Comments (119)

• fundamentalist

  Good article! I vaguely remember a story in Industry Week a couple of years ago about a small muffler manufacturer who has a plant in Ohio and one in China. The Chinese workers made about 1/20 what the Ohio workers made, yet the company was losing money on the Chinese plant because the quality was so bad.

  Published: December 1, 2008 8:20 AM

• greg

  I agree, good article. Productivity is the key to moving this economy forward and spreading the wealth. If Obama would spend more time on increasing productivity than he is on taxes to spread the wealth, our society would be much better off.

  Published: December 1, 2008 9:08 AM

• Michael A. Clem

  Yep, good article, but to avoid cries of heartlessness, it probably needs to be stressed that third world people are less productive not because they are stupid, lazy, or backwards in some way, but because the necessary capital hasn't been invested to increase productivity. Furthermore, there is no shortcut in this process of increasing productivity--capital formation must occur, which means deferred consumption. They can't just "throw money" at it, and governments can't force it to happen, although they can certainly disrupt the capital formation process with excessive intervention in the economy. Third world governments are probably the greatest enemy of third world peoples.

  Published: December 1, 2008 9:18 AM

• David Ch

  In orher words, ....

  'We couldn't possibly let that nasty exploitative company employ you at that ridiculously low offered wage, because we have decided that it is beneath your dignity'.

  Ok, so they didnt open the factory after all and the job is now not available at any wage. We really showed 'em, eh? '

  Published: December 1, 2008 10:23 AM

• Eric

  It's the same argument for minimum wage laws here at home.

  If they do so much good, why not set them to $100 / hr.

  The real problem is that our public schools are so bad that Americans don't have a decent understanding of economics or plain arithmetic.

  Otherwise, the public would understand the harm caused by forcing up wages beyond their market value (here and abroad) and stop being suckered in with these economic fallacies used by politicians and their court intellectuals to gain power.
  

  Published: December 1, 2008 11:47 AM

• David Spellman

  Ireland is a great example of how to boost a stagnant economy. The Irish have built an amazing technology economy by developing a university system the pumps out a high percentage of engineers (an in-demand profession) and starting all kinds of technology businesses.

  They have gone from economic backwater to prosperous by increasing productivity to meet market demands. And they did it by individual initiative through getting education and getting to work. Fortunately, the government did not put all their resources into a potato farming initiative to save the economy.

  Published: December 1, 2008 12:25 PM

• Oil Shock

  I work in the technology industry. Many technology companies have engineering and development centers overseas, especially in India. The wage disparity between the engineers working in India and those working in the U.S are huge, but they usually do the same work. As for their individual productivity goes, some Engineers working in India are more productive than their U.S counterparts and vice versa. I am curious, what is the Austrian explanation of this phenomenon?

  As for more sweatshops in developing countries, I totally agree. The Multinational sweatshops provide a better life for the workers in these poorer nations than the local alternatives available to them.

  Published: December 1, 2008 12:56 PM

• fundamentalist

  Oil Shock: "The wage disparity between the engineers working in India and those working in the U.S are huge, but they usually do the same work. As for their individual productivity goes, some Engineers working in India are more productive than their U.S counterparts and vice versa. I am curious, what is the Austrian explanation of this phenomenon?"

  The other factor in wages is cost of living. For example, workers in Oklahoma doing the same work as those in California earn about 80% of the wages event though productivity is higher. Adjusted for the cost of living, wages are the same.

  Published: December 1, 2008 1:33 PM

• pbergn

  Strongly Disagree with the Author!

  His article is contrary to the spirit of freedom, we all here cherish and profess:

  The author blames the poor workers in Asian countries for their own squalid conditions, and even praises the exploitation of unfortunates as a better lot than what would these poor people otherwise have been given.

  This sounds very, very inhuman to me!

  The author forgets that this poor people have no choice but to become virtual slaves to unscrupulous corporations caused by unfair monetary and trade policies, together with environmental pollution and labor regulations.

  How dare the author blame the disadvantaged for their low productivity! Why won't he mention that the corporations could have brought in more efficient tools and higher technology, if they only chose to do so! But they do not - all to lower the production costs and save!

  You think poor laborer in Asia enjoys manual labor? Or do they not know any better? Or that they can't learn the same hi tech tools as we, the Westerners, can?

  Moreover, the author fails to see his own contradiction: on one hand he claims that the free markets will continue to drive the manufacturing jobs to the places where cheaper labor is available, and on the other hand he claims that the lower wages are a result of low productivity.

  If so, then why on earth would corporations choose lower productivity over the higher one domestically available?

  The truth is that the poor people overseas are exploited, and there is nothing "free" in this kind of market. Only if the workers overseas were to be paid comparable wages against their labor, you could have possibly claimed existence of more or less free market conditions.

  It's like competing against a plantation owner with unlimited supply of slaves. Any honest farmer even with a tractor and all farm machinery could not have outcompeted the plantation owner due to simple reason of unfair labor conditions. In such situation no matter what an honest farmer does, no matter how well he treats his paid workers, gives incentives, he will always be on the loosing end of the "free" market competition...

  You see, the truly free market can only exist if rules of the game are the same for all the participants, and all have comparable initial conditions and capability to change them...

  Without this, the freedom is only a taunting and empty "buzz" word!
  

  Published: December 1, 2008 1:43 PM

• DTY

  I am very glad to see someone addressing the realities of this situation. I feel competent to comment because, unlike most people agitating for higher wages in third-world factories, I have actually lived in the third world -- and not as an employee of a first-world corporation. (I currently live in a small town in Mexico, and previously lived in Nepal.)

  When we lived in Kathmandu we employed a teenage Tibetan girl as a full-time domestic. We paid her the equivalent of ten dollars per week, which was about 69% above the national average income at the time. That was actually about as much as her father, a skilled craftsman, was earning working in a Tibetan carpet factory (owned by another Tibetan, of course). We were actually criticized by relatives in the US for not paying a US-level wage; but clearly that would have created huge cultural problems.

  The situation in most third-world countries today is not too different from conditions that prevailed in the US in the 19th century. Workers basically have two choices: they can stay on their farms/villages and do back-breaking labor for NO wage, or they can seek industrial employment which actually pays cash money. Workers, then as now, overwhelmingly choose the latter. Wouldn't anyone?

  As productivity and access to markets improves for third-world workers, their wage levels will invariably increase. In the meantime, I strongly advise those who stridently agitate for improved working conditions in the third-world to shut up, until they, themselves, have actually lived and worked there and have a basis to hold any opinion.

  Published: December 1, 2008 2:11 PM

• Abhilash Nambiar

  There is an interesting aspect about 'low paid' Indian engineers that people here may find interesting.

  True they may superficially appear to be paid less than their Western counterparts. Also true that when you account for cost of living it evens out or in some cases are even higher. But there is one more point of interest to Austrians.

  We have here the Keynesian model of managed trade at work here remember? When Western firms want to outsource to India, there must be firms in India to outsource to. They are not there in the beginning because trade in India is still mostly regulated. So the government has to loosen the leash and then they have to pump in a lot of new money in the form of low interest loans.

  This is what that gets used to expand the economy. So the ‘low paid’ engineers get paid with the new money, putting them on a class of their own, in a country where poverty is still the norm. There is also the trickle down effect. Secondary businesses that depend on how these people spend their new money, they also do relatively well in the beginning. Eventually the inflation catches up though. Prices of everything rise. Also like we already know, in this model there will be business cycles.

  So are the Indian engineers better off? Their new found prosperity cannot be sustained indefinitely and they are beginning to realize it. But they are still reasonably better off right? Once all the new money gets fully absorbed, they still have a reasonably paying job. Most of them anyway.

  Are Indians in general better off? I am inclined to say yes they are. Because before this in India there was the Soviet style economy with 5 year plans, big bureaucracies and all. Real capitalism is better than crony capitalism. But crony capitalism is better than socialism. My worry is that when the business cycles begin to hit people hard as it inevitably will, people will turn once again to socialism, which is even worse, so they will turn back and eventually...

  ...just like in the US, India too will end up a de-facto two party system with the false choice between socialism and fascism.

  Published: December 1, 2008 2:21 PM

• Stanley Pinchak

  pbergn,
  I am sorry, but it does basically boil down to the poor workers who are to blame for their conditions. For their conditions to improve, they must save so that the capital available for an increase in productivity is available.

  It is not as simple as a foreign investor just deciding to construct a high tech factory in the third world. Where would he obtain the capital goods necessary for the new factory? Should he import at high cost all of the capital goods? He will only invest in a factory of a particular productivity which combined with the cost of local labor will still net the going rate of interest. If this means a few singer sewing machines and a generator in a small building, instead of a state of the art, highly automated factory, then that is what will be built.

  It is the savings of the workers who enable local entrepreneurs to increase the stock of capital goods necessary to build the more productive factory. What good is a modern manufacturing plant without access to infrastructure, without a trained workforce, and without ready supplies of inputs?

  To blame the foreign entrepreneur who starts the accumulation of capital in a backward country of being exploitative is counterproductive. All voluntary transactions benefit both parties, both achieve a higher level of satisfaction as compared to their situation prior to the transaction. The labor of third world factories prefer their wages to mere subsistence, subject to the often cruel whims of nature. To demand that they be employed in high tech factories or not at all defies economic law and smacks of elitism. I seem to recall someone suggesting that those starving for bread, eat cake. Your appeal is likewise both impossible and arrogant.

  Published: December 1, 2008 2:43 PM

• pbergn

  Re: DTY

  With all due respect, sir, employing an underaged girl for $10/week in a poor country where this amounts to a large sum, is one thing, promoting slave labor relationship under the pretext of free market, is another.

  What I am saying is this:

  In free capitalist society the market conditions and rules should be comparable for all the participants.

  One cannot call the current market relationship between poor countries and wealthier developed nations as fair, free trade relationship, or even capitalistic in nature due to simple fact of artificially controlled labor conditions and currency disparity.

  It's like holding a competition between a human sprinter and a sports car, claiming that the competition is fair in essence since they both have to cover the same distance in the least amount of time, thus having the same "equal" and free conditions...

  This is nonsense!

  In reality, to ensure fair trade there should be macroeconomic policies implemented to account for great disparities in the labor market conditions between the countries having the trade relationship.

  Much like when one connects two vessels with unequal substance pressures in them, measures should be taken not to destroy the overall system while trying to open the valves between them...

  I am not against free or global trade! I am much for it. Don't get me wrong! I am an ardent follower of Austrian School of Economics.

  All I am saying is that the rules of the game should be made equal for all the participants. Otherwise both the parties will suffer - the wealthier, more developed participants, as well as the undeveloped ones. This is what being currently observed in the Western world - the workers from richer countries are now "useless" in a sense that they are too expensive of a workforce, and the workers in poorer countries toil day and night in sweatshops for pennies... Both are not happy!

  But remember, in the classic free market scenario there are no slaves and slave-owners. There are only people who are more capable or less capable, more industrious or less so, but all of them have free will and same basic legal and human rights...

  We should not loose the aspect of basic human and legal rights in the quest of free market relationship between the labor-sharing society's members, otherwise the whole thing will quickly deteriorate into an oligarchy - where the stronger, more dominant group will quickly become the ruler caste, and the rest being just replaceable slaves...

  Published: December 1, 2008 3:13 PM

• Abhilash Nambiar

  pbergn

  Why do I suspect you don't know what you are talking about. What you call a 'slave labor relationship' is what seems like a slave labor relationship to you who have an option for a better job. You who live in a more advanced economy.

  To someone who does not have that option will not see it that way. What you consider 'slave labor relationship' they consider a 'fair labor relationship'. If not that market will not exist. That is not to say they won't always consider it that way. Perhaps when conditions imporve, when the market matures, they may move on to more attractive options.

  What gives you the right to impose your sense of fairness on the rest of society?

  Published: December 1, 2008 3:27 PM

• greg

  What you are missing is that the cost of labor is set by supply and demand in the market. As demand for labor increases, so will their wage.

  Add capital equipment and you are able to produce more with less labor input. The first response is that it will cause people to be laid off and put further downward presure on wages. But that is not the case, society can produce their requirements with less labor which frees labor to produce something else which society wants. As society's wants are expanded due to this increased productivity, demand for labor increases and so will their wages.

  In conclusion, if you want people to be paid more, you don't throw cash at it, you throw capital. For the $10 a month housekeeper, pay her $5 a month and invest in cleaning tools that will allow her to expand her business and she will be better off many years after you leave.

  Published: December 1, 2008 3:29 PM

• fundamentalist

  pbergn: "All I am saying is that the rules of the game should be made equal for all the participants."

  How do we do that?!! We can't force our laws on trading partners.

  Published: December 1, 2008 3:33 PM

• pbergn

  RE: Abhilash Nambiar

  With all due respect,

  I am not "imposing" anything.

  I am just saying that without equal rights the free market capitalism evolves into "crony capitalism", which I would argue, is as bad as socialism or fascism...

  I am not against poor workers in India or China making a buck or two by working harder than their counterparts in Western world. No, not at all... In some cases this is the only way of subsistence for these people...

  What I am saying is that unfair trade regulations and macroeconomic policies will perpetuate the conditions of semi-slave labor in those countries, and will create increasing unemployment in their wealthier counterparts due to relatively higher cost of labor (this is already being observed in the US and Western Europe)...

  Solution?

  OK, here is one out of the hat: require same quality standards for the imported goods and services as for the domestic ones, and impose tariffs on the imports proportionate to the currency rate disparity... Discourage trade (e.g. via higher taxation) with countries using sub-standard labor conditions and environmental pollution regulations or utilizing child labor...

  After all, the macroeconomic policies are intended to create fair legal conditions for the free market participants...
  

  Published: December 1, 2008 3:57 PM

• Lord Of logic

  Wow, I have no clue what you just said. I even read it 8 times. That is double of how many time I usually read things. I am slow reader with a high comprehension level. But I guess that is what you were talking about. My productivity level is low. If one wants to justify paying me a low wage, they can say, look how slow he is. That is until somebody points out that the results is 90% less dysfunctional products make it to the market. If it was the other way around, then people would seek to say, “yeah, but look how cheep and dysfunctional the product that reaches the market is.” In which case the business you are herofying would justify paying less. What do you say to the 100,000 mile warrantee with sound quality KIA and Hundi that have flooded the market? They are made with cheap labor at an efficient pace and with sound quality.

  The author’s assessment that “more sweat shops” are needed in developing countries dizzies me with irrational and inhumane rhetoric. That is the nicest way I could say it. Look the fact that we would round up, prosecute, and march a manufacturer in say Chicago who employed 8 yr old children, worked them 60 hours a week, for $.40 a month, while billowing pollutions into our waterways and national air space. However, we don’t think twice to stampede a poor Wal-Mart security guard to death in order to get our hands on a bicycle made in China under those exact same conditions. This is an unsustainable and narrow sighted thought stream. It is one that will not allow the human race to exist for more then 3 or 4 more generations.

