Some skeptics of free trade argue that one of the conditions necessary for free trade to work is that capital (presumably including human capital; i.e., labor) be internationally immobile — for example, Clyde Prestowitz and Paul Craig Roberts. Other skeptics of free trade argue the opposite, namely, that free trade is more justified the more mobile are capital and labor. Here’s The Atlantic‘s James Fallows [original emphasis]:
Here’s the difference between commerce involving New York and New Jersey, and commerce involving, say, the U.S. and China. New York and New Jersey are in the same country. Why does this matter? Let’s try a little thought experiment.
Suppose you grow up in New Jersey. By the time you’re looking for a job, the flow of capital, ideas, and innovation may mean that the best opportunities are in New York. Or Idaho, Or California. Sentimentally, perhaps you’d rather not move away from home. But in a pure economic sense, it doesn’t matter in where the action is. You’re free to move there. Within the national borders of the United States, there are only trivial, incidental impediments to citizens moving wherever they want. All “factors of production” — money, material, people — can flow freely throughout the country, for maximum efficiency. That’s what the ec textbooks call for, and that’s how it can work within a given country, or a free-movement zone like in Europe.
But it’s not the same between countries. If you grow up in New Jersey and the real opportunities are in Shanghai, you can’t necessarily move there. You may not be able to move there even if you grow up in Qinghai province, China. People do move across national borders, legally and illegally. Immigration is America’s distinctive strength, so I’m glad as many move here as do. But in general, people’s economic well-being depends very heavily on the industries and opportunities in the country where they are born.
(HT Tom Palmer)
Now this contradiction among different skeptics of free trade does not prove that both of these protectionist claims are mistaken, but it does powerfully suggest that at least one of these claims is false.
In fact, both of these protectionist claims are false.
If the Prestowitz-P.C. Roberts claim about the necessity of capital immobility were true, then free trade between Manhattan and Brooklyn would be detrimental to the denizens of one or both of those boroughs. As for the opposite claim championed by Fallows, there’s much to say against it. In the letter below, I offer but one objection:
Dear Mr. Fallows:
You argue at your blog that intra-national trade differs from international trade because people and capital can much more easily move intra-nationally than they can move internationally. This point is true, but, contrary to your claim, it doesn’t mean that free international trade is more worrisome than is free intra-national trade.
Indeed, the very fact that, say, Minnesotans encounter more difficulty visiting or moving to, say, New Zealand than to New York makes free trade with New Zealand all the more important for Minnesotans. Precisely because it is so difficult for Minnesotans to visit or to move to New Zealand, without trade between New Zealand and the U.S. Minnesotans would have practically no access to the fruits of the resources and skills concentrated in New Zealand. Not so if trade between Minnesota and New York is blocked, given Minnesotans’ relative ease of visiting and even moving to New York.
One of the beautiful facts about free trade is that it enables Minnesotans to enjoy inexpensive kiwifruit without moving to where it is efficiently grown – while at the same time allowing New Zealanders to enjoy cutting-edge office products, iron ore, and other goods and services produced in Minnesota without moving to the U.S.
Sincerely,
Donald J. Boudreaux
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I think I understand Paul Craig Roberts’ argument that free-trade may hurt one nation in the short-run (if they are significantly different). I don’t see why the loss to one country isn’t offset by the gain to the other.
I also understand Fallows argument that labor is imperfectly mobile, but it seems to me that he is arguing that to get the benefits of free-trade we have to reduce the legal barriers to labor mobility.
Morally, I can’t really see a way to distinguish two nearly identical people on either side of a border, except that I am more likely to be friends with the one on my side of the border.
Rick,
You say you don’t see why the loss to one country isn’t offset by the gain to the other. You’re right, the two do offset one another.
The problem is when you happen to live in the country that is incurring the losses, rather than the one reaping the benefits.
Sort of like when Germany invaded Poland. The loss to the Poles was made up by the gains to the Germans. On balance it was a wash. So what’s the big deal?
“Sort of like when Germany invaded Poland. The loss to the Poles was made up by the gains to the Germans. On balance it was a wash. So what’s the big deal?”
Sort of like? In what history book was this viewed as a voluntary exchange?
Fallow is right. And, Minnesotans will by much less kiwi fruit if their pay drops by half. All that potential trade value is lost.
