Free-Trade Blinders

Mar 9, 2012 Dani Rodrik

Too many economists are prone to attribute concerns about globalization to crass protectionist motives or ignorance, even when genuine ethical issues are at stake. By ignoring the fact that international trade sometimes involves redistributive outcomes that we would consider problematic at home, they fail to engage the public debate properly.

CAMBRIDGE – I was recently invited by two Harvard colleagues to make a guest appearance in their course on globalization. “I have to tell you,” one of them warned me beforehand, “this is a pretty pro-globalization crowd.” In the very first meeting, he had asked the students how many of them preferred free trade to import restrictions; the response was more than 90%. And this was before the students had been instructed in the wonders of comparative advantage!

We know that when the same question is asked in real surveys with representative samples – not just Harvard students – the outcome is quite different. In the United States, respondents favor trade restrictions by a two-to-one margin. But the Harvard students’ response was not entirely surprising. Highly skilled and better-educated respondents tend to be considerably more pro-free trade than blue-collar workers are. Perhaps the Harvard students were simply voting with their own (future) wallets in mind.

Or maybe they did not understand how trade really works. After all, when I met with them, I posed the same question in a different guise, emphasizing the likely distributional effects of trade. This time, the free-trade consensus evaporated – even more rapidly than I had anticipated.

We hope you're enjoying Project Syndicate.

To continue reading and receive unfettered access to all content, subscribe now.

Unlock additional commentaries for FREE by registering.

Already have an account? Log in

Support High-Quality Commentary

For more than 25 years, Project Syndicate has been guided by a simple credo: All people deserve access to a broad range of views by the world's foremost leaders and thinkers on the issues, events, and forces shaping their lives. At a time of unprecedented uncertainty, that mission is more important than ever – and we remain committed to fulfilling it.

But there is no doubt that we, like so many other media organizations nowadays, are under growing strain. If you are in a position to support us, please subscribe now.

As a subscriber, you will enjoy unlimited access to our On Point suite of long reads, book reviews, and insider interviews; Big Picture topical collections; Say More contributor interviews; Opinion Has It podcast features; The Year Ahead magazine, the full PS archive, and much more. You will also directly support our mission of delivering the highest-quality commentary on the world's most pressing issues to as wide an audience as possible.

By helping us to build a truly open world of ideas, every PS subscriber makes a real difference. Thank you.

Subscribe Now

new comment has been posted. new comments have been posted.

0 Comments on this paragraph, 7 Comments on this article

Borko Handjiski May 29, 2012

I don't see why the term "procedural fairness" should be included in the debate on globalization, i.e. trade liberalization, at least not by those who support globalization. First, 90% of trade which is subject to restrictions (import duties) does not relate to products which can be described as "being produced in a procedural unfair manner". So, the discussion on trade liberalization should not be narrowed down to whether blood diamonds should be allowed to trade freely or not.

If this terms were to be put on the table, countries like the U.S. and Western Europe have the least right to use it. Why? Because there was no procedural fairness in the depletion of natural and human resources (slavery) from what are today developing parts of the world which allowed these countries to make a leap in development using the power of the gun.

Finally, who defines what is procedural fairness? Does the U.S. define how many hours Chinese workers should work or does China? Should the EU to Indonesia what to do with its environment? I don't think so, given that Indonesia's contribution to environmental pollution and change would be marginal to the contribution of the developed world. If Chinese workers want to work 12 hours a day, it is their right. If one disagrees, then France -- that is, the EU -- should impose restrictions on trade with the U.S. because U.S. workers spend much more time at work than what is allowed under French law.

The reasons for free global trade are same as the reasons for not imposing trade restrictions among U.S. or EU states: trade increases the pie and makes everyone better off in the long run. Keeping to this simple argument should be enough.
A new reply to this comment has been posted.
Soren Dayton Apr 8, 2012

Of course, this isn't what happens. What happens is that the state prevents John from making $300. That's the objection. That is morally wrong and politically unsustainable.
A new reply to this comment has been posted.
Jonathan Lam Mar 27, 2012

Gamesmith94134: why fair trade?

After the effects of “barbed-wire barriers to imports” suggested by the businessmen and union members in US or the developed nations, they should understand the nature of their present financial crisis that they lost their competitiveness by a wide margin in the global term, and eliminate the choice for its people from affordability to growth because monopoly can level off its local innovation as well. Why can’t its industries be more effective or efficient to cut cost or lower price even after they met their competitions?

Recently in China, I saw the railways imported from US, built in China in the 20s, they are still running. It was the top of technology for US, and we have the football team name Pittsburg Steelers----one of my favorite team. When the piece of the Oakland Bridge cracked, we must import it from China since we lost our competitiveness and effectiveness to pricing to the steel industry to China.
Pittsburg Steelers turned into an icon for American Football and industry of its own, subsequently, the township and its steel worker union had made the bureaucrats proud of the steel industry that even Americans cannot afford; but, they can complain the economists outsourcing the industries for profitability. I am not prudential in protectionism since I am not sure why people do not throw stone inside the glass house; but the greenhouse effect for labor is costly, and the consequence of protectionism is anemic to growth in all terms of all imports or exports due to the loss of local innovations or the profitability under the labor cost that industries compete both fair and unfair competitions including anti-dumping or tariffs.

