I am a proud member of the Sierra Club. No, not that Sierra Club; what I mean to say is that I am a regular reader of the parenting blog ChildWild, and a fan of its wise and charming proprietor Sierra Black. I am therefore delighted that Sierra seems to have become a regular reader and frequent commenter here on The Big Questions, and glad to see she’s sticking around despite frequent disagreements—much as I do on ChildWild.
Over on another thread, amidst a discussion of the case for free trade, Sierra threw me for a brief loop with an issue I’d never seen raised before, though I’ve since learned that it’s commonplace in certain corners of the Internet. I thought, then, that it might be worth responding in a separate post.
(I’ll admit too that another motive for the separate post was my conviction that I’d be able to slip in a perfect pun around the phrase “Sierra, Madre”—Madre, of course. meaning mother, and what with her running a parenting blog and all and—well, it’s bad enough to have to explain your jokes, but here I am trying to explain a joke I couldn’t even figure out how to make. But by the time I’d realized the pun was stillborn, I was already committed to this post.)
Here’s the relevant part of Sierra’s comment:
One of the arguments I’ve often seen made in opposition to free trade is that while international trade often increases the amount of money in a less-developed nation, it can damage the quality of life for the people living there.
Here’s an example: you might have a small community that has subsisted for many years on small farming and handcrafts that are traded locally. The people are poor, but getting along OK.
Then a foreign-owned mine opens up, and offers higher wages than anyone is making farming in their backyard. A generation of workers goes to the mine, and in the process loses much of the farming and crafting skill their parents and grandparents used.
When the local resource is exhausted and the mine closes, the people are left impoverished and unskilled; a worse situation than if they had never traded outside their local region.
Overall, the wealth of the country has gone up, and the mine probably made a few people in that country rich. But the workers are worse off than before, and don’t have a clear path to accessing the overall improved wealth of their nation.
Some responses:
1) You are absolutely right that in theory, this could happen.
2) Of course, if people realize that the mine is going to disappear eventually, they won’t go to work there unless the wages are high enough to compensate them for putting their farming skills aside. A problem arises if they don’t realize that the mine is going to disappear eventually. It would seem that the obvious solution to that problem is to alert them to this truth, rather than taking away their options.
3) It’s interesting that you chose farming as your example. The fraction of the population engaged in farming decreases over time pretty much always and everywhere, as advancing technology leads to better agricultural yields, and as economic growth leads people to spend smaller fractions of their incomes on food. So a lot of the people you’re worried about are going to be out of the farming game in a generation or two, with or without trade.
4) We should not lose sight of the fact that putting farmers to work in a mine raises not only their wages, but the wages of every other farmer (and ultimately of every other worker in that country). Losing sight of this would cause you to way underestimate the benefits of trade.
5) In case the reasons for point 4) are not obvious: Except for short-run fluctuations, wages are determined by productivity—not in individual industries, but nationwide. The reason wages today in America are ten times what they were several decades ago is that workers are ten times more productive than they were several decades ago. For this, we have ample (uncontroversial) theory and ample empirical evidence. Notice that all workers share in these wage increases. Barbers are not substantially more productive now than they were a hundred years ago, but they earn ten times as much because factory workers are ten times more productive. If you can turn farmers into (more productive) miners, then wages have to rise across the board.
6) The newspapers are forever touting some new “study” or other that concludes wages—for the first time in history—have stopped tracking productivity. These results are almost always derived from one of the following fallacies: Failing to include benefits as part of worker compensation, failing to correct appropriately for inflation, or making apples-to-oranges comparisons between, say, the mean of one variable and the median of the other. Greg Mankiw says it at least as well as I can.
7) Since trade increases productivity, and productivity is pretty much the sole determinant of wages (again, not just for the workers who are directly affected, but nationwide), the benefits of trade are immense. Could there be a downside if some workers are fooled into making bad choices? Sure. Should we ban trade to prevent that downside? That’s a lot like banning cars to prevent auto accidents, or banning abortions to prevent post-abortion regret. Surely a parenting blogger can see the folly of throwing the baby out with the bathwater.
Hat tip to the Two Marks, who helped me think about how to organize this post.
