and government officials.
Third, Galbraith acts as if the issue of working conditions is nothing more than a fight over wages. While Galbraith is correct that, like in many third-world countries, prices are lower allowing the standard of living to rise even though wages, by Western standards, are low, he ignores that Chinese workers can't form a trade union, can't bargain for better working conditions, and have basically no redress against unfair practices by their employers. He also ignores that China has a huge prison labor industry and that those workers get paid nothing at all and are, effectively, slaves. (If they are on death row, they can also look forward to their organs being sold by Chinese government officials for personal profit after they are executed. But hey, "human misery seems quite rare".)
Is Galbraith still on the payroll of the dictators in Beijing? Or is simply hoping to score another job in the future. Either way, he's been compensated handsomely in blood money for the garbage that he has posted here.
November 11, 2005 3:23 PM | Reply | Permalink
I was in Beijing last winter and the homeless problem certainly did not seem to be worse than in the U.S. Noticeably, though, most of the people begging seemed to be handicapped (and things like wheelchair ramps are noticeably absent throughout the country).
No one can doubt that China still has a long way to go.
But no one can doubt that it has come a long way.
I may take issue with the great food claim, though.
November 11, 2005 3:29 PM | Reply | Permalink
wow, what a tour de force. Can we make sure Galbraith is a top counselor to the next Dem president? This is the best short piece on trade from a progressive point of view I have ever seen.
And I'd love to see the addendum expanded out as well.
Alan Blinder was really a dissapointment by not grappling with the arguments made here. He really undersestimated the level of debate.
November 11, 2005 3:42 PM | Reply | Permalink
Still, it is surely wrong to blame any significant job loss in the United States on NAFTA. Many jobs left before NAFTA. Others would have left even if NAFTA had not passed.
Exactly. That is what is so irritating about the clueless complaining of the protectionists and NAFTA bashing.
The notion that China is a low-wage, slave-labor economy is constantly repeated in these debates, and it betrays ignorance of the actual conditions of the place.
Exactly right.
How does China get away with this in the globalized, free-trade, dog-eat-dog world? The answer is partly that while China has liberalized trade up to a point, it has not liberalized its capital account. As a result, incomes earned in China are invested in the country.
Bingo. And that is also what the Japanese and Europeans do, they blend elements of command economy with market economy to produce directed vigorous competition. To varying degrees obviously. On the one hand it insures the benefits of market competition, on the other hand it insures industry takes into account national interest.
The solution? It may lie in recognizing that Big Pharma doesn't need to be as rich as it is.
Agree again. Especially considering the tremendous waste in Big Pharma and that little of their spending actually goes to manufacturing or research.
yes, protection is sometimes justified. Shoot me.
Which I agree with, and frankly is rather obvious considering there has always been some degree of protectionism. However, there is a cost and there are limits, and protectionism is not the solution overall, it's a bandaid.
China and India owe their successes in no small part to their protectionism, and so do such fully graduated former developing countries as Korea and Japan.
Very true, as developing countries protectionism worked well. However, what’s working for Japanese and Europeans now, the economies comparable to ours, is innovation and highly competitive global exports. It’s not like Japan is protecting it’s auto industry while making Pontiac quality vehicles.
Let's get the government out of the business of pimping for Big Pharma, Big Insurance, and Big Banks.
Yes, although we should put the government into pimping for truly competitive exports we can be proud of.
That said, I'm against putting up trade barriers to manufactured imports.
Good.
As the globe's financial and technological leader, our task is to find a way to achieve full employment without it. The important point to remember is, we did it before. Five years ago, to be exact. There's nothing impossible about it.
Exactly right. This is what we should be talking more about. If we were stimulating the growth industries this country excels at, we wouldn’t even be having this discussion, we could be discussing programs to help the poor and the transitional, with the potential for revenue to do it.
November 11, 2005 5:17 PM | Reply | Permalink
Relative to what though? To 40 years ago? To before they made American goods? It was far worse, that's the point.
China has had some pretty nasty poverty for centuries. Chinese history is filled with famine and suffering, that's why they've had so many revolutions.
