In my post on mercantilism Micaheal Robinson has one the most up voted comments,
Because Montana and California are subject to the same minimum federal environmental protection standards, health and safety standards, labor standards, housing standards, etc.
The jobs that are going abroad are not going because those performing the jobs are more specialized or more efficient. Nobody is complaining about American jobs that have been lost to Germany.
They are going abroad because the work is being done by underpaid people working in unsafe and unhealthy conditions for employers who are easily able to evade the unpriced externalities of their operations due to corrupt and ineffective regulatory structures.
When “comparative advantage” becomes a synonym for “race to the bottom”, yes, expect a backlash.
Is there a problem with this view. Lets, consider for a moment what would happen if somebody like Bernie Sanders were to become President and have his way on foreign trade. President Sanders would make trade deals where the workers were paid a wage less than what he deemed acceptable would be effectively cancelled unless the wages of the workers were raised. What would likely be the result of such a policy? That the factor is closed down and all the workers fired. How exactly would that help the workers in that country. How exactly would having a wage rate of $0/hour be better than $x/hour where $x is less than the minimum wage in the U.S., but greater than $0/hour?
I know everyone will think I’m being just some sort of money grubbing jerk (even though I do not own such a business, although to be fair I might own shares in such a business via my 401k…but I have no idea). But maybe you should listen to Paul Krugman before he became a polemicist.
You may say that the wretched of the earth should not be forced to serve as hewers of wood, drawers of water, and sewers of sneakers for the affluent. But what is the alternative? Should they be helped with foreign aid? Maybe–although the historical record of regions like southern Italy suggests that such aid has a tendency to promote perpetual dependence. Anyway, there isn’t the slightest prospect of significant aid materializing. Should their own governments provide more social justice? Of course–but they won’t, or at least not because we tell them to. And as long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to an aesthetic standard–that is, the fact that you don’t like the idea of workers being paid a pittance to supply rich Westerners with fashion items.
In short, my correspondents are not entitled to their self-righteousness. They have not thought the matter through. And when the hopes of hundreds of millions are at stake, thinking things through is not just good intellectual practice. It is a moral duty.
What Krugman is saying here is basically what I have said. Implementing trade policy based on the U.S. standard of living will almost sure result workers in these countries being laid off. And since $x/hour where x is some non-zero number is better than $0/hour, the compassionate protectionism is not really all that compassionate. Further, that as the economic conditions in these countries improve over time, workers and voters, where democracy prevails, will demand better working conditions and better regulations. This is what we have seen in the U.S. an in other countries. As the wealth of countries increases their demand for “luxury” goods like increased environmental, safety and other regulatory outcomes will also increase.
Further, for the American worker and the American firms so affected it is nothing more than a welfare program. You can keep your job because we are forcing other Americans to pay super-normal prices for the goods you produce. You are not keeping your job because you are doing good or better work, you are keeping your job due to political fiat and the conclusion that you should be able to benefit at the expense of others. And these firms can continue to exist…well because some politician does not want to face the political backlash of not providing corporate welfare.
So, I do not find the “compassionate” protectionism of Bernie Sanders at all compelling from the standpoint of improving the lot of the poor in other countries. Nor do I find it a good long term plan for those in industries that are losing their competitive edge with foreign competition. The intention is good, but that is not sufficient. Good intentions do not have to lead to good policy and this is a wonderful example. What is the solution? For countries with unskilled labor I’d say do nothing, let the increase in wages over time work at inducing people in those countries to making changes in working and regulatory conditions. For workers here in the U.S. look for ways to mitigate the effects of jobs moving offshore that do not result in bad incentives in terms of work and retraining. Also, realizing that some worker are not going to find retraining worthwhile and possibly providing some sort of transfer program for such people. After all we do not want people to be working simply for the sake of working–work in an of itself is not a good thing, nobody likes work, at least in general.
