Comment by phillmv | Hacker News Reader

Comment by phillmv | Hacker News Reader

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>I'm having a hard time with the statement as a super-majority of economists agree that liberal trade is a net boon

Not the OP but familiar with some of these arguments.

Free trade is held to be pareto optimal outcome - you and I get cheaper tshirts, people in bangladesh get higher incomes because of tshirt manufacturing, everyone is better off because of comparative advantage, etc.

However, if we distinguish between development or industrialization, then free trade provides strong disincentives wrt investing in capital intensive industries where one does not have a comparative advantage.

If I have capital to invest in Bangladesh, it does not make sense for me to try to create a high-end equipment factory; German manufacturers are way more efficient and effective, so it will be very hard for me to compete.

The competitive advantage of my region is cheap-labour, so all investment will be biased towards that. Unfortunately, this means that it's very hard to create high-value-added industries that can substantially raise average incomes.

If we look into the historical record, we find that the industrial revolution was a period of high tariffs and protectionism; the British empire had a great advantage in acquiring raw materials but IIRC, the French textile industry was more efficient at the time.

As a result, they were incentivized to export raw resources and import high value added materials. This is a loser's game. Instead, with the application of high tariffs British manufacturers were now able to compete and thus were incentivized to develop their own industry.

Again, IIRC, you can basically take every well-industrialized nation and look back to the period where they gained their industrial edge and you will find high tariffs and protectionist policies aimed at protecting and developing their own internal industries.

(This is a decent segue into talking about how pareto optimal outcomes, without taking the initial distribution of resources into account, aren't automatically moral or just http://www.interfluidity.com/v2/5537.html )

TLDR: free trade makes things cheaper, and spreads money around, but it does not automatically make poorer countries substantially richer.

I'm not sure your argument is valid. People in Bangladesh are competing by offering their cheap labour becaus that's the most effective way for them to compete, and the best investment of their time/money.

Sure, you could make a high-tech plant in Bangladesh, but it would cost you much more (in time and money) than making one in Germany. Instead, you first invest into a low-cost low-skill plant, make the workers' lives a bit better, they can afford better education, and so on, and very soon you'll have high-tech companies there as well.

I think the main problem with free trade is completely different - that countries don't just compete on cheap labour, but also (mainly?) on lack of regulation - the West tries to pass laws protecting the workers, people's health, the environment... but companies simply product their products elsewhere where these protections don't apply, and then sell these products in the West with comparatively low tarrifs - destroying the local competition that actually abides by all the health/conservation/safety laws.

>Instead, you first invest into a low-cost low-skill plant, make the workers' lives a bit better, they can afford better education, and so on, and very soon you'll have high-tech companies there as well.

This is confusing - if the goal is to have high-tech companies there, and it should be, why wait? If it's more expensive, spend the money - it's an investment. Why spend years and years crawling along on low-margin sales of labor? The workers lives will be "a bit" better, but this sort of accumulation will be extremely anemic. It's hard to get ahead sewing T-shirts.

Meanwhile, compare Korea or Japan, which built actual industries instead of pursuing their comparative advantage and became economic powerhouses.

I believe that Japan has historically had maybe not "high tariffs", but other protectionist policies: http://www.huffingtonpost.com/ian-fletcher/japan-the-forgott...

I think that Japan is an example of a very protectionist economy that built up internal, high tech factories and educated workforces. It's a counter-example to the free trade argument.

Nearly all developed economies are counter-examples. Korea is the same way, as is the US, England, etc. All of these nations used tariffs to protect their native industry while they were developing. The same argument could be made for China, that they liberalized slowly over a period of decades to protect their native industry.

This sounds like some stuff I read from a Ha-Joon Chang book once. Who or where can I read more along these lines?

I am Peruvian so the topic is extremely interesting to me.

> This is confusing - if the goal is to have high-tech companies there, and it should be, why wait?

You state very matter-of-factly your assumption that the goal should be to have high-tech companies there. I'd want to see that claim backed up.

> This is confusing - if the goal is to have high-tech companies there, and it should be, why wait?

Because you don't create high-tech companies simply by decreeing that it will be so, even if you have a lot of money behind your decree. You need a bunch of infrastructure (reliable power is a big one, but educated and trained workers are probably the most important). If you try to go to high-tech in one step, you're going to have to create a huge amount of infrastructure, all of which has no present reason to exist. (You expect that it will in the future that you are aiming for, but in the present it has none.)

It seems much more likely to work to build some industry and some infrastructure, then some more of each, then some more of each, as you try to move to higher tech.

An analogy: It's easier and safer to climb a ladder one rung at a time than it is to try to jump off a trampoline directly to the top rung.

What AnimalPuppet said. Essentially, it's easier to finance the development of infrastructure and the education of people with low-margin work than with nothing.

Maybe I am wrong, but I can't think a lot of examples of free trade improving a country.

By free trade I mean international trade without restrictions.

The modern examples like Japan, South Korea, China etc are very planned economies that protected their industrial base until it was fully developed.

If this observation is right, an interesting question would be: why "a super-majority of economists" says otherwise?.

You can't think of one because "it hasn't happened". You can construct your definition of free trade to be restrictive enough that no countries fit the bill and it looks like evidence that the proposition is untrue (I'm not necessarily arguing that it is true).

Furthermore there is broken windows here, you don't know how those economies would have done if they were freer.

Sure, but we can compare countries where there was more protection of their own industrial base with countries where there was less. Surely we can get some conclusions there.

The path that is normally recommended to the "developing countries" doesn't match the path that the industrial powers followed. If you wanted that Bangladesh developed an industrial base you would do well in advise them to develop and industrial base and some internal market. That takes time and takes some kind of protection.

> The path that is normally recommended to the "developing countries" doesn't match the path that the industrial powers followed.

Yeah, well, would you rather we recommend Bangladesh adopt a US-like "path forward" including 150 years of chattel slavery, a bloody civil war that more than decimated the population, and nuking a rival world power at the end of a 4-year global conflict?

I don't follow you there, do you mean that the US is a developed country because slavery and the civil war?

Anyway, why not a Japanese or South Korean path forward? or Chinese?

All first world economies are highly planned.

[citation needed]

That is, if you actually want to convince anyone, you're going to have to do more than simply asserting that it's true.

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