Competing with High-Wage Workers

by Don Boudreaux on February 26, 2007

in Trade

Here’s part of an e-mail sent to me recently by “anonymous.”   “Anonymous” was inspired to write by this post in which I criticize, among others, Paul Craig Roberts’s views on trade.

Why can’t you [Boudreaux] understand that the world is super different today than it was back in the day when your beloved “free trade” ideas were developed?

How can American workers not suffer for a long long time if they have to compete with millions of third world workers getting poverty wages?  Supply and demand Mr. Boudreaux.  Higher supply of workers means lower wages.  That result…is unavoidable if we continue our mindless commitment to free trade in today’s world with its excessive supply of labor.  Dr. [Paul Craig] Roberts understands economics and you don’t.

I’ll not dwell on the allegation that the world today is so different from the world of Adam Smith, David Ricardo, Frederic Bastiat, Fritz Machlup, and Milton Friedman that fundamental theoretical insights discovered, refined, and explained by these scholars no longer apply.  That the world today differs in many ways from the world of 200, 50, or even five years ago is indisputable.  What is much more disputable is the implication that these differences render some of the most basic insights of economics inapplicable.

In “anonymous’s” mind, the apparent, relevant difference between today’s world and that of the past is the increasing practicality of workers in low-wage countries to compete with workers in high-wage countries.  What scares “anonymous,” P.C. Roberts, Lou Dobbs, and others – including, I think, The Nation’s Eric Alterman – is this huge source of inexpensive, high-quality output.

But I’ll bet that “anonymous,” P.C. Roberts, and most other trade skeptics aren’t afraid of intelligence here at home.  I’ll bet that they aren’t afraid of American ingenuity, entrepreneurial determination and creativity, and advances in both pure and applied science that increase our ability to transform, ever more efficiently, raw materials into consumable output.

“Anonymous” and other trade skeptics write as if the only competition domestic producers face is competition from lower-wage workers in foreign lands.  But workers in the U.S. (and elsewhere) compete also with each technological advance that makes automation of certain tasks less expensive than using labor to perform these tasks.  As humans’ intelligence about technology increases – as, undoubtedly, it has been steadily increasing for centuries – American workers face increasing competition from lower-cost competitors right here at home.  These competitors are machines and processes that continually make some jobs unnecessary (or, more precisely, too costly to maintain given other options).

Look at the same phenomenon from a different angle: American workers are forced to compete with high-wage workers right here at home – workers who specialize in R&D; engineers who figure out how to produce more output from any given amount of inputs; top-flight managers who succeed at squeezing from given bundles of inputs within firms more output.

Should we fear our increasing ability to transform a given amount of inputs into larger and larger volumes of output?  Would American workers be better off if they faced no competition from such technological advances – if government erected internal tariff walls to protect existing producers from the competition that comes from the minds and efforts of such high-wage workers as scientists, engineers, entrepreneurs, and successful managers?

Are the basic laws of voluntary exchange and the insights about the productivity of a deeper division of labor somehow rendered inapplicable to our domestic economy because, with ever-greater success, technology is a source of inexpensive outputs whose production once required the use of well-paid workers?
Until protectionists can explain why sources of greater, less-costly outputs are bad, they have no serious economic case to make against international trade.


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