EconTech

Tyler Cowen argues that most anti-trade positions are driven by xenophobia. Dani Rodrik argues that differing rule-sets (labor laws and such) are a serious source of concern. Tyler and his co-blogger Alex respond. All of those posts are worth reading.

In my mind, this is definitely not an either-or situation. I hope that before I die I will be able to argue that xenophobia and other bigotries are not an issue in almost any given U.S. political issue. At this point, however, such a position is almost laughably false, if it weren’t so frustrating. Nevertheless, it is unfair to lump all “anti-trade,” including but not limited to those who want a breather on trade or simply more rule-setting in trade, people into the same pot. To be clear, this is NOT Rodrik’s position. Rather, he is arguing that the current change in intellectual climate is driven by concerns for justice, specifically the embeddedness of the markets in the social, political, and legal frameworks.

Rodrik contends:

The international trade counterpart of this hypothetical is the worker who loses his job because his company decides to move to a country where, say, labor rights are routinely violated. So the “us” and “them” characterization that Tyler attributes to irrational nativism perhaps has more to do with the absence of a common set of international rules on labor standards, environment, consumer safety, and so on.

We already know that there are pretty massive human rights violations occurring throughout the world in the context of production. There are currently over 20 million slaves throughout the world (the largest absolute number in human history, though the smallest in terms of the percent of the population) and many of these are involved in the production of goods put on the global market (summary).

There are, of course, other labor issues, such as the right to organize and safety and health concerns. And people do care about these issues! I remember when I was at university, there was a campaign to make sure that goods (hoodies, t-shirts and such) sold by the university weren’t being produced through unfair labor practices. One of my economics professors railed against the students as complete ignoramuses, citing the standard “they can’t afford the same environmental and safety standards as us.” He was (mostly) right, insofar as he went, but he was completely non-responsive to the arguments that were being made by the students. I happened to have ended up on a plane trip and several day conference with two of the leaders and had a long discussion with them on it. Turns out, they never made the claim that they wanted equalized wages, safety, and environmental standards. They simply wanted to make sure the goods weren’t being purchased by places that used private (or sometimes, government) police forces to kill union leaders and other kinds of very basic human rights issues. These concerns are a far stretch from the caricature made of the opposition by so many free-trade advocates.

These are real issues that do concern many people who have issues with the current regime of global trade. If we have our trade agreements address these issues, to one degree or another (in addition to other unfair practices of our own, e.g. agriculture subsidies), then we cordon off those who are opposed to trade for bigoted or rent-seeking reasons and force them to try to make their (now much weaker) case for altering our trade agreements.

Some more random comments:

Tyler writes:

More than 400 million Chinese climbed out of poverty between 1990 and 2004, according to the World Bank.

Doesn’t that figure come from before the revision of international GDP figures by the World Bank? Which poverty standard is Tyler using here?

A new research paper by Christian Broda and John Romalis, both professors at the Graduate School of Business at the University of Chicago, has shown that cheap imports from China have benefited the American poor disproportionately. In fact, for the poor, discounting in stores such as Wal-Mart has offset much of the rise in measured income inequality from 1994 to 2005.

Ok, this paper has been discussed a number of times before (and hopefully more is down the line). The paper shows how consumption has behaved for different income groups due to international trade and its ability to keep cheap goods cheap. Income inequality, i.e. the ability of the poor to purchase the goods that the rich typically purchase, remains an issue and is unchanged by the results of the paper. Wording this approximately as “Wal-Mart’s ability to provide cheap goods through extensive international trade relations has helped to maintain a steady consumption level since the mid-1990s” would be a more accurate description of the results.

The bottom line is that most people support their countries to a highly irrational degree in most international questions or disputes. That’s just obvious — watch the World Cup — and yes Jonathan Swift understood that too.

For the record, since ‘94 I have supported Argentina in the World Cup, not the U.S. despite absolutely no familial relations with Argentina. I just like the way they play soccer. Of course, I also find patriotism and nationalism to be about as disgusting as most other forms of arbitrary and socially significant biases; so, I’m probably an outlier here.

Alex writes:

Rodrik has a very Ivory-tower view of what people care about.

People are still dragging this tired ‘argument’ out? Done by an ivory-tower denizen too. This is disappointing.

More interestingly:

A testable implication of Rodrik’s hypothesis is that people will be more upset about international trade than immigration since foreigners in foreign countries obey different rules but immigrants obey the same rule as us. In reality, people are more upset by immigration than by trade and as a result we are much closer to free trade than to free immigration.

This would be an interesting test. However, there are some effects that I think need to be controlled for, and that may not be possible.Even though there are foreign goods all over the place, they are typically presented as most other goods, with English labels and American-style marketing. Immigrants, on the other hand, with some exceptions, are relatively obviously immigrants, particularly the first generation who tend to hold on to their customs more than the second and third generation. Thus, even if you are not directly interacting with them as labor-competitors, you see them at the movie theater, the grocery store, etc. To some degree, this issue is going to bring out xenophobia. But even without that element, the reminder of the new competitor is more salient. Further, to continue to play devil’s advocate here, many immigrants are not documented and work outside the labor rules established by the federal and various state governments. Thus, in many instances, they are not ‘obey[ing] the same rule[s] as us.’

A liberal economist should understand that for the most part labor, environmental and consumer safety standards are chosen not imposed (not always, of course, but for the most part in the long run).  In the United States we have a lot of job safety because we are wealthy and are willing to pay for job safety with a reduction in our (already high) wages.  In other words, Americans buy a lot of on-the-job safety for the same reasons we buy a lot of smoke alarms and DVD players.  (OSHA has very little effect on job safety.)  Job-safety is thus a choice Americans make about what to consume - we use some of our wealth to buy safety both at home and at work and some of our wealth to buy DVD players.

These results seem less surprising in a modern context than in a developing economy context. I’m curious as to what role Alex would say unions and government had in the worker safety and free labor movements of the late 19th and early 20th century. Given the amount of violence that occurred to secure these things, I suspect the effect was non-negligible. I would also suspect that government also often impeded these movements. Do we have evidence for stagnant wages as safety standards were established during this time period? These large changes seem more relevant to the conditions of developing countries than our modern, highly developed, highly embedded economy, and these contexts do matter. I am not aware of any papers discussing these effects during this time period. If you know of any, please pass them along.