People should be able to move as freely as goods and capital across borders.
Trade hurts the country that doesn’t have those jobs anymore the same as transportation devices would hurt the car/bus industry. What good are cheap chinese goods to the jobless carmakers? I think the point he’s missing is that if the country whose car industry is hurt focuses on their comparatively advantaged industry, and the labor they save goes there, then they will be more competitive in that arena, increasing what they can get in return for each widget they produce.
I may be accused of being simplistic, but let me boil down what James Fallows is saying:
Exchange works better (on the whole) when there are few (or no) impediments but less well when there ARE greater impediments.
If this is true (and it surely seems to be), then the answer is obvious:
ANY reduction or removal of these impediments (e.g., tariffs, quotas, immigration law, etc.) will yield benefits (in aggregate). And the more these impediments are reduced or removed the greater the benefits.
Prestowitz argues that when China ignores its trade agreements with the United States and other countries, this is detrimental to free trade. Hmm. Seems pretty straight forward.
Trade agreements are similar to security agreements between nations. When one country sends its tanks over the border of another country, the agreement has been broken. Will the aggressor nation just go home once he realizes that the country he invaded isn’t going to do anything about it? Or might the invaded country have to do a little fighting to get the invader out?
I’m going to do something devastating to Don’s argument here: Read the Prestowitz piece. Read the Fallows piece. Now read Don’s post and ask yourself how well Don addressed the points of either article.
If capital (including labor) is immobile then trade is not free. It’s not that capital mobility “justifies” free trade. Capital mobility is free trade. There is no free trade without capital mobility, by definition. We don’t have free, international trade, because we don’t have capital mobility, particularly labor mobility.Since international trade in labor is not free, international trade generally is not free. Impeding international trade in one good necessarily impedes other trade as well, in complex and often unanticipated ways. Without labor mobility, we might say that trade is “partially free”, but “partially free” is a bit like “partially pregnant”. If you limit my freedom of movement in a few, critical directions, you might as well chain me in place, because without freedom of movement in these critical directions, I effectively have no freedom of movement at all.State socialists offer us “freedom”, only without private property. We’ll be “free” except only for a few liberties to organize means of production without the consent of central planners, they tell us, and these few restrictions will actually make us freer to find our happiness, they tell us, but most of us in this forum don’t believe that effective liberty to pursue happiness is possible without private property and its related liberties. At some level, freedom to cross borders with goods, particularly with one’s own labor, is the same.The question is: Does one trade restriction justify another? If you limit my freedom to move eastward, do I benefit by limiting your freedom to move westward in retaliation? At some level, private property is all about these restrictions, but in territorial terms, private property is useful only insofar as one owner may effectively govern his owned parcels. At some point, entitling one governor or a central committee of governors to govern a sufficiently large parcel, even to police its borders, is not “private property” at all. It is statecraft and the antithesis of liberty.
More to the point, if this N.Y. securities firm may choose to employ 800 IT workers in India, but 800 India IT workers may not choose to offer their labor without the intervening ocean, by moving to the U.S., in what sense is trade in IT employment “free”? Obviously, trade is freer for the N.Y. securities firms than it is for the 800 IT workers, and I suppose the masters of N.Y. securities firms, which are among the most heavily regulated (and thus privileged) organizations on Earth despite all of the talk about “excessive market freedom”, are quite happy with the carefully carved “freedoms” channeling so much entitlement in their direction.
The currency of the 21st century is Intellectual Property and Critical Information (IPCI). Both arguments tangentially identify IP, and then ignore it. The advantage the U.S. has in the world is predominantly IPCI — a currency that crosses borders with the click of a mouse, is subjectively valued, and is poorly monitored by the State (despite Sarbox).
IP as an international currency is the real wealth of nations in the modern world — and the international cooperation necessary to differentiate IP from CI is where governments play a role. The more governments tax, regulate, and violate the property rights generally associated with IP — the faster IP is reduced to CI (which is simply a shadow market of IP).
I’m always amused that this 50+% of the equation is generally ignored in discussions of international trade.
how can Intellectual property be called property at all?. would the inventor of the wheel have benefited by getting a goon to enforce his sole rights(and why not to perpetuity) over the wheel.
something that doesnt get diminished by others using it is not property at all. IP is statist as it comes.