In the circles I moved in, there was also a great deal of fear of the police, and anger at the totalitarian state.
Again, compared to what? Imperial China? The Cultural Revolution?
November 11, 2005 5:21 PM | Reply | Permalink
To add to your points, and that of James Galbraith's these are largely the points of Joseph Stiglitz in Globalization and its Discontents. Stiglitz, a Nobel Prize winning economists was head of Clinton's Council of Economic Advisors. He too is for globalization and greater liberalization especially by the industrial countries such as the United States and Europe in regard to the developing world.
However, be believes in phased in liberalization as is proper for the situation in a particular country. Thus he wants saftey nets in place, competition rules, banking regulations and the like before countries engage in rapid liberalizations.
A point that Galbraith hints at but does not quite go into is that Stiglitz, who was chief economist for the World Bank, is a need for politics. He found that the IMF and the "Washington Consensus" generally had a religious faith in free markets and imposed those views on countries that had to take their loans. He believes that the people of particular nations should be brought into the discussions concerning economic reforms affecting their lives.
November 11, 2005 5:54 PM | Reply | Permalink
I know it's only one data point, but I like asparagus, and it now comes from Mexico, under the familiar "Dole" brand.
I'm still paying the same price. How much will you bet me that the poor Mexican farmers have not benefitted one peso from NAFTA?
But Dole has.
November 11, 2005 6:31 PM | Reply | Permalink
I have no training in economics at all, so perhaps this is irrelevant, but... it seems like the dead elephant in the room here is the trade deficit. It's nice that Chinese labor isn't really a set of slaves in sweatshops; it's not so nive that we rely on China to keep buying up our debt.
November 11, 2005 8:05 PM | Reply | Permalink
For the record, my work was paid for by the United Nations Development Program at the standard UN rate. JG
November 11, 2005 8:24 PM | Reply | Permalink
James Galbraith makes a good point about China. Yes the minimal increases in wages definitely had a positive effect for the Chinese worker. The cost of living is so low because almost everything is nationalized even very modest rises in income will affords the Chinese a much better standard of living. Nationalized industry in China is the root of our problem. It allows them to dump products and drive down prices in the marketplace. Dumping is as serious a problem as protectionism is, if not more so. Not only isn't it being adressed it is being encouraged by large US retailers like Walmart who reap the profits just like the Chinese government. Adressing the problem with China dumping goods on the market isn't protectionism, it is sound economic policy if we want truly free markets.
November 11, 2005 8:27 PM | Reply | Permalink
This question doesn't dispute your points at all. But, they have impact and I want to know what you think.
You said, with regard to NAFTA, that "There was a balance-of-payments crisis, but then for a giddy moment from 1976 to 1982, an oil and debt bonanza kept the dangers at bay."
As I look at emerging market economies, which most analysts say are stronger than ever, I see countries currently held up not just by high oil prices but by the recent boom in the prices for commodities in general (like steel, wood, copper, etc.). But, the oil producing emerging countries like Venezuela and Russia, which for 2005 budgeted for oil prices that are about half of what they've been able to get, have been able to build of the sturdiest reserves against default.
Given what you said, though, about the giddy 6-year moment that began in 1976, are such countries that seem so strong now at risk of default a decade from now if oil prices decline as they have in the past?
November 11, 2005 8:37 PM | Reply | Permalink
it's definitely a risk. JG
November 11, 2005 8:53 PM | Reply | Permalink
Hey Libertine,
To me, it's the root of what will become a very interesting problem, worldwide... with China as an example, a lot of governments will wonder why they can't or shouldn't have a mostly nationalized domestic economy while still competing as a market player in a global system dominated by capitalism.
For a long time, developing economies simply swallowed the globalization rhetoric about nationalizing industries that were once held by the government. But, that seems to have stopped. New Zealand, for example, a far more western and freer society than China, has in recent years rejected the domestic agenda of globalization without leaving the world market, and it's doing better than it has in a long time for it.
