I suppose I’m flattered to be picked out by Tim Worstall as an example of someone who is both left of centre and in favour of free trade (even if it is in a post entitled "crazed loons"). However, in a desperate attempt to put some clear red water between me and the real crazed loons, I should like to point out four corollories of this which I don’t hear much from the right-wing free traders:
- While economists agree that a world with free trade would be better than with trade barriers, we have consistently underestimated or ignored the human costs of transition. We should be prepared to invest much more in enabling people to move with dignity from one living to another; invest in skills, infrastructure and social safety nets for those who find the transition difficult. Time and again, we have willed the ends but not the means, both domestically and internationally. In the case of poor countries, those transitional costs will have to be financed externally.
- Economists agree that trade liberalisation will bring significant benefits to the world as a whole, but the dismal science does not allow us to make particularly good predictions about how those benefits will be shared. In general, the economically strong are able to capture the gains from trade more effectively than the economically weak. So the benefits from globalisation will mainly accrue to the rich world. Both rich and poor will get richer; but the rich will get much richer. In order to restore the balance between rich countries and poor, we must agree collectively and globally to redistribute the benefits to the poor.
- Rich countries should not use their own trade barriers to try to cajole change out of poor countries. We should open our markets completely and immediately to poor countries, and to each other, whether or not poor countries do the same. (As Joan Robinson famously said, just because other people throw rocks in their harbour, that is no reason for us to throw rocks in ours.) I hope poor countries will do the same, but they should not be blackmailed; and we should not use the language of negotiations and trade-offs which becomes an excuse for delay.
- If you believe in free trade, as I do, and you believe in free movement of goods and services and of capital, then it follows that you should believe in free movement of people. The economic efficiency arguments for this leg of free trade are just as compelling. So, consistent with my views on free trade, I believe we should unconditionally remove controls on migration. (Note that if trade liberalisation is restricted to some factors of production – eg capital – but not others – eg labour – then the theoretical arguments for the unambiguous benefits of free trade no longer hold. If an economist thinks that free movement of people is undesirable or impossible, then she may well believe that the second best solution is not free trade in goods, services and capital.)
7 responses to “On left wing free traders”
Not too much clear water between you and this “barking at the moon lunatic” on this subject I’m afraid.
Points one and two….I continually point to Krugman’s essay (Ricardo’s difficult idea) which makes these very points. I’m not so sure about 2b….the rich get even richer so that inequality rises. I don’t think that is empirically true. Those (previously) poor countries who have joined the global economy have been growing for decades faster than the rich countries. China growing at 8-10% for a decade while W. Europe has been growing at 2-3% doesn’t, to me, look like evidence of an increasing income gap. Similarly, within societies, I don’t see it as being true. Might, possibly, be so with purely cash incomes but all the other measurements, life span, illness, creature comforts (food, heat clothes etc) seem to me to be getting narrower as societies get richer (and no, I haven’t cross controlled for the welfare system or lack of it. ButI’m sure someone out there has.)
[Owen adds: Chris Kenny has done this analysis, here. But the world is much more unequal at the end of the 20th Century than it was at the end of the 19th Century, and the disparity is not good for any of us]
Three? Of course. I’ve said that many a time.
Four? Yes, but with slight reservations. Not about economics, but politics. I think my political reservations (no, they’re not about how I would view unrestricted immigration, but how my fellow Britons do) will fade away as people begin to see the effects of the E. European (ie, new EU members) into the UK. Lots of poor(ish) hard working people coming in is good for a country. It’s an (and they won’t remain poor for long either.) import of human capital. As long as it can be done without sufficiently scaring the populace that they then reject the other three pillars, then I’m all for it.
As you know, of course, “crazed loons” was not a comment upon yourself. Owen: I know … and I mean “barking at the moon” in a friendly way …
The world is more unequal at the end of the 20th century than at the end of the 19th? You mean that a century of constant additions to the welfare state have increased inequality?
Bring back laissez faire and the Robber Barons immediately! They obviously reduce inequality!
I’ve thought for a while (and your exchanges with Tim confirm this) that there isn’t much difference on this between left-freetraders (like you, and I would say, me) and right-freetraders like Tim. Where there is a difference, though, is with people who use the language of free trade because they think it somehow gets them off the hook of their responsibility to others.
Tim Actually, the inequality is mainly between countries, rather than within them; and one reason for that is precisely that we do not have an inernational community that redistributes between rich and poor between countries in the same way as we do within countries.
One explanation I have heard for this inter-country increase in inequality is that there are some countries which have not joined in the boom in trade that is globalization. We thus have the rich economies growing at 2-3% a year, those poor countries which are taking part growing at 4/5-10% (and thus reducing inequality)and those not taking part not growing at all.
Perhaps simplistic (I only dimly remember reading the paper on it) but if that is so then it might not be redistribution (or lack of it) that isthe problem, but that some are not taking part in globalization
Tim’s probably referring to Dollar and Kraay’s work on ‘globalizers’ and ‘non-globalizers’. But that mostly just picks countries who have enjoyed higher growth and trade and calls them ‘globalizers’ regardless of their actual policy choices, so it’s basically saying that countries that do well do well. Which isn’t particularly helpful.
But differences in growth rates between countries are obviously one of if not *the* driving factor behind the trend in world inequality, which as far as I know is not unambiguously down in recent decades (see Branko Milanovic’s book “Worlds Apart”, published today). The main force exerting downward pressure on world inequality since 1980 has been China’s very fast growth, but if present trends continue this will eventually become a force exerting *upwards* pressure on world inequality as China gets closer to the rich nations and ever further away from the very poor ones.
Owen is quite right to point out that greater inter-national redistribution would reduce world inequality, just as intra-national welfare states have reduced national inequality.
The welfare state takes a small part of what the working majority was underpaid, and gives it to the most destitute portion of the underclass to maintain political stability.
For another take on how “laissez-faire” the Robber Baron era was, read Gabriel Kolko’s *Triumph of Conservatism*. Not to mention Benjamin Tucker’s analysis of the four monopolies in “State Socialism and Anarchism.” Seems to me that if the state hadn’t been intervening to stack the rules and force us to sell our labor in a buyer’s market, and we could have received our full-labor product as a wage, we’d have been better off under such a genuine free market than under either Robber Baron capitalism or corporate liberalism.
Vulgar libertarians and welfare state liberals have a common interest in pretending that corporate power arose from “laissez-faire,” and the regulatory/welfare state came about through “anti-business” motives.