  The auto industry, being from the “auto belt”, is near and dear to me. What happened was that with out trade restrictions, it was cheaper to build a cheap structure in south America and China that didn’t require the billions of dollars in environmental and human safety regulations that required millions yearly in upkeep. With them went all the supporting manufactures and the jobs they offered. The big 3 would have no problem paying the pensions if they were the only game in town. People would have no problem paying the cost of the Big 3’s prices if they all had good paying jobs themselves. The problem is that the opportunity to go to less regulated markets cost the companies who tried to remain their “national pride” two ways. They couldn’t compete with the labor costs by the wholly foreign companies, and they lost the income that was once in the hands of the local economy.

  Put in an analogy. Say you live on the border of Southern California and the thought that you might like a burrito comes into your head. You have two favorites. They are your favorites because they both taste about the same. You know about the one up north because you did a plumbing repair for the owner last year. The border crossing is something you do a couple of times a week and it is no big deal. The only difference is that the restaurant in Mexico will cost you about $.40 for the dinner and a margarita. The one equally north in California will coast you about $10 for the same. So you say, “What the heck, I’ll go to Mexico and even give the guy a $1 tip and make his day.” Then one day you (Jose de fontanero) notice that your northern customer is closing his restaurant. You stop in and ask why? It turns out most people decided to make that trip down south. You just ate yourself out of a job. Take that job and multiply it time a few million, add about 10 layers of bureaucracy, and you get the impact of globalization on the auto industry.

  The numbers you are making up are not even close. I can tell you stories that have been told by steel industry execs. that talk about the insane productivity and efficiency of Asian labor markets.
  

  Published: December 1, 2008 4:01 PM

• Jack Skylark

  pbergn,

  Of course you are "imposing" something. You believe that offering a wage below what you think is "fair" should be outlawed. When you say equal rights, you are not talking about the natural rights of property and self ownership, you have extended them to include "positive" rights that must invariably limit the liberties of another group. It is you who have turned "free markets" into "crony capitalism".

  One question to ask yourself. Under full ownership of the indivdual, can you make someone better off by limiting their opportunities? Because that is exactly what you are proposing.

  Published: December 1, 2008 4:11 PM

• greg

  Do not confuse increased productivity in a handful of industries with raising the economy. Capital is just as scarce as any other input to production. If capital investment is controlled directly by government or indirectly through trade barriers, this capital is mis-directed and harms the economy as a whole.

  The steel exec that says the Asian producers are at extreme levels of productivity tells me that they moved too much capital to that industry at the expense of another that would have benefited the economy more.

  Published: December 1, 2008 4:27 PM

• Michael

  Maybe I'm wrong but I feel like this article is dated in the light of current economic happenings. I feel like one of the solutions it should have mentioned at the end is for the West to stop buying junk we don't need on credit and become producer nations again. Our appetite for consumption is out of control and has led us to the meltdown we are facing. China needs to produce for itself. We need to produce for ourselves. Poor countries should produce for themselves and trade the excess. That is how they will be able to grow and have institutions that spur productivity?

  thoughts?

  Published: December 1, 2008 4:27 PM

• Abhilash Nambiar

  Re: pbergn

  Yes you are imposing. Jack Skylark said it best. There is an old saying, 'the road to hell is paved with good intentions.' What you are sugessting will raise the cost of living in both the developing and the developed world and raise unemployment in the developing world (whether you desire it or not).

  Sweath shops may seem politically incorrect in the developed world, but regulation is not the way to fix it. If you really care you can try this. Find out what barriers to free trade exist in the third world (and there are plenty) and find out what ways you can pressure their governments to remove them. The sweatshop problem will take care of itself.

  Published: December 1, 2008 4:59 PM

• Eric

  pbergn says,

  "How dare the author blame the disadvantaged for their low productivity? Why won't he mention that the corporations could have brought in more efficient tools and higher technology, if they only chose to do so! But they do not - all to lower the production costs and save!"

  “If they only chose to do so”?

  By this, do you mean that they only needed a desire to do so? What about economically feasible to do so? Does that not count?

  If these greedy corporations could make a larger profit by bringing in this capital why aren't they doing so? Why aren’t they suffering from their competitors who would be doing just that – if it were truly profitable? Why are they only greedy when you wish to make the point that they exploit workers? Why wouldn’t that same greed cause them to choose to bring in capital if it would make them more profits?

  Or is it that to do so is not in reality profitable, and that you (or I) aren’t in a position to know the bottom line?

  You appear to have completely ignored the costs and risks involved in bringing in capital to a foreign country. As bad as it has become in the US private property is still highly protected here by law, while in many poor countries, this is not the case. We also have other infrastructure advantages, such as power grids, transportation, housing, availability of an educated workforce, language skills etc. that are also part of the capital that employees implicitly bring to the table – all of which makes for a more productive worker. If a poor country had all these advantages too, then we’d not be calling them a poor country – and they’d be getting the same pay – all else equal.

  All of these somewhat hidden, but very important costs and risks are paramount to a successful international venture. After all, corporations are not charities. They don't survive on donations - they have to make a profit or they disappear - unless you successfully invest in politicians (called donations in the US, or bribes in the 3rd world).

  Consider the oil companies that had their capital "nationalized" by Iran in the 50's. Whatever you think of the oil company deals, the reality was that contracts were not honored and those companies stood to lose their investment. If you are a CEO and you don’t consider these risks, you won’t get that high paying CEO job. And since these decisions can mean big profits or big losses, it pays to hire a CEO who understands this – and pay them accordingly.
  

  Published: December 1, 2008 5:08 PM

• Henry Miller

  Buying the "cleaning slave" better tools won't help her at all. At some point those fancy tools will wear out, and then she has to replace them.

  Now in the US this is no problem because there is enough labor compition that the "cleaning slave" can charge enough to pay for those tools. The increased amount of floors the can be cleaned more than makes up for this.

  However in the third world country she cannot pay for the tools. Someone else will happily spit-shine your floor with their own tongue, and there are enough people willing to do this (that is without a better job) to make that work out. The "cleaning slave" has to compete with the same wages, and the increase in number of floors cleaned does not make up for the cost of the tools.

  Published: December 1, 2008 5:08 PM

• pbergn

  RE: Jack Skylark

  I am amazed that a simple idea of equal rights or unchanging rules is so difficult to convey to this crowd...

  It looks like only the "Lord of Logic" gets it.

  Let me put it in simpler terms, if I am not being explicit enough:

  Let us imagine the game of Monopoly or any board game for that matter. Let us say we have more than one player, and all but one obey the same rules, but there is a chosen player or a group that is free to change or tweak the rules of the game while in the game.

  What you get is "unequal" opportunity I am talking about all along. You see, if you empower one group of players to the disadvantage of the other group, then it is meaningless to talk about free competition, since the rules are not the same for all the participants.

  Let me bring you an example:

  I would have been imposing my values if I claimed that all the Ford cars manufactured should be given a tax break to increase their competitiveness against their European or Japanese counterparts, just because they are American, or just because I like this brand. This is WRONG, and goes against Austrian school principles! This is a classic example of "crony capitalism", when an elite group gets a break just because they have lobbyists in all the high places, or just because they are the ones making the rules of the game, which gives them a competitive edge over the others, despite their inferior product.

  But let us say, you allow Mexican laborers (or any others from less-fortunate countries, for that matter) freely cross the border, and work unrestricted anywhere they like.

  What you think would happen (well, to be exact, it already has happened)? Yes, you are exactly right - the wages will go down, because there is plenty supply of cheap workforce that does not have anything to loose, since their own country does not have the same standards of living (remember the example with the connected vessels that have pressure differential from good old Physics classes?).

  You might say the wages will stabilize under the free market forces - WRONG! No, if anything, the wages will continue going down, since there will be more and more desperate people trying to make it to the Promised Land, a.k.a. United States of A.

  Now what happened you might ask? What happened to the classic theory of free market, to supply and demand, etc.?

  Let me tell you what happened:

  The free market works only under the near-equal market conditions of the participants. It can work between Ford and Toyota, Microsoft or Sun, but it cannot truly work against a hungry man in Somalia, whose only incentive is physical survival, and the average John Doe living somewhere in the US or the Western Europe, both competing for a position of a door greeter at Wal-Mart, or a burger-flipper at McDonald’s...

  The problem I am trying to demonstrate is the difference in rules of the game and motivation for the participants of the same game - one thinks how to survive, the other how to make an extra buck or two without making everyone angry (why?, ‘cause you can’t please all )...

  Now, the hunger or survival is a good motivator. You can't compete against a hungry man!

  In short, the game should be played between the players in the same league, in the same weight category to make it work, to be able to call it as truly “free”...

  If this doesn't explain my point, I do not know what would!!
  

  Published: December 1, 2008 5:09 PM

• pbergn

  Eric,

  'Cause it is always cheaper to use cheap labor - that is why it is called "cheap labor", instead of using the advanced machinery! Human beings are cheap nowadays, don't you think so?

  As an answer to your question about feasibility and market competitors:

  Any competitor who would have decided to use more investment or more advanced technology, would have faced the same cost/profit ratio restrictions as for the domestic market (albeit to a lesser degree so). The only reason why companies outsource is larger profit margin. Yes, it is that simple! You be the judge.
  

  Published: December 1, 2008 5:18 PM

• Scott D

  Hi there, Lord of Logic. I don't have a lot of time to respond, but I thought I would try to give you something to think about.

  "That is until somebody points out that the results is 90% less dysfunctional products make it to the market."

  Productivity affects quality. Quality is one measure of productivity. I could smash windows all day and sell the resultant sharp glass fragments as knives, but you could hardly say that I'm being more productive than someone who works for Victorinox.

  Speaking of broken windows:
  "Put in an analogy. Say you live on the border of Southern California and the thought that you might like a burrito comes into your head. . ."

  So you have $10 that you can spend on dinner if you decide to go to the restaurant up north. If you go over the border, you have $1.40 to spend on dinner and $8.60 that you can spend elsewhere. The restaurant owner in Mexico sells another meal, his worker gets a big tip, and you have more capital at your disposal.

  Now, rather than sitting idly by while his business goes under, what if our restaurant owner decides to innovate? Since he can't compete directly with the restaurant in Mexico, he'll remodel his business and reopen as the only Italian restaurant in the area. Seeing the potential for his business, you decide to invest your accumulated burrito savings of $8.60 per meal to help fund him.

  Now, the restaurant owner gets to keep his business, you get interest on the loan you gave him, and people in both towns have another choice in food. Win, win, win. Though it's a pretty contrived example for the sake of simplicity, this is how specialization and capital accumulation work.

  Published: December 1, 2008 5:21 PM

• Brent P

  The article misses two things in my opinion. The first is that the careful analysis of costs and productivity between the US and offshore manufacturing rarely seems to occur. The people making these decisions in large US corporations seemingly tend to see anyone with a tie to the actual product as an interchangeable cog. That is there is no productivity difference. This goes for engineers on down to assembly line workers.

  Many a company has watched its reputation go down the tubes as the products it sold after relocating manufacturing to China or another country for low wages resulted in endless quality problems, warranty costs, scrap rates, and so forth. Meanwhile those who cared only for the stock price got the short term bump they wanted to profit from.

  The second item that is lacking is that in many of these nations a partnership with government is easier. That is they can trample over the property rights of others more easily than they can in the US. (including pollution) This coupled with an oversupply of labor can create some rather nasty conditions for employees and the people who live near the manufacturing facilities.

  The labor over-supply feeds back into the analysis. If a company can hire 5 or more people to replace one US worker and work those 5 people 7 days a week, then it pretty much becomes impossible for the US worker to have an equal or better productivity (measured by output, not quality) without an investment in automation. In a country like China, more people are hired at a low labor rate rather than make an investment in equipment. It's cheaper for the short term or just plain cheaper for short lived products and product unique automation.

  US manufacturing and automation may be better for the long term, but the US is not a nation of long term planners, so off to China or someplace else they go.
  

  Published: December 1, 2008 5:27 PM

• pbergn

  RE: Scott D

  Nice example with the capital accumulation. It is a truly classic example - constantly innovate, only the best and strongest survives.

  Again, this all could work under the comparable circumstances. Here is what I mean:

  If it was that easy to build an Italian restaurant or entirely other profitable business, most likely the entrepreneurs would have done that.

  Unfortunately one of the realities of competitive market is that the market is always "capped" from above in terms of opportunities in the given field. Most often than not, the entrepreneurs cannot easily switch from one type of enterprise to the other without significant capital investments. And in the most cases the enterprise that is going out of business, first incurs losses that need to be accounted for before the switch can happen.

  So, to summarize, it’s a good point you are making, but there is a very low chance of success of such a switch in practice.

  Or, more relevant to your example with switching to an Italian restaurant business - if it were that profitable to run an Italian restaurant in that neighborhood, the chances are that there is already one, and there exists its own completion.

  In, short any niche in business has its competition with its own complications...
  

  Published: December 1, 2008 5:39 PM

• Oil Shock

  Off Topic:

  Here is a nice collection of analogies from Peter Schiff

  Published: December 1, 2008 5:41 PM

• larry, dfh

  The laissez-fairies out there seem to think that the whole job market in so-called under developed countries is some sort of utopian game wherein wages are arrived at from some grand consesus between labor and management. Often, the bayonettes are all owned by management. Do you people really think that, for example, wages in steel town, USA, increased because Henry Fricke offered the workers 11c/hr, whereas Cornelius Vanderbilt was only paying 10c/hr? No, the Pinkertons did the bidding for the robber-barrons; that's what they called collective bargaining.
  In the case of the industry with which I am very familiar, the chemical industry, I can say with certainty that the main reason for job relocation to 'third world' countries is for pollution. Chemical pollution is very difficult and expensive to clean up, and relocating for the purpose of polluting is to place a very expensive future burden on the site and its often ignorant and powerless population. Of couse in the world of simplistic Friedmania, a future burden, one about which the citizens surely were not informed, nor could they counter in a 'civil' manner, is really not considered at all, in lieu of immediate profits.
  To believe in the simplistic and naive 'economic principles' espoused in many of the letters here is like believing in the Tooth Fairy. A happy 'majic hand' to y'all!
  Oh, and in 3 weeks I will be going to a (some say) 3rd world country. And while my wife lays on the beach, I'll be working on her cousin's farm, where they got electricity about 10 years ago, where more people ride horses than automobiles.

  Published: December 1, 2008 5:44 PM

• Lord Of Logic

  Eric,

  You are assuming there is private property here. Last I read something like 80% of “home owning” Americans had mortgages. That means their homes belong to banks. Banks that are now being bought up by the government. So governments own the banks that own the homes. How is that private ownership?

