Wednesday, November 19, 2008
Response Two
Through her book, Meredith does a good job in opening the discussion of the basic ethical arguments for and against free trade with China and India. It can be hard to ignore the fact that workers in India and China who are becoming increasingly employed by foreign firms (often times American firms) are getting paid only a small fraction of the money that a worker in the United States would make for doing the same job. It then can seem on the surface to be one of the great ethical debates in free trade whether foreign companies are truly helping domestic workers by providing jobs, or simply exploiting them to receive higher cooperate profits. Is it a situation of the very rich get richer and the poor stay poor? However, Meredith rightly argues that in a situation of comparative advantage both countries receive long-term gains. In basic economic theory, the principle of comparative advantage shows that free trade between countries that have a comparative advantage in different goods will actually increase the welfare for both countries. Labor abundant countries, for example, can produce labor-intensive goods relatively more efficiently than capital abundant countries can produce those same goods. This in turn leaves each country room to specialize in the goods which they are relatively better at producing (like manufacturing jobs in china and high technology innovation in the United States.) Increased efficiency in the markets will lead to lower prices and a high quantity that both countries can consume, effectively increasing welfare in both countries. Foreign workers that are receiving a small fraction of what the same work would be paid for in the United States are increasing welfare not because they are equally as well off as a worker is in the United States, but they are relatively more well off than they were before. To the question of if it is ethical to pay a worker two or three dollars a day to work in a clothing factory, one must ask first if the worker is better off now than he was in autarky with no trade making less than a dollar a day.
Subscribe to:
Post Comments (Atom)
1 comment:
I too found the ethical dilemma presented by the Meredith text engaging. I believe that the way in which these issues of worker fairness are resolved will be one of the great moral tests of our generation. While basic economic theory certainly makes a logically consistent case for added utility to both trading partners when comparative advantages are maximized, this arithmetic, in my opinion, leaves out a number of critical factors. The long term view that capital abundant countries are better suited to technological innovation ignores the plight of specially educated workers in those countries who will inevitably be deeply harmed by a rapid shift away from manufacturing in that country to maximize the comparative advantage. A steel worker in the United States who spent his career honing a skill set that makes him an efficient steel worker will hardly be suited to change careers at 45 to start work at a biotech firm. Trade adjustment assistance programs and corresponding worker reeducation initiatives can only help some workers.
Even if this issue is bypassed with an argument from a long-term economic perspective other issues persist. Many countries comparative advantages are a direct result of their lax or nonexistent environmental standards and work place safety laws. Morally it is one thing to say that we can shift manufacturing jobs to the location where labor is most abundant, it is a much different thing to say we should shift jobs to a place where children are employed in manufacturing facilities pollute and that lack basic safety equipment.
National security concerns also complicate trade issues in my opinion. If the United States were to maximize the comparative advantage of its knowledge and capital bases by transitioning to a service and intellectual property based economy that did not have manufacturing or agriculture sectors a wartime mobilization could be significantly hampered.
One more issue I think will continue to make trade a compelling moral dilemma for at least the next generation is the issue of development. A world economic system that maximizes all countries comparative advantages will inevitably pigeon hole some natural resource rich, capital poor countries into subservient economic roles. A nation that exports raw materials but fails to develop its manufacturing or service sectors will really not be better off in the long run.
Post a Comment