The very thesis of the new book "The End of Globalization," by Canadian philosopher and economist John Ralston Saul is that countries are beginning to reject the domestic policy demands of the globalization crowd without cutting themselves off from global commerce.
This seems like a major change to me. For so long, it was always, "Do what the Chicago Boys did in Chile, perhaps without the death squads," and countries did it. But, these days, it seems like countries can have economies that are entirely controlled, internally, and still participate in the global markets.
November 11, 2005 8:57 PM | Reply | Permalink
To me, it's the root of what will become a very interesting problem, worldwide... with China as an example, a lot of governments will wonder why they can't or shouldn't have a mostly nationalized domestic economy while still competing as a market player in a global system dominated by capitalism.
I agree destor, nationalized economies very well could be the wave of the future. What is happening with China is allowing them a huge advantage over traditional capitalist systems. Are other countries going to take their cue and have their government's subsidize their economies? The ramifications of that happening would be ominous. We need to exert maximum effort on moving China more towards capitalism practiced by us and western Europe. If we don't and refuse to nationalize our economy more, then we will be at a perpetual disadvantage trade wise. As much as I don't want to see protectionism, maybe short term tarrifs could help until China becomes more capitalistic. Without incentive why would China change their policies?
November 11, 2005 9:13 PM | Reply | Permalink
That was a great post.
Question:If you could suggest a global minimum wage in local real value terms to be set, what would it be? It'd probably have to be something modest that wouldn't piss off China or other countries too much... But if we coupled such a minimum wage with randomization in the selection of regions in countries where the wage-floor is phased in, we could answer critics that like to point to the robust predictions that such wage floors will have a disemployment effects by showing how it nevertheless may prove to be an effective anti-poverty device. I personally believe that wage-floors are more likely effective in this regard, when a substantial portion of the population are quite poor.
I'd still also like for you to provide some consideration to the Basic Income Guarantee plan as a large scale simplification of the US tax code. A progressive version of the flat-tax that would replace much of the current welfare system and eliminate the poor incentives to work caused by means-tested welfare.
The EITC has problems. There's the disincentives caused by phasing it out and the fact that the aid is tied to whether people can get the work or not. Something that isn't, per se, business cycle friendly.
Also, are you at all concerned with the concentration of political and economic power that is developing in Mainland China? How might we alter our policies in ways that would promote a lower concentration of power in the Communist party and greater religious freedom in China?
Finally, there was a paper published in Economic Letters not long ago that showed that Gary Becker's Time Allocation Model of Labor Supply was a valid generalization. It showed that so long as all utility-producing activities require both time and money or purchasable inputs, how workers/households that have little to no access to income apart from working will have to work and are more likely to want to work more rather than less hours when the wage they are offered is reduced. (I am the author of this paper.) As I recall from Jones and Kemp's "Variable Labor Supply and the Theory of International Trade", it seems to be significant whether or not a country's labor offer curve bends backwards or not. I would suggest that the state of labor market institutions and general worker poverty play a critical role in this. We can verify this sort of thing with the use of randomization and demonstrate empirically the need to press for improved labor market institutions for countries with impoverished populations.
dlw
November 11, 2005 9:21 PM | Reply | Permalink
I think that there are options other than protectionism as we understand it. Certainly, Chine is protectionist in that sense, so it's not the example.
But, what if a country wanted to compete globally but also believed that, say, it was the government's responsibility to provide electric power, telecom, unemployment insurance and healthcare to the locals? The old rules of globalization said "No! Privatize all of that, drop what can't be privatized!"
For a long while, developing countries followed that advice. But, there's no reason they had to, unless they had to appease foreign bond holders. And yet, Argentina finally, under great duress, refused to appease those bondholders. Argentina has still not made good on the debts related to its 2001 default. The government there reached a point when they realized that paying bondholders rather than dealing with the needs of the unemployed would lead to the government being toppled by force. When faced with a default letter and a flaming torch in their faces, they dealt with the torch first. Where is Argentina now? Suspect, yes. Not quite trusted by the global financial community. But... still, growing... and selling bonds with returns that beat the US stock market or US Treasurys.
