Free Trade

by Don Boudreaux on April 28, 2006

in Trade

I don’t worry about people in America trading with people in China.

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JDB April 28, 2006 at 1:49 pm

The Chinese still haven't embraced democratic values, even as China regularly follows a pragmatic approach to governing. I heard Hu Jintao pay lip service to the concept, but actions speak louder than words.

The Chinese are all about economic growth, right? That's their whole deal. Incorporating some type of democracy would pay off economically in the short and long run, not only for the Chinese people but in terms of tax receipts and whatnot.

So here we have a problem: If the Chinese are such devotees of national economic growth, why haven't they made a move that pays dividends for them in the long-run? We know that they think in terms of the long-run; that's all I've ever heard about China since about 1996.

I can't help but think that they have some domestic issues that they're going to have to work out over the next twenty years or so.

JDB April 28, 2006 at 2:26 pm

The Chinese have these grant, global aspirations…but I saw a special on PBS a few weeks back that started out recounting the tale of that guy who heroically stood in front the tank back in 1989. I saw a lot of economic production going on, but very little innovation. Who are the Chinese entrepreneurs? As far as I know, there aren't many.

This then begs the question: Can the people of a nation be free to think in terms of innovation when their access to information is so strictly limited? If I were building the better mousetrap in China, I sure wouldn't want to go through the bureaucratic "red" tape to get to the information I need. And that's my point. For all the rhetoric surrounding Chinese economic liberalization, the people are still drones.

I just don't think that China can truly become a global power on the backs of cheap televisions and selling bootlegged Garry Shandling videos (groan).

Robert Cote April 28, 2006 at 3:10 pm

The Chinese have turned their own puzzle box into a prison. They have encouraged a society that devalues intellectual property. Stealing Windows is technically worth tens of billions but it means they can never market their own software or music or movies, etc.

Abhi April 28, 2006 at 6:17 pm

Why should selling cheap stuff not make China a global power? (Even assuming that the stuff they sell is 'cheap' and the useless junk it is made out to be)

Wouldn't it also depend on how much of it is being sold and how much margin is being made on each item?

Let's say you have a really advanced software package that you sell about a dozen a year. Does it make you richer/ more powerful than say if you sold a million 'cheap' computer games in the same time?

But then again the question here is whether keeping on buying the 'cheap' stuff is good for you or bad in the long run.

donny April 28, 2006 at 8:45 pm

I just don't see how Chinese government, or any government, can stop music and software piracy without being excessively intrusive or brutal. I'll believe that can happen as soon as pot disappears from North America.
I remember as a child hearing that all the stuff from Japan and Taiwan was cheap junk. And then that they could copy Western ideas and infringe on Western copyrights, but somehow lacked in homegrown ingenuity and entrepreneurialship. And then that they were engaged in unfair trade practices and if only we had equal access to their markets (while still reserving the right to protect our own markets)…
The shifting prejudices against Japan showed that the japanese must have been doing something right.
I remember when people argued that China could never feed herself because her population was too large. They were wrong. I remember when people said China could never build a world class economy selling cheap clothing. Now people say she can never get anywhere building cheap tvs. First, that ain't all China produces by a long shot. Second, I hope and believe that they're wrong again.

JDB April 29, 2006 at 12:01 am

Well-played, "donny." Instead of analyzing what I had written and writing a thoughtful response, you compare my ideas to what was going on in the 1950's. It only might have been more effective had you said that my wife is "barefoot and pregnant," in the kitchen and cooking my dinner. Again, well-played.

No one is doubting the ingenuity of the Asian Tigers. China has a long tradition of inventiveness and creativity. What I am saying, is that the Chinese government has built in institutional mechanisms that prevents economic innovation from developing. In contrast, the post-war Japanese Constitution (1947) was specifically laid out for 1) guaranteed human rights, and 2) universal suffrage. You'll see something similar in Taiwan and South Korea.

I have no doubt that the Chinese can and will produce good things. Just so long as somebody else thinks them up.

