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Sunday, September 23, 2012 12:15 PM


Fair Trade is Unfair; In Praise of Cheap Labor; Are Bad Jobs at Bad Wages Better than No Jobs at All? Are Paul Krugman and Mitt Romney On the Same Page?


Are bad jobs at bad wages better than no jobs at all? Should the US demand third world economies pay "living wages"? If so, and if countries don't oblige, should the US impose tariffs so the US does not lose jobs to such countries.

Moral Outrage Over Free Trade

This is what I think....

Moral outrage is common among the opponents of globalization--of the transfer of technology and capital from high-wage to low-wage countries and the resulting growth of labor-intensive Third World exports. These critics take it as a given that anyone with a good word for this process is naive or corrupt and, in either case, a de facto agent of global capital in its oppression of workers here and abroad.

But matters are not that simple, and the moral lines are not that clear. In fact, let me make a counter-accusation: The lofty moral tone of the opponents of globalization is possible only because they have chosen not to think their position through. While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers.

Workers in those shirt and sneaker factories are, inevitably, paid very little and expected to endure terrible working conditions. I say "inevitably" because their employers are not in business for their (or their workers') health; they pay as little as possible, and that minimum is determined by the other opportunities available to workers. And these are still extremely poor countries, where living on a garbage heap is attractive compared with the alternatives.

And yet, wherever the new export industries have grown, there has been measurable improvement in the lives of ordinary people. Partly this is because a growing industry must offer a somewhat higher wage than workers could get elsewhere in order to get them to move. More importantly, however, the growth of manufacturing--and of the penumbra of other jobs that the new export sector creates--has a ripple effect throughout the economy. The pressure on the land becomes less intense, so rural wages rise; the pool of unemployed urban dwellers always anxious for work shrinks, so factories start to compete with each other for workers, and urban wages also begin to rise. Where the process has gone on long enough--say, in South Korea or Taiwan--average wages start to approach what an American teen-ager can earn at McDonald's. And eventually people are no longer eager to live on garbage dumps.

The benefits of export-led economic growth to the mass of people in the newly industrializing economies are not a matter of conjecture. A country like Indonesia is still so poor that progress can be measured in terms of how much the average person gets to eat; since 1970, per capita intake has risen from less than 2,100 to more than 2,800 calories a day. A shocking one-third of young children are still malnourished--but in 1975, the fraction was more than half. Similar improvements can be seen throughout the Pacific Rim, and even in places like Bangladesh.

Why, then, the outrage of my correspondents? Why does the image of an Indonesian sewing sneakers for 60 cents an hour evoke so much more feeling than the image of another Indonesian earning the equivalent of 30 cents an hour trying to feed his family on a tiny plot of land--or of a Filipino scavenging on a garbage heap?

The main answer, I think, is a sort of fastidiousness. Unlike the starving subsistence farmer, the women and children in the sneaker factory are working at slave wages for our benefit--and this makes us feel unclean. And so there are self-righteous demands for international labor standards: We should not, the opponents of globalization insist, be willing to buy those sneakers and shirts unless the people who make them receive decent wages and work under decent conditions.

This sounds only fair--but is it? Let's think through the consequences.

First of all, even if we could assure the workers in Third World export industries of higher wages and better working conditions, this would do nothing for the peasants, day laborers, scavengers, and so on who make up the bulk of these countries' populations. At best, forcing developing countries to adhere to our labor standards would create a privileged labor aristocracy, leaving the poor majority no better off.

And it might not even do that. The advantages of established First World industries are still formidable. The only reason developing countries have been able to compete with those industries is their ability to offer employers cheap labor. Deny them that ability, and you might well deny them the prospect of continuing industrial growth, even reverse the growth that has been achieved. And since export-oriented growth, for all its injustice, has been a huge boon for the workers in those nations, anything that curtails that growth is very much against their interests. A policy of good jobs in principle, but no jobs in practice, might assuage our consciences, but it is no favor to its alleged beneficiaries.

You may say that the wretched of the earth should not be forced to serve as hewers of wood, drawers of water, and sewers of sneakers for the affluent. But what is the alternative? Should they be helped with foreign aid?

And as long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to an aesthetic standard--that is, the fact that you don't like the idea of workers being paid a pittance to supply rich Westerners with fashion items.