I've gone on too long and am preaching to the choir but, the fact is, in the global economy we've created, it is possible to be a player without meeting the demands of the IMF, the World Bank or Wall Street. It's not easy, it's not painless, but it can be done.
I think we're getting the global market that was actually intended -- run your country as your country needs to be run, buy what you need at the best possible prices and sell what you can at the best possible prices.
But, this isn't the globalization we were promised. The globalization that wonks have been pushing for 30 years was meant to transform countries within and to make them all kind of like America. Actually, the transformation was to be so intense that even America would have changed, since we're pretty protective of our own industries, as anyone who competes with us will tell you. But, theory isn't reality. In reality, we compete "dog eat dog" globally, but we do what we need to do and even what we want to do, at home. That's a different kind of market than the think tanks sell us.
November 11, 2005 9:31 PM | Reply | Permalink
Definitely efforts are being made to have everyone operate within the same capitialist framework. But we lost our leverage. We used to be the ones holding notes and now others are holding our notes (and specifically in the case of China a whole bunch of notes). Now that we are in that position we can't always call the shots economically, not denying we still have tremendous economic pull globally. If we are talking about global "economic equality", then this isn't a bad thing. Countries will be able tailor their economies to their circumstances better then the past and in theory their people will benefit. But if we insist by playing by the "traditional" capitalist rules, while others aren't, it doesn't bode well for us. I am a big supporter of free markets in theory...I agree this isn't the one that was pitched.
November 11, 2005 9:49 PM | Reply | Permalink
Years ago, a major faction of libertarianism pointed toward Pinochet's Chile as a good example of economic liberty. While it may be unfair to tar all forms of libertarianism this way, that particular faction was fundamentally clueless about liberty. Pinochet was a torturing, murderous dictator that had overthrown a long-lived democracy.
I think that what we saw today in support of China was in the same spirit. I can't say it any better than Dilan Esper, but China is a brutal dictatorship.
November 11, 2005 11:31 PM | Reply | Permalink
Agree about JKG doing well.
Having said that I think Alan Blinder just realized the crowd was so protectionist here he'd rather not be the sacrificial lamb on the alter of popuism, or messenger of bad news.
I don't blame him.
There were a number of people who made comments on some variation of free trade not being free, as though this was some sort of insight, but in complete ignorance of the alternatives.
Gawd I wish it were possible to let all the protectionists go to one half of the country and let them actually try it for themselves for a decade or so to see how they like it.
November 12, 2005 12:31 AM | Reply | Permalink
Nationalized industry in China is the root of our problem. It allows them to dump products and drive down prices in the marketplace.
That’s part of it, the nasty side, but it's much, much than that and has a really good side as well.
Europeans and Asians have been regulating and seed funding their markets to great success. So it’s not as though it requires nationalization, just some degree of centralized leverage to keep people going in the right direction and the national interest.
Take European cellular standards or SKorean Internet deployment as examples of when they standardized due to government run consortiums while we divvied up markets and wound up with multiple incompatible standards and fractured markets that hurt all competitors and raised costs. European airlines are doing well for the same reason, government regulates them, while our deregulated airlines are crumbling due to market squabbling and inefficient airline routing as a result feudal regional monopoly tactics. Of course universal healthcare is the perfect example of how some things are more efficient centralized.
What’s really killing US industries is the lack of regulation to prevent inefficient aspects of competition, and the lack of government works projects to seed innovation. That’s heretical to say in the US now, but there are so many examples it’s unquestionable to objective observers. Nobody in the world wants to emulate the US model anymore.
We’re way too laissez faire on one hand, and the populists too protectionist on the other. The third way, the European and Asian model used by all the rest of the developed world is too socialist or paternal or whatever for Americans. We’re too stubborn to change until we have to, so I tend to predict plenty of economic hardship to come.
November 12, 2005 12:54 AM | Reply | Permalink
But, these days, it seems like countries can have economies that are entirely controlled, internally, and still participate in the global markets.
