|Print | Back||January 1, 2013|
The Dismal ScienceFree to Trade
by Adam Smith
When you are in graduate school you hear all kinds of stories from professors. Generally these stories are funny and as young students you tend to take them as gospel. It is only later in life when you become more cynical that you realize that maybe all those stories were not completely true. Nonetheless, you are about to get one of those stories I heard from a professor.
Economics as a real academic discipline starts in the 18th century and then really accelerates in the 19th and 20th centuries. By the mid 20th century, economists had a reasonable idea about how an economy works and why. Since Alexander Hamilton was advising President Washington, knowledgeable people have been advising US government officials on what is wise and prudent economic policy.
In the late 1960s or early 1970s economists were puzzled. Why did politicians not follow their advice? The economists thought they had answers to the country’s economic woes but the politicians did not act on their advice. So the economists did what they know how to do and that is do some research. The study they authorized produced a startling answer. Politicians make economic decisions based on what is in their political best interest not on what is best for the economy. (I know this is stating only the painfully obvious but once you know some really bright economist you can understand why this would not be obvious to them. Think Sheldon on The Big Bang Theory for a reference.)
This leads me to my current topic of trade. It has been known (analysis by David Ricardo) for a couple of hundred years that free trade between counties benefits the economies of both countries. This is done through something called comparative advantage. Prior to Ricardo, the general thinking was that there is only so much stuff in the world and the only way for me to get more stuff is to take away from you your stuff. It was a zero sum game.
A simple example of comparative advantage would help to illustrate how it works. Suppose there are two countries – A and B. A is really good at making pizza and country B is really good at making Sprite (given the nature of this website I will dispense with the normal beverage used in economics examples). Prior to trading, both countries make both pizza and Sprite. They each have to produce enough pizza to feed their population and Sprite to drink.
The countries agree to trade and now country A can focus on producing pizza with their limited resources and country B on Sprite. Because they are each focusing on what they do best the total amount of pizzas produced by both countries increases as does the amount of Sprite produced. There is actually more stuff to go around to everyone.
In general, the more a country embraces free trade the more prosperous the country will become. America’s continued devotion to free trade has helped our economy but also has helped those counties that trade with us.
Consider those countries that America has increased trade with over the past 50 years: Japan, Taiwan, China, South Korea, Mexico, Vietnam, etc. There have been literally hundreds of millions of people that have been lifted from total grinding poverty to some level of self sufficiency or even prosperity.
As members of the LDS church, our perspective about who are our brothers and sisters is different than many other people. All the people on the earth are Heavenly Fathers children. He cares about each and every one of them. In our opinions about trade, we should always consider not just the impact of trade on America but also what it means to our trading partners.
This needs to always be done with care. An example will help demonstrate how lack of understanding can be disastrous.
A congressman found out that manufacturing plants in Bangladesh were using child labor. Of course this is an outrage and action had to be taken. The US Congress cannot outlaw child labor in Bangladesh but it can pass laws that severely punish companies that trade with companies that employ child labor. This is exactly what congress did and it had the anticipated results.
About five years after the law was passed the congressman went on a tour of Bangladesh to see the good done by his law. As they were driving to various manufacturing plants, the congressman saw many children on the side of the road. The congressman inquired about the children to his guide. The guide told him these children used to work in the factories but now that there were not allowed to work they sold themselves as prostitutes to make money.
The next time you hear someone screaming about how US businesses are exploiting workers in other countries think about the children in Bangladesh and consider what are the alternatives for the workers. Most times it is something much worse, including starvation.
Responsible US manufacturing companies routinely monitor off-shore plants they do business with and even sign up to allow other independent auditors to come in and make sure that employees are treated fairly. These reviews include salaries paid and working conditions.
This column was not intended to make you an expert on trade. Some people spend their life studying trade and its impact on economies.
In my opinion, just as Christ expects those individuals with excess funds to help those in need, Christ also expects us as a country to help individuals in other counties as much as is practicable. Free trade can lift another country’s economy and its citizens the same way that just giving money many times crushes another country’s economy and its citizens.
I am proud (and you should be, too) of the way our country has blessed the lives of so many of our brothers and sisters in other countries. There is so much work left to be done.
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