In the recent years after we reckon the deficits wrecked the developed nations, and the surpluses prospers the emerging market nations. Many suggested the zero sum fair trade that many developed nations are dumping their technologies like green industries with high prices to the emerging nations in order to create its equilibrium; however, the resistance is high since its benefits to its consumers are minimal. Therefore, I would expect the bases of its consumers must be expanded first that the low-earning labors in these nations must achieve its sustainable living standard to be benefited to the technology transfers; then, the level of consumerism should meet its need in order to create the chain reaction of the supply and demand. Perhaps, they also need education to gain control systematically through the structural developments based on the foundation of necessity and affordability. Otherwise, the ClubMed syndrome will repeat to spread throughout the emerging market nations too; and, it was how the PIIGS got affected since 92’ that tourism did not help them to produce much to the bases of consumers, instead, they were subdued by the corruption and deficits as well.

“Mark Sidwell argues that FAIRTRADE keeps uncompetitive farmers on the land, holding back diversification and mechanization. According to Sidwell, the FAIRTRADE scheme turns developing countries into low-profit, labor-intensive agrarian ghettos, denying future generations the chance of a better life.”

In assuring the outcome of the FAIRTRADE can be the coming generation, we must develop the appropriate system or superstructure for monitoring the process in opening the commodity markets for those developing countries. Perhaps, in order to stretch the safety net for the poor farmers or labor, I think the organizing the groups in common interest may use the cooperative system that the group of small farmers can bundle up in their corps or commodities to set their corporation to market their goods. However, I would recommend the Development Bank of the United Nations as the free agent for Fair Trade which these developments can be invested in the open markets, and the organized grower or producers can grow into corporations with co-operatives; since some of the developments may have involved with international financial system and assisted in the market system during the transactions. Also, there must be a representative for the grower and producer like Africa Union, ASEAN or EU to represent and ensure the normalcy of its productivity and transparency on the transaction of these commodities.

“That justification will not convince economists, who prefer a dryer sort of reasoning. But it is not out of place to remind ourselves that economists and bureaucrats need not always have things their own way.”

Finally, if we must open the bases for new consumers, we must give the poor farmer and labors a chance to taste the FAIR TRADE and move away from poverty, we must stop the monopoly and give free trade a chance; then these new consumers can save us from the present financial crisis. If we accept the fact that we do need to trade honestly and share generously among nations and countries of people; there must be a system to protect the coming generation of grower and producer and a superstructure of networks to assure everyone is applying at will.

May the Buddha bless you?
A new reply to this comment has been posted.
Pavlos Papageorgiou Mar 27, 2012

I don't agree that objections are limited to procedural fairness. In other words, I think some outcomes are objectionable even if they are the emergent result of fair processes. For example many people in the software industry did believe that Microsoft's near-monopoly status was a problem. The issue was not that it denied income to would-be competitors of Microsoft but that it caused the market to produce less good computers than it does now under competition from Apple and others.

Regarding world trate, I think it is urgent to see distributional effects not from the side of importers and income but from the side of exporters and goods. Suppose a village in Africa contains a farmer and a craftswoman. Under protected conditions, they trade at very low prices and sustain each other. Under free trade, the farmer trades with the west, which absorbs all his output, and the craftswoman is redundant and starves. Literally.

Where is the discussion on the supply-side effects of free trade? There should be a guiding principle that trade that connects vastly unequal economic networks with each other is a problem, just as connecting electrical circuits at very different voltage will dissipate energy and damage them. Tariffs should be applied not on imports but on exports, to ensure local supply or else redistribute the gains so that the worse-off can find alternative supply.
A new reply to this comment has been posted.
Kristy Mayer Mar 15, 2012

You asked people to think about whether or not we should restrict trade. A more useful question is if and how we can both increase opportunities for international trade and ensure better distributional outcomes. For example, the United States’ trade preferences for developing countries are conditional on a variety of policy reforms in those countries – adopting international labor standards, moving toward a market-based economy, fighting corruption, etc. – and greater preferences generally come with more extensive conditions. Trade adjustment assistance is another, domestically focused, example. Do you think these and other, similar trade agreement provisions succeed at achieving both goals? If not, are there other models that may avoid restricting trade but also mitigate the trade’s distributional effects? It would behoove the United States, and other nations, to work hard to find an effective and palatable alternative to the binary restrict-or-don’t-restrict-trade decision.
- Dylan Matthews Apr 22, 2012
  
  Kristy's point is a good one. Rodrik is quite right that the economic benefits of trade are unevenly distributed, and that the policy regime favored by the United States in recent years has done little to counteract the resulting increase in inequality. But it does not follow that trade liberalization is bad policy. It may follow that trade liberalization *without redistributive programs* to spread the gains more evenly is bad policy, but that is a different thing altogether. Most Scandinavian countries have arrived at regimes with very few trade restrictions but massively redistributive tax and social welfare systems, which avoid most of the maladies of trade that Rodrik identifies without sacrificing the gains.
  A new reply to this comment has been posted.
A new reply to this comment has been posted.
Procyon Mukherjee Mar 13, 2012

The developed world unfortunately is the biggest blind alley to protectionism when it comes to furthering free trade in agriculture and farm products, that leave billions in the under-developed and the developing world under-nourished simply because the subsidies that are doled out to protect the rich farmers come in the way of free trade to happen. This asymmetry is striking that the majority of the world’s poor would have gained as their reliance on farm products as source of income is one over-riding measure that is stunted by the veiled interference of an unfair policy that do not allow trade to happen although there is comparative advantage existing; John Rawl’s 'veiled ignorance' in this case seems to further the self-interests of a whopping minority.

Procyon Mukherjee
A new reply to this comment has been posted.

https://prosyn.org/frekTde

Free-Trade Blinders

To continue reading and receive unfettered access to all content, subscribe now.

Support High-Quality Commentary

New Comment

Email this piece to a friend

Contact us

Log in/Register

Free-Trade Blinders

To continue reading and receive unfettered access to all content, subscribe now.

Support High-Quality Commentary

Edit Newsletter Preferences

Set up Notification