Tuesday, May 8, 2007

Trade benefits all of society

Rejecting millenia old processes is for the illiterate and the populist.

by StFerdIII

It gets tiresome listening to Marxists and populists cry and moan about jobs being lost due to trade. There are many obvious benefits in trading but they are rarely taught, debated or defended. The division of labor, the creation of capital, the establishment of competitive advantages, and all the basic underlying features of a modern wealthy economy were well known by 2500 BC giving rise to the first political-economic empires. Trade has been essential throughout mankind’s history in developing civilization. Yet in the ease and comfort of the modern age we still have to listen to Marxist hacks, and socialist ignoramuses cry against millennia old processes.

Trade generates many advantages. It reduces national political power and coercion. It forces tax and regulatory competition between states. It moves countries up the value chain of business. As industries are realigned in a competitive market, better jobs paying more wages are created. In-sourcing or foreign capital attraction leads to new markets, more jobs and higher incomes. But the chattering fantasists composing over half the population along with their political puppeteers are too dishonest, or perhaps too uneducated or brainwashed to realize that trade is essential, especially if you want to fund your compassionate, mommy-care society [with hand over heart and tears on your cheeks].

Trade is of course uneven in form and in its distribution of benefits. In certain markets some win, and some lose. In general however there is little doubt that more trade benefits a society. England is hardly a worse off country today compared with 1760 when international trade accounted for 10% or less of its GDP versus 40% today. Is Mexico worse off thanks to a free trade agreement with Canada and the US which has doubled its GDP versus that of 1995? Is the world worse off now with per capita income at historical highs versus 1800 when 90% of the world’s population was living at European beggar levels? Doubtful.

Trade, foreign investment and capital creation and deployment are creating wealth across the world. Thanks to more open trade and investment opportunities, China and India have lifted 600 million people out of miserable poverty. There are approximately 40.000 corporations controlling 170.000 other offshore firms across the world. – a tripling in the past 15 years, with over 50% of these firms located in Europe. These firms are essential in creating new jobs, products and markets.

Since World War II Foreign Direct Investment (FDI) has increased at an annual rate of 34 % per year and now constitutes U$3 Trillion in gross value per-year. Today world exports surpass $4 Trillion, or about 14 % of world economic output, a level higher than any recorded. Since 1945 we have seen the increase in global trade and finance rise by 300+ %. Trade and FDI are driving the current modern version of globalization but the nation state still remains the primary arbiter of such exchanges in the world economic system. It is the crass populist politics of vote seeking politicians that is the greatest danger to trade.

The increase in cross border economic exchange has been hastened by the collapse in external tariff barriers amongst industrial countries from about 40 % in the late 1940s to 5 % on average for goods and services. The benefits are enormous. In the US there are 9 million in-sourced jobs or jobs created in the US by foreign corporations. Only 1 million US jobs have been offshored with a tiny 1 % of technology jobs sent overseas. The greatest US based manufacturer is Toyota – a once low-end maker of cheap cars, now employing 200.000 workers in the US directly and indirectly through its extended supply chain. The largest steel company in Europe is the Mittal group of India whose efficient business practices allowed failed EU steel firms to survive after needed process improvements and concomitant job losses.

In the open market firms from across the world can dominate or become strong players in any industry once government restrictions, ownership controls, and oligopolies are destroyed. Consumers win through better product and lower prices and market pressures ensure that new services and ideas are constantly being developed resulting in innovation and productivity and thus leading to a better standard of living.

The modern form of trade compression or intensity is premised on improved logistics, communications and technology. In the ancient world, the lack of such ease of transport of course negatively affected trade patterns, relations between cultures and inevitably wealth creation and capital formation. Infrastructure developments such as common spoken and written languages; money; transport routes [freed of piracy and bandits]; rules; laws; banks; ease of exchange; and communication improvements all drive trade, market creation and the development of new products, services and ideas. Human capital once freed of artificial bonds and constraints, and with access to money, demonstrates an incredible appetite to improve productivity and standards. It is productivity after all, which is the harbinger of living standards. The higher the rate of productivity, the better off is society.

Trade is a force for openness and transparency. Trade and the increase in capital creates jobs and opportunities in areas of the world that are friendly to corporations and profit creation. These flows eschew those jurisdictions which are unstable, criminal or untrustworthy. Trade thus reinforces the Western concept of law.

For the human rights crusaders this is a good thing to keep in mind when you push forward your Globaloney Warming scam. Environmental protection will only lead to net job losses, a reduction in government transparency and a worsening of the legal bonds that hold countries to high moral and business standards. For those who want to fund the mommy-state, protect the Earth Mother Cult, and have the spare time to engage in moral posturing, then you should support more open trade and exchange.

It is clear historically that trade, capital formation and reducing government interference are the greatest guarantors of a healthy, wealthy and clean world. If you don’t agree, then maybe you should live in Zimbabwe, North Korea or the suburbs of Paris.