Intellectual property is differentiated from critical information by the fact that it is protected by law. The abandonment of IP protection simply turns all IP into CI. Understanding this paradigm, the use of IP protection is a matter of choice — and the use has been widely abandoned by people in the publishing, music, and manufacturing world — simply because they’ve found easier ways to monetize their information or property. In fact, if you seek protection for information, IP laws are nearly useless unless your business plan is to license the information or process — if your plan is to use the information, seeking IP protection usually reduces the value of the information.
Since I assume you’re not going to argue the altruistic nature of man, I offer the following poser.
Let’s assume that I’ve discovered the holy grail of inventions — a perpetual motion machine. Free energy. This discovery has the potential to raise the living standard of every person in the world. If I can protect it, I’ll be very rich (assuming that I can produce a marginal benefit to the consumer). As protected property, my discovery will be shared and applied in thousands (probably millions) of applications.
If I cannot protect it, the best way for me to monetize my discovery is to treat it as CI. I will then begin looking for energy intensive industries and use my knowledge to gain a competitive advantage. I will probably go into the business of producing electricity, and possibly manufacturing aluminum. I will hire an army of security personnel to protect my secret, and I will make a fortune applying it in one or two fields. I’ll be able to earn market rate for energy that costs me very little to produce — and the benefits of these efficiencies will all accrue to me.
Which is better?
In reality, I don’t need to discover perpetual motion. Absent IP protection, a discovery that produced a 5-10% increased output from electrical generators or internal combustion engines would present me with the same dilemma. A discovery that produced a 2-3% improved efficiency in a jet engine would lead me to compete in worldwide transport of goods (avoiding the disclosures involved in passenger service).
People who argue against IP laws generally assume that what was IP will inevitably become public domain. That’s not true — the information has to go through the CI stage — which may be forever.
I don’t understand how governments are supposed to “violate the property rights generally associated with IP”. Governments create the property rights associated with IP by threatening to shoot people.If IP really enables CI, then outsourcing IP outsources CI. If I’m supposed to believe that a lot of system administrators and computer programmers and operators in India will process reams of information and pass the digest back to a few N.Y. banks so they can make the most profitable decisions, … well … I don’t suppose so. I suppose the value of this information will be exhausted long before it makes its way back to N.Y., because the speed of bits in optical fibers is not the limiting factor. The speed of fingers on keys is also a limiting factor.Everyone actually involved in IT knows that the most critical information processing still occurs in human heads, and regardless of the arrogance of corporatist apparatchiks, their heads aren’t really doing the critical processing. They only exercise statutory authority to direct other heads, and the further away these heads are, the more they’ll ignore their masters.Ultimately, that’s a good thing, but corporatist apparatchiks can sell monopoly rights to critical information across borders that I can’t so easily cross, and a few of them can profit from the sales in the short term, while countless others lose much of the value of the monopoly rights. The question in the longer term is this. Will most of us respect the monopoly rights that a few of us sell across borders that most of us cannot so easily cross?
agree. the monopoly power comes from the barrel of a gun wrt corporatists.
will most of us respect the monopoly rights that a few of us sell across borders that most of us cannot so easily cross?
answer is: no. ‘piracy’ is rampant in poorer nations .because?they are thieves?. no because the ‘legal’ price is exorbitant.cirvumventing the power of the gun weilding goons is cheaper (by bribing an equally poor policeman) and a better option than paying 10 dollars for Dan Brown’s latest.
Look at the distribution of computer OS’s throughout Asia. I think you’ll find Linux ~ 40+% — everyone has the option (at the very least) of Windows vs Linux — MS Office vs Open Office — etc.
There’s no gun here. Unless you choose an option outside your budget and consciously choose not to pay for that decision.
“I don’t understand how governments are supposed to ‘violate the property rights generally associated with IP’. Governments create the property rights associated with IP by threatening to shoot people.”
They do — but in the process they allow CI to become public.
“If IP really enables CI, then outsourcing IP outsources CI.”
I agree that IP enables CI. The only outsourcing issues I can see are immediate widespread availability of the technology or process, and profits to the developer (for a period of time).
