Watching an article on the shipping breaking industry in Bangladesh got me thinking about trade.
The textbooks tell us that free trade is good because it means a more efficient use of resources. We export timber to Samoa and import coconut products because our natural endowments favour production of those products in our respective countries. But the reality is that often the ‘competitive advantage’ one country has in producing a product compared to others isn’t some natural resource or better legal or physical infrastructure that makes business more efficient. Too often, the cheapest countries are the cheapest because they pay their workers the least and don’t protect their environment.
It’s no earth-shattering insight to say that, of course. But the article on the Bangladesh ship breaking industry brought home to me the inefficiencies that come from free trade without fair trade.
If all the countries of the world paid ship breakers the same wages and held the industry to the same environmental standards, then the work would go to the countries and companies that actually are best at the work. Jobs would be held by the most productive workers and they would get decent pay for it. Resources would be used more efficiently ÃŸ more would be recycled with less pollution. The world would be better off.
But ‘free’ trade actually distorts the market. It doesn’t reward efficiency, it rewards corner cutting and unsustainable practices.
What’s to be done? Not closing our borders, not imposing artificial trade barriers. Rather, countries need to club together and demand high environmental and labour practices from their trading partners (you can just see Key doing that eh?). The result would be fewer people in the first world losing their jobs to be replaced by virtual slave labour in the third world, better wages and environments in the third world, and, ultimately, a more efficient world economy.
On a final note, they say the ship breaking industry is booming while ship building is in the doldrums. Why’s that? Because world trade is dependent on ultra-cheap energy to drive all those container ships. The oil crunch from 2004 to 2008 made trade expensive and the recession that it caused saw trade plummet. With the next oil crunch on the horizon according to an array of international organisations, global trade will be in for a rougher and rougher ride. And we’ll have another reason to question the logic of enormously long international supply chains that are completely dependent on an uninterrupted supply of cheap energy.