"Entirely controlled" probably isn't the best model. China is also incredibly corrupt due to the level of control, and the political pressure thier controls puts on industry will hurt them later when the direction forward isn't as clear or easy as thier industrial boom is now.
At some point thier over control will hurt them same as it hurt the USSR, when China starts making too many tractors, and they surely will.
A better model to look at is probably the Europen/Asian way of strong government support to back innovation, and crack heads. We might even beat them at thier own game if we tried. But we won't until we have to.
November 12, 2005 1:02 AM | Reply | Permalink
Are other countries going to take their cue and have their government's subsidize their economies? The ramifications of that happening would be ominous.
Why? If it works it works. The only question is why we aren't doing it more. CA's Biotech initiative is an example of exactly what we should be doing.
Weren't you calling for a Manhattan project to fund alternative energy? Or was that somebody else? Regardless, somebody was, and the response was pretty enthusiastic. Jobs, tech innovation, growth, increased tax revenue, what’s not to love?
November 12, 2005 1:05 AM | Reply | Permalink
The point is how essential does one regard these standards. Galbraith without saying so, in his approach, makes it clear that they are, as is treated now, a possible superfluous add-on rather than a sine qua non of international trade. Without such standards in place, international trade systems become and have become a race to the bottom, and having put those systems in place WITHOUT labor and environmental standards as enforceable at international law and in courts as 'free trade standards' with broad latitude as to who has standing then you have only a theoretician's paradise, in which real people are getting hurt.
Everything indicates the extensive revolt around the world against the dislocations of free trade. These standards are what could keep the system from becoming a boost to corporate capitalism at the expense of humanity and of the earth. I hope that James Galbraith and others will see fit in the future to not only 'favor' such standards but prioritize them, seeing them as not only good, but essential, and of the highest priority in the area of trade
November 12, 2005 3:21 AM | Reply | Permalink
Weren't you calling for a Manhattan project to fund alternative energy? Or was that somebody else? Regardless, somebody was, and the response was pretty enthusiastic. Jobs, tech innovation, growth, increased tax revenue, what's not to love?
Yep, it is an idea I supported and spoke about. But imo having nationalized R&D is much different then having any given country's whole economy nationalized.
November 12, 2005 7:54 AM | Reply | Permalink
I don't always agree with you Nick. And while I don't completely agree with everything in this post...no way in hell it deserved a "1".
I think you hit on an important point. The US economy is very monolithic and resistent to change. The "rules" (whatever they may entail) of capitalism are changing. We are playing by one set of rules and much of the world is playing with different rules.
I think some level of regulation of some specific industries would be healthy in an economic sense. And even going farther with, for example health care, nationalization would actually greatly benefit our marketplace as a whole. Our system is too wide open, it is like the "wild west" economically.
November 12, 2005 8:09 AM | Reply | Permalink
I detect a troubling incosistency, and would like someone with in depth knowledge of China to account for it.
The notion that China is a low-wage, slave-labor economy is constantly repeated in these debates, and it betrays ignorance of the actual conditions of the place.
Why, then, have labor (and farmer) protests soared from 10K/year to 70K/year over the last 12 years, precisely the era of break neck development and industrialization? This is a state that is a party dictatorship and no consistent and fair rule of law, making protesters extremely vulnerable to excessive punishment and retribution.
These characterizations of China (as 'non-slave labor' for example) are undermined by the fact that it is a dictatorship with no freedom of expression. What is being expressed (70K illegal protests/year is a lot!) bespeaks considerable discontent. Perhaps you are wrong. Perhaps these are 'slave revolts'. Illegal protests reveal a high level of rage and desperation. What real evidence are you using that things are hunky-dory?
November 12, 2005 10:06 AM | Reply | Permalink
Gawd I wish it were possible to let all the protectionists go to one half of the country and let them actually try it for themselves for a decade or so to see how they like it.
Funny you should say that - it's not only possible, it's been tried.
It was called the Civil War.
The Union and Lincoln - The Great Protectionist (he was elected by swing state Pennsylvanians to whom he had promised support for the tariff) - supported tariffs to aid domestic industries.
