Part 9 (2/2)
What, really, are we to make of the environmentalist attack on free trade? We've seen that the race to the botto industries are still based in rich countries, rather than poor countries; that environ in China, Brazil, and Mexico, the n investment into poor countries; that protectionist , steel, and coal, which sometimes claim envi-ronmental justifications in fact are tremendously harmful to the environment; that taxes on transportation fuels are consistent with free trade and much better for the environment than trade re-strictions; and that the worst environmental problems, at least of today, are caused by poverty not wealth The environ the barricades to delobal free trade immediately One day, perhaps they will
Sweatshops, or, is trade good for the poor?
Nice running shoes! But don't they uilty?
A number ofworkers in developing countries to poor working con-ditions Nike is very frequently nans To consider just one particularly splendid exa student at MIT nae of Nike's offer to create customized shoes In his oords: Confronted with Nike's celebration of freedoht, build it yourself, I could not help but think of the people in crowded factories in Asia and South Ae to Nike, I ordered a pair of shoes customized with the word ”sweatshop”
Even economists think this is pretty funny Nike did not; Jonah Peretti did not get his custohtly drawn atten-tion to the fact that in developing countries, workers endure ter-rible working conditions Hours are long Wages are pitiful But sweatshops are the syo there voluntarily, which means-hard as it is to believe-that whatever their alternatives are, they are worse They stay there, too; turnover rates of multinational-owned fac-tories are low, because conditions and pay, while bad, are better than those in factories run by local firms And even a local co to earnas a prostitute, or co landfills in cities like Manila to find recyclable goods Manila's most famous landfill, Smokey Mountain, was closed down in the 1990s because it had becoe duers who can earn up to five dollars a day Over 130 people were killed in a landslide at Payatas, another du out an urban living are attractive co an existence in rural areas In Latin America, for instance, while extreme poverty is relatively rare in cities, it is commonplace in the countryside Anybody with a scrap of concern for other huusted at the situation, but they should also recognize that Nike and other multinational companies are not its cause
The solution to this poverty is not going to co countries On the contrary, as countries like South Korea have opened up to multi-national companies, slowly but surely they have become richer As more multinational companies have set up factories, they have coes have risen, not because the coenerous but because they have no choice if they want to attract good workers Local fir employers, too It becomes more and more attractive for people to work in a factory and to acquire the necessary skills: education i rural earnings for those who remain to a overnment revenues rise and infrastructure, health clinics, and schools ies inexorably rise After adjusting for inflation, the typi-cal Korean worker earns four tio Korea is noorld technology leader and rich enough to subsidize the hell out of its agriculture like the rest of the rich countries in the world The sweatshops have moved elsewhere
It is difficult to be unet rid of theood news in tays: they are a step up fro on the ladder to so better
But plenty of people think otherwise William Greider, a left-of-center political co a resolution in 2001 requiring that the city refuse to buy uniforhters unless they were pro-duced under ”decent wages and factory conditions” Such a reso-lution can only harm sweatshop laborers: they'll be out of a job and-literally, for those in Manila-back on the trash heap Of course, it will be good news for textile workers in rich countries, who'll get the business instead I doubt it is a coincidence that the city council resolution was drafted by UNITE, the Union of Needletrades, Industrial, and Textile Employees, exactly the people ould benefit if ioods decreased (If you findclothes, why not visit UNITE's website and order ”union-)
The power of special interest groups Harry Truman is credited with the request for a one-handed econoive advice and then say, ”on the other hand”; Ronald Reagan, who always had better speech-writers, once said that there should be a version of trivial pursuit for economists ”with one hundred questions and three thousand answers”
True enough, econoree But it is a rare economist ill not be enthusiastic about theeconoreat advance, and that even if other countries refuse to lower trade barriers ould be idiots not to lower our own
Economists estimate that the benefits of free trade are enor-mous For example, when japan was forced by the United States to open its ports to trade in the 1850s, following decades of isola-tion, it began to export silk and tea to an eager world e for cotton and woolen clothes, which were cheap in-ternationally but expensive in japan As a result its national incouay round of trade negotiations, which reduced trade barriers across the world frohly 100 billion If tariffs on agricultural and industrial goods, and services, were reduced by a third, there would be a further gain of 600 billion-about 2 percent of world income Removal of all trade barriers would deliver over 6 percent of world income These are surely under-estimates of the benefits, because they include only the oods frohtforward appli-cation of David Ricardo's theory of coes are likely, since, contrary to popular belief that trade is the friend of the multinational, free trade also destroys the scarcity power of big fir thees the use of neays of working and better technology So nations powerful reasons not to go to ith each other
If free trade really has so many benefits, why does the world still have so rab easy votes by lowering trade barriers? Why did the japanese have to be forced to implement a policy that almost doubled the country's income? Unfortunately, in roups with disproportionate influence have reasons to oppose free trade
Tariffs tend to iuised cost on her prices, and a further cost on foreigners, who do not have a vote The benefits of the tariffs are substantial for a narrowly concentrated group of people, often sectors with organized unions and large businesses If voters are well informed and fully understand economic theory, then in a democracy the protectionists will be voted down But if people are not well inforiven the small effect on any particular voter of any particular tariff, the tariff n for trade restrictions is disguised as a can about sweatshops Reform efforts may also be stymied by inertia and nervousness on the part of these poorly inforroups are well aware that they stand to gain from protection and find it hile to devote substantial funds and lobbying effort to defend their narrow interests
