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Small Is Still Beautiful–What’s New This Week

Joseph Pearce has started more regular blogging at Small Is Still Beautiful.  He has two new posts this week: one on globalisation and one on the related problems of global free trade.  In the latest Mr. Pearce challenges what he calls “economic correctness,” in which support for free trade becomes the moral position against which it is […]

Joseph Pearce has started more regular blogging at Small Is Still Beautiful.  He has two new posts this week: one on globalisation and one on the related problems of global free trade.  In the latest Mr. Pearce challenges what he calls “economic correctness,” in which support for free trade becomes the moral position against which it is not permitted to argue:

Global free trade has become an unquestionable moral dogma enshrined at the heart of modern economic theory. Aware of this “economic correctness”, politicians and economists are reluctant to question its presumptions and are failing to confront or even comprehend the effects of free trade on a world economy that is changing radically. Yet with rapid technological innovation it is possible, even likely, that the globalization of trade will destabilize the (post)industrialized world while at the same time exacerbating the problems facing the developing world.
 

The dogma of free trade has its roots in the nineteenth century and is based on the interrelated concepts of specialization and comparative advantage. Free trade theory stipulates that countries should specialize in those economic activities in which they excel in order to achieve a competitive edge, or a comparative advantage. They should abandon less efficient activities, relying on imports. These imports are paid for by exporting the surplus produced in the specialized industries. The result is greater efficiency and productivity and, therefore, higher levels of prosperity.
The rapid changes in the world over the past few decades throw the whole theory into question. New technology has made the global marketplace a practical, as opposed to a theoretical, reality. This has far-reaching consequences. During the past few years, four billion more people have entered the world economy. China, India, the countries of the Pacific rim and those of the former Soviet empire have all joined, or are trying to join, the Promised Land of global consumerism.
Sooner or later this is likely to cause major disruption. Labour costs in the developing world are as little as one-fiftieth of those in the developed, or over-developed, world. Since the free movement of technology and capital has `levelled the playing field’ the underpaid workers of the third world are now in direct competition with their comparatively rich counterparts in Europe and America. The workers of India, China and Bangladesh are part of the same global labour market as the workers of Britain and the United States. The implications are clear. Two identical enterprises, one in Britain and one in Vietnam, produce an identical product, using identical technology, destined for identical markets. They both have access to the same pool of international capital. Indeed they are both part of the same multinational corporation. There is only one significant difference: labour costs in Vietnam are one-fiftieth of those in Britain. It is not necessary to be an economist to realize which enterprise has the comparative advantage.

I know many of you have already jumped in and have been commenting at SISB for many days, but I encourage everyone to go see what Mr. Pearce is saying and, from what I have read so far I would recommend the book to you all.

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