The Confederate plantation slave holders were free traders who preferred to import cheaper foreign manufactured goods tax-free.
We see how that one turned out. The protectionists won -and built a transcontinental railroad, a domestic steel industry (the land grant railroads were required to buy American steel) and a globe straddling industrial power based on the so-called American system which stood in diametric opposition to free trade theory.
November 13, 2005 10:41 AM | Reply | Permalink
Gawd I wish it were possible to let all the protectionists go to one half of the country and let them actually try it for themselves for a decade or so to see how they like it.
Funny you should say that - it's not only possible, it's been tried.
It was called the Civil War.
The Union and Lincoln - The Great Protectionist (he was elected by swing state Pennsylvanians to whom he had promised support for the tariff) - supported tariffs to aid domestic industries.
The Confederate plantation slave holders were free traders who preferred to import cheaper foreign manufactured goods tax-free.
We see how that one turned out. The protectionists won -and built a transcontinental railroad, a domestic steel industry (the land grant railroads were required to buy American steel) and a globe straddling industrial power based on the so-called American system which stood in diametric opposition to free trade theory.
November 13, 2005 10:42 AM | Reply | Permalink
Dilan,
I'm struggling a bit with the basis for your assessment of China as evil, not as one who has firsthand witnessed the struggles of their people, but as one who sees striking parallels to my daily life here in the United States. I feel disenfranchised by the voting process in 2000 and 2004. The actions of my government bear striking resemblance to the dictatorship you describe in China, even though our government only practices personal attack and public destruction of those who oppose it. Our government only monitors all of our internet communications at will to protect us, and uses Security Letters to gain access to every digital record I leave as I traverse our 'free' internet. We throw journalists in prison, as a last resort however, to sort out scandals at the highest levels in our Democracy. We are on a path to force women to have babies, not abort them, unless of course you look to Saipan, a personal province of one of our dictators.
Support for religion in my local province of Minnesota has recently labelled Buddhism a cult. Atheism is a mortal sin that will result in your removal from leadership roles in the Boy Scouts and "secular humanism" are the words applied to those who do not endorse Jesus Christ as their personal savior. In fact an entire political party was recently demonized for their lack of this belief. What was their name again?
A free election is one where those running for office can do so without having to spend $100M each to participate. Might this be in part the cause of our lack of corruption in government here in the United States. Oh, I forgot, we are pursuing our House and Senate leaders for exactly these forms of corruption as I write.
Human misery has been all but eliminated here by drugs like Zoloft, Prozac and Lexapro. We have no worries. Our pensions are safe, our jobs secure and are work hours reasonable. I am not bothered by being on call 7x24, with a pager strapped to my hip, supporting the information systems that run our largest corporations, with 1/10 the staff that we had 6 years ago. I don't consider it white collar slave labor.
As for Communism contributing to creation of an economically favorable climate for the members of the Chinese regime, how is this ANY different that those occupying the upper floors of our corporate winners in the Monopoly game we call Capitalism. Perhaps a quite review of executive compensation plans in would be in order. It would seem to be 'evil' to have the lions share of corporate profits accrue to a very small group, when no other jobs in those organizations have parachutes, $100M bonuses and stock options beyond our dreams. Moreover, the war chests that these monopolists have accrued to acquire their fledgling competitors are NOT paid out to shareholders in dividends, or reinvested in infrastructure. Our oil companies are not developing nuclear powerplants or solar energy. Our software companies are not paying out dividends to their shareholders. And our government is 100% complicit by not enforcing anti-trust laws in the name of international competitiveness. They let the monopoly game play out and only a very few win.
Let's talk a bit about trade unions in the United States. How about in the airline industry for starters. Or perhaps we could discuss the dearth of unions in the white collar slave trades throughout corporate America. Day in and day out, with my hands attached to a keyboard I feel no different than your typical prison labor force. My checks are gone before I earn them, my pension was spent in the early years of the millenium to make ends meet while we dropped all trade barriers to digital intellectual property creation and watched our white collar salaries fall by as much as 75% in the IT industry. In my state alone, we lost 400,000 IT jobs in 5 years. Where were the trade protections. Those jobs went to India and China.
