Sunday, December 24, 2006

PROTECTIONISM - THE INJECTION OF ECONOMIC POISON

William H. Overholt has written an excellent article on how individuals and companies gain gain benefits from the globalization. Generally speaking, the essence of the article is primarily focused on the point of periodic protectionism. Protectionism is indeed causing enormously threatening barriers to countries on a global level. Protectionists are struggling in a direction that would limit the free trade, therefore keeping jobs at home, and imports out of the country. Critiques of the globalization state that the process of globalization at an accelerated pace is promoting inequality at the expense of low-wage workers where corporate managers benefit while they are exploiting the labor force in cheap labor countries such as India, Indonesia and China.

Those who say so, should apologize to the people, for saying untruthful things which leave behind a huge psychological influence since such propaganda is boosted by the ideological manners. But thanks to our common sense, the ideas of the opponents of globalization have no fundamental source of empirical verification for defending their ideas which sound literally insane. Therefore, their defense of anti-capitalism, anti-globalization and anti-Americanism is ideologically-driven, hoping to restore the ideals. But, as Joseph Schumpeter, a distinguished Austrian-American economist of Harvard University once said, if you want to achieve the ideal by force, then you'll have to use lying. Arguments, rational discussion and economically empirical bulk show that their promotion of serfdom is inevitable.

(1) Business owners and entrepreneurs are those individuals who bring their knowledge to certain country. They also bring technology and capital equipment. But the most important thing is that they bring opportunities to thousands to improve their prosperity through the process of growth of knowledge, the improvement of skills as well as through the growth of productivity. Without entrepreneurs and business owners, those children and labor force would probably continue living in misery and poverty. Protectionists, anti-capitalists and anti-americanists suggest that companies who undertake such decisions in cheap labor countries should immediately be punished. What if they start lobbying and what if they succeed in implementing their ideas? If enacted, then Wal-Mart would be forced to leave India and other companies as well would be pushed towards the edge where they were required to remove the production facilities out of the particular country. Will those "critically inspired intellectuals" and the supporters of anti-capitalistic mentality take the share of the responsibility in their own hands? Will they travel to India and apologize to individuals who lost the job? Will they pay him an education, food and basic health-care from their wallet? Will they tour a village where individuals would be living in poverty after they lost the job and say to a young fellow: "Sorry buddy..." It is terrible to listen those ridiculous anti-capitalist intellectuals, groups and other individuals how they feel compassionate with poor people and how their ideas are humane. Frankly, it’s quite the opposite. Their ideas are inhumane and their ideas for example, drove young workers of Bangladesh in the wheel of highly uncertain future in a very negative manner. Since Wal-Mart was forced to remove from Bangladesh, a bulk of individuals, particularly young women, were made prostitutes in order to earn a living. In the period of globalization, millions of individuals were lifted out of poverty; the income level of individuals in those countries grew strongly. For workers, the globalization has meant the opposite of the inequality. The truth about globalization is the opposite of what protectionists speak. It brought opportunities to millions of individuals. It brought them brighter, fuller and richer tomorrow as well as a growing prosperity.

(2) In Slovenia as well as in other European countries and also in the United States, we often hear how workers from low and zero value-added fields of the economy are suffering from globalization. Negative effects of globalization cannot be exaggerated by attributing job losses to competition from India, Indonesia, China and Philippines. We often hear how certain countries are exporting jobs overseas. This is very far from being true. Scholarly economic studies have shown that the reason for cutting jobs mostly in the manufacturing sector is a domestic productivity. Changes in the rate of productivity have transformed the production lines. Technological readiness coupled with know-how resulted in less obvious needs for basic production workers. Instead, the manufacturing sector needs educated individuals, mostly highly profiled graduates whose knowledge and skills stream towards the convergence of productivity. The outcome that follows is the increased level of product competition in a global market arena where the behavior of market actors chooses the best possible option. In order to choose, there is a price competition in the market meanwhile the rapid transformation of production lines firmly streams forward to competitive product prices on the market. Sometimes it took two days to produce a car while today it takes less than a day to build-up the whole car.

(3) Another, more oftenly stressed argument of the protectionists is that job flight to destinations overseas is dishonest and unfair. But they forget to stress the information that both, the U.S. and China, have lost domestic manufacturing jobs because of the increased productivity and that China has lost ten times more manufacturing jobs than the U.S. There are usually two ways to increase people's standard of living. One way is increasing wages and the second one is through cutting prices so that you're able to buy more goods and services at the same amount of money. Protectionists claim that the government should immediately increase prices of goods produced abroad through the imposition of import quotas and tariffs. But isn't the ability to buy inexpensive quality shoes from China and cars imported from Japan, the soundest way to increase the standard of living? Low prices of goods and services explicitly benefit low income workers in Slovenia, Spain, Austria, U.S., or anywhere else. Let's take two different individuals into account. One is high-income earner and the second one is a low-income earner. If the first one buys Cesare Paciotti shoes for $400, he doesn't benefit very much. But if the second person buys shoes for $28 at Wal-Mart, then he benefits greatly. Empirical studies and observations have shown that lower prices due to various product imports from China, increase real incomes of lower income Americans by 5 to 10 percent.

