If I Were Dictator (Part 31)

Posted on Fri 07/29/2011 by


By Marlin6

On 02/05/2008, I authored a post “Benevolent Dictators Make Good Government”. Examples are King David – Israel – (1010 BC –970 B.C.) in ancient times and General Douglas McArthur – Japan – (1945 –1947) in modern times. I started musing about what I would do if I were absolute dictator of the United States to fast track our country back to a position of greatness and prosperity. Therefore I am submitting a series of posts to PA Pundits (many controversial) about how I would provide solutions to the major issues facing our nation.

I Would issue an order that the United States will promote free trade with all nations The only caveat will be that the barriers of tariffs and protectionism must be reduced or eliminated by our trading partners and that currency exchange rates must be adjusted to reflect international realities, not artificially supported by a nations government

The Greek poet Homer, in his Odyssey, waxed poetic about the influence of trade: “For the Cyclops have no ships with crimson prows, no shipwrights there to build them, good trim craft that could sail them out to foreign ports of call as most men risk the seas, to trade with other men”. Such artisans would have made this island too a decent place to live. The Judeo-Christian Bible warns against the pride that can come with riches, but it does not condemn international trade. In First Kings, it reports that trade was part of King Solomon’s splendor: “The king had a fleet of trading ships at sea along with the ships of Hiram. Once every three years it returned, carrying gold, silver and ivory, and apes and baboons.” In the New Testament, in the second chapter of Matthew, we read about the famous wise men of the East, who traveled from Arabia or perhaps as far away as Persia to bring gold, frankincense, and myrrh to the baby Jesus. (Thank goodness they didn’t have to contend with airport customs or the Arab boycott of Israel). The Old Testament prophet Ezekiel does warn the citizens of Tyre, the bustling Mediterranean port city, “By your great skill in trading you have increased your wealth, and because of your wealth your heart has grown proud.” Even when the Bible speaks harshly of the “merchants of the earth,” it is not international trade that comes under condemnation but the intent and character of the traders. The sin is not trade but dishonest scales, greed, indulgence in luxuries, and the temptation to pride that can come from wealth. In this respect, trade is no more sinful than technological discoveries or hard work.

A number of theologians and philosophers in the first several centuries A.D. considered trade among nations a gift of God. In his 1996 book, Against the Tide: An Intellectual History of Free Trade, Professor Douglas Irwin of Dartmouth College describes this early view of trade that has come to be called the Doctrine of Universal Economy. That doctrine held that God had spread resources and goods unevenly throughout the world to promote commerce between different nations and regions. In the fourth century A.D., the pagan writer Libanius expanded the doctrine more fully, declaring: God did not bestow all products upon all parts of the earth, but distributed His gifts over different regions, to the end that men might cultivate a social relationship because one would have need of the help of another. And so He called commerce into being, that all men might be able to have common enjoyment of the fruits of earth, no matter where produced. Western moral thought provides a solid foundation for pursuing a policy of economic openness. Drawing on that tradition, here are moral arguments to support free trade among nations. A man or woman engaged in honest work has a basic right to enjoy the fruits of his or her labor. It is a violation of my right to property for the government to forbid me to exchange what I produce for something produced by a fellow human being, whether the person I’m trading with lives across town or across the ocean. Protectionism is a form of stealing, a violation of the Eighth Commandment and other prohibitions against theft. Free trade meets the most elementary test of justice, giving to each person sovereign control over that which is his own. As Frederic Bastiat wrote in his 1849 essay, “Protectionism and Communism”: Every citizen who has produced or acquired a product should have the option of applying it immediately to his own use or of transferring it to whoever on the face of the earth agrees to give him in exchange the object of his desires. To deprive him of this option when he has committed no act contrary to public order and good morals, and solely to satisfy the convenience of another citizen, is to legitimize an act of plunder and to violate the law of justice.

U.S. trade policy is almost always debated in terms of economic utility: Does free trade raise or lower incomes? Does it help or hurt U.S. industry? Does it create or destroy jobs? But behind the statistics and anecdotes lie moral assumptions about human nature, the sovereignty of the individual, and the role of government in a free society. Free trade may deliver the goods and boost efficiency, but is it morally superior to protectionism? In a speech before the Council of the Americas, President George W. Bush joined the moral debate, telling his audience: “Open trade is not just an economic opportunity, it is a moral imperative. Trade creates jobs for the unemployed. When we negotiate for open markets, we are providing new hope for the world’s poor. And when we promote open trade, we are promoting political freedom. Societies that open to commerce across their borders will open to democracy within their borders, not always immediately, and not always smoothly, but in good time.” Friends of free trade should not shrink from making moral arguments for their cause; and those arguments have deep roots in our culture. To promote economic growth, the U.S. Administration should advance more free trade agreements and lead negotiations at the World Trade Organization to eliminate agricultural subsidies, antidumping measures, and other protectionist policies that benefit a very small group of Americans at the expense of most other citizens. In addition, instead of threatening to impose barriers against inexpensive imports, the Administration should lower the tax and regulatory burden on U.S. companies (instituting the Fair Tax will do this) so that they can be more competitive. Moving toward greater, not less, economic freedom benefits all Americans.