On a positive note, I am now able to indicate on my drivers license that I am both an organ donar and have a living will, so that I control the destination of my old body parts. I have directed that all profits from the dissemination of my body parts be directed to my family to help pay off the debt amassed during my lifetime. The stock bets didn't pan out you see, although those running those companies have really nice homes and boats out there on planet California. Recently on that planet the inhabitants rejected a law proposed by their dictator calling for 5 years of indentured servitude before a teacher would feel secure standing in front of their young. Imagine, only 5 years before you could stop worrying about a pink slip because of a failed levy referendum.
In short Dilan, I'm not sure what your criteria are for characterizing economic systems as 'evil', but based upon recent personal experience with the one present here in the United States I'm pretty sure you weren't comparing them to us, or we'd fall into the same category.
D
November 13, 2005 10:47 AM | Reply | Permalink
I know people who say the same things you say. These sorts of statements give liberalism a bad name in America. What I mean by that is that liberals have tried like heck to escape the charges from the right that they are anti-American relativists who hold double standards with respect to American conduct as compared to the conduct of other countries. And the right seizes upon the small percentage of people on the left who make statements like yours in order to substantiate a charge that is actually baseless as to the vast majority of liberals.
Let's go through some of your examples of alleged parallels between the US and China:
"I feel disenfranchised by the voting process in 2000 and 2004."
Well, feeling disenfranchised is not the same thing as being disenfranchised. It happens that we have had 2 close elections in the last two presidential cycles. Close elections give rise to charges of fraud. Some of those charges may have merit-- I am certainly open to arguments that what happened in Ohio in 2004 wasn't a cleanly run election. (Florida in 2000 is a little different-- that time around, it was Gore's strategic choices in the recount process, as much as anything else, that led to his defeat. Plus, that election really was so close that it was "within the margin of error" and the result was almost random.)
But the fact is, we have had over 200 years of free presidential elections in this country, and only three of them (the two elections of Bush, plus Hayes-Tilden) were even arguably not decided by the will of the people. That's 200 years more of free elections than China has had. Further, we elect governors, senators, congressmen and women, statewide executive officials, plus city and country officials. And we vote on ballot propositions. In contrast, the Chinese dictators allow no elections above the village level. That you would even think to compare the two systems is ridiculous.
A bit of fraud in a few of our elections does not make us comprarable to China, any more than the fact that our orchestras play Shostokovich and Prokofiev on occasion makes us comparable to Stalin's Soviet Union.
"Our government only monitors all of our internet communications at will to protect us, and uses Security Letters to gain access to every digital record I leave as I traverse our 'free' internet."
Again, your rhetoric is overblown. Yes, the Patriot Act is a bad thing, and national security letters are scary and are real threats to civil liberties. But no, the government does not monitor "every digital record". It can't, for one thing-- the internet is way, way too big. (This is one reason why the government was not able to foil the 9/11 attacks even though there were communications that it received that indicated a plot might be in process. There's just way too many things that come in and it's impossible to monitor everything.) In contrast, China uses sophisticated filters to prevent its citizens from accessing the internet, and therefore also is able to cut down on the number of communications to monitor so that it CAN monitor them.
Further, it's not simply the monitoring-- it's what you do with the information. There is no evidence that so much as ONE person in the United States is in jail because of political expression on the Internet-- as far as we know, there are thousands who have been arrested in China for the same offense. Again, the two things are simply incomparable.
"We throw journalists in prison, as a last resort however, to sort out scandals at the highest levels in our Democracy."
This is not the place to have a Judith Miller debate. Suffice to say that throwing a pro-government journalist in jail for failing to reveal evidence of a crime (especially where anonymity should not have been granted in the first place) and after that journalist has had the opportunity to litigate her case all the way to the Supreme Court is very different from throwing journalists in jail because they oppose or embarrassed the government.