  All,

  You people are arguing semantics on a topic that is too connected to view in such a narrow scope. If you just concentrate on the wages in dollars you miss their meaning in hours. If you just concentrate on the economy of the producer, you miss the effect on the economy of the consumer. If you concentrate on the task of earning a living for your family at all cost, your family may be that cost. If the policies of America are structured to allow the trampling of those virtues that make the culture “American”, then what are we other then just a name? All of the arguments made for allowing the exploiting of “emerging economies” here I have heard before. They came from the likes of Hitler, Stalin, Ill, and others. The reason America was able to prosper, is because we weren’t like them. The mess we are in now is because we are now willing to be like them.

  For every job not done here there is one less person able to consume. One less person not paying taxes. One more person depending upon help form the rest of the community. The allowing companies to operate with out equalization outside of the borders of our economy has lead to a false deflation of the labor cost. The reasons are many and so indirect that they let those who would defend them play magic tricks using distraction.
  

  Published: December 1, 2008 5:55 PM

• Stanley Pinchak

  Henry Miller,
  certainly you have heard of accounting for depreciation and saving for capital upkeep? How is the cleaning worker any different from any other worker or firm with durable goods? How about competitive advantage? The cleaning lady who has capital goods will certainly displace the spit-shiner while she maintains her tools, freeing the spit-shiner to perform his next most productive activity.

  To claim that advancement beyond mere subsistence is not possible because other labor may be cheaper is preposterous. Were this the case, we could not have this discussion via the internet and more like than not we would not be alive. Even if the spit-shiner were able on an individual job (the spit-shiner can not compete on all of the jobs that the cleaning lady is capable of undertaking in a given time frame because of his lower productivity) to undercut the cleaning lady, the cleaning lady may use her experience and trustworthyness as a capital advantage, making her worthy of a higher wage.

  All economic advancement comes about through capital formation. Even spit-shiners will value highly the acquisition of capital goods once their function in prosperity is understood, even if only for the purpose that they may increase their leisure time. To attempt to short circuit capital formation and the subsequent reduction in time preference of a given segment of society is not sustainable. Its result is no different from third world dictators' monetary inflation, illusionary prosperity at best with capital consumption as the ultimate result. There is no substitute for thrift and low time preference when it comes to increasing prosperity.

  Published: December 1, 2008 5:55 PM

• Lord Of Logic

  Scott D,

  As I said, you have to multiply that times a million when discussing the auto industry. But what you are also doing is missing the point. Great YOU have $8.40 left. The problem is where did you get the $10. you got it from the Mexican stand up north. The one that doesn’t exist anymore. And the one across the border, well, their standards down there are way different. They don’t need a plumber for their restaurant. I could hope you invest that $8.40 well. Because, the 10 workers that used to frequent the bar you used to go to that was also a customer, well they just stopped going. Now you have lost two customers because the commercial plumber that used to work on restaurants and bars is now down two customers and the future outlook is not so good.

  You will be happy to know that Rosita, the waitress that you gave the extra buck too down south was very appreciative. Of your contribution. That was until she got mugged by the drug cartels hooligans on the way home. She is pretty much back to where she was at.

  Think about it. When was the last time you bought a product that was wholly produced in the US. You could say the fruit bought at the store might have been produced here in the states. You will be ignoring all the farm equipment produced over seas. But hey it was produced here. Then picked by immigrants will to “do the jobs American won’t do.”
  

  Published: December 1, 2008 6:08 PM

• Eric

  pbergn says,

  "'Cause it is always cheaper to use cheap labor - that is why it is called "cheap labor", instead of using the advanced machinery! Human beings are cheap nowadays, don't you think so?"

  So, let's see, Japan uses cheap labor to build Hondas and Toyotas? Hmmm, seems to me they use robots - almost exclusively. My Japanese car was even built by a Honda factory in the US and I don't think they use labor over machinery. Now why did they even invest in the US at all? It couldn't have been for the cheap labor, as you argue.

  Hmmm, why didn't they choose to build cars in Iraq. I bet the labor is quite cheap there. Better yet, why not at the north pole? I'm sure the N. poleans have the cheapest labor - and certainly the lowest taxes - but that's also an issue you seem to willfully ignore.

  Sounds like you need to read "Economics in one lesson". Then look at all the effects over all time.

  Published: December 1, 2008 6:10 PM

• Eric

  Lord of Logic,

  By private property I mean that the government doesn't own it. Even if a private bank holds your mortgage, you still have property rights. In some countries, you'd be lucky to get out with your valuables. This is the issue I was referring to.

  I don't know how the US sizes up nowadays, but I used to read the data on "Economic freedom of the World"

  http://www.freetheworld.com/

  and the issue was that economic freedom requires that private property be safeguarded.

  This simply means that if you invest in a country that has less protections for private property, then you would have less economic freedom. This correlates rather highly with outside investment. And for a CEO to consider investment (anywhere) he must consider if his investment is safe - from thieves, whether government rascals or private ones.

  Published: December 1, 2008 6:25 PM

• pbergn

  RE: Eric

  Well, Eric,

  They would have built a sweat shop in the North Pole, if only they could...

  As I said, Japanese have comparable market conditions. To counter your own argument: Why then Toyota does not build factories in Africa or Iraq? 'Cause the cheap labor there does not overweight the political instability and the risks...

  As I said, they would have hired the Polar Bears, only if they could - to cut the costs at whatever means....

  Otherwise, what is the meaning of outsourcing? Answer me this from the stand-point of Austrian school of economics? Why would the corporations outsource then?

  Efficiency? More advanced technology? More skilled workforce? No, the only reason is - PROFIT at all costs!

  Now, I might sound as a Socialist - but I am as Capitalist as they get! I am for larger profit for the worthy!

  Who is smarter, better more hard-working should live better. Make no mistake here! I am no socialist or Communist for that matter...

  I am against the welfare state and socialization of means of production!

  But listen, I am a practical man! Everything you advocate for should be based on common sense and lows of nature! You can't simply compare the plantation owner with slaves to the modern farmer with the tractor! You can't possibly claim a fair competition between the two, simply because the slaves can be considered as production means....

  There has to be some basic legal equality between the participants, otherwise the whole thing is meaningless if one group has significant advantage over the other...
  

  Published: December 1, 2008 6:26 PM

• Lord of Logic

  I had a friend who just came back from a south pacific nation. My friend is a vagabond who has lived everywhere from Cuba, to the Bahamas, to Sicily, to here in the US. He was in Antarctica before going to Tonga. He said he had never experience a place where the people were as happy as they were there. The country has a 99% literacy rating. Every male citizen owns land by right. They have a little industry and a little tourism. They are a brilliant people with top notch medical and educational facilities. You have farmers, herders, fishermen, carpenters, teachers, and yes even plumbers. It is a monarchy. Any business set up in the kingdom must have approval of the king. What happens to this utopia if the king allows a foreign industrial fishing company to come in and set up shop? The price of fish is driven down and the fishermen in the area can’t make a living. Back in the home land, the increased supply of fish decrease the value of substitute goods. The community now has to take on responsibility for the out of work fishermen. The only winner? The commercial fishing company.

  Published: December 1, 2008 6:26 PM

• P.M.Lawrence

  "In a study of wages and working conditions in developing countries, economists Benjamin Powell and David Skarbek found that the textile sweatshops derided by rich westerners offer higher wages and better working conditions than the alternatives in very poor countries. People in developing countries need more sweatshops rather than fewer."

  I see that the "best available alternative" fallacy is rearing its ugly head again. To recap, the alternatives aren't inherently worse from some intrinsic thing, but from outside influences making them worse. As it happens, sweatshops are only a beneficiary from this, not really a cause, but cash crop production - yes, even so called "fair trade" - is a large driver, taking away resources like land and water (even though "fair trade" makes producers of the cash crops better off, it makes it harder for the other people living there to cope). Nassau Senior's classic work on Wages is very relevant here; activities that reduce local availability of staples are far more harmful than sweatshop production.

  DTY writes "The situation in most third-world countries today is not too different from conditions that prevailed in the US in the 19th century. Workers basically have two choices: they can stay on their farms/villages and do back-breaking labor for NO wage, or they can seek industrial employment which actually pays cash money. Workers, then as now, overwhelmingly choose the latter. Wouldn't anyone?"

  Actually, no - not until they were reduced to those two choices. Quite simply, they didn't face such harsh home conditions until more burdens were thrown on them. We have natural experiments like Lord Lever's attempt to start a fish processing plant at Leverburgh on Lewis to show that, when the locals still have the option, they prefer to stay with what they had before. Since Lord Lever had missed the boat on the Highland Clearances forcing people off the land, he only had the survivors with enough personal resources still around; they stayed away in droves. ("I strongly advise those who stridently agitate for improved working conditions in the third-world to shut up, until they, themselves, have actually lived and worked there and have a basis to hold any opinion" is an irrelevant barrier to criticism, but as it happens I have lived in that sort of country while I was growing up.)

  For what it's worth, wages are low in those countries because they are at an uncomfortable middle phase, where there are still enough subsistence resources around that most people don't have to earn a very big top up cash wage, but they do have to earn it because there aren't enough subsistence resources around to do without. The "Iron Law of Wages" produces a race to the bottom, with labour-intensive activity getting a non-cash subsidy from the subsistence resources (it's a nonsense to say that people there live on a dollar a day, but they really do need that dollar).

  The historical early phase was were people didn't need cash wages, so high cash wages had to be offered to get any significant take up; there was low employment, high wages, and low unemployment because the rest of the people were still in subsistence activity. The middle phase has high employment, low wages, and low unemployment because there is only a little subsistence activity but people can afford to price themselves into work on the back of what subsistence activity there is. The late phase which developed countries are now in has less high employment because not everybody can afford to price themselves into work, high wages (because people can't afford to settle for less), and higher unemployment with effectively no subsistence activity to fall back on or be subsidised by. People who only know the developed world are unfamiliar with that non-cash activity and its significance.

  Published: December 1, 2008 6:56 PM

• Jack Skylark

  Seriously, Lord of Logic and pbergn, you just don't get it. Say, for example, I set up a "sweat shop" in some country because I think I can get "cheap labor". Anyone who accepts the wage rate I offer, assuming the non agression principal, accepts the wage because he/she decides it to be the best alternative between options. Freedom to choose is the ultimate balance of power, and the only true expression of natural rights.

  Now if I am forced not to set up shop, what happens to all the potential labor who I did not employ. Obviously, they are now worse off than they would have been working for me.

  On to Lord of Logic's scenario. "The only winner?" The community as a whole, of course. There is a natural price drop due to an increase in marginal effeciency of labor. To keep the inefficient fishermen employed, i.e. to subsidize them, would be a misalocation of resources now available.

  What you all don't understand is the process of choice, the process of pricing, and the process of competition (which is an outgrowth of prices). I recommend reading Hazlitt "economics in one lesson", or (if you dare) Mises' chapter in "Human Action" devoted to trade.

  Please excuse the gramatical mistakes, I am pressed for time.

  Published: December 1, 2008 6:59 PM

• Lord Of Logic

  Eric,

  Let me assure you that the factory in Marysville has its share of people. Some of my friends are employed there. They do not make as much as the Ford worker. Their pension is a 401K structure for the most part. While the car is assembled there, the fact still remains that 95% of the parts come from 12,000 miles away. How is it possible that it is cheaper to ship a 400# drive train half way around the world to get assembled in Marysville Ohio. There is no denying that is absurd. Could you imagine how happy and prosperous the community would be if the steel was produced 60 miles north in Cleveland, the parts were milled in any of the factories that had the ability to turn out riffles and tanks for WWII in the matter of months. Money is just lifeblood that moves through an economy. When it moves over seas, it denies citizens of the local economy access to that resource.

  Got to go for now, will be watching this thread for sure. Finally, some intelligent (even if I don’t agree with it) discussions about a crucial topic.

  One last thought. Because I believe that money is the tool of the economy and not a right of its citizenry. (Wealth is a right, not money). I believe the government should feel obligated to have direct control of the value of money. The only way I can see the government controlling dollar value is to get rid of the minimum wage. (at this point the conservative thinkers stand up and cheer). There is a “but”. Instead, replace it with a minimum percentage. That means there is a certain percentage of that the lowest paid employee is compensated is relative to the highest paid employee. (If it were 1%, for every million dollars the CEO of AIG made, the janitor would have to be compensated $10,000) This will allow free market democracy to set labor values. It would also give a powerful tool to control inflation to the legislation branch.

  This model could easily be applied to international labor standards.

  Published: December 1, 2008 7:01 PM

• Eric

  Brent P says,

  "In a country like China, more people are hired at a low labor rate rather than make an investment in equipment."

  I'm not so sure this is true. If China is going to compete in the Auto industry (as I've read) they're either going to have to build robotic factories (like Japan) or their labor is going to have to out compete robots. I have my doubts as to whether this can be done.

  Food costs likely are more expensive than electricity. Maintenance of robots is likely less than medical care. And training a robot is cheap, since copying software is cheaper than education of humans.
  

  Published: December 1, 2008 7:02 PM

• Jack Skylark

  pbergn,

  What do you mean by "legal equality"? Becasue, private property, self ownership, and the right of non-agression, are the only rights capable of being enforced and still maintaining "legal equality".

  Published: December 1, 2008 7:05 PM

• Eric

  pbergn

  You keep saying that it's evil to choose a course of action because of profitability.

  But then you say you are not a socialist.

  You are for profit, but only for the WORTHY? And just how do you determine who the worthy are? Are you the decider? Like W is the decider. Will you use force to make your decisions hold?

  In the market, the worthy are the ones who make a profit by the voting dollars of the buyers. (I am excluding those that profit by the use of force - they are thieves or governments or mafias - but I repeat myself).

  If you are capitalist as they come (as you say) then you can't be for the use of force in commerce. So, my conclusion is that you wish to call yourself a capitalist, but in truth, you have quite socialist leanings.

  Published: December 1, 2008 7:15 PM

• Eric

  Lord of logic says,

  "How is it possible that it is cheaper to ship a 400# drive train half way around the world to get assembled in Marysville Ohio. There is no denying that is absurd."

  Just because you (or I) can't see how this is done, doesn't mean some clever CEO entreprenuer doesn't know how to do this.

  And the test (the only true test) is economic calculation - i.e. if you DO in fact make a profit, then it must have been cheaper. If it's not, then that is what gives a competitor the edge.

  Perhaps the answer to your question is that information is not free (or even cheap). Until someone knows how to do something cheaper, and can actually do it in the real world, then it's all just talk.

  I've often wondered how some of the items in the 99 cent stores could be sold so cheap - especially how they come from china. But I guess it's that the shipping industry is far more economical than one might think. Off hand, I guess it's those large ships with those big boxes that fit right onto trucks.

