Economic Freedom Index (2004)

(Source: http://www.freetheworld.com)

Assignment 7. Read the following critique of tree trade. Summarize the author’s views on the dangers of liberalization.

Thought For Labor Day: Conservative Dogma Pulling Marx Out of His Grave

Libertarians and free trade economists don’t realize it, but they are pulling Marx out of his grave. Free traders are resurrecting class war, not because they are Marxists but because they confuse free trade with global labor arbitrage. Free traders turn cold shoulders to a country’s job losses from offshore outsourcing, because they mistake the losses for the beneficial workings of comparative advantage.

Committed to a 200 year old theory that they no longer understand, free traders are cheering on the destruction of middle class jobs and the dismantling of the ladders of upward mobility that make large income disparities politically acceptable.

The destruction of the stabilizing middle class is occurring simultaneously with an extraordinary increase in income inequalities. Not so long ago CEOs were paid 20 times more than the average employee; now some are paid hundreds of times more. The "gilded age" is returning while the value of a college degree is declining.

According to the Bureau of Labor Statistics’ 10-year jobs forecast, the majority of US jobs that will be created in the coming decade will be in domestic services that do not require a college education. This is a strange job outlook for a high tech economy allegedly benefiting from free trade.

Free trade economists have forgotten that not all trade reflects the beneficial workings of comparative advantage. For comparative advantage to function, a country’s capital must stay at home and be allocated to activities in which the country has comparative advantage. The other necessary condition is that countries have different internal cost ratios of producing different goods.

When the principle of comparative advantage was discovered, capital was mainly kept at home under the watchful eye of the owners and protected by the country’s laws. Tradable commodities were primarily products influenced by climate and geography, guaranteeing that the cost of a yard of wool in terms of a bottle of wine would vary among countries.

Today capital is more mobile than tradable goods. Modern production functions are based on acquired knowledge and produce identical results regardless of location. When a US corporation closes a factory in Ohio and relocates its production for US markets to China, the loss of US jobs is not the result of a Chinese firm gaining a comparative advantage over the Ohio one. It is the result of US capital seeking absolute advantage in lower cost Chinese labor.

Free trade economists have completely forgotten that the flow of resources to where they have absolute advantage does not result in mutual benefit. The country that receives the resources gains and the other country loses.

When capital and technology flow from the US to China and India, the productivity of labor in China and India rises. In the US it falls.

Outsourcing is eliminating entire American occupations in engineering and information technology. As there are fewer jobs for graduates, engineering enrollments in the US are declining.

Libertarians and free traders are so emotionally enamoured of the market that they have forgotten that markets can as easily work against a country as for it. In the US, markets are working to reduce the supply of American engineers as US corporations lay off their American employees and replace them with cheaper Chinese and Indians. Product development, or research and development, follows manufacturing. As US manufacturing moves offshore, so does research & development (R&D). Innovation follows R&D, with the consequence that US science is also in relative decline.

In brief, free trade can lead to the development of the labor force characteristics of a third world country in which jobs are available only in lower productivity, lower paid "hands on" domestic services. As bad as it is for the individuals that might lose their jobs, it is even more costly for the country. The outsourcing of jobs and the importation of foreigners on work visas are emptying the pipeline of qualified workforce and destroying a country’s technical occupations.

By associating freedom and market solutions with policies that are eroding a country’s prospects, freedom’s defenders are unwittingly stabbing freedom in the back.

(After P.C.Roberts, source: http://www.vdare.com/roberts/050904_marx.htm)

Date: 2015-09-23; view: 306; Нарушение авторских прав