The price of trade

Written By: - Date published: 11:20 am, July 20th, 2010 - 35 comments
Categories: Economy, Environment, workers' rights - Tags:

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 ß 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.

35 comments on “The price of trade”

  1. Draco T Bastard 1

    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 ß more would be recycled with less pollution. The world would be better off.

    Bingo!

    For “free-trade” to work then every country needs to work under the same environmental laws, have the same minimum wage, have the same workers protections laws and rights, use the same currency etc. With all of that then the actual costs can be compared and it would work. Without it then no rational comparison can be made which turns the “free-trade” mantra of the economists into the delusion that it is.

    • Gosman 1.1

      Once again you have highlighted why the left doesn’t understand the principles of free trade at all.

      Free Trade doesn’t require the same minimum wage. This would be nonsensical as it would ignore the different levels of productivity, not to mention costs, that each nation has.

      While there is a case to be made about standardising environmental regulations this is a matter for multi-national collaboration and shouldn’t be tied into trade.

      • Draco T Bastard 1.1.1

        No, you’ve just proven that you prefer delusion to reality.

        Costs are the same as it requires the same real resources* to provide the same products and services. Productivity is a delusional measure and the ship breaking used above is a good example. Those ship breakers aren’t the most productive as they don’t have the capital investment to make it so and should, according to economic theory, cost more. They don’t because there’s a lot of missing costs which would mostly have to do with workers rights and protections and environmental protection.

        Of course environmental matters should be tied to trade. How else are we to make a rational decision as to which is the best price if one country doesn’t have the costs of environmental protection inherent in the price and another does?

        * Money is not a resource

      • ZombieBusiness 1.1.2

        Africa was set up, told free trade would free them, and the world dumped its
        excess food on them. African farmers could not compete and African nations
        had to expose their primary resources to the new corporate colonists. to
        buy food they could of produce themselves.

        Free trade works like this, your countries ruling elite is told you can
        make big bucks feeding the international free trade system (and get
        big buck support for re-election or arms for your miliatry backers).

        All the elite needs to do is too sell off, mining rights, petrol rights,
        or bleed their soils dry, or suck water to feed dairy cows, profits now,
        costs and risks later on future inhabitants of the region.

        And it was made much easier, far too easy for elites globally to choose,
        since cheap oil and cheap credit, with cheaper and bland journalism
        fed jingoistic mantras 24-7 from the likes of Fox and others. No
        English speaking country politician could get ahead in their profession
        by going against stupid neo-right-liberal-economic bullcrap.

        So it came to pass that the environment, the balance sheets, the risks
        would all blow back into our faces. Welcome to that day! Free markets
        do work if government gets out of the business of helping or harming
        business and stay true to their voters long term needs, as an umpire.

        ACT, National believefavor business needs assistence, whether watered
        down employment laws, sell off resources to foreigners, or trashing
        Canturbury water. You can’t trust a party that thinks their own job is
        to make business run on time. Get it.

        This is why Key is a bad PM, and this is why Clark was a neutral PM.
        And why its going to be another decade of collapse until we have a
        PM that actually leads government for the good of the people. Why?
        Because people are slow to change, voting for short term fixes.
        We need a long term consensus, and only when voters are hurting
        financially, socially, will they demand politicians act.

        • Gosman 1.1.2.1

          What a complete and utter display of ignorance of the issues of free trad and it’s impact on Africa. A large number of places in Africa have no problem competing in the international arena on food and agricultural products.

          Both Ghana and Côte d’Ivoire are in the top league of cocoa bean producers. East and Southern African nations regularly supply European markets with various types of produce and products.

          The issue isn’t that they can’t compete given a free market, it is that the market isn’t really free. Other nations, especially the US and EU, have distorted markets with protectionist trade policies and massive amounts of state subsidies for their inefficient farmers. That causes a glut of produce which the EU and US tewnd to dump on developing nations.

          Don’t blame free trade for the problems caused by a lack of free trade.

          • Draco T Bastard 1.1.2.1.1

            Which comes back to what was said in the post and my comment and which you disagreed with. The lack of understanding on trade seems to be with you.

            • Gosman 1.1.2.1.1.1

              You mean when you said productivity was a delusional meassure? Yes I had a good chuckle at that and started a reply but then decided it wasn’t worth debating with someone who believes in such utter nonsense.

          • rainman 1.1.2.1.2

            That the same cocoa bean trade that featured on the telly a few weeks ago, talking about their use of child labour?

            Let me guess, that’s part of their “comparative advantage”?

      • Roger 1.1.3

        But a lower minimum wage distorts the market against increased productivity by allowing firms to use ridiculously cheap labour instead of the most efficient capital or even the most productive labour.