  Check out the tv show, "modern marvels". Business is far more clever than I ever supposed.
  

  Published: December 1, 2008 7:25 PM

• Logic

  Lol Jack,

  The example I give is a real world example. The place exists. The example of Tonga that I give is the only south pacific nation to never be colonized. Even the introduction of one person such as my buddy will be highly scrutinized. What skills does he bring, what will the effect of what he brings have on others with the same skills. The king knows that if he allows another spear fisherman to enter the community, it could reduce the price that other fishermen could command for their product. The ripples could be felt throughout the community. Thousands of years this place has existed this way.

  
  Imagine allowing a commercial fishing operation into the community. The fishermen who used to sell the fish the speared at low tied are either no longer employed or their choice is to go to work for the fishing company. All of the sudden they have a “job” and many of free choices of the past are revoked. Great the community as a whole would be able to buy its fish cheaper. But everything else is still just as expensive. What happens when the king decides to foreign pork into the market. I mean the fishing trawlers could bring it over on their runs back to the states. Why come back with an empty haul. Now the pig farmers are out of work. All of the pigs there are free range and very little fat exist on them. Soon the only jobs left on the island would be Tongans serving Tongans. Since none of them had jobs, it wouldn’t be a very lucrative economy.

  Prior to setting up the “sweat shop” the local community existed just fine. Prior to a company like Timken (you all might know it as the factory that GW gave his speech on the strength of the economy to in mid 2003 in southern Ohio. By the end of 2004, over 1000 employees were laid off and a replacement factory had been opened in China.) moving its manufacturing operations over seas, 1350 families were without income. Need I remind you that China doesn’t have any concerns over “Life, Liberty, or the Pursuit of Happiness.” Heck they don’t even care if they send our kids lead based toys.

  So which is most important to carry on. Free markets or democracy? Because the Chinese are proving that a communistic democracy is way more efficient.

  
  

  Published: December 1, 2008 7:55 PM

• pbergn

  RE: Jack Skylark

  The term "legal equality" the way I ment it to be used means that all the participants in the free trade relationship enjoy the same basic rights, such as physical safety, safety from unlawful persecution, right to private property, its ownership and inheritence, equal rights under the criminal law the legal entity governing over them.

  Until and unless you do not ensure this right, the talk of free market is somewhat hallow.

  Let me bring you an example so that you understand what I mean:

  Communist China. People there are largely poor, and largely deprived of any basic human rights. So, this Communist boss arrives and tells the workers: "Hellow ladies, you've got work to do for this loaded Western businessman. Now you have two choices: you do the work and I give you a bowl of soup and a loaf of bread, or you can go and toil in labor camps for nothing - that is for the welfare of your great country!"

  Now, tell me one thing, are these poor Chinese workers free and willing participants in the "free" trade relationship, or are they simply means of production in their Communist Paty boss'es hands?

  See what I mean by basic "legal right"? If the workers had them, they would have sued the Communist boss, and would won at minimum a civil case against their boss, and would have been able to get some reparations... And then, once they have enough money to eat, they would have considered whether it would worth toiling 12 hours streight sawing Nike shoes or t-shirts, or whether it would have been better for them to work for a local company, which requires only 8 hours work day, and offers a comparable pay...

  So, this is NOT a trivial matter. This is NOT a simple choice between free market and not-so-free one. We have to look into this matter as a complex system, as a whole thing, rather than a sum of smaller parts. This is an example of sum of the componnets being greater magnitute, than just their arithmetical sum...

  Published: December 1, 2008 8:00 PM

• Jack Skylark

  Logic,

  What you are saying is that there is a definite limit to production. You are not even looking at the standard of living that increases as the result of falling prices and shifting resources under a free market. The King in your example is in effect a barrier on trade. But this is to the direct detriment to the community as a whole, since they restricted in their choices.

  The priceing process directs production into those channels in which it best serves the wishes of the consumers as manifested on the market. Only governments and force has the power to divert production away from consumer demand. To restrict production would act as an undue privilege to the few who are, due to the tyranny of the king, holding down the standard of living and real wage rates freedom would bring about.

  You say the local fishermen will be unempolyed since they will no longer be able to compete with another producer who is more efficient, you continue by saying this is a revoking of a choice. Who has revoked his choice? Can he not still fish? You seem to believe that he must be granted the right to produce and sell at whatever price he dictates.

  Unemployment is completely voluntary in a free market system. The key question is "at what wage?"

  I don't think I understand your argument opposed to "sweat shops". If you would repeat in another fashion I might be able to grasp what you are trying to say better.

  One thing you must grasp is that no one here is defending the economic system we have now in the U.S. In fact I think you will find most of us completely abhor the socialistic "democracy" we have. Also, Democracy is a sham, so I do beleive free markets are more important than free elections.

  Published: December 1, 2008 8:32 PM

• Logic

  Eric,

  There is no secret, It is cheap labor, no environmental standards, no medical costs, no pensions, buying and selling when the dollar value to the advantage, and using the threat of the ability to do all of this to force the cost of labor down here in the states. The company does make a profit, but at the expense of the whole country. We are seeing the results of that now! Do you know what is wrong with our economy? Two things. One 80% of the countries wealth is in the hands of 2% of its citizens. Do you think that Bill Gates, Warren Buffet, Alan Mulally, Thomas J. Fitzpatrick, Richard F. Syron, Daniel H. Mudd really need another car, big screen TV, house, teach, fireman, plumber, strip club admissions, thong swimwear, or massage? They don’t they are not spending it. Therefore the rest of us have to resort to one of two methods to buy the crap we need. We either have to charge it.

  The other method leads to my second point. We have to earn it. It is hard to do when we have seen a 100% increase in unemployment. Wages have under paced cost of living by 50% for that past 6 years. And the terms “jobless recovery” and “underemployment” are acceptable terms. That means there are a lot less people out there unable to buy food shelter, and clothing, let alone table dances, lottery tickets, and a back massage. I wonder why then I see every neighbor has a foreign vehicle in their driveway, there isn’t an appliance in my house that isn’t made in some Asian country, every one of my kids toys comes from China, and even the Ohio grown apples I eat are picked by “migrant workers”.
  

  Published: December 1, 2008 8:38 PM

• P.M.Lawrence

  Jack Skylark wrote "Now if I am forced not to set up shop, what happens to all the potential labor who I did not employ. Obviously, they are now worse off than they would have been working for me... To keep the inefficient fishermen employed, i.e. to subsidize them, would be a misalocation of resources now available... You say the local fishermen will be unempolyed since they will no longer be able to compete with another producer who is more efficient, you continue by saying this is a revoking of a choice. Who has revoked his choice? Can he not still fish?"

  No, Lord of Logic is right, there and in his later replies. What you are assuming is that your going in doesn't itself damage the options for locals, just as Lord of Logic spells out; if you don't go in, they are better off because you don't take resources away from them. Your reasoning would be sound if the new fishing company had to buy out the local fishermen. Since the institutions aren't there to give them property rights in their livelihood, say tradeable fishing permits, just going in would make a wealth transfer in favour of the new fishing company; it wouldn't be a pure free market thing but a free market after rigging things with an uncompensated wealth transfer. Without that wealth transfer, the locals are "no longer be able to compete with another producer who is more efficient" - but that "efficiency" only comes from free access to the fishing, a hidden subsidy to the new fishing company. Subsidising "inefficient fishermen" wouldn't be misallocating resources but a clumsy way of compensating for reallocating them - you're describing reallocating resources without compensation. This is just precisely the sort of thing that happens in developing countries when cash crop farmers start taking all the water from other farmers, since there is no compensation as there was no property system for that. It happens all the time, and it has happened in the history of the developed world too; I already mentioned the Highland Clearances, but there were several rounds of Enclosures of the Commons in England too, as well as evictions in Ireland.

  Oh, and creating a property structure is itself a burden that they don't need as things are. It's simpler and cheaper not to let the outsiders in in the first place. You might like to compare and contrast Tonga with Fiji, where the locals were given a property structure so as not to be disadvantaged by new arrivals, and the descendants of the latter keep trying to change the game.

  Published: December 1, 2008 8:41 PM

• logic

  First I noticed a post back i said "communist democracy". I meant communist free market. My bad.

  Capitalist? I am no capitalist. It doesn’t say anywhere in the constitution that it defines America. As a mater of fact obligating the government and taking my tax money to grant “life, liberty, and the pursuit of happiness” is a nudge away from capitalism. I have met the most “staunch capitalist”, or so they said. Then I tell them what I do, and the bennifits. First words out of everyone of their mouths is, “can you get me a job?” I tell them, “Nooo. You just told me you didn’t want the government in your life telling you what to do.” I am a government employee. Nothing I do is based in profit. I watch from the sidelines as this economy crumbles. Knowing the government will not get rid of jobs that are based in national safety and security. not now especially. Why would any “capitalist” want to participate in such a damming and controlling environment? Amazingly they all retract.

  Published: December 1, 2008 8:41 PM

• Jack Skylark

  P.M. Laurence,

  We are working under the assumption that land is not an issue, and that the new fishing company is not stealing property. By property I mean a homesteaded, non-governmental assigned, ownership. There is also no need for permits, etc. You are confusing the point.

  Re: Logic
  What is America? Is it defined by it's governmet? It's controllers? If so, then damn America for is tyranny. Is it defined by land mass? Then who would care. Do you define it by your community and your friends and neighbors? I do.

  The government can do nothing but act as an agressive force in opposition to its citizens. Limiting freedoms of people to act within the natural rights of property can only hurt and can never help.

  Published: December 1, 2008 9:03 PM

• Eric

  pbergn

  The problem with your argument is that you are essentially saying that if the market is not entirely free, then you want to take away some remaining freedoms to right what you see as a wrong.

  I believe a better solution is to use the principle of no initiated force at all, except in self defense. Just because this is not 100% achievable is no excuse to use INITIATED force in an attempt to correct another situation.

  Now, if a corporation goes into some 3rd world country and forces workers to work for them, say by partnering with their government and getting laws passed that prohibit the worker from making a free choice - well that's a violation of the no-initiated-force principle.

  It really is that simple. Don't encroach on others or their property. Live and let live. Two wrongs don't make a right.

  Force is the litmus test. Use it aggressively and you're evil. It does not matter what good you wish to accomplish.

  
  Logic,

  You are forcing your values on others. You say there are no environmental standards. Whose standards? Yours? What if the people living there like it the way it is and don't want your standards? What if they don't want medical plans and just want to be paid for the work they do with cash?

  What if they like working in a sweatshop? If they are slaves, and are forced to work there, that's different. But if they wish to work there, how is it that you can argue that you know better what they want?

  As above, you justify your use of force, to force your values on others - I guess because you know better how they should live. If these people are living in a country that has an evil government or dictator, then it is the responsibility of the people there to change that government (as Jefferson said). But what about the people in that country that do wish to work for the foreign company that offers them a job in a sweatshop. Should they be prohibited by force?

  Besides, in America we actually pay people for the privilege of sweating - it's call the gym. Only individuals can have values. Group values don't exist.

  As long as the worker is free to NOT work, there can be no exploitation.

  
  

  Published: December 1, 2008 9:10 PM

• Eric

  P.M.Lawrence

  How is it any different if one of the locals were to set up the same exact fishing company you say would be a problem if an outside company came in. Should that permit the use of force to stop the local from setting up a fishing business?

  Is it an issue of territory? Suppose instead of coming in, they set up shop 5 feet across the border. Should the locals that wish to work for them be forced to NOT work?

  I guess I don't see why some locals get to decide by FORCE what the other locals are to do. Oh, that's called democracy I guess. 51% vote to kill the other 49% and it's legal.
  

  Published: December 1, 2008 9:26 PM

• Stanley Pinchak

  P.M.Lawrence,
  At first I thought you were serious, but then I realized you were joking. I mean who could really side with the Luddites? Lets smash the power looms because they out compete the hand weavers. Should the emerging auto industry also subsidize the horse and buggy and associated industries? Let all competiton end for that is the only way to ensure that those who are marginally unproductive in the competitive market can remain employed in their current endeavors. Good one.

  Published: December 1, 2008 9:34 PM

• newson

  logic:
  australia and new zealand have large expatriate tongan populations. i wonder why that would be? do your name proud.

  Published: December 1, 2008 9:36 PM

• Inquisitor

  Lord of Logic ? More like Lord of Arbitrary Assertions.

  Published: December 1, 2008 9:40 PM

• P.M.Lawrence

  Jack Skylark writes "We are working under the assumption that land is not an issue, and that the new fishing company is not stealing property. By property I mean a homesteaded, non-governmental assigned, ownership."

  Of course it's not stealing property, if the property system hasn't been broadened enough to cover things. The whole point is that the door is left open. Of course you are assuming that there is a free hand in all this. I, on the other hand, am pointing out that when all that happens, you get a wealth transfer without compensation. That's not a weasel worded euphemism for theft, it's a description of what the local fishermen really would face that doesn't have to use words like stealing (which would be confusing the point).

  I actually saw how this worked out with the prawns our family used to buy in the market in Nigeria in the '60s. After US fishing fleets were allowed in, you couldn't get fresh prawns in the market as cheaply or as often. You could, however, get deep frozen locally caught prawns in the supermarket, that had been shipped to the USA and back and cost more. The new fishing company made money on the deal, and so did the government that took a fee, but we consumers were worse off and so were the fishermen who used to sell in the local market.

  "There is also no need for permits, etc. You are confusing the point."

  Of course there's no need for permits, if outsiders aren't allowed in in the first place. It's just that if they are, and property in permits is set up first, the outsiders don't get a free ride - and their operations are suddenly a lot less "efficient". If the operations are efficient enough to pay for buy outs anyway, the locals don't lose out, and if they aren't, the locals still don't lose out. Apart from the overhead of running the system, of course. So I'm not confusing the point, I'm drawing your attention to some of the "things not seen".

  Eric writes "As long as the worker is free to NOT work, there can be no exploitation". But that's a big "if". A lot of times, locals' own alternatives get removed.

  Published: December 1, 2008 9:42 PM

• P.M.Lawrence

  Eric asks "How is it any different if one of the locals were to set up the same exact fishing company you say would be a problem if an outside company came in."

  It wouldn't be any different - but note that that wouldn't pay just for the local market.

  "Should that permit the use of force to stop the local from setting up a fishing business? Is it an issue of territory? Suppose instead of coming in, they set up shop 5 feet across the border. Should the locals that wish to work for them be forced to NOT work? I guess I don't see why some locals get to decide by FORCE what the other locals are to do. Oh, that's called democracy I guess. 51% vote to kill the other 49% and it's legal."

  Where does all that come from? I didn't say any of this justified violence, I only pointed out that a rigged starting point, followed by what looks like a free market, has certain rigged consequences and does certain damage. That just means do things right or don't do them, it doesn't mean escalate the harm.