Free trade is again under attack, despite having been, for over a century, the basis of America’s wealth. Some groups in the United States blame free trade for the loss of manufacturing jobs, while others blame it for exposing some U.S. producers to foreign competition. Free trade, however, is good for America, and for a very simple reason: It allows American workers to specialize in goods and services that they produce more efficiently than the rest of the world and then to exchange them for goods and services that other countries produce at higher quality and lower cost. Specialization and free trade allow the U.S. to become more competitive and innovative. Innovation constantly provides new technologies that allow Americans to produce more, cure more diseases, pollute less, improve education, and choose from a greater range of investment opportunities. The resulting economic growth generates better-paying jobs, higher standards of living, and a greater appreciation of the benefits of living in a peaceful society. New technologies bring about change, which, as U.S. economic history shows, benefits society as a whole. In the process, however, some sectors suffer until they can adapt to the new changes and begin to benefit from them. Today, Americans are experiencing some of that “suffering” because new technologies are challenging old methods of production. This change is especially visible in the manufacturing sector, just as it was in the agricultural sector 100 years ago. But in the same way that it adapted then to a new, more industry-based society, America will adapt again to a new, more knowledge-based society. American Administrations should support free trade by all means at its disposal. Keeping America free of protectionism and special favors helps to generate opportunities and fosters economic growth. Economic growth is of particular importance today because eliminating the large federal budget deficit requires either growth to generate tax revenues or something even harder to come by–the political will to cut spending.

For over a century, free trade has been one of the most important determinants of America’s wealth and strength. There are several important reasons for continuing to support free trade. The most compelling reason is that society as a whole benefits from it. Free trade improves people’s living standards because it allows them to consume higher quality goods at less cost. In the 19th century, British economist David Ricardo said that any nation that focuses on producing goods in which it has a comparative advantage will be able to get cheaper and better goods from other countries in return. As a result of the exchange, both trading parties gain from producing more efficiently and consuming higher quality goods and services at lower prices. Trade between nations is the same as trade between people. Consider what the quality of life would be if each person had to produce absolutely everything that he or she consumed, such as food, clothing, cars, or home repairs. Compare that picture with life as it is now as individuals dedicate themselves to working on just one thing to earn a salary. It simply makes sense for each person to work at what he or she does best and buy the rest. As a nation, the United States exports in order to purchase imports that other nations produce more skillfully and inexpensively. Therefore, the fewer barriers erected against trade with other nations, the more access people will have to the best, least expensive goods and services in the world “supermarket.” Producers benefit as well. In the absence of trade barriers, producers face greater competition from foreign producers, and this increased competition gives them an incentive to improve the quality of their products or services while keeping prices low.

With new technologies evolving continuously at home and abroad, open economies are constantly challenged to change the way they do business. In the process of adapting to change, some sectors suffer until they can adapt to the changes and begin to benefit from them. During the Industrial Revolution, workers in the agricultural sector had to adapt to the “new industrial economy,” competing with machines that could do the same work more efficiently. Eventually, agricultural workers trained themselves to use the machinery and seized the opportunity to be part of the new industrial economy. Today, America again faces major economic changes. The U.S. economy is moving from an industry-based to a knowledge-based model. The U.S. textile industry gradually disappeared during the past three decades because it became increasingly less competitive vis-à-vis the lower cost of labor in foreign countries. As a result, many U.S. textile factories shut down their operations. South Carolina was one of the states most affected by the shutdown of textile factories. South Carolinians, however, did not become permanently unemployed, because other industries moved to the state to take advantage of a trained labor force. In 2000, BMW leased a research facility at Clemson University’s automotive research campus to train engineers to sustain BMW’s growth. IBM and Microsoft each contributed to this project with the idea of creating high-paying jobs tied to knowledge. Through this project, BMW “invested $2.5 billion at the plant, and now employs 4,700 people, with most production workers making $24 per hour.” BMW’s investment illustrates the process of adjustment in an economically open society. In order to remain competitive and benefit from the economic evolution brought about by the new knowledge-based technological change, South Carolina’s workers trained themselves to seize the higher-paid job opportunities. The adjustment brought better-paying jobs and, with them, the possibility of raising the living standard of all those involved in the process of change

America is perhaps the world’s best example of how competition fosters innovation. Although at times the United States has become somewhat protectionist, its economy has been built primarily on the principles of a free market, private enterprise, and competition. In such a competitive environment, new technologies, from computers to medicines to machinery, have helped the economy to become increasingly more productive per unit of labor and machinery employed in the production process. Since 1948, according to the Bureau of Labor Statistics, multifactor productivity–a ratio of output to combined inputs–in the U.S. private business sector has more than doubled. Productivity has fostered economic growth and, by lowering production costs, has given ordinary Americans the opportunity to raise their standard of living The U.S. economy is replete with illustrations of how competition fosters innovation. In the 1980s, personal computers were very expensive, few people owned them, and those they did own handled only word texts and a few calculations. Due to increased competition, by 2002, 65.9 percent of people living in the United States owned a personal computer that handled text, calculations, graphics, media, Internet access, and many other functions. In 1975, the airline industry carried about 200 million passengers; now, due to competition and lower costs, it carries almost 600 million passengers a year. In 1987, only 0.3 percent of Americans owned mobile phones. By 2002, 50 percent owned one. Similarly, in 1975, only 37.3 percent of people had a landline telephone; now 64.6 percent have one. The percentage of people who own a television set soared from 48.6 percent in 1975 to 93.8 percent in 2001. These are just a few examples of the millions of products and services made available to increasing numbers of people, thanks to the opening of trade and to the freedom of the U.S. economy. America’s ability to compete and innovate derives from open markets and the continual search for new markets through the expansion of free trade. Goods and services flowing across borders foster new ideas and allow U.S. producers to learn about the market through the failure and success of traded products and services. As they learn more, they are able to innovate to remain competitive.

Credits – Ana Eiras, Heritage Foundation – Daniel Griswold, Cato Institute