        Captcha: cent, anyone you can pay 10-20 of these an hour is unlikely to be the best person for the job.

        • prism 1.1.3.1

          Yeah – not till they get enough money for a decent feed that enables them to stand up to the rigours of a 12-16 hour day’s work. Vicious cycle this extreme poverty. Perhaps there could be a shortage of such workers available to work at 10-20 cents pr hour organised through birth control and education leading to better wages and achievement of opportunities.

          Supply and demand effects are self-evident. After a plague in Europe the peasants, being less numerous than before, demanded more money, good textbook economics which tend to be based on ideal hypotheses. (Reality of human behaviour came to the fore and the land-owning class worked out new laws to limit the rise of these smalls.)

  2. comedy 2

    A large proportion of our pharmaceuticals come from South East Asia and the Indian subcontinent, this is encouraged by governments of all ilks to save money, are you saying this is a bad thing and that the government should somehow demand that these suppliers adhere to the same employment/environmental laws we have in NZ.

    I suspect they would tell us to get fucked and just sell their products somewhere else, and while we could claim the moral high ground how would anyone be better off ?

  3. tsmithfield 3

    Here is the answer. We create a level playing field so far as wages are concerned by ensuring that workers everywhere are paid the same as those in China. 🙂

    • felix 3.1

      Of course we’d love to see wages drop.

      • comedy 3.1.1

        are you John Key ?

      • tsmithfield 3.1.2

        Well, if wages everywhere dropped we would all be consuming less and creating less greenhouse gases. That would be a good thing, wouldn’t it? Compare the per-head greenhouse emissions of the US compared to the third-world for example.

        • felix 3.1.2.1

          You’re right that it would be good if everyone consumed less. You’re wrong that wages need to drop as a result though – profits do.

        • Bill 3.1.2.2

          “..if wages everywhere dropped we would all be consuming less and creating less greenhouse gases…”

          No we wouldn’t. And aren’t. Wages have dropped since the 60s/70s. But production has increased. As has consumption.

          Built in obsolescence and fashion have driven production/consumption through the roof. Consumption has been sustained by the use of debt as a mechanism by which consumers accumulate those things they/we cannot afford.

          • tsmithfield 3.1.2.2.1

            True. But debt exists because lenders believe people can fund the debt. If incomes drops enough then debt will also drop along with consumption.

            • Bill 3.1.2.2.1.1

              “But debt exists because lenders believe people can fund the debt.”

              Sub-prime mortgages ring a bell for you?

              “If incomes drops enough then debt will also drop along with consumption.”

              As incomes drop, debt increases if for no other reason because it becomes increasingly less serviceable.

  4. Bill 4

    “But ‘free’ trade actually distorts the market.”

    Are you asking us to accept the idea that the market itself is not the cause of the distortion?

    The market pulls all producers into a zero sum game with one another. And it pits employers against employees in a zero sum game. And it demands that production strategies are geared towards endless growth. And that means that protection of the environment is an impediment to the growth imperatives of the market. And also that any efficient use of resources is an impediment to the growth imperatives of the market.

    The market is a place of aggression and violence that has, and is, and will, continue to destroy human lives, environments, eco-systems, climate and anything and everything that might stand in the way of endless growth.

    Where you try to mitigate any effects of the market, ( environmental regulations, ‘fair trade’ etc) the basic market dynamics will tend everything back to finally satisfying market demands. And that is also true of any form of trade that takes place in a market environment. I’m sure you can rummage up many examples of the market indefatigably wearing away at and finally rendering obsolete any regulations or theories of trade devised to contain or control its worse excesses.

    And the market didn’t just magically appear. It is not a natural phenomenon. We created it. And now we need to shut it down.

    • tsmithfield 4.1

      Na… the market eventually fixes it everything. The market is God. 🙂

      When resources become in short supply the cost goes up, so the market will eventually find alternatives to those resources.

      The market eventually even addresses income inequality issues in a way that no political system can. Look at the income of the Japanese now compared to where they were 40 years ago for example. What happens is that manufacturers aim to outsource to low wage economies. The resulting income boosts those economies and enables their own internal market to develop. Eventually they become self-supporting high wage economies. Eventually the whole world will end up a high wage economy.

      • Bill 4.1.1

        “When resources become in short supply the cost goes up, so the market will eventually find alternatives to those resources.”

        So when the free resource of regular and predictable climatic cycles that our crops rely on (seasons) are gone – at which point broadly steady and predictable periods of weather will be considered in terms that are beyond measure…as priceless, the market ( which is the phenomenon that insisted on and drove the processes of production and distribution and consumption that created and perpetuated climate change in the first place) will already have, or will be in the process of, finding an alternative?