  Stanley Pinchak mocks "At first I thought you were serious, but then I realized you were joking. I mean who could really side with the Luddites? Lets smash the power looms because they out compete the hand weavers. Should the emerging auto industry also subsidize the horse and buggy and associated industries? Let all competiton end for that is the only way to ensure that those who are marginally unproductive in the competitive market can remain employed in their current endeavors. Good one."

  See above. The difference from your examples comes from the fishermen currently using a resource that hasn't been tidied up under a property system, or else (like village customs before the English Enclosures of the Commons or clan customs before the Highland Clearances) is to be swept aside and made not to count. But what you describe is free competition pure and simple, not taking over a resource followed by free competition with the rigged deck.

  Published: December 1, 2008 9:55 PM

• Stanley Pinchak

  P.M.Lawrence,
  If there are legitimate property rights, then competition may be restricted via exclusion. I.e., a mine owner may exclude competitors from operating in his mine, or for that matter, he may sell permission to a more efficient competitor-partner. I can see how this might be extended to a particular area of the sea for a fisherman-owner once legal and technical details are worked out. However, the fisherman-owner in the previous example can not prevent a competitor from homesteading a nearby section of the sea and competing in the market for fish. Nor as you concede can the fisherman-owner prevent a long time "native" competitor from selling his homesteaded area to an efficient competitor.

  The local grocer, may choose to restrict his fish purchases to the first fisherman-owner, but he can not prevent another local landowner from opening a competing grocery store (or fish market for that matter) which will purchase fish from both fishermen. To extend rights to include arbitrary concepts like a "living wage," or a "decent job," is an affront on true property rights. There is no right to profit beyond property rights. To assert otherwise is to negate the purpose of entrepreneurial action.

  Other than the conflation of false rights with property rights, how does this tie into the case of sweatshop labor? As far as I can see, if the foreign investor obtains the property, labor, and capital goods for the sweatshop in a manner consistent with the non aggression axiom and is responsive to pollution and any other property transgression torts, then his actions are conducive with the improvement of the economic welfare of all market participants. Furthermore, the sweatshop laborer has contributed to this welfare as well and to the extent that he decreases his time preference and saves, he increases the likelihood of a continual rise in real wages.

  To the extent that the sweatshop reduces prices in the foreign entrepreneur's country, it contributes to an increase in real wages there, and it frees labor in that country to create other desired goods. This is competitive advantage and the division of labor in action. The fact that some foreign (from the sweatshop p.o.v.) competitors will need to find a new job is to show that the entrepreneur qua laborer is subject to error just as any other entrepreneur is. To the extent that these laborers exhibit good entrepreneurial traits will lead them to obtain training and employment which makes them supra marginal with regards to their discounted marginal value product.

  Published: December 1, 2008 11:18 PM

• Curtis zwick

  "So which is most important to carry on. Free markets or democracy? Because the Chinese are proving that a communistic democracy is way more efficient."

  China represents totalitarian capitalism not democratic socialism, you have it exactly backwards. If anything China is an example of where the U.S. is headed, which is increased State-Capitalism, centrally planned "capitalism." You hit a nerve in me because I fear that the china model is likely to be very influential in the coming years and decades. Prepare for "capitalism" to become even more reviled as the flaws of this version of the "third way" become ever more apparent.
  

  Published: December 1, 2008 11:29 PM

• newson

  in deference to pm lawrence (with whom i rarely agree), it would be good to have more austrian-style analysis on the transitional stages from a tribal/communal property regime to that of individual title.

  i think sudha shenoy used to be the development economist par excellence at the mises workshop. nobody seems to have filled the gap.
  

  Published: December 1, 2008 11:45 PM

• Eric

  P.M. Lawarence says,

  "Where does all that come from? I didn't say any of this justified violence, I only pointed out that a rigged starting point, followed by what looks like a free market, has certain rigged consequences and does certain damage. That just means do things right or don't do them, it doesn't mean escalate the harm."

  I got that from this statement:

  "It's simpler and cheaper not to let the outsiders in in the first place. "

  If that's not using force, then I misunderstood you.

  But I also should have read that in context with the locals having property rights over the waters. The other points you made, as to the harm, is then understood in that context. My Bad.

  Published: December 2, 2008 12:01 AM

• pbergn

  To Eric:

  Eric,

  I can see some fanaticism in the uncompromising manner of raising the objections towards the legitimate issues discussed in this blog.

  Listen, by following certain paradigms literally, without considering the particular circumstances you become no better than the socialists, and all the advocates of welfare state and equal opportunities for all.

  There is a great distinction between fair competition and taking advantage of the situation, and presenting it as fair (subtle but very important at the same time).

  As I said, if a guy has fallen into a deep well, from which there is no way out except for someone to throw him a rope, it is highly inhuman and contrary to the principles of freedom to blame the fellow for the lack of efforts in getting out of that well. I it fair to accuse the guy of being laizy and unresourceful, when all he is - is just unlucky!

  Now, I agree it is unfortunate that the guy has fallen into the well, but you cannot consider it a fair trade if he offers his house, car and his wife in exchange for a piece of rope, long enough to get him out of there...

  To paraphrase your previous comment, you are advocating such trade as fair, since the guy willingly accepted the terms of giving everything he has and holds dear in exchange for a piece of rope that can be bought for a couple of bucks at the nearest supermarket...

  You are telling us that it is fair, nonetheless, and it would be wrong to not even offer the rope, since, and I quote you on this one: "... you are essentially saying that if the market is not entirely free, then you want to take away some remaining freedoms to right what you see as a wrong.."

  Well, Eric, tell me what is "right" and what is "wrong" in this situation? So, you still would call it as a fair and free market relationship between a guy at the bottom of the well, and a guy who happens to be standing at the top, not because he worked hard to get there, but by sheer happenstance?!

  Now we have to answer a philosophical question here of what IS right? You see, this is not that simple and trivial, as you are trying to present.

  There is a famous Guns-N'-Roses song called "Civil War" in which there is a verse which is quite relevant for this occasion. It goes like this: "... you can't trust freedom when it's not in your hands when everybody's fightin' for their promised land..."

  Again, I hate to repeat myself, but to talk about the freedom meaningfully, there should exist equal or nearly equal conditions for all the participants, otherwise the whole thing is nothing more than a travesty...

  Published: December 2, 2008 12:28 AM

• prettyskin

  It never seems to amaze me that one group feels that they have the right or insight to hold others faith in their palms. I ask how many of these economists (Caplan, Powell, Skarbek) actually stop and examine what happens when the poor are left alone? They procreate and survive regardless of Western businesses. Whatever they have carved out for themselves, these workers in very poor countries are productive in their own rights.

  Let me beat my drum for am humble in this land!
  

  Published: December 2, 2008 1:34 AM

• prettytrite

  BOOM BOOM!

  Published: December 2, 2008 1:57 AM

• Josh

  Yikes, Austrians lauding mercantilist China for selectively allowing certain manufacturers into their country to exploit their labor while the totalitarian government skims off the top so that they now have over a trillion dollars in central bank reserves is truly astonishing.

  And I dare say that calling Chinese labor costs a "comparative advantage" demonstrates a complete misunderstanding of the concept.

  Published: December 2, 2008 2:28 AM

• villavec

  Dear Dr. Carden,

  I enjoyed the article on productivity and wages. In principle, the premise is correct. However, the context is very important. So I think it would be more correct to say that the working environment is low productivity, rather than that the worker is of low productivity.

  There are several examples which can illustrate this point. For example, a plumber working in Mexicali might make around $5 an hour working, whereas at the same level of productivity crossing into Calexico (CA), the wage will rise to around $30 an hour, or more. Due to the fact that the labor market is artificially constrained with barriers to migration, wages are depressed in the developing world and artificially high in the developed world for many occupations. That is why Joe Plumber can earn as much as someone with a college degree in the United States. Unfortunately, the white collar crowd fails to see the benefits of mass immigration by what on the whole are hard working and wholesome individuals from developing countries. The media has distorted our perceptions and the imagery prevalent in the population is that any mass immigration would be accompanied by unparalleled crime levels. Apart from the change in demographics (younger populations always have more criminals - a population of 60+ yo Baby Boomers is quite a low crime environment), productivity in the US would increase, and give greater buying power to those of us who have become educated, while slowly driving certain occupation's wages down. It would also help all those Baby Boomers get plumbing service at a discounted price.

  Now what would be an interesting article is one studying similar occupations across borders with wide wage variations - and on the public policy side - what wage equilibrium there could be by occupation should immigration be entirely liberalized. Such an article would show a much more diverse panorama across occupations, rather than simply the conclusion that productivity levels are related to wage levels, which in general is true. The devil is in the details.

  Best regards,

  Jeffrey Villaveces

  Published: December 2, 2008 8:04 AM

• fundamentalist

  It’s nice that many Tongans are happy with a relatively low standard of living, but happiness is not an objective standard for anything. Tribes in S. America and elsewhere are happy living off the land and they should be left alone to do so. Those who aren’t happy will leave. Those who stay will reject all efforts to increase their wealth. Some people are happier living with tradition than having greater wealth.

  However, none of that changes the fact that so-called sweatshops improve the lives of the workers by paying higher wages than those same workers can get anywhere else in the country. All other things held constant, poor countries are better off with the “sweatshops” than without them. That doesn’t mean that corporations don’t bribe state officials to grant them special privileges and commit crimes. And it doesn’t mean that every single instance of a Western corp setting up shop in a poor country has made the people better off. There are exceptions. When a fruit company bribes a state official to kick farmers off their land without compensation and then the official sells the land to the fruit company for a ridiculously low price, those farmers are worse off for the investment. But that has little to do with economics and everything to do with institutions.

  Life in most poor countries is very difficult because of poor institutions. People seek political power in order to use that power to steal from those without the power. There are no property rights or even right to life, let alone right to liberty. But economic growth requires a small degree of the capitalist institutions of property, the rule of law, equality under the law and relatively incorrupt police and courts. Poor countries have none of those and that’s why they’re poor. Adding a few sweatshops will alleviate the suffering of a few to a small degree, but that’s all.
  

  Published: December 2, 2008 11:32 AM

• fundamentalist

  Pbergn: “What I am saying is that unfair trade regulations and macroeconomic policies will perpetuate the conditions of semi-slave labor in those countries, and will create increasing unemployment in their wealthier counterparts due to relatively higher cost of labor (this is already being observed in the US and Western Europe)...”
  The West does have a lot of unfair trade regulations that should be abolished, but too much has been made of trade as a means of development. The late great Peter Bauer wrote that trade results from development; it does not cause development. That doesn’t mean trade doesn’t have some positive effects. Trade will not pull poor countries out of poverty because trade isn’t their problem. Their problem is poor institutions.
  Competition from low wage countries does not cause unemployment. Otherwise, why is the unemployment rate in the US about half that in Europe when Europe has much stricter laws on employment and immigration? The European “third way” between socialism and capitalism causes unemployment.
  Pbergn: “OK, here is one out of the hat: require same quality standards for the imported goods and services as for the domestic ones, and impose tariffs on the imports proportionate to the currency rate disparity... Discourage trade (e.g. via higher taxation) with countries using sub-standard labor conditions and environmental pollution regulations or utilizing child labor...”
  I thought that you were asking to reduce unfair trade practices above. I guess not. Again, trade isn’t a major cause of development, but I don’t understand how not trading with poor nations will help them at all. If they can’t sell their products, wouldn’t they become poorer. You may be thinking that trade sanctions will cause the thugs in power to change their ways. If you can show me even one instance of such change among the thousands of sanctions we have placed on countries over the last 50 years I’ll agree with you.
  Pbergn: After all, the macroeconomic policies are intended to create fair legal conditions for the free market participants...”
  Actually they’re not. Macro policies are designed to implement socialist ideas about wealth distribution. Free markets are nothing but the implementation of property rights. Without free markets, proper rights are just a useless idea. Of course, you need the other capitalist institutions to protect property.
  

  Published: December 2, 2008 11:46 AM

• Franklin

  Amen to fundamentalist: "Free markets are nothing but the implementation of property rights. Without free markets, proper rights are just a useless idea. Of course, you need the other capitalist institutions to protect property."

  Herein lies my argument against "un-free trade" in the guise of free trade. Notwithstanding that Ford or Coca Cola or Kathie Lee ; ) would require an infusion of capital for factories in Bangladesh (from which they would borrow up the whazoo), why the hell should they get the favor? And yes, it is a favor. Ford wants to go and set up shop, so their CEO and Chairman fly their now-famous corporate jets to fill their bellies with gourmet dinners and wine next to the PM and President, and the lawyers on both sides have their field day, etching out the rules ("golden rules," that is... I don't need to provide the transformed adage) and they rub elbows with the sleazy "diplomats" who champion the love-in of a "US-to-newly emerging economy" partnership. Hypocrites.

  Therefore, I say, "No to Ford, they can't go there." Not unless I (and every other citizen of that poor country) can go ten miles away and work our asses off fairly, and borrow fairly to whomever is willing to throw us an invested buck (or taka), so we can build a competing factory without having to pay off the vermin politicians, henchmen, and other scum that want me to grease their ugly palms in order to use OUR property in the way we want to use it.

  There is no infrastructure there, as there exists in the U.S. (Ours is getting bad enough again, though.) I refer to infrastructure of rights; to wit, property rights.

  Why were the immigrants at the turn of the 20th century packed into squalid NYC neighborhoods, rows of roach-infested tenements, noise, and living hell? How did these city dumps evolve; from where did the mob arise? Hell, doesn't anybody watch The Godfather? Because most of the honest, decent, hard-working folks were restricted from opening up their restaurants (permits were disallowed), restricted from moving to the suburbs (zoning restrictions), restricted from getting police protection (corrupt mayors and bad cops), so the corporate thugs could beat them up if there was nary a word of a competing business. And beat them up, and kill them and their families, is what went on.

  Provide equal protection under the law, and then you have a working and ethical free market.

  Cheers.
  F.

  Published: December 2, 2008 12:59 PM

• pbergn

  RE: fundamentalist

  Fundamentalist,

  I respect your idealistic view on the free markets' capability to eventually streighten things up and bring all services and products to their balanced values.

  The Free Market System can work only if implemented within the boundaries where the state's interferance and corruption are negligible...

  But you can't play free market with the currupt Communist and Banana Republic states. It is a hypocricy to call it a free trade and reap the advantages of non-free market conditions in those countries which create the economical feasibility in the first place. I am not saying do not trade with them, but don’t call it a “free trade”!

  There is a group of libertarians that are so scared of the word "regulation", or "rules", that they reflexively react as "never", thus equating in their stance to the dogmatic statists and all the other leftist or rightist crowd...

