The Case for Globalization

As I mentioned yesterday, I have a strong liberal/democratic tilt to my politics. I want better environmental policies, maximum spending, lots of government services, etc. The one area in which I differ is that of globalization.

Free-trade, globalization, whatever you want to call it has a history of explosive conflict and hot debate. I think that we can all agree (except for a small group of radicals) that no trade at all would be a bad thing, but the point at which globalization becomes an issue to many people is when they think that they (or a group that they speak for) are not getting good benefits from the trade. That reason is why there are tariffs on various imports in this country - to protect domestic production.

I agree that sometimes it seems like one group or another will get the short end of the stick from a trade, like U.S. car manufacturers during the import boom of the 80s, or south American sweat-shop workers who get paid a matter of cents per day. The inherent problem with this view, is that a successful world economy is a long-run proposition. We must make sacrifices in the present to realize a stable, healthy world economy in the future.

Of course, what proof do we have that the U.S. economy can rebound from tariff free imports, or that third world labor will ever advance beyond their meager salary? The answer to this question lies in the basic theory of economics. To explain this gigantic macroeconomic system, I will explain a much smaller system.

A small town named Burt is founded in an area with a pond. The locals live from meager farms and fish from the pond. The pond supplies only a limited number of fish because it is fed by small mountain streams. They are all reasonably happy, but their wealth is extremely limited. One day, there a merchant arrives selling fish. The fish are better than the people of Burt have ever tasted, and seem to have limitless quality. This is because the merchant is from the town of Reynolds which is far away on the banks of a river. The river supplies Reynolds with more fish than they can handle, so they sent out a merchant to find buyers. The people of Burt trade their crops for these superior fish, and the merchant goes home a wealthy man. At this point, it seems like Burt got fleeced and they traded extremely limited goods for something that Reynolds seems to have a lot of. That is where the second part of the story begins. The merchant tells tales of Burt to the many citizens of Reynolds. They are entranced by its quaint characteristics, and soon many travel to Burt. Burt opens hotels and restaurants to accommodate the new travelers, and soon there is a large trade of Reynolds fish for Burt's charm. In the end, a village whose main asset was its charm was able to utilize that to the fullest, and a village whose main asset was fish was able maximize their specialty as well.

The global economy is far more complicated, I agree, but the moral of this story is that economies will benefit from focusing on their specialties. Why should America produce goods that require much unskilled labor, when we could completely focus on service, IT, ideas, advertising and international finance? Let the developing world make our crap for us! So what about the developing world? Won't they just get poorer and poorer because all they can do is produce our crap? Yes, until they create a new specialty. If trade is completely free, then the poor will seem poorer and the rich, richer for a time, but eventually everything will equalize.

The problem with this plan is that wars, famine, and other factors can break the equilibrium. For this reason, minor watch should be kept on trade, and outright villainy should be punished. Developing nations should be allowed to work in sweatshops, and their children will long for more, and the next generations ideas will create specialties. Those that are too intelligent or skilled for these specialties should do what they can to move to a country or region that can sustain them. Meanwhile, the developed world should focus on their specialties (those that center on intelligence and skill), and those that are unable to fit into those specialties should move to a country or region that can sustain them.

The key to long term success in a free trade economy is free migration. If someone who is unskilled lives in a place where skilled labor is the specialty - they can learn, or move. If someone is skilled in a place where unskilled labor is the specialty - they can put up with it or move. If someone with low skills moves somewhere were high skills are required, they will not have success, and will move back to a low skill specialty zone. These areas do not necessarily mean different countries, but they can. Educated Indians are moving to American to take tech jobs all the time, and high school drop outs move to areas where they can get work as dock loaders or other menial labor.

The sad part of this is that there will be poor people, and their will be rich people. But communism is the only solution to that, and that only works if people don't have sex.

My argument is not razor sharp, or crystal clear, but the essential argument is that freedom will lead to equilibrium as long as external factors (war, famine, villainy) are controlled. The international community should support freedom of trade and migration, but should also try to restrict trade or migration that is done with ill intent.