I should have clarified my remarks at the outset. China can be a power (they're a power today). They just won't be THE power that's in the Chinese government's dreams.

My opinion is grounded in this cold, hard fact: When the Chinese restrict access to information, or even bury it in a bureaucratic muddle, there is a disincentive to create something that didn't exist before.

happyjuggler0 April 29, 2006 at 2:42 am

The above link is a LONG article on Google and China and how it all came to be.

The Chinese can get any info they want, so long as that info does not involve upsetting the apple cart. They can also say anything they want, so long as they don't try to organize dissent.

But everything else they can get. To say that lacking info on the Tiananmen Massacre or on Falun Gong will prevent them from being innovative is silly.

Ultimately democracy is only a means to an end, and that end is freedom. It is important to not think that democracy is an end in itself, or democracy will then be used against freedom, much like the US Constitution is getting torn to shreds.

The Chinese are getting more freedom all the time. They aren't getting it all, but neither are we (the US). This doesn't mean that I don't wish China had a democracy, I do. But like they say, patience is a virtue. China's day will come, but there is no way we will impose it on them.

As far as innovation is concerned, Paul Krugman convincingly debunked the notion that the Asian Tigers got big by innovating or doing anything "miraculous". They grew by saving and investing more than they once did. Period. China has a *lot* of growth to do before they have to worry about the copycat slowdown that will inevitably happen.

Krugman link debunking Asian Tigers (btw, he did not say Japan didn't innovate. Japan was not one of the Asian Tigers.):

JDB April 29, 2006 at 12:05 pm

Dueling articles, eh? Here's one:

The point of the NYT article, it seems, is to make readers think that the Chinese people are in love with a benevolent dictatorship, and that they are quite capable of stifling questioning, innovative thought in one area (political) while expounding it in another (economic).

donny April 30, 2006 at 10:47 pm

I'm sorry that I mistook your calling the Chinese "drones" for some kind of prejudice.
The Chinese live in China, under a totalitarian regime, they do not live in the Borg collective.
I don't think restricted access to information is a disincentive to innovation so much as an impediment; and people tend to find creative ways to get around those.

My father went to work in a greeting card company some years ago. He had a grade ten education and a step father who always told him that he didn't have much brains so he'd better find some way to make a living with his hands. They started him on a folding machine, feeding stacks of cards in one end, someone else catching them on the other end and putting them in boxes. If something went wrong, he was supposed to wait for the setup guy to come along and adjust the machine. My dad is mechanically inclined, and pretty soon he was making those adjustments himself before the guy got there. Pretty soon my dad was the setup guy.
The main problem with those folding machines was paper jamming, and wedging tight, and it cost a lot of production time, and eventually my dad came up with a way to reduce jamming which involved rubber bands.
My dad ended up supervisor of the printing and finishing department, and he kept coming up with new ways of doing things (sometimes when he should have been supervising). He left the greeting card company to form the small corporation which we've both been working in since 1987. We're not wildly successful, but we make a decent living, and I think my dad qualifies both as an entrepreneur and as an innovator; we currently do all of our work on small cnc engravers which he designed and built himself, at less cost than we could buy from China. We've checked.
Maybe somewhere in China, some twenty-year old kid who always had to fix his own bike, is standing on one end of a folding machine, thinking. There might even be many people in that sort of position. Entrepreneurship isn't all fuel cells.
I don't think that the severity of restriction of information that you seem to suggest would even allow for the chinese production of goods that currently exists.
The Soviet Union didn't need democracy to be a global power.
" The point of the NYT article, it seems, is to make readers think that the Chinese people are in love with a benevolent dictatorship, and that they are quite capable of stifling questioning, innovative thought in one area (political) while expounding it in another (economic). "
You can turn that one around, you know: can the Chinese government keep independent thought stifled, while allowing greater economic freedom?
I do agree with your main point, which I think is that China will never reach it's full potential until it is as free as we are in the west. And I don't really think that you are prejudiced against the Chinese people, but rather against the government of China, which neither of us would like to be subject to, and which neither of us wants to continue in it's present undemocratic form. But it is what it is, and if a man steals a house, and then takes good care of it, he is a thief, and a bad man, but a skilled housekeeper.

