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| Nepali Kanchi |
Posted
on 14-Jan-04 03:24 PM
Can the US survive using free trade model in the modern global economy?
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NYTimes.com
January 6, 2004
OP-ED CONTRIBUTOR
Second Thoughts on Free Trade
By CHARLES SCHUMER and PAUL CRAIG ROBERTS
was brought up, like most Englishmen, to respect free trade not only as an economic doctrine which a rational and instructed person could not doubt but almost as a part of the moral law," wrote John Maynard Keynes in 1933. And indeed, to this day, nothing gets an economist's blood boiling more quickly than a challenge to the doctrine of free trade.
Yet in that essay of 70 years ago, Keynes himself was beginning to question some of the assumptions supporting free trade. The question today is whether the case for free trade made two centuries ago is undermined by the changes now evident in the modern global economy.
Two recent examples illustrate this concern. Over the next three years, a major New York securities firm plans to replace its team of 800 American software engineers, who each earns about $150,000 per year, with an equally competent team in India earning an average of only $20,000. Second, within five years the number of radiologists in this country is expected to decline significantly because M.R.I. data can be sent over the Internet to Asian radiologists capable of diagnosing the problem at a small fraction of the cost.
These anecdotes suggest a seismic shift in the world economy brought on by three major developments. First, new political stability is allowing capital and technology to flow far more freely around the world. Second, strong educational systems are producing tens of millions of intelligent, motivated workers in the developing world, particularly in India and China, who are as capable as the most highly educated workers in the developed world but available to work at a tiny fraction of the cost. Last, inexpensive, high-bandwidth communications make it feasible for large work forces to be located and effectively managed anywhere.
We are concerned that the United States may be entering a new economic era in which American workers will face direct global competition at almost every job level — from the machinist to the software engineer to the Wall Street analyst. Any worker whose job does not require daily face-to-face interaction is now in jeopardy of being replaced by a lower-paid, equally skilled worker thousands of miles away. American jobs are being lost not to competition from foreign companies, but to multinational corporations, often with American roots, that are cutting costs by shifting operations to low-wage countries.
Most economists want to view these changes through the classic prism of "free trade," and they label any challenge as protectionism. But these new developments call into question some of the key assumptions supporting the doctrine of free trade.
The case for free trade is based on the British economist David Ricardo's principle of "comparative advantage" — the idea that each nation should specialize in what it does best and trade with others for other needs. If each country focused on its comparative advantage, productivity would be highest and every nation would share part of a bigger global economic pie.
However, when Ricardo said that free trade would produce shared gains for all nations, he assumed that the resources used to produce goods — what he called the "factors of production" — would not be easily moved over international borders. Comparative advantage is undermined if the factors of production can relocate to wherever they are most productive: in today's case, to a relatively few countries with abundant cheap labor. In this situation, there are no longer shared gains — some countries win and others lose.
When Ricardo proposed his theory in the early 1800's, major factors of production — soil, climate, geography and even most workers — could not be moved to other countries. But today's vital factors of production — capital, technology and ideas — can be moved around the world at the push of a button. They are as easy to export as cars.
This is a very different world than Ricardo envisioned. When American companies replace domestic employees with lower-cost foreign workers in order to sell more cheaply in home markets, it seems hard to argue that this is the way free trade is supposed to work. To call this a "jobless recovery" is inaccurate: lots of new jobs are being created, just not here in the United States.
In the past, we have supported free trade policies. But if the case for free trade is undermined by changes in the global economy, our policies should reflect the new realities. While some economists and elected officials suggest that all we need is a robust retraining effort for laid-off workers, we do not believe retraining alone is an answer, because almost the entire range of "knowledge jobs" can be done overseas. Likewise, we do not believe that offering tax incentives to companies that keep American jobs at home can compensate for the enormous wage differentials driving jobs offshore.
America's trade agreements need to to reflect the new reality. The first step is to begin an honest debate about where our economy really is and where we are headed as a nation. Old-fashioned protectionist measures are not the answer, but the new era will demand new thinking and new solutions. And one thing is certain: real and effective solutions will emerge only when economists and policymakers end the confusion between the free flow of goods and the free flow of factors of production.
Charles Schumer is the senior senator from New York. Paul Craig Roberts was assistant secretary of the Treasury for economic policy in the Reagan administration.
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| bhole_babaji |
Posted
on 14-Jan-04 03:40 PM
The job market is not going to improve for a while due to outsourcing..
Then we asians are going to see the xenophobia...
That may be very dangerous for us all.... not a good time....
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| Bhunte |
Posted
on 14-Jan-04 03:49 PM
nepali kanchhi ko homework ho?