In a healthy democracy special interests should have less power than in a fragile democracy or an underoups are part of the explanation behind trade barriers, we ht expect countries with better-established democracies to have lower trade barriers
The numbers tell us exactly that In 1999, the United States had average tariffs of 28 percent In the European Union, aver-age tariffs were 27 percent In the eedly a paragon of econoiant economies of China and India, 157 percent and 295 percent respectively We have already heard that the poverty and corruption of sad little Ca 614 percent
It seems that even if we are able to pressure our politicians to do the right thing for everyone by reducing tariffs, an equal re-sponsibility lies with the governments of these poor countries Why do they maintain tariffs, which harm their citizens? Per-haps because international isolation is good for political stability The world's longest-serving political leader is Fidel Castro, surely president-for-life as a result of sanctions from the United States, which have had the opposite effect to that desired Saddaer than ever after a decade of sanc-tions: it was external force, not internal change that removed him Myanly stable governments
This explains why the japanese had to be forced to liberalize and vastly increase the country's incoood of the japanese people but for the good of their rulers, the Tokugawa clan Historian Janet Hunter concludes: Mechanisms of political control were backed up by a harsh systeulation, which attee a foreign influences wereoff the country from virtu-ally all contact with the outside world
While these careful awa rule for some two and a half centuries, they could never hope to prevent all social, econon contacts with the United States and the iht ] the crisis over US deawa authority went rapidly downhill
Special interest groups have tried to define the trade policy of the United States, with varying success Tariff barriers have to be approved by Congress, and congressional representatives de-fend the interests of their own constituents, de in Iowa, steel in Pennsylvania, sugar in Florida, or auto- votes with each other they could get tariff after tariff passed, and if the president caotiation with a treaty in his hand reducing trade barriers, they would refuse to ratify it
Presidents tend to be more enthusiastic supporters of free trade because they need votes from the whole nation, and so would be relatively less likely to favor locally concentrated protectionish, after 1934, when President Roosevelt persuaded Congress to grant hi preapproval for trade treaties, tariff rates in the United States fell from about 45 percent to about 10 percent in two decades Now that the president has responsibility for trade policy, they have been falling ever since
Of course, presidents are not totally immune from special-interest politics: the iuarantees protection of sugar producers at the expense of the nation No political system is perfect, but democracies tend to favor trade ood for the ordinary person
How can we athered by now that I a fan of both coffee and beer My favorite coffee coium My life is much happier because of the Tiian brewers I hope that I have done enough to persuade you that their lives are happier because of me A fundamental characteristic of the kinds of social interactions that economists usually study is thateverybody wins
Unfortunately, so well, and so are the Belgians The Ti worse if it were not for trade, but that is not enough for us to relax and forget about therowers are poor because they have no scarcity power There aremass-market coffee requires hard work but little skill No individual coffee grower has any power to affect the market price Even if countries can act in unison, they have no scarcity pohen the top coffee producers atte two-thirds of world coffee production, the association of Coffee Producing Countries, it failed and shut down Whenever the cartel succeeded in raising prices, new farrowing coffee Vietnarown in the country at all, but now it is the world's second-largest producer of coffee A cartel designed to exploit scarcity power can work only if new producers cannot easily enter the et that one of the reasons it is so easy for poor farrow in France or Florida, and so rich farh tariffs Unprocessed coffee is relatively free of trade barriers, so one further effect of trade barriers on beef and rice and grain is that farmers in poor countries are forced into niches like coffee, which cannot sustain all of theet into, I a to make a prediction: coffee farmers will never be rich until most people are rich If coffee farmers became rich but other farmers or workers in sweatshops were poor, the others would switch to farh coffee prices will always collapse, until work-ers in sweatshops beco jobs, who don't find the idea of being even a pros-perous coffee farmer attractive
We need to understand that narrowly focused initiatives on ”fair trade coffee” or ”sweatshop-free clothes” will never make a substantial in to prevent New York City fro unifore Others, like the nu-merous brands of fair trade coffee, are likely to i a great deal of harm But they cannot fix the basic problehtest hint that coffee far will become an attractive profession, it will always be swamped with desperate people who have no alternative The truth of the mat-ter is that only broad-based develop standards of the very poor, increase coffee prices, and ies and labor standards in shoe factories
Can such broad-based develop world are much richer than their parents were Life expectancy and education is rising, even in countries that are not getting richer This is only partly because of free trade; there is far ly, many different reforms have to be put in place There is one country in the world that has done this forpoint than any in history It is where we shall finish our journey
TEN
How China Grew Rich
”My God,” I said
I was standing with yuan,” the People's Park, in the yuan is the Central Park of the twenty-first century It gaverush asout into the space of the park allowed us to feel the full visual ihai's skyscrapers One was acrown of fourat a perfect point; the entire toas rotated forty-five degrees around its axis so that the top forty floors sat at a diagonal to the botto-ing suspended sixty floors above the city Not every design was in the best of taste: one had a domed penthouse that looked like it had been stolen fro-saucer movie There must have been thirty skyscrapers, half a dozen of which were on an incredible scale All of them were brand new
”My God,” said Fran
”When were you last in Shanghai?”
”Ten years ago”
”How ht for a moment
”You see that one?”
”The boxy forty-story office building over there?”
”No That one just beneath it” She was pointing to a twelve-story red-brick building, dwarfed on every side by more modern constructions