L&L est un blog "libéral "de réflexions afin de débattre de tous thèmes.Ni socialistes,ni conservateurs,les libéraux expriment une troisième dimension de la vie politique.Il est temps qu'elle ait sa voix en France,sans caricature ni compromission.Nous voulons une socièté de libertés,une démocratie véritable.

Contributeur L&L: Maher GORDAH #2 - En faveur du libre-échange

par AL de Bx 16 Juin 2010, 21:24 Travail et Economie

Trade Globalization As Freedom

– Do people need another article dealing with globalization?

cliquez, lire bio sur Libre-échange sur QL

Not a day goes by without impassioned thinkers or activists, whether they be anti or pro-globalization, putting their oars into these agitated waters. National and international newspapers also continue to focus their interests on this issue, and polls are taken and debated to analyze to what extent there is a global rage and why many are likely to support this process, especially in emerging countries such as India, China or Brazil.

Columbia University Professor Bhagwati wrote a few years ago in his compelling book – In Defense of Globalization (2004) – « Without such understanding, and then informed refutation of the fears and follies that animate the anti-globalizers, we cannot adequately defend the globalization that many of us seek to sustain, even deepen ». People of the world should know that economic globalization may mean many – simple or complex – things. Indeed, it represents the integration of domestic economies into an international framework according to a free trade scheme, as well as foreign direct investments led by multinational firms, short-term capital flows, and international flows of workers and technologies.

In this context, one could wonder why globalization issues do generate so much noise. To fully understand what are the motivations, which stimulate such an agitation, we need to distinguish two main groups.

First, there is a multitude of protestors who share a deep-seated antipathy towards globalization. They belong to various intellectual and ideological streams and they are set of anti-capitalist, anti-globalization and acute anti-corporative mindsets. Such ideas are internally related because the globalization process is here perceived as the extension of capitalism throughout the world via international institutions such as the World Bank, the International Monetary Fund and the World Trade Organization. Second, some other critics are of a very different order from the latter – somewhat hardcore – set of criticisms, which reflects hostility towards globalization. Here, they rather defend an idea aiming at inviting a reasoned engagement and at opening discussion. For the former group, the most common Protectionist argument is that such – and – such an industry is suffering from unfair foreign competition practiced by a large part of the developing world and ipso facto must be saved by a higher tariff or a tighter import quota. Another common arguments for Protection is that certain industries are vital to national defense or that import competition cut down job opportunities in some relatively inefficient western industries.

The fact that protection hurts the economy of the country that imposes it is one of the oldest insights economic science has to offer. The idea dates back to Adam Smith’s The Wealth of Nations - which gave birth to modern economic thought - already contained the argument for free trade: “by specializing in production instead of producing everything, each nation would profit from free trade.” Yet, it is important to distinguish between the case for free trade for oneself and the case for free trade for all. The former is an argument for free trade to improve one nation’s own welfare – so-called national-efficiency argument. The latter is an argument for free trade to improve every trading country’s welfare – so-called cosmopolitan-efficiency argument. So actually, one observe that European Union distort market prices by subsidizing production, for example, as major European governments have done in electronics, aerospace and agriculture. In the case of sugar, OECD governments provide producers with generous support of approximately 6.4 billion dollars annually. In combination with quotas and tariffs such generous subsidies allow local sugar producers to get more than double the world market price. In fact, prices are becoming so high that it is not any more surprising to see sugar beets grown in cold climates. The European Union, which used to be a net importer of sugar in the early eighties, became a net exporter today. The case of cotton is even more illustrative. The United States provides a subsidy of around four billion dollars a year to cotton farmers, about twice the US foreign aid to Africa. This magnitude of subsidy depresses world cotton prices, hurting the income of thousands of poor farmers specially in African countries such as Benin, Burkina Faso, Mali and Chad where cotton represents around thirty percent of their exports and where more than ten million people live based on cotton production.

According to Bhagwati, one clear cost of protection is that the country imposing it forces its consumers to forgo cheap imports. But another important cost of protection may well be the lobbying cost incurred by those seeking protection. These lobbying activities, now studied by serious economists, are variously described as rent-seeking or directly unproductive profit-seeking activities. They are unproductive and extremely bad because they produce profit or income for those who lobby without creating valuable output for the rest of society.

Professor Edward Younkins from Wheeling Jesuit University, states that to argue for tariffs and other trade restrictions is the same as arguing against technological change and human progress. Trade barriers decrease the advantages gained through the international division of labor. The argument for protectionism is the argument for higher prices, lower quality goods, economic stagnation, and coercive monopoly.

Moreover, one of the best advantages of globalization is that it promotes freedom from both direct and indirect manners. Jagdish Bhagwati states that the direct relation results from the fact that rural farmers are nowadays able to bypass the so-called ‘dominant’ classes and castes by directly providing their production to markets thanks to modern information technology. Thereby, they are likely to loosen the control of the traditionally hegemonic groups. This may be interpreted as a signal for them to become more independent players exhibiting democratic aspirations in the political arena.

