Friday, March 6, 2009

Predatory Trade: The Other Side of the Equation

This article in the Washington Post fleshes out the other end of an equation that has decimated industry in Southside--"free" trade and what it really does for the people it's supposed to benefit. 

Whatever the talking points about how great it is to lower trade barriers and provide jobs for poor countries trying to develop their economies, "free" trade as practiced by U.S. government and Western business interests over the last twenty years is nothing more than greed disguised as altruism. What's more, I think this article shows that it's completely unsustainable, and here's why: 

The constant search for greener pastures always ends up the same way--U.S. Textile Company wants to save some coin on labor costs, so they move their factories to Emerging Country where they can pay a fraction of the cost in wages and benefits. Emerging Country's government wants to, well, emerge, and they're thrilled to get some jobs.  Emerging Country benefits for a while (even though the people who work in those factories are living on scratch) and skylines start to pop up. But then something happens--either the economy tanks or Textile Company finds another place where people will work for even less, and the factories go there. Emerging Country's poor factory workers are right back where they started, and in the end no one really benefits. 

Meanwhile, U.S. Textile Company's former employees back home are out of work, but many of them only have a high school diploma and several years of manufacturing experience. They start looking for other factory jobs, but it turns out U.S. Furniture Company has also shipped its jobs overseas, so they're stuck with all their living expenses and no income. They have to get by somehow, so they turn to credit, take predatory loans and dig themselves in even deeper because they don't feel they have a choice. Since they're scraping by on nothing, they stop buying the material goods they normally would have bought. No plasma screens, no new cars, no vacations, and the companies that sell them start to hurt--that's trickle-up economics, boys and girls.

Take that story and re-tell it in every small town across America and you start to see what a bad idea it is for the largest economy in the world to completely sell out its middle and lower-middle class in the interest of short-term gain. I'm not an economist, but I think that in a nutshell is why the whole world economy is going down in flames.

In times like these, we always hear economists extolling the virtues of world trade and warning us about the dangers of protectionism. To be fair, we live in a global economy whether we like it or not, and as long as globalization stays at a manageable pace and is handled responsibly, we actually can benefit. Here's an example of what I mean: In their economic collapse following World War II, the Japanese government made a conscious decision to support certain industries, namely automotives and electronics. The thinking was that if Japan offered high-quality exports, Americans would buy them. The Japanese built their manufacturing sector on indigenous labor, and yes, there was a high degree of government involvement in this endeavor. Where top graduates from American colleges often seek high-paying Wall Street jobs, top Japanese graduates went into the bureaucracy to plan export strategy, and it seems to have worked--you're probably reading this on Japanese-made hardware, and I'm thinking my next car might be a Toyota Yaris. 

Japan went from total devastation to economic boom in a little more than a decade because of this strategy; Korea and Taiwan took a similar approach. If Japanese labor makes a better car or computer for a better price, sign me up. As long as they're not siphoning off American jobs, I don't see anything wrong with buying their product. They're creating a middle class that can then go and buy American exports as well. It's fair competition, and that's what capitalism is supposed to be about. 

But the WaPo story shows what happens when capitalism is left in the hands of the short-term-profit, deregulate-everything now crowd--they do more to hurt it than any protectionist trade policy ever could.

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