        Gee. That’s a relief. Thanks for letting me in on that one ts.

        • tsmithfield 4.1.1.1

          Why do you think governments are moving towards emission trading type schemes? Because they recognise the power of the market model to achieve outcomes much more quickly than other methods.

          Look at the amount of car companies now producing electric or hybrid cars. The market is moving. As the need becomes greater the market will move faster. Eventually the market will even produce technology that will fix our seasons if that becomes a problem.

          • Bill 4.1.1.1.1

            “Why do you think governments are moving towards emission trading type schemes?”

            Because the market demands market solutions to the exclusion of everything else and government exists to service the market, perpetuate the market, elevate the market and crisis manage the market.

            “Eventually the market will even produce technology that will fix our seasons if that becomes a problem”

            You’re insane.

            • tsmithfield 4.1.1.1.1.1

              And you have no vision. There is already technology being developed that removes carbon from the atmosphere and converts it into carbon that can be used in carbon fibre products.

              • Bill

                You mean spades?

                You know, those things you dig holes with that you then plant trees in that capture carbon. Which is all fine and good ’til the market comes along insisting that you chop the trees down again cause it’s ‘good for business’ to make ‘carbon fibre product’ particle board or whatever and release all the captured carbon back into the atmosphere?

                Or you mean some wonder gizmo that uses less CO2 emitting energy in construction and running than is gathered from its output? Including energy inputs for subsequent production processes to manufacture these captured ‘carbon fibre products’?

                • tsmithfield

                  Na. A bit more sophisticated than a spade. This was technology featured on “close-up” I think quite a while ago. It was technology that removed carbon from the atmosphere. The output was a carbon dust that could be used in carbon fibre technology.

  5. “Too often, the cheapest countries are the cheapest because they pay their workers the least and don’t protect their environment.”

    This is what European farmers could use as an argument against NZ dairy products and meat because our farmers are exempt from ETS, are allowed to pollute rivers at will (and pay the farmhands peanuts).

  6. clandestino 6

    “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.”

    Hang on, if world wages were held level in an industry (ie. ship breaking) then the companies involved would not move to the most ‘productive’ just the most ‘efficient’ (or, more likely, nationalistic). This could be anywhere costs are lower through any number of reasons like tax levels, energy supply, etc. In essence, you are advocating millions of people in the global south losing their livelihoods (and with no welfare state to fall back on, it’s signing a death sentence), for those jobs to be brought back here where advanced machinery and bean counters will suck them into the ever-downward spiral of ‘efficiency’.

  7. Pete 7

    uroskin said are allowed to pollute rivers at will (and pay the farmhands peanuts)

    And as for the way the animals are often treated ,far to often .

    Abhorrent.

    Ive worked on a couple dairy farms in the past myself and seen induced calves born with hardly any hair, left to shiver in the cold until after the milking was over,when they were only then finally bludgeoned to death with a hammer.All because profits come first.Late calving cows are injected, to quickly induce calving, bringing the milk flow and money on faster.

    Many people try and suggest animals dont feel pain and suffering like humans do.Yet for me the harsh trauma these cows all went through with all their calves being removed within hours of birth ,was very obvious.You can tell when animals are suffering from a type of stress or depression ,their heads drop and they get a kinda distant look in their eyes.

    During calving season in the dairy shed, for me this phenomena of stress and depression being displayed by the cows, seemed quite obvious.

    I dont think all farmers treat their animals this abhorrent way, infact i do personally know some that i know for sure dont treat their animals bad ! . But these farmers are the ones that are not morgaged way to far out of control .The ones that dont put themselves in situations where they need to try run as many cows as they can try and shove on a paddock .The ones that dont have becoming fast millionaires as the primary goal .

    If more folks in New Zealand realized how many animals in NZ were treated sometimes .I think many would be quite shocked and disgusted.

    I hunt and fish and im not at all afraid of killing and and preparing my own meat for the freezer.Cattle,deer,pigs,sheep etc….As long as its done quickly and with the least pain and suffering possible.

    But personally i was still disgusted in some dairy farm practices i saw used , specially at calving time.

    When money and getting rich fast ! becomes the primary goal . The effect is everything and even everyone becomes thought of as being lots like cabbages and silver beet .

    • Bored 7.1

      Pete, I cannot applaud you enough for saying this, I have seen some of these practices first hand. For years every time I have contended that NZ farmers animal husbandary practices were very uncaring at the best I have got hammered as a soft towny. Cruelty towards the animals is a short jump from cruelty to humans, as is clearly demonstrated by the long term history of farmers turning bully boy enforcers for the right. Dont get me started on their appalling environmental record.

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