Furthermore, the law of comparative advantage based on David Ricardo’s classical theory declares that every nation can improve its economic position by specializing in the most efficient product lines available to them. These product lines are those in which its productivity relative to other product lines is greatest. It follows that even the country that is least efficient in producing every product will benefit from free trade. It does this by specializing in what it is only somewhat inefficient in producing. Every nation has a relative cost advantage in some pursuit. The European countries have lower relative total production costs in some endeavors because of its high labor productivity and low capital costs. Another less industrialized country’s comparative advantage with respect to another product is likely to be due to its lower labor costs. Free trade allows one country to benefit from the comparative advantages and specialization in production found the world over. It is through the price mechanism that individuals and nations discover their comparative advantages.

Regarding wages and labor-related standards, it appears obvious that the analysis of Marx remains wrong when predicting the progressive immiseration of the proletariat class. The effects about accumulation in a capitalist framework he was likely to highlight were wrong, and the improvment made about working conditions was a result of social legislation such as the Factory Acts of England, which paved the way for the protection of workers. Although his prediction of falling wages is finally coming to pass, anti-globalizers appear to worry that the Marxist idea may rise again. Most of the labor unions in developed countries fear that trades with both underdeveloped and emerging countries – i.e., with low wages – will drive the real wages of their own workers down. They also argue that trades with poorer countries – in which low life standards prevail – are likely to intensify and that some multinationals are thus likely to move to such low-leveled standard-related locations, taking jobs away. Nevertheless several economists have examined this question and the overwhelming majority – including both the Nobel Prize winners Milton Friedman and Paul Krugman – does support that the role of trade with underdeveloped countries in the decrease of wages remains at least very small, perhaps even negligible.

Furthermore a large part of pragmatic economists have noted a number of beneficial effects that multinationals may drive. One of the most beneficial effects relies on what economists call spillovers, depicting the fact that domestic firms are able to learn productivity-enhancing techniques from multinational firms and provide high-level technological outputs and appropriate management practices. Indeed, such spillovers may result from interactive dynamics between production workers, who learn better productive procedures when being employed by foreign firms. Bringing such production-related knowledge back to local firms therefore appear as a way to foster the sharing of productive experience and to facilitate its translation into a better workforce. The enhancement of such diffusion dynamics is therefore likely to benefit to domestic firms and – as a consequence – related host countries. The example of trades with underdeveloped countries should therefore not be seen as a case of ‘negative opportunism’ but rather as one of ‘positive stimulation’.

Globalization of economic activities, and particularly free trade has been behind this positive development. More countries have been involved in the multilateral trading system, substantial economic restrictions have been reduced, if not removed, and economic, financial and trade reforms have been widely implemented. The advantage of such a development is that it has created not only a more integrated world, but also a more coherent and vested interest community. For example, in 1996 Tunisia entered into the “Association Agreement” with the European Union, which has removed tariff and other trade barriers on most goods by 2008. In conjunction with the “Association Agreement”, the EU is assisting the Tunisian government's Mise A Niveau (upgrading) program to enhance the productivity of Tunisian businesses and prepare for competition in the global marketplace.

Additionally, The Doha Development Round, initiated in November 2001 in Qatar, has greatly contributed to this effect despite the current difficulties facing trade negotiations. This should not undermine the achievements the Doha Round has made so far. Since the initiative of the Doha Round, world trade has expanded significantly. During the past five years, trade growth was 3-4 times the world output. Many developing countries have accessed the World Trade Organization and are now actively participating in the world trading system (Dr. Jassim Al – Mannai, 2006).

For these reasons we should abandon the conviction that trade and – more generally – globalization lack of human – social – aspects. Free trade globalization recognizes the right of individuals to engage in voluntary transactions in goods and services across international borders. In addition, free trade creates jobs by reducing prices. With more money left in the hands of consumers, their additional spending will stimulate production and employment. Furthermore, free trade shifts jobs from high relative cost sectors that cannot compete to low relative cost sectors that may be able to compete. When individuals voluntarily purchase an imported article they get a superior product and/or a better price. Free international trade imparts benefits on all countries, firms, and individuals that participate by permitting, on an international basis, the specialization that occurs in a free economy (Younkins, 2000). It is obviously interesting to recall that social effects were not entirely ignored by earliest economists who have stressed the positive nature of free trade on social welfare during the 19th century. As John Stuart Mill stated, « The economical advantages of commerce are surpassed in importance by those of its effects, which are intellectual and moral. It is hardly possible to overrate the value, in the present low state of human improvment, of placing human beings in contact with persons dissimilar to themselves, and with modes of thought and action unlike those with which they are familiar. Commerce is now, what war once was, the principal source of this contact… There is no nation which does not need to borrow from others, not merely particular arts or practice, but essential points of character in which its own type is inferior ». Recent contributions and stylized facts nowadays contribute to validate such a view.

Maher GORDAH Ph.D in Economics