“Everyone actually involved in IT knows that the most critical information processing still occurs in human heads, and regardless of the arrogance of corporatist apparatchiks, their heads aren’t really doing the critical processing. They only exercise statutory authority to direct other heads, and the further away these heads are, the more they’ll ignore their masters.”
That’s the sort of thinking that keeps attorneys employed. If you’re cashing checks from corporate apparatchiks, you should honor your contract.
As long as they don’t privatize the CI, that’s not a problem, but IP is information.
I haven’t given attorneys any critical information, and I’ll honor contracts insofar as courts will enforce them. The question is: How many contracts will courts on one side of a border enforce when too many monopoly rights exist on the other side? In reality, the United States grew in the nineteenth century by ignoring intellectual property rights claimed by Europeans.
“As long as they don’t privatize the CI, that’s not a problem, but IP is information.”
I think we agree who “they” is — but I don’t understand privatization by “they”.
“The question is: How many contracts will courts on one side of a border enforce when too many monopoly rights exist on the other side? In reality, the United States grew in the nineteenth century by ignoring intellectual property rights claimed by Europeans.”
Which is why I stated in the OP –
“The more governments tax, regulate, and violate the property rights generally associated with IP — the faster IP is reduced to CI (which is simply a shadow market of IP).”
“One of the beautiful facts about free trade is that it enables Minnesotans to enjoy inexpensive kiwifruit without moving to where it is efficiently grown – while at the same time allowing New Zealanders to enjoy cutting-edge office products, iron ore, and other goods and services produced in Minnesota without moving to the U.S.”
DB
That statement is about the Garden of Eden promotional version of free trade which is an outright denial of the biggest purpose for free trade for those who profit most from it. That being access to cheap labor which actually adds nothing to productive efficiency or improvement of the peoples living conditions around the world when considered as a whole.
Let’s rephrase it from the corporatist point of view;
“One of the beautiful facts about “free trade” (har har har) is that it enables Minnesotans and Chinese workers to compete head to head devoid of all work place environmental standards. The Minnesotans can be sold on the benefits of cheap plastic things from China while the Chinese worker can rise above a subsistence wage and have an extra dime a week to spend on other things.
The “wonderful thing” about free trade as currently set up is that it allows capital to flow across borders to by-pass regulations and working standards and force the American worker to compete with the communist Chinese worker. Doing so adds absolutely nothing to world productivity it only cuts workers wages. (overall)
There is only one option here with regards to this race to the bottom for cheap labor since it adds nothing to productivity, the 1 billion people of China will see their living standards brought up slightly in the direction of ours while we see ours brought down significantly nearer to their level. And out of it a wealthy elite class will benefit in far greater proportion as they concentrate more wealth and power to the detriment of all.
That’s the world the professor is promoting. That’s the world we are seeing happen outside our windows. A tenured professor shouting the glories of cheap plastic things to be bought at Walmart… A captain professing the unsinkability of his ship. A liberty seeker promoting concentrated power. An idealist who wants country distinctions blurred and eliminated because he believes multinational corporations share his dreams…. oh and they do… they do. They are all behind the professor 100% because they so believe in his ideas of liberty… and of “free..har har har trade”.
PS; most Kiwis sold in America are grown in America. (Now that’s an actually improvement in efficiency and productivity.)
Muirgeo –If I were to accuse you of being a professor, or hostage, of a political narrative — could you identify that narrative?If so, would you?
Yes, the narrative is that the best way to humanities future is through democracy and not concentrated power. It’s the narrative of Jefferson, Madison, Paine, Jackson, Teddy and FD Roosevelt. I’t's the narrative of cooperative intellect over the combined forces of greed and ignorance.
And your narrative? What… ? God save the Queen???
I find it difficult to believe that anyone seriously sees a distinction between democracy and concentrated power. Wow. If the spectrum was a mile wide, I think I would find trouble fitting a piece of paper between the two.
Cooperative intellect? How do people who disagree with you fit into that? Is the intellectual title reserved for people who agree?
Are greed and ignorance a singular trait? Do they always go hand-in-hand? Does this mean that if you’re not ignorant it’s not greed?
My narrative? Live and let live — mind your own business.
Your collective comments seem to be fixed on what has been the case. The Internet, the speed of money with FDI moving in an out of capital friendly vs unfriendly countries and ease of physically moving across boarders has changed that forever. What is more important is what does this all mean for the future, not what has passed. Even if the US and OECD are looking for CEN – Capital Export Neutrality.