Low prices and trade liberalization with other nations is the surest way towards more prosperity. No welfare programs have ever accomplished not even a fraction as much gains and benefits as free trade and dynamic competition brought up. No politicians, no bureaucrats, no anti-capitalists, no critical intellectuals, no Marxist worshippers, no anti-americanists and no socialists have ever achieved as much as free trade did it in a matter of moments.

(4) Protectionists instantly forget to mention the rate of fresh job creation due to globalization's rapid success. Easier access to foreign direct investment enables many companies from particular countries to expand their sales activities in China, India, Indonesia and Bangladesh and penetrate therein. The ability of Slovenian and Austrian companies to flow their operations in Chinese and Indian market and to compete abroad, immediately creates many high level jobs in the operation sector back in both countries, Slovenia and Austria, with a great measure of dynamics and diversity.

(5) One of the most obvious features of globalization is that open economies adjust to real competitive advantages faster. Unemployment rate in the U.S. has recently peaked at 4,4 percent while the unemployment rate in France along with other highly protected economies jumps much higher because labor dynamics is low as well as because tax burden of the economy is enormous. In such strange and politically arranged conditions, many people are made doing an inappropriate job. To a larger extent, in the most protected economies mostly in Africa and Latin America, the unemployment rate goes double-digitally up to 30 or even more percent. Globalization and the promotion of open trade and migration has lower the unemployment significantly. The globalization itself lifted 3 billion people from non-human condition of life into modern standards of living. Even more, the globalization has brought decent food, modern clothing, life utilities and basic shelters to millions of families.

Mr. William Overholt noted that in the early 1950's the life expectancy rate in China was 41 years while in 2005 the average life expectancy was 72,7 years. This is a huge reduction of inequality that truly has to be admired.

(6) Rapid economic growth in East Asian economies is bringing the greatest inequality reduction in this part of the world ever to be noted. As the result of rapid technological progress and open market economy, upper- as well as lower- middle income countries are growing much faster than advanced economies. In comparison with France or Italy, the average economic growth spread across China, China, Indonesia and Vietnam outscores the average growth rates of European sleepwalkers for more than three times faster.

(7) We often hear complaints from the workers about the pain of change. It is true that the unemployment can wipe out their savings and turn their life into nightmare. Their suffering can't be ignored. But if the policies of protectionists were in charge, the agony of the unemployment would continue to grow and become more difficult and uncomfortable until the point where the worst of the worst would come out. At that time, the effect of the agony would triple itself.

(8) Neither Slovenia, neither any other country will advance if the inequality would be significantly lower at the expense of economic growth, rapid restructuring of firms and if status quo on the labor market remained in action. The use of coercion to achieve equality through welfare will result in higher unemployment rates and lower growth rates while measures introducing free trade, education for those who suffer from globalization, rapid tax cuts, entrepreneurship and market competition, will decrease unemployment and increase economic growth and above all, increase opportunities and this is the surest way to avoid long-term economic stagnation and relative downturn in the future.

Slovenia and other countries will benefit only from competitive free markets. Competition is the agenda with magical power. No welfare programs have ever accomplished not even a fraction as much gains and benefits as free trade and dynamic competition brought up. Slovenian policymakers should rather focus on how to give individuals an opportunity, not a “social subsidy”, to get a decent education so that they will benefit from globalization rather than suffer from the status quo which has been achieved through unions' use of power. The protectionism is indeed an economic poison as Dan Mitchell perfectly points out. In the context of progress and improvement of the standards of living, faster economic growth, entrepreneurship and education opportunities help low income individuals much more than charity and social welfare programs. In fact, charity sounds emotionally appalling and sometimes helps to improve the situation in various forms at various places but in the long-term perspective, charity doesn't solve the problem. Foreign aid programs are a direct gateway to even more corruption while countries and nations depending on foreign aid haven't improved the economic conditions while faster growth has been rare as well as productivity improved only by a little. Other features aiming to support the establishment of entrepreneurship lagged behind the very much needed pace. To come to an end, education opportunities, competitive entrepreneurship and free open trade are a key to unlock the economic miracle among individuals. There is no greater assistance to the poor than simple and transparent flat tax system. Protectionists, critical intellectuals, anti-americanists, anti-capitalists, Marxist worshippers of serfdom and new socialists, harshly oppose to various forms of liberalization not because they necessarily disagreed on them, but because those measure, if enacted, would banish their ideas and so they would become unimportant and the most important thing is that they would not have people to manipulate with anymore.

1 comment:

andraz said...

congratulations and just respect ;)