Aaron Krowne May 1, 2006 at 12:18 am

Neither Don nor anyone else has mentioned how China's currency manipulation is in large part responsible for the imbalanced trade situation. If you get a 20-40% discount on goods and services well duh, where do you think you're going to get them from? From the discounter, of course.

I do give Don credit for pointing out that it is ultimately the US government's responsibility for taking on so much public debt. The problem with this particular critique is that for the situation to change, the definition of money in the US would have to radically change such that we would not be compelled to sell dollar-denominated public debt to any party that had dollars to spend on them.

But that won't happen freely–which is to say, before the whole system collapses.

Ann May 1, 2006 at 3:41 pm

"China has a long tradition of inventiveness and creativity."

Not for the last 7 centuries or so. They were world-leaders for the first few centuries of the last millenium but have been stagnating since about 1350. The Chinese culture has many strengths, but inventiveness and creativity haven't been their strong points for a very long time. Note – this is a generalization, in response to another generalization, about the culture. Of course there's individual variation, but the culture in general has stressed stagnation because it was thought to lead to 'stability'.

"The Chinese can get any info they want, so long as that info does not involve upsetting the apple cart."

One problem with this is that the definition of 'state secrets' is whatever a Chinese Communist Party member happens to decide it means on any particular day. Revealing accurate statistics on AIDs, or SARS, or economic growth, can land someone in prison for many years. Being at all critical, in any way, of any level of government or any regulation can get one in serious trouble. How are they going to improve if no one is allowed to give accurate feedback?

This is a government and Party with virtually unlimited powers, which they use frequently in many aspects of daily life. So, saying that the people can safely discuss anything as long as it doesn't remotely touch government or the current state of affairs, just isn't saying much. How can you predict what some minor Party official might someday decide is an attempt at 'upsetting the apple cart'?

Jeff Younger May 2, 2006 at 4:37 pm

China uses conscripts and political prisoners to work in factories owned by the People's Republic Army which produce consumer goods.

I'm a capitalist, and I cannot see how trade with such an entity can be justified.

Can anyone here provide justification?

donny May 3, 2006 at 9:56 pm

Can trade with the people of China be separated from trade with the government of China? Can people actually in China ethically trade with each other? Can they enjoy the tiny bit of freedom that isn't stolen from them? Could anyone justifiably trade with the United States back when wars were fought with conscripted forces?
I can't provide justification for trading with "the People's Republic", but neither can I provide justification for not trading with individual Chinese businesses and individuals. Anybody?

Jeff Younger May 4, 2006 at 11:56 am

Donny, the problem is this: the Peoples Republic Army secretly owns many "businesses." The PRA is a profit-making entity. This fact is well known. China is less capitalist than mercantilist.

When dealing with Chinese businesses (and undeniably there are many private ones), how would you ever know that you weren't supporting slave labor? The Chinese government has intentionally prevented you from finding out which companies are private and which are owned by the PRA.

I don't think your justification works.

donny May 5, 2006 at 10:08 pm

Every prisoner is a political prisoner. Don't forget the "War against Drugs."
Consumer goods are also produced in U.S. prisons. The reasons given for prison labour are similar in the US and China; inmates are given the chance to become productive members of society, and to improve their character, and to improve their lot even while in prison. I'd like to believe that the American politicians, unlike the Chinese, are telling the truth when they use these alibis, but years of watching 60 minutes makes this hard for me to do.
The obvious motive for these institutions to use prison labour is to increase the number of prisoners that can be incarcerated. I think one thing worse than an overcrowded prison system is a booming prison system with plenty of ability to grow.
All this being said, you just about got me, Jeff; but I'm starting to wonder if I can ethically spend my money anywhere?

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