Just last week I was in the Whitehorse pub in Oxford. It was filled with Chinese and Germans and the Polish girl pulling pints mistook me for an Englishman. I didn’t have the heart to correct such a lovely young lady.
Burke
As for the debate on IPCI – sheetwise has got it – may even have read my paper in the Journal of Accountancy on IPCI.
If you do not think of IPCI as a real asset – than you are done -economically for the future. IPCI / intangible property represents over 75% of the balance sheet assets of the companies listed in the S&P 500. Brazil and the US just had a row over the US subsidies of Cotton. Brazil, not a big trading partner yet, has threatened to retaliate by allowing their drug manufacturers to make and sell drugs covered by US Patents. IPCI rights are assets.
We left the Information Age in 2000, we are now in “The Age of the Intangible Economy”. The thought process must evolve or become economically marginalized.
As for the protection of IPCI and enforcement of rights, see OPSEC for protection and if you do that right you’ll have almost no problems with infringement. This is what my little firm does a great deal of each and every day.
Burke
As for the debate on IPCI – sheetwise has got it – may even have read my paper in the Journal of Accountancy on IPCI.
If you do not think of IPCI as a real asset – than you are done -economically for the future. IPCI / intangible property represents over 75% of the balance sheet assets of the companies listed in the S&P 500. Brazil and the US just had a row over the US subsidies of Cotton. Brazil, not a big trading partner yet, has threatened to retaliate by allowing their drug manufacturers to make and sell drugs covered by US Patents. IPCI rights are assets.
We left the Information Age in 2000, we are now in “The Age of the Intangible Economy”. The thought process must evolve or become economically marginalized.
As for the protection of IPCI and enforcement of rights, see OPSEC for protection and if you do that right you’ll have almost no problems with infringement. This is what my little firm does a great deal of each and every day.
Burke
As for the debate on IPCI – sheetwise has got it – may even have read my paper in the Journal of Accountancy on IPCI.
If you do not think of IPCI as a real asset – than you are done -economically for the future. IPCI / intangible property represents over 75% of the balance sheet assets of the companies listed in the S&P 500. Brazil and the US just had a row over the US subsidies of Cotton. Brazil, not a big trading partner yet, has threatened to retaliate by allowing their drug manufacturers to make and sell drugs covered by US Patents. IPCI rights are assets.
We left the Information Age in 2000, we are now in “The Age of the Intangible Economy”. The thought process must evolve or become economically marginalized.
As for the protection of IPCI and enforcement of rights, see OPSEC for protection and if you do that right you’ll have almost no problems with infringement. This is what my little firm does a great deal of each and every day.
Burke
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“They” are statesmen, people making forcible rules.If a court will not enforce words you write on paper, then the words are not a contract, even if my signature appears on the paper, so the whole idea of a court “violating contractual rights” seems nonsensical to me.But my point involving a N.Y. securities firm outsourcing IT services to India involves no courts on either side of the border. By “critical information”, I suppose you meant the sort of information that moves markets on a daily basis, the information that traders inject into a market to make it efficient.Markets become efficient only because arbitrageurs seek profits. That’s fine with me, but I’m not believing that the IT informing arbitrageurs in the U.S., before they execute their trades, can exist on the other side of the world. The theory that it can assumes that information travels at the speed of light, so the location of the IT is irrelevant, but information travels at the speed of light only once it’s in the optical fiber. Human minds process the information long before that happens, and these minds must understand its relevance better than most to understand the IT processing it. They won’t pass this information along without profiting from it first, and the more they profit from it, the less valuable it becomes.In other words, outsourcing this IT is paramount to outsourcing the entire business. I don’t believe the N.Y. securities dealers have guns long enough to make it work. Someone earning $20,000 and seeing an opportunity to make $200,000 will happily risk the ire of your attorney.
“Markets become efficient only because arbitrageurs seek profits. That’s fine with me, but I’m not believing that the IT informing arbitrageurs in the U.S., before they execute their trades, can exist on the other side of the world. “You conflate arbitrageurs with entrepreneurs. Arbitrageurs are a valuable subset of entrepreneurs.