  You see, what should separate modern libertarian, is the ability to reason and argue, and not stick to dogmas or paradigms literally...

  I am for the minimal state intervention, and minimal regulations.

  But as I understand your approach to the social-economic affairs is very close to that of anarchists...

  Let me bring you an example of problems that unchecked and zero-regulated free markets can present:

  Think about the market as the traffic, and participants in the trade relationship as the drivers of the motorized-vehicles.

  Now, if there were no checks or balances, no restrictions, no traffic lights, what you think would have happened? You guessed it! There would be chaos, since each and every one will try to make a short-cut, to first cross the street, etc...

  Now imagine the opposite of it - very strict traffic regulations: You can't drive until you finish 5 year training course, only one car at a time can be present on a particular street, you can make only right or left turns dependent on the hour of the day, etc.... And all that is regulated by the army of state bureaucrats... This is a nightmarish scenario, somewhat contrived... But I assume you got the point...

  So, the real solution is the Golden Middle - too little regulation and too much are both very bad!

  I know how you are going to retort: "who are you to decide what is best, what is the Golden Middle?!". I agree – no single man should decide that, and herein lies the existential dilemma of finding that Golden Middle!

  Now, my take on the best way of organizing the labor sharing society is the following:

  1. There have to be very weak central government with most of the executive power given to the states, provinces or locales;

  2. There should be uniform constitution and criminal law upon which a certain territory can be governed;

  3. All the elected executive branch officials should be impeachable on the first offense, and should not stay longer in the office than 3-4 years. They all have to be paid high compensation (to stem the corruption);

  4. The free market system should be given maximum possible freedom within the constitution and criminal law.

  5. The state should not have any power to override the constitution or change the criminal law.

  6. All the participants in the free market relationship should have the same legal rights in front of criminal law.

  7. All major technical standards and restrictions should be set by industry standards observing/defining organizations sponsored by the participating/interested enterprises/parties (as opposed to a Government Entity setting the absolute standards)...

  8. There should be some sort of elected legislative body that would deal with the decisions impacting the widest possible segment of the participants, accountable to the constitution and the same criminal law. Again, the members should be periodically elected with very limited term. They should be very well compensated to safeguard against corruption...

  I know, there is nothing new in what I just stated above. But this was the best I could come up with so far :-).

  I know, there is very delicate balance here. And that's the challange!
  

  Published: December 2, 2008 2:27 PM

• newson

  to fundamentalist:
  the tongans who are happy with low wages are those who haven't emigrated. we've got a colony of tongans and other pacific islanders (not to mention new zealanders) here in australia. greedy buggers, all looking for the big dollars.

  Published: December 2, 2008 3:54 PM

• newson

  to pbergn:
  article # 7 of your constitution takes us back to the era of the guild.
  far better to let caveat emptor be the regulator. specialist rating services would service the public's demand for technical quality. that is, until the government gets into the rating business and cartelizes it (think s+p, moody's and fitch in the credit sphere).

  articles 5 & 8 seem contentious and problematic.
  

  Published: December 2, 2008 4:08 PM

• fundamentalist

  Pbergn: “I respect your idealistic view on the free markets' capability…”

  There is nothing idealistic about it. It results from studying 400 years of economic research. I personally think it would be wonderful if socialism could work as socialists claim. But it never has and never will.

  Pbergn: “The Free Market System can work only if implemented within the boundaries where the state's interferance and corruption are negligible...”

  Well, it works best where they are negligible, but it still works. China is a good example. Corruption is terrible there, but by freeing their markets only slightly they have gone from starvation to wealth.
  Pbergn: “It is a hypocricy to call it a free trade and reap the advantages of non-free market conditions in those countries which create the economical feasibility in the first place.”

  I’m not sure what you mean, but I think you mean that the corrupt governments of poor nations cause them to be poor, which is true, and that gives us some kind of advantage over them that we exploit. Corrupt governments do keep their people poor and their wages low, and having them make labor-intensive consumer goods for us does help us, but does it not help them just a little? Granted, it’s not much help, but given the corrupt government, aren’t they slightly better off than before?

  Pbergn: “But as I understand your approach to the social-economic affairs is very close to that of anarchists...”

  I’m not an anarchist, but I think you misunderestimate them. Anarchists insist on the rule of law, especially laws that protect life, liberty and property. However, like anarchists I don’t see any need for regulation beyond that.

  I don’t have any problem with your eight points for organizing society. Capitalism, and even anarchism, has always assumed the rule of law with laws to protect property owners from theft or fraud and to protect people from force or harm. What I don’t understand is why that makes setting up a so-called sweatshop in a poor country a bad thing. If the corp that owns it doesn’t commit any crimes, such as bribing state officials or stealing land, then the people who work there are better off with the higher wages.

  But you have to understand the cultures of different countries, which no corporation or foreign power can change. Only the natives can change it. In Morocco for example, cheating another person (other than family members) in business is concerned a wise business practice. If you didn’t cheat others in any way you can, you would be considered stupid. And you have to carry a huge roll of dirhams to bribe everyone you come into contact with, especially government officials and the police. It’s a way of life in most poor countries. The US can’t change that culture by passing a few laws, removing restrictions to trade or adding restrictions to trade. We can trade with them as they are or not trade with them at all, but we can’t change them. So the question is, are workers in poor corrupt countries better or worse off trading with us?
  

  Published: December 2, 2008 4:09 PM

• fundamentalist

  Newson, that's interesting. We have a similar situation here with Native Americans. Many of them prefer to live the traditional way. We also have the Amish, a religious sect, who avoid modern conveniences. They should be allowed to live the way they want. Those who don't like it can leave the community.

  Published: December 2, 2008 4:13 PM

• pbergn

  RE: fundamentalist

  Fundamentalist,

  I think we are conceptually on the same page, we are just putting slightly differnet subjective labels on the things...

  There is nothing wrong with doing business with corrupt governments. Yes, it is true that it makes the lives of the miserable a little bit better with the inflow of capital into the otherwise totally oppressed economic situation in these countries.

  But you are forgetting one thing - the moral aspect. You are putting yourself on the same side as the oppressors of the free market in those unfortunate countries, which is in itself either great controdiction or a hypocricy...

  Don't you think that one has to be motivated not only by how much profit one can get, but also by some fundamental beliefs? If you are a stounch supporter of freedom, how can you trade with tirants, whcih makes them even more so, with all that influx of foreign capital?

  Yes you can trade, I agree. But I have moral issues with the concept myself, as a libertarian!

  It's like professing that theft is not good, but buying a golden watch froma known thief. My issue is not economical in nature. My issue with this concept is purely moral and subjective...

  Overall, I think we all agree that there has to be freedom to act within the framework of constitution, and there should not be any big bosses or big brothers telling us how to live our lives...

  And yes, I am a supporter of sound monitary policy as well - as Dr. Ron Paul advocates...

  I think we should move on...

  Published: December 2, 2008 5:16 PM

• Stanley Pinchak

  pbergn,
  the greatest threat to tyrants is a middle class. There can be no middle class without the accumulation of capital (and of course an increasing respect for property rights and the rule of law). It has to start somewhere.

  Published: December 2, 2008 6:02 PM

• logic

  First a couple of post that I meant to post last night, but got pulled away by more pressing needs.

  Capitalist? I am no capitalist. It doesn’t say anywhere in the constitution that it defines America. As a mater of fact obligating the government and taking my tax money to grant “life, liberty, and the pursuit of happiness” is a nudge away from capitalism. I have met the most “staunch capitalist”, or so they said. Then I tell them what I do, and the benefits. First words out of everyone of their mouths is, “can you get me a job?” I tell them, “Nooo. You just told me you didn’t want the government in your life telling you what to do.” I am a government employee. Nothing I do is based in profit. I watch from the sidelines as this economy crumbles. Knowing the government will not get rid of jobs that are based in national safety and security. Why would any “capitalist” want to participate in such a damming and controlling environment? Amazingly they all retract.

  What social programs are you most offended by Jack? The FDA, the DOJ, DOT, firemen, police, DOC, FAA, ATF, CIA, FBI, HHS, FAFSA, DNR, waste water treatment, NASA, or any other entity that begins with “Department” or ends in the word “agency”.

  “free market capitalism” wit not government control would have a few attributes. A monthly bill from surrounding prisons. “We are sorry to inform you that prison count is up and with recent down turn in employment and our exacerbated salaries we have to raise your monthly prison maintenance fee from $15 to $22. Thank you for your understanding.” Or standing in front of your burning house with a fire chief as he runs your credit card and insurance information. “Alright boys. He is good. Try and save what you can of the foundation.” You want to see “capitalism? Got to the tribal regions of Afghanistan or Pakistan and visit the poppy farmers. There you will see pure capitalism. You can’t drive down a road with out paying a toll. Doing any kind of business requires bribes known as “administrative fees”, and there is not government intervention to ensure “fairness”.
  

  Published: December 2, 2008 6:13 PM

• Logic

  
  Choices? What does the fishing company in this example bring to them? Again thousands of years this culture existed just fine. What choices are these people missing out on that this invasive species to their economy and ecology offers? What exactly is hindering their “life, liberty, or pursuit of happiness? Their time is spent teaching their children their trade. They have kava sessions to work out diplomatic problems. Their culture and their traditions are passed on from generations to generations.

  
  Somebody here said that “freedom” is directly related to amount of choices. Why aren’t drugs fully legal? How about selling of children, sex trade (many of these women will tell you they are fully willing.), speeding, or drunk driving? These are all “choices”. Driving doesn’t kill people, crashing into them does. In the same way that economic policies doesn’t enslave people, their choices do. Gay marriage, bestiality, public nudity, bigamy, drinking age, and smoking are also free choices. White collar fraud, insider trading, Monopolies, oligopolies, counterfeiting, or loan sharking are all “choices” that are against the law here in the states to make. So are working children under the age of 14. 40 hours is considered the standard of many work practices. You have to pay in US currency. It is unlawful to hire illegal immigrants. You can not pollute the drinking water, air, or soil quality of the surrounding facilities and communities.

  When I think of the places most people want to go on vacations, I think of the places untouched by these "choices". What choices do you offer these people again? Mortgage, debt, and reduced family time? Here is the thing, America was once that way. In my area, it wasn’t that long ago. My father was raised on a self sustaining farm. His parents had jobs. However, his grandparents lived completely off the land, and the same is true on my mother’s side. The war effort required the people to do things that were not conducive to maintaining that symbiotic relationship. As boys and men went off to war and women took their places in the factories, many farms went unattended. The return to the “simpler times” and the “good old days” became overwhelming.
  

  Published: December 2, 2008 6:29 PM

• Oil Shock

  First words out of everyone of their mouths is

  Bull Sh!t

  I am a government employee.

  Cognitive Dissonance

  Nothing I do is based in profit.

  Horse Hockey. It is called your salary, funded through government extortion schemes.

  we have to raise your monthly prison maintenance fee from $15 to $22.

  It sounds more legitimate if they automatically deduct $15 from your paycheck under some category called FPCA ( Federal Prisons Contributions Act ). LOL.

  Got to the tribal regions of Afghanistan or Pakistan and visit the poppy farmers. There you will see pure capitalism. You can’t drive down a road with out paying a toll. Doing any kind of business requires bribes known as “administrative fees”, and there is not government intervention to ensure “fairness”.

  You don't have to go to tribal regions, you can experience it in Multan or Mexico City or Mumbai or Moscow, it is called bribing the sainted Goverment Employee, who according to your silly view, doesn't have any profit motive. Your condescending attitude towards tribals doesn't make any more legitimate the underhand dealings of government officials. In Washington D.C bribing is legal, it is called lobbying - makes it sound legitimate, isn't it?

  Your understanding of capitalism is very poor. It is just the opposite of everything you just described. There are plenty of free resources available on this site. I am not holding my breath on your reformation.

  Published: December 2, 2008 6:40 PM

• Oil Shock

  Somebody here said that “freedom” is directly related to amount of choices. Why aren’t drugs fully legal? How about selling of children, sex trade (many of these women will tell you they are fully willing.), speeding, or drunk driving? These are all “choices”.

  Most of hose are Choices ( without quotes). most of those things should be legal in a free society, except selling other free people - which includes children.

  I have not given suffiencet thought to the idea of making adoption monetary transaction, so I will refrain from making any comments.

  Published: December 2, 2008 6:50 PM

• logic

  One more look at the damage of moving our fishing community. (A side not here. I am using the Tonga example because it is fresh in my mind as a friend just came back from there. I have no personal experience with them. My friend is a very descript story teller though. You will find Tongans in other places. Many in places that are larger versions of their home land. What I know from my friend’s stories and the statistics offered is that the ones that live there seem generally happy overall. I have been to places similar to Tonga. Many of them are hotly desired vacations destinations.) So the fishing company comes in and starts fishing the waters and we want to identify the economic impact. The obvious is a reduction in resources for the fishermen who already exist will require them to put more hours into their efforts. Since wages are figured on a rate per time, this is a reduction in wages. Their spear fishing skills are no match for the netting techniques of the company. The king makes the company promise to employ any fisherman put out by the change in situation. The fishing company says, “we will not only hire them, but more, and we will pay them twice the average salary.” Since the wages in the immediate area go up, so do the cost of everything. The “able” part of “willing and able” just got a boost. This cost of living increase is especially profound to the Tongans who hold to traditions and put more weight in hours part of the $/hr formulated then accumulated wealth. You can’t say they don’t have top participate in this new enterprise. In the past they had to sell 4 pigs a month to meet their desired needs. They now have to sell 6 pigs. That doesn’t include the increase that the butcher has to charge to process it for market. In the mean time, since the cost of living has gotten so high, the Tongans that think they might not want to continue with this company, then can’t quit. What are they going to do, go back to fishing? They can’t do that for the same reasons that they signed on with the company to begin with. They can’t go back and work their land, it would take too long to get a yield out of it. They certainly can no longer survive on their own. It is then that the Fleet owner turns the screws on them and starts forcing them to work more hours and doing it for the same pay despite the fact that the cost of living has risen. Let us face it, somebody else is willing to take the job in this new environment. So a loss of self employment, and increase in living costs, and the reduction of freedom is the result of this economic venture.

  The CEO that orchestrated the whole thing says too the Tongans, “how can you fault me. Since I got here, your wages have risen and the price of fish have fallen. You should be thanking me.” To the American’s where he is shipping the fish surplus he says, “I am just supplying a need for cheep fish. Look how many unemployed Americans can now afford cheap fish. I should be called a hero.”
  