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| salakjith |
Posted
on 14-Jan-04 05:25 PM
Does it not appear that this is simply the case of short term disequilibrium? The imbalance is caused mainly by out-of-proportion nominal exchange rate which tends to be much skewed from the real exchange rate. However, with increased trade, the balance would eventually be reached, at which point the wage rates between the trading countries would more or less equate. I don't really see too much to worry about this issue in the long term. As a matter of fact, I think the best way for the disadvantaged country (ie, USA) to do is to fully realize the potential of free trade so that the equilibrium is reached sooner, rather than relying on protectionist ideas.
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| Nepali Kanchi |
Posted
on 14-Jan-04 09:14 PM
bhole ji...yes i think that many immigrants may see racist sentiments from upset wasp. however, i think the issue is much greater than petty xenophobia.
bhunte ji..not my homework
salak ji...from what i understand from your reply you seem very contradictory. at first you say this will be a short term issue. first, please define what you mean by short term. you then go on to say that once equilibrium is reached, there will be no long term issues. how can equilibrium be reached between india and china(two dramitically less deveoped labor forces) and the US without any long term repercussions for the american labor force? the current structure of us society can not under an any circumstances survive under their current approach to labor economics. yes, eventually the situation will reach equilibrium, but at what costs to the american public? it is obvious from the current model, that any and all industries that can be performed at lower costs overseas will be relocated. what will this mean for the american public? what will this mean for any future highly developed capitalist countries? the us is currently coveting the burgeoning markets of india and china and moving away from their own american population. this gradual move away from domestic to international adverstising will continue to escalate as wealth redistributes from america to india and china. this is a situation that is currently boggling american legislatures and policymakers.
please take a breath and think about the dynamics of the current phenomenom. there is no longer free trade in the current global market. in the ricardian sense, the free trade model is based on the assumption on the immobility of the factors of production. the factors of production today, however, is traded just as easily as products, thus we see the outsourcing of services to the developing world. try naming an industry that can not be done overseas. yeah there may be a few for a while. but how many of these services will exist once american wealth is redistributed from america to overseas? there will be no use for liposuction and teeth whitening industries in america, because the american populus will no longer afford such luxuries. these services will be gradually relocated to where the wealth is. the products will follow the wealth. plain and simple. now this will not mean that america as a whole will suffer. under the current situation, the corporations who are seeking lower costs and higher profits have all to gain from the development of india and china. but the american population will have all to lose from the current situation. the corporations have no incentive to keep the population relatively wealthy. the markets in india and china are much larger, and now that there economies are growing, the us corporations want to tap into that wealth and profit from it. this will mean that the stock marker will be insiginificant to the overall economy of the us. the corporations will continue to reap enormous profits. although the markets are less wealthy, there are so many buyers to offset the lower costs. furthemore, the lower costs of production will increase their profts. think about it....
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| bhole_babaji |
Posted
on 14-Jan-04 10:10 PM
Petty xenophobia?
you call it petty kanchi ?
I think it is a very serious situation. I have already heard some white ass saying third world people taking out job at my office... This is a very serious and very dangerous time and if the job market doesn't improve in a year, there will be riots in the streets of USA.
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| askme |
Posted
on 14-Jan-04 10:43 PM
Great to hear from bhole-babaji "if the job market doesn't improve in a year, there will be riots in the streets of USA."
If they behave like this and have president who has no vision, I am sure days are not far these things will happen in America.
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| Nepali Kanchi |
Posted
on 15-Jan-04 04:59 AM
blole... do you think that riots on the street will reallly affect the goverment's trade policies? There were 10 million people protesting the war on Iraq, and what happened? Nothing!!!
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| Nepali Kanchi |
Posted
on 15-Jan-04 05:08 AM
" I have already heard some white ass saying third world people taking out job at my office... "
bhole ji.. thats ignorant, isnt it? you ask your "white ass" who is taking the jobs , the "third world people" or the coorporations?
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| salakjith |
Posted
on 15-Jan-04 08:09 AM
When the Free Trade benefited US, they were all for it... now it appear to be at their disadvantage and now they question free trade.... oh boy these Americans.. they think they own the world or something
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| AskMe |
Posted
on 16-Jan-04 03:22 AM
Great to hear that....
In Global village in the age of Information Technology, you cannot cheat people all time. You work hard, you survive or leave the place for others.. So hard luck for lazy Americans!!!
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| spark |
Posted
on 16-Jan-04 10:42 PM
many people around the world making their bread and butter from US's support. Any doubt that US will be like former Soviet? Not in our life.
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| askme |
Posted
on 23-Jan-04 12:14 AM
US simply SUCKS nowadays... They have spoilt their image and they have lot harm than good. After anyway they have to pay the prize!! the GOD is above all remember!!!
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