"Support for religion in my local province of Minnesota has recently labelled Buddhism a cult. Atheism is a mortal sin that will result in your removal from leadership roles in the Boy Scouts and "secular humanism" are the words applied to those who do not endorse Jesus Christ as their personal savior."
Politicians certainly go too far in endorsing conservative Christianity in this country, but really, that isn't the same as deciding who the Panchen Lama is or jailing monks or anyone who does not worship in an official church.
It is also worth noting that while China jails people for practicing their religion, we allow prisoners to practice their religions in jail. That actually is a nice way of summing up the difference between an unfree country and a free country.
Further, and this is A HUGE DEAL-- in this country, anyone who alleges that the government impinges on their right to practice their religion may sue the government and had the claim heard before a neutral, independent judiciary. In China, can anyone sue the government for this?
"A free election is one where those running for office can do so without having to spend $100M each to participate."
So you think a bad campaign finance system is the same thing as a totalitarian dictatorship? Are you capable of recognizing no distinctions at all, no shades of gray?
"Human misery has been all but eliminated here by drugs like Zoloft, Prozac and Lexapro. We have no worries. Our pensions are safe, our jobs secure and are work hours reasonable. I am not bothered by being on call 7x24, with a pager strapped to my hip, supporting the information systems that run our largest corporations, with 1/10 the staff that we had 6 years ago. I don't consider it white collar slave labor."
Look, life is rough. The economic system produces winners and losers. More should be done to compensate those who are left behind. But if you tried to sell this sob story to a political prisoner working in a prison factory in China, that person would consider it an insult. Again, there is simply no comparison.
"As for Communism contributing to creation of an economically favorable climate for the members of the Chinese regime, how is this ANY different that those occupying the upper floors of our corporate winners in the Monopoly game we call Capitalism. Perhaps a quite review of executive compensation plans in would be in order."
If the shareholders choose to pay a CEO a ton of money, that's their business. If governmental officials use their positions to get themselves and their friends rich through bribes, that's our business. And there are plenty of people who have served jail time in this country for doing the latter.
"Let's talk a bit about trade unions in the United States. How about in the airline industry for starters. Or perhaps we could discuss the dearth of unions in the white collar slave trades throughout corporate America. Day in and day out, with my hands attached to a keyboard I feel no different than your typical prison labor force. My checks are gone before I earn them, my pension was spent in the early years of the millenium to make ends meet while we dropped all trade barriers to digital intellectual property creation and watched our white collar salaries fall by as much as 75% in the IT industry. In my state alone, we lost 400,000 IT jobs in 5 years. Where were the trade protections. Those jobs went to India and China."
One reason we are losing all those jobs is because a lot of people are doing exactly what you are doing and deliberately ignoring the repression in China.
"Recently on that planet the inhabitants rejected a law proposed by their dictator calling for 5 years of indentured servitude before a teacher would feel secure standing in front of their young."
I don't oppose teacher tenure, but at will employment is hardly indentured servitude. In the scheme of things, I think paying teachers more to attract the best teachers is far higher on my list than giving them lifetime job security. Those CEO's you hate are not given lifetime job security-- but they are paid a lot.
By the way, you will notice, as you said, the public rejected the initiative. In contrast, in China, the public has no say on this or any other issue.
If you simply refuse to recognize that you are living in a free society, that is your right. Thankfully, our First Amendment freedoms, protected by an independent judiciary that China does not have, include the right to falsey believe that our society is actually not free.
But I would suggest to you that not only are your viewpoints profoundly misguided, but counterproductive. We will never get to the bottom of the complex trade issues with China if we don't recognize that their system is horribly repressive and that one purpose of China's trade policies is to perpetuate the dictatorship.
Similarly, since we do live in a democracy, solving the problems you identify involves convincing your fellow citizens of the need for changes. You will never do that as long as you cling to ridiculous falsehoods about how bad America supposedly is. In order to get anywhere, you have to be committed to the prospect of forming a "more perfect union". And that includes a recognition that the union is very good to begin with.
November 13, 2005 6:07 PM | Reply | Permalink