  Published: December 2, 2008 7:38 PM

• peter helbich

  this is vienna austria. where it all began.
  mozart, menger, mises, hayek etc
  send this theorem to all your friends and let it loose in the internet.
  it proofs that the austrian school of economics is right.
  regards peter helbich

  Published: December 2, 2008 9:38 PM

• Logic

  My salary is not based on profit. Nor is the hiring of anybody for the agency. The service we provide is simply is, and the money required is not dependant on any quantifiable number. My salary is certainly not about profit. In fact I was offered double my current fair salary to stay at my old job. It was because I wanted out of the profit driven private industry that I didn’t even hesitate to turn it down. I work in an environment that allows me to travel, which I love. I get to see, touch and feel the way others live. When I am not traveling, about once every 3 weeks I get to spend 6 or 7 days straight with my 2 yr old. There is nothing anybody could offer me that would change my mind. There are private contractors frothing at the moth to figure out a way to privatize my job. But there is no profit in it. No once you calculate the risk of being held responsible for a failure.

  Just as an example, explain to me the relationship of profit to the salary of a US soldier. It would be a similar case.

  I see you didn’t quote how legal you felt persuading an 75 yr. old grandmother out of her life savings in a Ponzi fraud scheme should be. Economics is the “one that rules them all” so to speak. Your approach to it says more about the moral fiber of your society as your constitution. A belief that economic based decisions exist only in a vacuum without social ramifications is not only naive, but dangerous. Not believing that the social ramifications will lead to economic and physical insecurity is what has lead us to the world we live in today. One where we fight a war on terror supplying resources and lives on one side while supplying the capital to pay for the attacks from the other side. Nothing makes me wince like a yellow ribbon on an SUV.

  Man Oil Shock, I would love if you sat down at a table with the colonists who came first, founders of this country, as well as the soldiers who freed it, the leaders who defined it, and citizens who tamed it and explain your views on capitalism, sweat shops, and lack of responsibility. Those people fleeing for endless wars and indentured servitude in search of nothing more then a plot of land to work, raise children, and worship free from control of other. I would only warn you that most of them were tempered by Christian values.

  I am done here now, but people here have succesfully scared me.
  

  Published: December 2, 2008 10:20 PM

• fundamentalist

  Logic: “I would only warn you that most of them were tempered by Christian values.”

  It surprises many Christians to learn that Christians invented Capitalism. Catholic Church scholars laid the intellectual foundations during the middle ages when they decided that a just price can be determined only in a free market. All other prices are unjust. But no Catholic country implemented those ideas. Then the Protestant Dutch Republic implemented them by creating the institutions to protect property, such as free markets, and make everyone equal before the law. Capitalism is Christian economics.

  Socialism invaded Christianity with the abandonment of traditional Christianity in the late 19th century and is anti-Christian. Socialism denies the foundational doctrine of Christianity—original sin. It teaches that mankind is born innocent and becomes evil by the oppression of the rich (although why the rich become evil oppressors is not understood). Therefore, mankind can become perfect if property is abolished. In addition, it clearly denies the Biblical sanction of property. Finally, socialism encourages envy and makes envy a moral good rather than the Biblical evil that it is.
  

  Published: December 3, 2008 8:07 AM

• Stanley Pinchak

  Logic,
  If you are still around, I implore you to find decent employment. Please stop having your associates hold up (ultimately at gunpoint) those 75 yr. old grandmothers to pay for your salary. As you said there is no profit motive for keeping your job. As such, you are only a drain on the productive. I hate to get personal on a blog, but you need to follow some of the lines of thought you have brought up to their conclusion (regardless of how unpleasant they might be to you and your family).

  While you are outprocessing, I suggest that you make some amends for the money you have fleeced from the taxpayer by vocally advocating the abolishment of your entire agency, for as you state, there is no profit motive for its existence.

  All economic actions taken without a profit motive must be provided for ultimately through charitable means to be consistent with the non aggression axiom. I take it that you are not independently wealthy, as such, you will have to budget your time so that you can volunteer a portion of your time to this endeavor that you are currently "employed" in (you are employed as much as the highwayman is). Best of luck in the transition. We tax payers will welcome you back from the side of the tax consumers with open arms.

  Published: December 3, 2008 11:19 AM

• pbergn

  Re: Logic

  Logic,

  Now you are advocating another extreme - essentially a socialist society, where there is one big "daddy" who cares about you called government, and you do a little work and get a lot of money to travel, spend time with your kid, etc...

  But have you given it a though how can you all do that? Well, sadly, somebody else is breaking his or her neck for everyone enjoying relatively relaxed work environment with over-the-minimum-standard-of-living pay...

  You, see Logic, there is no such thing as free lunch. The flip-side of extreme capitalism is Communism, where everyone lives in a semi-tribal state, and has a big boss telling him what is best for him...

  I believe, Logic, sadly, you have chosen the Golden Cage to the freedom, where you have to hunt for wood yourself...

  I see you point, though - peace. Isn't it what we all so covet?

  Alas, in the physical world of limited resources and unlimited desires, something needs to be compromised...

  Logic, believe me, I have seen socialism at its worst (I was born in a Communist country myself)...

  This is not what you wanna wish for...

  The free market will eventually place everyone in his/her place for as long as there are equal legal rights for all the participants. If the rules of the game are uniform across the board...

  You might argue, though that the logical outcome of free market Capitalism is Oligarchy, where a select few - lucky ones, or smart ones, or both will eventually accumulate all the wealth in their hands, and will easily outcompete (e.g. by buying) any other smaller, newer competition...

  But then the Iron Rule of Oligarchy is always in effect - much like the Gravity...

  But still, a free market-based society is lesser of the two evils, the greater one being Communism or Fascism...

  Hope this helps to sort thing out for you...
  

  Published: December 3, 2008 11:30 AM

• Scott D

  Logic,

  We scared you? I see that you posted your response to this article up on your blog though, so you're not shaking too bad. The phrase "delusional, greedy driven ignorant dribble" seems a bit hyperbolic to me. I find that, while it can be fun to characterize people in this way, it's much more constructive to judge their arguments based upon their logical consistency rather than their imagined motives for writing them.

  I can see that you are only getting an incomplete picture of things. Part of it is that you seem to be missing some of the fundamental truths that we libertarians take for granted. Part of it is that you want to believe that there is something we can do collectively to get things back to where you want them. There is a ton of great literature that I could recommend to help you understand where we're coming from, but that usually doesn't work out, so I'll do what I can in a few paragraphs.

  What it all comes down to for libertarians is the non-aggression principle. To initiate aggression against fellow human beings is wrong. Full stop. At its most basic, this applies to a person's body. Physical assault, rape, and murder are quite obviously wrong. We then extend that definition to property. It is wrong to forcibly take a person's property, aka stealing. Furthermore, it is wrong to deceive a person in a contractual agreement, aka fraud. Finally, it is wrong to use the threat of force to get someone to comply with you, aka coercion.

  Think about these restrictions from the standpoint of two human beings. When is it ever justified for one person to commit a violent or coercive act against another? Well, we could say that it is justified in retaliation for an aggressive act. Libertarians call that self-defense and decree such action is justified. If someone threatens to kill me, I am justified in pulling out a gun. If they attack me, I am justified in shooting.

  Without a ban on the use of aggression, we are basically down to Might Makes Right. Private property is meaningless. The accumulation of power is everything. All of the "delusional, greedy driven ignorant drivel" that you see here is in fact a consistent, logical application of the non-aggression principle and fundamental laws of economics. Threatening and/or attacking others is not only immoral, it turns out to be bad for individual and collective economic health.

  Most people agree with these ideas, but suddenly everything changes when we get the government involved. It is okay for government to steal, to threaten, and to physically assault. Your wish to restrict trade and force higher wages is nothing more than channeled aggression. That is why your ideas are so fervently opposed by the people here.

  On another note, here some interesting facts about Tonga:

  Fact #1: Each year, Tonga receives the equivalent of $96.7 million in remittances from expatriates.

  Fact #2: GDP in Tonga is about $244 million. From this, we can see that about 40% of the wealth in Tonga comes from remittances.

  Fact #3: Life expectancy at birth for a Tongan is 70.44 years. That is 135 in a list of 220 of the world's nations.

  Published: December 3, 2008 3:12 PM

• Brent P

  re: Eric

  If China is going to compete in the Auto industry (as I've read) they're either going to have to build robotic factories (like Japan) or their labor is going to have to out compete robots. I have my doubts as to whether this can be done.

  Labor in china is very cheap. Automation will be used where it has to be used simply to make the product correctly but that will be it unless there is a change in the labor market.

  Food costs likely are more expensive than electricity. Maintenance of robots is likely less than medical care. And training a robot is cheap, since copying software is cheaper than education of humans.

  food and medical care aren't costs a company in china faces. Training is cheap compared to buying automation equipment. I've had to create designs to be built in factories around the world. With the same product automation would be used in europe while in china more people would be hired.
  

  Published: December 3, 2008 5:17 PM

• prettyskin

  
  "...so-called sweatshops improve the lives of the workers..."
  I am poor because you told me so, I am not experiencing a good quality of life because you told me so. My life is improve by Western jobs because you told me so. Meanwhile, I was content and happy without you. Again, Let me beat my drum for I am humble in my land.

  Who needs who, really, Fundamentalist?
  You need me and my poor brethren so that you and your Western brethren can seek self-serving gains through exploitation. Leave my land for I am what I am, happy.
  

  Published: December 4, 2008 7:02 AM

• Gil

  Actually 'defensive might makes right'. Libertarians have a great problem putting the retaliation part into practice by the way they have to abide by governments.

  Still could a landlord deciding to eject a tenant because he wants to sell the apartment amount to initiating force? Well he did initiate the force but it's his property anyhow? Could a private property owner transfer the status of a person from 'guest' to 'trespasser' on a whim and chase them out?

  P.S. I have to laugh when I see Libertarians use the 'love it or leave it' argument when it's in their favour. :P

  Published: December 4, 2008 7:33 AM

• fundamentalist

  prettyskin: "You need me and my poor brethren so that you and your Western brethren can seek self-serving gains through exploitation. Leave my land for I am what I am, happy."

  Typical Marxist dogma. If you don't like the jobs the West brings to your country, don't take one of them. Is the state rounding up slaves and forcing them to work for Western companies? If a Western company tried to set up shop in a poor country and no one would work for it, it would leave. The fact that some people voluntarily take jobs at sweat shops means that they disagree with you. Would you force them to live your lifestyle against their will?

  Rich Americans like myself don't need poor workers to maintain our lifestyles. That's another Marxist straw man, like the one that we need cheap oil. Yes we might have to do without a few things if China didn't make them cheaper than Americans can, but it wouldn't be a major adjustment. And China would be far worse off without those jobs than we would be paying slightly higer prices for Americans to make the same things.

  Published: December 4, 2008 8:08 AM

• Scott D

  Gil:
  "Still could a landlord deciding to eject a tenant because he wants to sell the apartment amount to initiating force? Well he did initiate the force but it's his property anyhow? Could a private property owner transfer the status of a person from 'guest' to 'trespasser' on a whim and chase them out?"

  Under normal circumstances, the tenant and landlord both sign a contract stipulating the terms and conditions of residency. Generally, in the United States, a landlord must give 30-days notice to terminate a rental agreement. If the tenant chooses to remain on the property after the agreement is terminated, this constitutes trespassing. This would be no different than the thief crying about "aggression" when the woman whose purse he stole snatches it back from him. Contracts exist to define and protect the rights of both parties, including the landlord's ultimate exclusive rights to the property.

  Obviously, if the landlord terminates the agreement without the 30-day notice, she is in breech of contract and would be required to pay damages to the tenant.

  And yes, a person could go from "guest" to "trespasser" on a whim in other circumstances. Consider a party guest who insults you in your home. If you ask that person to leave and they refuse, they are guilty of trespassing and can be dragged away by the police. You'll find that many of the "wacky" ideas that libertarians have are actually the same ideas that society relies upon to maintain order.

  Published: December 4, 2008 9:05 AM

• prettyskin

  "Is the state rounding up slaves and forcing them to work for Western companies?" Yes, it is called mental slavery, convincing people what you have to offer is good for them or better than what sustained them for centuries. Giving the poor your bread crumbs is forcing them to accept jobs. A hungry man seeks bread, and if it is offered up he'll eat it.

  I hear the voice of a typical Western failure, stay only in the USA you'll bound to fail.

  When the government (USA) exercise executive privileges to rob the citizens of their constitutional rights, they cried constitutional-coup which is rightful. Now that Western businesses use poor country governments to rob their citizens the right to earn a living base on ancestral ways, they are crying ancestral ways-coup.

  Published: December 4, 2008 10:06 AM

• Michael A. Clem

  You see, what should separate modern libertarian, is the ability to reason and argue, and not stick to dogmas or paradigms literally...

  I am for the minimal state intervention, and minimal regulations.
  

  It's understandable, but unfortunate that reasonable people get wrapped up into logical circles. What constitutes "minimal regulation"? When is enough enough? Under what conditions can you give some person power over other people and not expect them to abuse it, even if they have the best of intentions?
  
  If Hayek and other free market economists have taught us anything, it is 1) there are inviolable economic laws, and 2) the economy is a whole lot more complex than any reasonable person could possibly hope to intellectually grasp, much less control.
  
  These two things provide an almost Tao-like view of economics. Austrians are against government intervention, even with "minimal" regulations, because they know that invariably that intervention will interfere with complex market processes and reduce market efficiency, giving the participants "fewer choices", or a less than the most desirable results. It is foolhardy and arrogant to think that anyone, even a genius, can capture and use information that is ONLY produced by the market process, outside of that process.
  
  As for third world workers and international trade, it is unfortunate that their goverments have restricted their choices, but I fail to see how not trading with them will cause improvements. Thus, I advocate unilateral free trade with other nations. My government should not impose additional restrictions on American citizens trading with citizens of other nations, and certainly not in the name of fair trade, free trade, or any other rhetorical name. If you want to join with Amnesty International or some other organization and agitate against foreign governments and their abuses against their own people, that would be in addition to international trade. Naturally, you can only trade with people who want to trade, so if Tongans don't want to trade with Americans, so be it.
  
  My point, if I have one, is that sticking to free trade principles isn't dogmatic, but logically correct, and a reasonable person should be able to see that. There may be different ways of dealing with coercion, but initiating coercion is never a correct or justifiable option.
  

  Published: December 4, 2008 10:36 AM

• Jack Skylark

  prettyskin,

  Answer this question and i'm sure it will shed light on what you are trying to say. Can you make someone better off by denying them opportunities? Doesn't a choice made by a person represent preference over other opportunities? And so, If I do not allow you to do something that you would have chosen, then doesn't that directly imply that you have forced them to make a poorer choice than the one they would have made without your direction?

  Published: December 4, 2008 10:37 AM

• Jack Skylark

  Excellent post Michael A. Clem.

  Published: December 4, 2008 10:40 AM

• Michael A. Clem

  I'm sure that Lord of Logic likes his government job, and why shouldn't he? He is protected from market forces that would require he do something profitable and useful for his fellow man. What parasite wants to work and earn based on his own merit?
  
