Public opinion and trade issues: The Right Questions

Among globalists, and I count myself as one, there is a possibly unfortunate tendency to frame international trade of any sort as an unmitigated good. Critics, especially grassroots critics, are typically cast as uneducated, antediluvian troglodytes unworthy of serious consideration. When pressed hard, globalists haul out the 1930 Smoot-Hawley Tariff Act, generally considered by most economic historians to have touched out the worldwide trade war that contributed in a large measure to the severity of the Great Depression. I’ve certainly done it myself on several occasions. Globalists raise Smoot-Hawley to trump any argument about the desirability of the further liberalization of the terms restricting international trade. Sadly, things aren’t that simple.

It’s helpful to think of approximately democratic countries with developed economies as simply another kind of corporation in which the political class makes up the board of directors and the citizenry at large are, to a greater or lesser extent, stockholders. The board has, by hook or crook, to provide dividends to the stockholders if they want to remain on the board. In the case of the United States, the various protected classes hold preferred stock while the run of the mill citizenry holds the lowest class of common stock. Dividends come in the form of both direct cash disbursements in the form of income redistribution and indirect disbursements in the form of less quantifiable, but altogether very tangible benefits packages consisting of the various quasi-public services that ordinary citizens enjoy.

Struggles for control of the Board involve proxy fights in which those seeking voting proxies promise stockholders just about anything that they think will get them the proxies. In fact, however, the promises are, as often as not, empty.

At that point the resemblance ends. An ordinary citizen can not easily sell his stock in his country and reinvest it elsewhere if he becomes dissatisfied with his country’s economic performance. He soon finds that his stock is worth nothing and the most he can hope to retain is whatever capital he has managed to accrue from reinvesting his dividends and other income.

As I said earlier, I am an internationalist. I participate in global undertakings and think absolutely nothing of outsourcing the services that I need to keep the costs of the products and services that I offer competitive on the international market. I regularly utilize software applications written in places like France, Finland and Serbia and specify microchips made in Thailand and electrical hardware made in China.

I’m currently designing a device that uses a particular type of linear stepper motor made in Chinese factories that was designed and marketed by an American-based firm. The one-off cost of that motor is about $60-70. It can be had from that firm for about $35-40 in large volumes. The stepper motor weighs about 40 grams. That’s about an ounce and a half for you Americans. I’d like people overseas to be able to afford my design so I spent a little time recently sniffing around Shanghai and found a small Chinese firm with a similar product line. They are offering an equivalent stepper motor at a one-off cost of about $2.50. There are no prizes for guessing what I intend to do. I am designing using the American firm’s motor for my design study simply because the one-off cost plus freight is lower. A couple of design iterations down the way, however, I’ll be shifting over to the Chinese stepper motor because I can get it for 7% of the cost of the American motor in large quantities.

I would also be a fool to have it assembled in America. Not to put too fine a point on it, that’s how globalism works. I’m currently shopping around for a new place to relocate to as well. The board of directors of the world’s largest corporation, the United States, are in the midst of a massive proxy fight in which all of the contenders for the Chairmanship and board are promising the moon and stars to the stockholders in return for their proxies. That means income redistribution which is going to raise my cost of production without offsetting my running costs significantly. I’ve looked at the Czech Republic very closely in recent months. The cost of living is much lower there than here, the amenities and infrastructure are comparable and board of that national corporation are far more interested in growing their company than in looting the company to pay dividends.

That brings us back to Matthew Yglesias’ article. Ordinary stockholders in USA incorporated aren’t in quite my situation. My assets are largely either liquid or readily convertible. When I moved here from Hong Kong in the mid-1990’s one look at the real estate market told me clearly that it was vastly overpriced and that sooner or later the bubble would either burst or rapidly deflate. As a result, on good mortgage terms or bad I stayed completely out of the “investing in your home” scam. Sadly, most Americans didn’t and find their capital tied up in seriously non-performing assets, viz, their homes. Because of that, they haven’t got my mobility.

Thus, when a monster, in their opinion, like myself shops for services they can provide out-country they become understandably upset. If I bid the services they can provide internationally, think of what has happened to call centers in the past five years, they’re faced with unemployment and a pressing need to acquire new skills at a time when they can’t readily liquidate any of their now non-performing assets to finance themselves past their own very personal economic disruption. In that situation, that kind of stockholder more often than not opts for less-skilled employment at a lower salary and sees a decline in their living standard. Their national benefits package doesn’t really include serious retraining financing. Given that is it surprising that they have a negative attitude towards international trade as it is practiced by people like myself?

The problem for a corporation like the US is that the sorts of benefits that it wants to offer, viz, health care, education and housing provision, all come from extremely inefficient sectors of the economy. Defining what is an inefficient sector of the economy is trivial. If the cost of services from that sector increases faster than inflation, it’s inefficient. Think about it. Don’t buy the usual excuses that those sectors try to retail to you, like for example, look how much longer you live than your parents did. They don’t wash. If the medical services sector performed as well as the computer sectors has in the past thirty years, we would be living a lot longer than we do. Ditto, the education, energy and the transportation sectors of our economy. Why is that the case, do you think?

Oh yes, let me not forget to mention what is far and away the most egregiously inefficient sector of our economy, viz, environmental services.

It’s really rather simple. Economic sectors are manned by people and people would rather that tomorrow be pretty much like today. Economic sectors do, too. They defend their fraction of the economic pie even when the pie grows. They defend it to the point of demanding that the board of that big corporation, USA Incorporated, make special provisions on their behalf when proxy fight time comes around.

A perfect example is the current debate over national health care. If the cost of health care services had followed computer costs there wouldn’t be a debate on the national level just like there isn’t a debate about the cost of PC’s. The PC industry is delivering the product. The medical services industry isn’t. They don’t want to have to improve their productivity and are willing to move heaven and earth to avoid having to do so. They don’t want to so badly that they’re seriously proposing that USA Incorporated picks up the tab for their wasteful ways now that the ordinary stockholders can’t any longer. It’s a stupid thing to do but there we are.

The bottom line is that while free markets will ordinarily produce optimal price points for services providers are habituated to putting their thumb on the scale to secure special treatment. That sort of behaviour occurs from the level of the individual all the way up to the most complex social organization found.

Matthew Yglesias has noticed that that behaviour has finally become endemic in the lowest common denominator of our economy the individual. What he’s missed talking about from the study he quotes is that 75% of those same individuals know full well that the economy has globalised sufficiently that there is no jobs protection for them as individuals. Would that the higher levels of economic organization that exist within the economic giant that is USA incorporated acquire that same epiphany.