W. Michael Cox and Richard Alm wrote: “The Economics of
Outsourcing” and published it in National Review Online on August 2, 2012. The
article also has the subtitle: “We need to understand and adapt to such
developments.” The two authors and other people may wish to call their view a
Libertarian one, but I will not because I do not believe that someone's view
can be categorized as only one thing or another. Certainly my view is not
anything like a one dimensional thing because I accept ideas I never had if I
am convinced they are good ones, and I discard ideas I held for a long time if
I am convinced their time has passed.
Thus, before I discuss the article of Cox and Alm, I wish to
give an outline of my view on international trade. The best way I can do this
is by using an analogy that is somewhat lengthy to explain, so bear with me. As
far as I am concerned, international trade is supposed to give the citizens of
every nation the best that exists anywhere in the world in terms of the low
price and the high quality of goods and services that people everywhere wish to
buy. This is a simple notion in theory but a complicated one in reality.
It is that somebody has to produce the goods and services thus;
every nation has resources of all sorts and a workforce with which to produce
those goods and services. They are produced under an economic system that would
be a socialist command economy at one extreme, or a capitalist laissez faire
economy at the other extreme; or it could be a hybrid of both -- which most
economies are to one degree or another. Let us now assume that all nations
adopt a Capitalist system of extreme laissez faire. We pick one nation and look
inside it to see what happens. We see that enterprises rise, do well for a
while, begin to age, show signs of sclerosis, refuse to adapt to change, are
challenged by newer enterprises, lose the battle, declare bankruptcy and go out
of business.
The government representing that society picks up the pieces
to repair as much of the damage as possible by temporarily sustaining the
workers who lost their jobs and, where needed, by retraining them to do
something else. But what would happen if we let the nations of the world go at
each other under a regime that is unfettered laissez faire? Some people will
argue that every business in every nation will have to adapt and revitalize
itself, which will be a good thing for the whole planet. In fact, this is
hinted in the subtitle of the Cox and Alm article.
Not so, I say, because things are so uneven in the world
that nations -- which are close in culture and system of governance -- can
overwhelm one another. We see this scenario play itself out in Europe today where the entire nation, and not just one
company or one industry in it is threatened with bankruptcy. And look at the
problems that this situation is creating not just for the countries involved
but for the whole world. Imagine now a situation where all trade barriers
around every nation are removed as if the world was a single trading zone. How
many (PIIGS) Portugal , Iceland , Ireland ,
Greece and Spain will
there be? And would the Germanys
of the world bail them all out?
No, I say; trade between the nations should not be a fight
to the death for the entire nation or even an industry in it. The most that can
be tolerated is the death of a single company due to local or international
competition. And when this happens, it should be taken as a warning signal that
says the time has come to intervene. And this is where we realize that doing
trade on a global scale must not be a fight to the death like in a Roman arena;
it can only be a contest like in a modern boxing rink where the referee stops
the duel for a moment each time that a fighter is incapacitated.
This being the analogy underlying my view of world trade,
the ramifications are such that they clash with the views of our two authors.
For example, discussing globalization, they say this: “It has brought with it a
surge in outsourcing … a development
[seen] as a scourge, meaning the business practice of Mitt Romney's … Bain
Capital...” To justify that practice, they begin by laying the groundwork: “The
issue goes far beyond the simple fact of job losses and touches on the broader
realities of trade, basic human rights, and economic progress.”
To explain all of this in detail, they argue that there is
equivalence between the outsourcing of jobs and the importation of goods, an
equivalence that I fully accept. Thus, the difference between their view and
mine concerns only the flow of capital between nations; a flow that is caused
by the exchange of goods and services. In this regard, they give an example
which proves their point but also proves mine even though the two views are
diametrically opposed.
Look what they have: “In 2011, our red ink in goods totaled
$738.4 billion, offset by a services surplus of $178.5 billion and
foreign-investment inflows of 559.8 billion.” And they conclude with this: “As
a matter of strict accounting, all countries' international transactions balance
– so nobody is taking advantage of anyone else.”
Yes I say, when you add 559.8 to 178.5, you come to 738.3
but the key words here are these: “As a matter of strict accounting” which
render the conclusion of the authors “so nobody is taking advantage of anyone
else” an erroneous one. You see my point when you ask the question: Where did
the foreigners invest their money in America ? The answer is that some of
the investment went into mining and manufacturing but most of it went into
buying government securities. And this means that the Americans bought goods
they did not pay for. Instead, they gave the foreigners a bunch of IOUs,
telling them to come and collect later – much later.
Of course, Cox and Alm understand my point of view very well
but they did not mention it because it clashes with the point they are
advancing which is this: “countries have trade surpluses in the industries
they're relatively good at, and deficits in those they're not good at.” Well,
the experience of the PIIGS and the fact that America has a foreign debt as
huge as it is, says that when industries begin to die in a given country, you
can have a domino or a zipper effect whereby all industries could eventually
die, leaving you with nothing to sustain a viable economy. This is what is
happening in Europe now and what happened to
countless nations and empires that rose and fell.
And you can get a feel of this where the two authors write
the following: “Turns out, America 's
surpluses are in high-value-added manufacturing and sophisticated services …
the U.S.
economy is exporting low-wage labor.” Not anymore, my friends, not anymore. And
this is because more and more, the foreigners are demanding the transfer of
technology when you ask for access to their markets. And more and more, the
brain drain to the United States
is shrinking because people are finding opportunities at home where they prefer
to stay instead of emigrating to America . Where you still have an
advantage today, you may not have it tomorrow.
Unable to sustain their argument beyond that point, the
writers fall back on the notion that “trade is a question of individuals'
freedom to choose.” To maintain the argument, they propose this: “We only need
faith in the American people and the capitalist system.” I say no, I would not
do that because I will never go against a gladiator as in a Roman arena where
the only rule is kill or get killed. I prefer a modern boxing rink where there
is a referee that will stop the fight every time I become incapacitated.