  I worked for the local school district in my town for six years. It wasn't a challenging job, but it was easy, I was getting union-negotiated raises every year, and I had plenty of time off, especially during the holidays. I hated to give it up, but I knew that I was being spoiled, corrupted, even, and the sooner I got out, the better for my own spirit.
  
  I am now back in the private sector, and have been for a few years. It's riskier, yes, I've been through four jobs in the last three years, but what Lord of Logic is missing is that the private sector is riskier precisely because the government is regulating it, not in spite of it. And, of course, private sector employees have to pay the taxes that pay the public sector parasites' wages.
  
  Again, pure logic. One can earn what one deserves by providing something that other people value and desire, or one can steal it from other people, with deception, with a gun or with a government regulation. What other logical choices are there?

  Published: December 4, 2008 10:49 AM

• fundamentalist

  prettyskin: "Yes, it is called mental slavery, convincing people what you have to offer is good for them or better than what sustained them for centuries."

  You must think poor people are also very stupid. I happen to think they are quite smart and not so easily fooled.

  Published: December 4, 2008 10:51 AM

• Scott D

  prettyskin:
  "Yes, it is called mental slavery, convincing people what you have to offer is good for them or better than what sustained them for centuries. Giving the poor your bread crumbs is forcing them to accept jobs. A hungry man seeks bread, and if it is offered up he'll eat it. "

  Wow, giving people choices is bad for them, I never knew that.

  "I am poor because you told me so, I am not experiencing a good quality of life because you told me so. My life is improve by Western jobs because you told me so."

  Amazing! So what you are saying is that you lack the capacity to think and reason? I never really thought of it that way!

  "They procreate and survive regardless of Western businesses. Whatever they have carved out for themselves, these workers in very poor countries are productive in their own rights."

  These people don't need western business to survive. They also don't need the benefits of modern health care, sanitation, or even adequate food, clothing and shelter. They get to watch their friends and family die painful, debilitating deaths due to malnutrition and preventable diseases and parasites. A prolonged drought or a freeze might mean starvation for many, but that's okay--some of them will survive and procreate.

  You fail to see the humanistic side of capitalism and globalization. The dispersion of wealth and harnessing of productivity relieves suffering and reduces the risk of a catastrophe wiping out a population. As wealth begins to flow into the area, the quality of life begins to change. It may take decades, even generations, for real progress to be made, but as their purchasing power in the global market increases, they are able to command a greater share of worldwide resources and climb out of extreme poverty.

  So go ahead, try to convince me that the choice for greater wealth has destroyed the lives of those people. Try, if you can, to convince me that they should reject even the potential offer of a better quality of life in favor of tradition and deprivation. Your emotional appeals hold no substance.

  Published: December 4, 2008 11:21 AM

• prettyskin

  My tongue doesn't hurt, the truth is an offense.

  Sure, globalized market place, capitalism, limited government, free trade, etc. They are all good. Just don't force these plans in the name of great economic progressive for the poor.

  The lens one are looking through are fogged and presented the cockeyed notion, it's one way are no other. Yes sir, great saviors of the poor. Perhaps, the poor needs saving from Western businesses imposing ways and not from their own lifestyle.

  Published: December 4, 2008 2:12 PM

• Michael A. Clem

  Sure, globalized market place, capitalism, limited government, free trade, etc. They are all good. Just don't force these plans in the name of great economic progressive for the poor.
  
  Force free trade on people? Isn't that an oxymoron? Of course, that's part of the problem with US foreign policy--they fail to understand that you can't force people to be free, that freedom is the lack of coercion, and thus requires the government to do little or nothing to bring it about.

  Published: December 4, 2008 3:21 PM

• fundamentalist

  prettyskin, China has lifted millions of people out of the worst poverty on the planet in the past 30 years. It did not do it by rejecting trade. Ask any Chinese person. They did it by freeing their markets.The same goes for South Korea, Taiwan, and Singapore.

  Where are the poorest people in the world? In countries with the highest degree of restrictions on the market and trade.

  Published: December 4, 2008 3:28 PM

• prettyskin

  The only hope for poor countries is to have all occupiers, invaders, mother countries, NGO (National Government Organizations), non-NGO religious groups and their likes leave the land of ancestral. Since people can't be forced to labor without an eventual revolt, the poor will always survive somehow someway without Western wages.

  China had made great technological achievements way before the West and have been getting by before Western businesses. For example, they cast bronze before Westerners figured it out. Westerners always tried to convince the poor that they have the key to great success. The West had made their lifestyle the way they see it, so what is wrong if others see their lifestyle differently? I will think this is okay, is it not?

  Men are suppose to die. There is nothing that Western medicine can do to prevent death. Death is inevitable. However the poor death comes about, it can be viewed by the order of breath followed by breathless.

  Published: December 4, 2008 4:12 PM

• Jack Skylark

  prettyskin,

  Do you just have a strange fear of land masses on your west?

  Freedom (which includes trade) and the market have great incentives to provide what people demand. This demand can include anything you can imagine. This means that people can demand a certain image of society. This means people can demand a certain fashion. etc... Freedom and the market process does not dictate how a society will develop, how art will manifest itself, or how scientific progress will happen. This means that every person lives their own lives, and has their own demands and values. Freedom in it's essence has nothing to do with west or east, north or south. If China was free, it might not look like or develop anything like the U.S., but the demands of the people will be best served.
  

  Published: December 4, 2008 5:39 PM

• fundamentalist

  prettyskin: "China had made great technological achievements way before the West and have been getting by before Western businesses."

  For all of its ancient advances, the Chinese faced massive starvation in the 1980's. Had the "evil" US not given the Chinese billions of tons of food, much of the population would have literally starved to death. That's not my opinion; that's historical fact.

  Deng, the first ruler after Mao, was tired of his people starving, so he opened up the economy to a very tiny amount of private property and free markets. Within a decade the Chinese were exporting food. It's all in the history books if you care to know the truth.

  Published: December 4, 2008 6:54 PM

• prettyskin

  Don't derail and arm wrestle my point with China facts.

  Poor countries do not need Western businesses to survive, at all. Since Western interventions, look around, poverty still exist extensively in some places including the USA. Why don't some good faith Western businesses try their hands at places like the Mississippi Delta area, impoverished areas of Alabama and not forget the vast Indian reservations. Broaden free trade at home. The West is in other people's country because what they can do there they can't do at home.

  Published: December 5, 2008 9:19 AM

• Jack Skylark

  If all you aspire to do is survive, that seems like a pretty lame goal to me. But, hey, whatever you like - there just remains the question as to why should you be able to force your restrictions on others.

  Also, you need to try and think objectively and logically, rather than emotionally and instinctively.

  Published: December 5, 2008 1:41 PM

• prettyskin

  Delusional, Western thinking is the only good thinking, huh. The mind is powerful and can be fast set on the established way of doing and saying things. Dysfunctional arraignments (poor stricken neighborhoods throughout the continental United States). Yet these impostors of "free trade" with mythological USA history leading the charge of intelligentsia freeing all poor countries. What about your country, free your poor?

  Published: December 5, 2008 4:33 PM

• fundamentalist

  prettyskin: "What about your country, free your poor?"

  They have been free for a long time. The world standard for poverty is $2/day. That's about $800/year. There aren't any poor in the US by that standard. Minimum wage is $15,000/year here.

  Published: December 5, 2008 6:29 PM

• P.M.Lawrence

  Stanley Pinchak, you are rather missing the point when you assert "However, the fisherman-owner in the previous example can not prevent a competitor from homesteading a nearby section of the sea and competing in the market for fish". You are bringing out the physical world issues that get in the way of setting up a geographically based property system that can get to grips with fishing resources. It's why, say, taxi drivers have property in their licences that they realise when they transfer them, but not in particular areas where they would have a monopoly. (I'm not agreeing with that kind of thing, just showing how it doesn't work using a geographical split.)

  There's a bait and switch in 'Nor as you concede can the fisherman-owner prevent a long time "native" competitor from selling his homesteaded area to an efficient competitor'. I never said "homesteaded area", or indeed anything about homesteading, and I never said anything about "efficient" competitors. Since the actual gain from the whole thing is what underlies the question, stipulating "efficient" would be begging the question, a circular argument.

  What I did concede was that, when there is a functioning property system in fishing resources that allows transfers - I suggested permits, but I never said anything about where the first ones would come from or how they would be set up - they can happen. It's a tautology. But I didn't cover the range of possibilities with that.

  'To extend rights to include arbitrary concepts like a "living wage," or a "decent job," is an affront on true property rights. There is no right to profit beyond property rights. To assert otherwise is to negate the purpose of entrepreneurial action.' But that wasn't where we were coming from, was it? I pointed out that without a property system in place, if outsiders could come in, there would be adverse consequences to the previous people because without property rights they would have no way to hold out for being bought out.

  "As far as I can see, if [emphasis added] the foreign investor obtains the property, labor, and capital goods for the sweatshop in a manner consistent with the non aggression axiom and is responsive to pollution and any other property transgression torts, then his actions are conducive with the improvement of the economic welfare of all market participants. Furthermore, the sweatshop laborer has contributed to this welfare as well and to the extent that he decreases his time preference and saves, he increases the likelihood of a continual rise in real wages." Now look at that emphasised "if", and bear in mind the tricks French colonialists used in "peaceful penetration"; aggression includes more than (say) military action.

  Newson suggests "it would be good to have more austrian-style analysis on the transitional stages from a tribal/communal property regime to that of individual title". Why "Austrian"? That is, in what respect "Austrian", and why not simply use other stuff as input, complementing the rest of your intellectual toolkit? It sounds like Stalin asking for Soviet physics rather than physics for the Soviets.

  Eric says of my "It's simpler and cheaper not to let the outsiders in in the first place", "If that's not using force, then I misunderstood you".

  Ah, but, the outsiders are outside. Unless they are let in, they can only come in by aggression. They may well choose not to start anything (no force at all), or Tonga - under its present arrangements - can resist.

  "But I also should have read that in context with the locals having property rights over the waters. The other points you made, as to the harm, is then understood in that context. My Bad."

  No, I was presenting property rights as an awkward alternative to the present system, as a comparison. The "not letting in" is what makes the present system work without the awkwardness of running a fishing resource property system.

  Fundamentalist writes "However, none of that changes the fact that so-called sweatshops improve the lives of the workers by paying higher wages than those same workers can get anywhere else in the country" - you shouldn't have written that sentence without the qualifications you bring up later.

  "All other things held constant, poor countries are better off with the 'sweatshops' than without them. That doesn't mean that corporations don't bribe state officials to grant them special privileges and commit crimes. And it doesn't mean that every single instance of a Western corp setting up shop in a poor country has made the people better off. There are exceptions. When a fruit company bribes a state official to kick farmers off their land without compensation and then the official sells the land to the fruit company for a ridiculously low price, those farmers are worse off for the investment. But that has little to do with economics and everything to do with institutions."

  Well... it has everything to do with economics that covers real world cases and mechanisms by bringing them inside itself. And you can't really do the economics separately and then adjust for those other things in an ad hoc way. Also - economically - the presence of sweat shops waiting to come in provides economic incentives for those abuses.

  "Adding a few sweatshops will alleviate the suffering of a few to a small degree, but that's all" - subject to what I just wrote, about creating incentives for others to cause harm.

  Newson writes "the tongans who are happy with low wages are those who haven't emigrated. we've got a colony of tongans and other pacific islanders (not to mention new zealanders) here in australia. greedy buggers, all looking for the big dollars."

  I think it would be more precise to say that they want money, but they don't want (say) a Chinese path to riches. They put a premium on getting there the relaxed way, and may forego it entirely if there isn't such a way.

  Prettyskin writes "China... cast bronze before Westerners figured it out". Rubbish. They may have cast iron first, almost certainly before modern Europe; even so, there is some evidence that the Greeks and Romans could but that the knowledge was lost along with the need in the Dark Ages. However, bronze and casting it go back to the ancient Near East.

  Fundamentalist wrote "They have been free for a long time. The world standard for poverty is $2/day. That's about $800/year. There aren't any poor in the US by that standard. Minimum wage is $15,000/year here."

  Careful - that "world standard for poverty" is thoroughly misleading, as I pointed out earlier.

  Published: December 5, 2008 9:08 PM

• prettyskin

  Your association is incorrect and misleading, comparing poor countries' standard of living with the most wealthy and power country (America). This is negligible, pointing at negligent figures. Poverty exist in the United States.What is being protected is Western businesses in poor countries Some academia may want to raise their heads out shallow books once in awhile where their importance are only between four corner walls.

  Let me beat my drum for I am humble in this land.

  Published: December 6, 2008 6:48 AM

• fundamentalist

  PM: "...that "world standard for poverty" is thoroughly misleading..."

  It's still the world standard for poverty.

  prettyskin: "Your association is incorrect and misleading, comparing poor countries' standard of living with the most wealthy and power country (America)."

  So you want to apply a different standard to the US than you apply to the rest of the world? That's very socialist of you.

  In the 16th century, the vast majority of nations had very similar standards of living. All but a few in Africa have improved their standards of living dramatically since then. The West has done better. so an objective comparison of systems requires a single standard. Can you suggest another?
  

  Published: December 6, 2008 8:21 AM

• prettyskin

  There is no way to establish a uniform poverty level globally. Therefore, cunning the massive with wrong dollar approach is just reckless.

  Western businesses in poor countries are nothing more than political entrepreneur better known as lobbyist to poor countries' government. Lobbyist always point out the cures, but never the ills.

  Published: December 6, 2008 4:27 PM

• prettyskin

  There is no way to establish a uniform poverty level globally. Therefore, cunning the massive with wrong dollar approach is just reckless.

  Western businesses in poor countries are nothing more than political entrepreneur better known as lobbyist to poor countries' government. Lobbyist always point out the cures, but never the ills.

  Published: December 6, 2008 4:31 PM

• newson

  to pm lawrence:
  substitute "libertarian" for "austrian-style" analysis. i'd like to see more articles on developing economies stories on this site.

  Published: December 6, 2008 6:34 PM

• P.M.Lawrence

  Yes, Fundamentalist - and you should still be careful using that standard of poverty (or the standard of extreme poverty of $1 per day), just as you should be careful using GDP straight because it is a gross measure.

  Published: December 7, 2008 12:22 AM

• Buckley

  "Where are the poorest people in the world? In countries with the highest degree of restrictions on the market and trade." Actually the poorest people in the world are not in places with the highest degree of restrictions on the market, on "free trade". They are in countries with plenty of undesireable people (That most libertrians don't like for certain reasons) with very undesireable conditions. Much like central Africa to be exact.

  Published: December 7, 2008 11:40 AM