A Review of Don Boudreaux's Globalization
Due to the unfortunate rebirth of economic nationalism in recent years, commentators of the libertarian and conservative persuasion have had to sharpen their arguments in favor of free trade. Amidst the ongoing debate against Lou Dobbs and his not-so-merry collection of protectionist cohorts, George Mason’s Don Boudreaux has been an indispensable source of broadly understandable talking points that have shown the undeniable good that free exchange brings to the world. Thanks to his recent publication of Globalization, commentators and interested people alike can now access a book containing all the salient facts supporting a concept that can only enrich us.
Boudreaux makes what might seem difficult sound easy, and it begins with his definition of globalization: the advance of human cooperation across national boundaries. Boudreaux could have stopped right there, but goes on to explain that every “man-made thing you see is something no one person could possibly make alone.” That being the case, the shirts we wear and the food we eat are the happy result of millions of people around the world engaging in their narrow economic specialties such that we’re clothed and fed.
The above helps the reader to understand the unimaginable poverty that would result from a life of economic isolation. Absent the cooperation he describes, rather than doing what we do best in exchange for the best offered by others, we as individuals would be wholly self-reliant, and tragically poor. That we’re mostly able to freely exchange our individual output with the world’s citizens means our lives get easier and cheaper every day. In short, as the world’s division of labor broadens, and as tariffs fall, we’re the beneficiaries of frequent non-monetary “raises” due to economic specialization that makes goods more plentiful, and as a result, cheaper.
Importantly, the book offers clear answers to the many objections raised to globalization over the years; from its impact on the environment, wages, job growth, deficits in trade, and with the rise of sovereign wealth funds, foreign investment. Those who emotionally support free trade but sometimes doubt its wonders will likely be won over by Boudreaux’s explanations. And for those violently opposed to the freedom he espouses, let’s just say this book will make them think.
On the wage front, Boudreaux notes the “high correlation between openness to foreign trade and people’s material prosperity.” The numbers provided within back him up. Between 1980 and 1998 citizens of countries most closed to trade had average annual per-capita incomes that were 13 percent of the wages earned by citizens in countries lacking heavy barriers to exchange. This shouldn’t surprise us when we consider labor is by definition finite, but potential jobs infinite.
When trade is free, workers are able to specialize at one task, while letting others achieve their own comparative advantage in other areas. Closed markets retard this process in that while the average New Yorker may be good with numbers, that same person may not be good with a sewing machine. Free trade solves this in that the Wall Street analyst is able to “produce” clothing thanks to numerical and industry-specific knowledge, whereas a haberdasher over in Hong Kong is able to produce a stock portfolio through a unique ability to design the clothes that Wall Street-types want.
And there lies the problem with tariffs. Beyond impinging on the individual freedom that allows us to purchase what we want from whom we want, tariffs redirect scarce resources of the human and mineral variety into “industries where, as a group, these resources produce less value than they would produce with free trade.” Owing to the sub-optimal allocation of resources that tariffs necessitate, according to Boudreaux, “the ability of American workers, in general, to earn higher wages is thwarted by protectionism.” Simply put, tariffs allow us and sometimes force us into professions that don’t maximize our talents. Markets and consumers sniff this out, and it’s reflected in our pay.
Do free trade and globalization lead to job growth? Boudreaux makes plain that the rise in the aggregate number of jobs is related to population, with limits to job growth mostly a function of government rules in regard to hiring. Rather than growth, Boudreaux shows that free trade leads to better jobs thanks to the oft-mentioned specialization of work effort that attracts investment, and with the latter, higher wages. Importantly, when market forces are enabled such that resources are allocated properly, a process begins whereby the lifestyle gap between the rich and poor shrinks as our productive endeavors are rewarded with imports that are sent to us in exchange for that same productivity. As Boudreaux points out, if our ancestors from the 18th century were to walk into Bill Gates’s home today, the lifestyle enhancements that would most fascinate them would be technological advancements that all Americans presently enjoy.
Regarding the environment, Boudreaux shows that on a country-by-country basis, rising incomes correlate with rising environmental performance. Call it the environmental Phillips Curve or, as Boudreaux writes, having “conquered the hunger, housing and disease challenges that still afflict people in poorer nations, Americans can now better afford to address harms that are less immediate and speculative.” Words of wisdom, and words politicians should remember the next time they seek environmental concessions from our poorer trading partners in exchange for trade agreements.
When it comes to deficits in trade, Boudreaux is forever amused with elite opinion suggesting a lower trade deficit is somehow bullish. Instead, he notes that the goods produced around the world for Americans in exchange for dollars are a certain signal that our trading partners want something in return from us. What they frequently want instead of American merchandize is shares in our innovative companies. The trade ultimately balances, though our export of shares as opposed to televisions explains a deficit in trade that merely reveals a preference among foreigners to invest in our economy rather than consume tangible items.
The above helps explain why Boudreaux is sanguine when it comes to foreign investment. He welcomes it for increasing the number of potential bidders who might have designs on our assets. The existence of foreign investors not only means we might sell what we own at a higher price, but it also means we’ll then have access to the knowledge of a broader range of investors who might have a better idea of how to get the most economic value out of the asset purchased. When foreigners buy our government debt, that just means they lower the interest costs on debt incurred in our name.
Boudreaux’s long-term outlook when it comes to globalization is positive. While it’s certainly possible that countries around the world could revert to the impoverishing economic isolation of the first half of the 20th century, he notes that socialism has happily been discredited, and at the same time the increasingly mobile nature of capital means a country’s citizens will quickly feel any negative shift away from economic freedom.
In concluding his excellent book, Boudreaux reminds us that prosperity results when we refuse “to let political boundaries define economic boundaries.” His words are simple and powerful at the same time. If we let others do for us what’s not in our economic interest so that we can achieve our individual work specialty, we’ll be better off. Easy words for an individual to live by. Now we just have to convince our politicians.