Geoscience Reference
In-Depth Information
EXAMPLE 3.3
Suppose a situation exists wherein a community activist interested in
promoting a sustainable and healthy local economy is complaining to
an economist about the effects of globalization and the resultant ruinous
outsourcing of jobs to China or Mexico.
Community Activist: We seem to import everything we consume these days.
It's killing us not to produce in this country more of the goods
that we consume.
Economist: That's not true! David Ricardo's theory of comparative
advantage is one of the oldest tried and true principles
in economics. Specialize in what you do best and then
exchange with other countries or regions for what you need.
Everyone benefits from trade—consumers and productive
workers alike.
Community Activist: But we have no jobs left. We're being asked to con-
sume imported goods, and we have little purchasing power
with which to do that. Doesn't the theory say we're supposed
to export a bunch of stuff to China to balance it out? The
data show we're importing at least 10 times as much as we're
exporting.
Economist: Well, that may be true for now, but that will change as the
Chinese consumer culture develops and they want more of our
stuff. At present, though, we should keep the volume of trade at
high levels, and concentrate on 'knowledge-based' jobs that we
do best, not on manufacturing.
Community Activist: But what's happening is not trade. Our corporations
are relocating there for the cheap labor, then just bringing
stuff back here to sell. It can't work in the long run. There's
something wrong with your notion that, “Trade helps
everyone.”
In this example, a basic tenet of economic theory is questioned. No
principle is more fundamental to market-based economics than the
notion of free and voluntary exchange. (Here, it must be noted that noth-
ing in the entire universe is free , because everything is constrained by
its relationship to everything else—including every component of every
economic system, despite the contention of economic theory to the con-
trary.) This tenet, which can only be construed as voluntary , underlies
the entire theory of supply and demand. The widely accepted (and over
200-year-old) theory of comparative advantage simply extends that
principle to trade between nations—in addition to the familiar market
exchanges between buyers and sellers.
In recent years, however, the phenomenon of globalization, and the
rising influence of transnational corporations, may have fundamentally
changed the reality. These corporations, by being involved in both the
producing and consuming countries, are able to keep—as profit—the
incremental surplus that once accrued to the workers through higher
wages and to the consumers through lower prices.
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