In short, my correspondents are not entitled to their self-righteousness. They have not thought the matter through. And when the hopes of hundreds of millions are at stake, thinking things through is not just good intellectual practice. It is a moral duty.

Purposeful Plagiarism to Make a Point

By the way, I need to point out that everything written above following "This is what I think...." was not written by me (but it does reflect my exact beliefs).

Believe it or not, Paul Krugman wrote that, and here is the link: In Praise of Cheap Labor.

Mind to Mush

Paul Krugman won his Nobel Prize for trade, and in terms of trade, I agree with everything above he said. In fact, there is nothing at all in the article I would disagree with.

At some point since he wrote that, his mind turned to complete mush. Now he is in agreement with Mitt Romney about the need for the US to raise tariffs on China.

All [Freely Entered] Trade is Good!

The fact of the matter is all [freely entered] trade is good. It has to be. For there to be trade, both buyer and seller get something they want at a price they agree on.

However, assume for a second that is not true.

Assume China or whoever is willingly selling us good "too cheap". Who benefits from that? Why the American consumer of course.

Would "Fair Trade" Bring Back Jobs?

Unfortunately, Krugman and Mitt Romney alike would rather the cost of underwear, auto parts, toys, shoes, etc. cost double what they cost, in the foolish belief it would bring back US jobs.

Well it won't. Manufacturing would simply move jobs from China to Vietnam or other places unless the US is willing to start a trade war with the world.

Assuming Romney-sponsored tariffs worked (they wouldn't) and even assuming the jobs returned (that wouldn't happen either), would the tradeoff be worth it?

The answer is of course not. A protected few union workers might benefit, but the cost of everything would skyrocket. Those on fixed income and those in non-protected jobs would be hammered. Unemployment would soar.

And that is looking on the bright side. The jobs would not come home, even if the manufacturing itself did. The first reason is robots, and the second reason is a too cheap cost of money.

Blame the Fed

Flip-flop the order if you like. In a yield starved world with Bernanke pushing down interest rates, the cost of money is ridiculously cheap (assuming of course businesses can find a legitimate use for it).

And what better use is there for money at 1% than for manufacturers to buy robots to replace humans, especially when Krugman and Romney are united in driving up the cost of labor?

I have written about robots before. Here are parts one and two of a recent set of posts I did.

  1. Robots to Rule the World? Taking All Jobs? Replace Women?
  2. Part II - Robots to Rule the World? Taking All Jobs? Replace Women?

Now consider another article that just came my way: This Robot Could Transform Manufacturing.

Please read that article at your leisure. The point is tariffs are not going to bring jobs back to the US, at least jobs by living, breathing human beings.

Rather all tariffs will do is slow global trade and raise costs on everyone.

Krugman and Romney in Same Boat

No one will benefit from a trade war, except perhaps a miniscule percentage of union workers. Everyone else will lose big time.

This is exactly why Romney should be a champion of free trade. Instead he agrees with the new "conscience of a liberal" Paul Krugman who somehow forgot everything he ever knew about the benefits of free trade.

Fair Trade is Unfair

The unions howl they want "fair trade". Fair to whom? The answer is fair to their self-interests, damn the enormous costs to everyone else.

Romney should see that, but he doesn't. Alternatively he does, and is pandering for votes. So which is it?

Here is a key question of the day: Does Mitt Romney Really "Know Better" Than the Silly Things He Says?

You tell me. I don't know if Romney believes the foolish things he says or not.

What I do know is Romney and Krugman are now in the same boat in regards to tariffs on China and both of them are completely wrong.

Addendum:

I modified the line "All  Trade is Good!" to "All Freely Entered Trade is Good!". It should have been clear from the context, but when I said "All Trade is Good!" I was talking about "freely entered" trade. If someone forces you to sell your cow for $10 and you do not want to, that is not "free trade".

Wage and price controls are not "free trade" and either. Sure enough, someone brought up slave trade in an email.

Speaking of which, forced collective bargaining, forced union membership, and union rules that apply to the general population are all forms of slavery and should be abolished. For details, please see Paul Krugman, Stephen Colbert, Bill Maher, others, Ignore Extortion, Bribery, Coercion, and Slavery; No One Should Own You!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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