A response to critics regarding my Bulletin letter

My writing is “surprisingly naive and highly superficial,” to such a degree that it is obvious that I have “limited knowledge of global economics,” according to a pair of Canadian fair trade activists. They’re responding to a fairly conservative piece on the WTO that I published in my college newspaper in December. I find their tone disrespectful, but it would be unwise to fail to respond to published criticism of my opinions, so here are a few excerpts from their posts and my rebuttal.

Free trade causes poverty… there is no way you can lift protection without hurting people.

Trade liberalization hurts those factors of production earning economic rent in previously protected sectors. Every economist acknowledges this. In fact, the purpose of liberalization is to encourage the shifting of resources amongst production activities so as to achieve gains from comparative advantage. But saying that free trade causes a few job losses by improving allocative efficiency is very different than saying free trade causes poverty. Trade liberalization hurts some people, but it creates more winners than losers. The burden of proof lies with those opposing trade.

Also, there is an unfortunate misunderstanding because of the term “Fair trade” that has multiple meanings.

My piece particularly criticizes those who claim the global trading system is patently unfair and that the rules are “rigged” against the poor. I focused upon Oxfam because that is the group that is active at Gonzaga.

On the other (dark) side, take a magnifying glass to Walmart: just how many trillion dollars of profit is required to claim success? And at what cost to human dignity? Their profits, earned off the backs of abused 3rd world workers in 2004 were double the GDP of Denmark.

Wal-Mart’s gross profit is $68 billion, not trillions. Moreover, attempts at comparing corporations and countries are bunk, as Martin Wolf explains here. GDP measures value-added, while revenue measures total value.

My opinion of “abuse” depends upon whether you mean physical abuse or merely low-wages. I don’t know which you’re implying.

Finally, a plug for a wonderful independent film that is both highly entertaining and life changing in the sense that it demonstrates a feisty response to injustice. The Yes Men

I’ve seen it, thanks.

Most economists are patently insane… what most people don’t realize is that GDP growth increases with every murder, cancer victim, or robbery (which, for example, adds ‘economic activity’ to law enforcement agencies, hospitals, pharmaceutical companies & insurance companies, respectively)

Economists have been familiar with the broken window fallacy since Frederic Bastiat exposed it in the eighteenth century. I have a history of criticizing economists who think that hurricanes or tsunamis are good for growth. I have difficulty imagining a development economist recommending murders, cancer, and robberies as routes to promoting growth, so why voice this objection?

many ‘people’ do support “unfair trade” – they are called “corporations”

The WTO’s liberalization serves to eliminate rent-seeking opportunities, including those enjoyed by corporations.

the WTO is NOT “an exercise in international democracy” it’s a neoliberal sham that favours corporate profits over human rights” plutocracy at it’s finest

I stand by my original claim:

The WTO is an exercise in international democracy – since its trade agreements require a consensus to take effect, each member nation holds a veto. The walkouts by developing nations at Seattle in 1999 and Cancun in 2003 reflect their negotiating muscle. While the WTO has its flaws, it remains a viable trade liberalization mechanism for both developed and developing countries, as demonstrated by Brazil’s cotton subsidy victory against the United States at the organization’s dispute settlement panel.

The vast majority of poor countries who are “importers of agricultural products” don’t necessarily want to be importing subsidized agricultural crops from the EU/US that put farmers in developing countries out of work, which leads to increasing dependence on imported crops, which leads to food insecurity.

Thanks to the EU’s Everything But Arms program, LDCs are able to receive protectionism-inflated prices for their exports while importing food at subsidized prices. As Arvind Panagariya has repeatedly explained, that means that the end of market distortions in agricultural subsidies will be a terms-of-trade deterioration for LDCs. That won’t improve agricultural employment.

As for food security, it’s not obvious to me why poor countries would find importation to be an unreliable method of procuring agricultural products.

I suspect Jonathan Dingel has limited knowledge of global economics… even though economists are
patently insane.

I’m afraid that my letter to the editor was limited to 600 words, but I have a feeling that a longer piece would have done little to change your mind.

Gonzaga student Simon Zachary offered a much less insulting reply. I responded in last Friday’s Bulletin.

2 thoughts on “A response to critics regarding my Bulletin letter

  1. Jonathan

    Dingel, while I agree your critics have been overly harsh and their comments more of rhetoric than of substance, I’m curious as to how you came up with some points. Maybe you can enlighten me:

    “Nor did the developed economies only adopt freer trade after becoming rich. In fact, trade liberalization was critical to their economic advancement. Britain industrialized while unilaterally pursuing free trade in the 18th century. Similarly, international trade was key to U.S. and Australian industrialization in the 19th century. And trade drove the startlingly rapid economic growth and poverty reduction of the East Asian “tigers” – Hong Kong, Singapore, Taiwan and South Korea – in the latter half of the 20th century.”

    Many people would dispute the above – especially the first part. No doubt, trade and markets are very important for growth. However, many scholars have also written about how infant industry protection was used by the developed world years ago – e.g. Ha-Joon Chang’s “Kicking away the ladder”

    “Economists agree that free trade is the long-run goal; their debates are about the short-term policies to get us there. Oxfam campaigners that trot out protectionism under the guise of the long-refuted infant industry argument are just steering developing countries into a dead end.”

    I’m not sure what Oxfam argues for, but again, the infant industry argument isn’t meant to be protection for the “long-run” but rather for the short term. And of course there are ways to do it correctly and ways to abuse it. Yes, we need to get rid of inefficient and wasteful rent-seeking, corruption…etc. And many countries have abused protection for infant industries. But that doesn’t mean that it can’t be done correctly. And the East Asian developmental states combined both markets and state intervention in a productive way.


  2. Jonathan Dingel

    Thanks for your comments. I’m extremely busy at the moment, so I’ll have to be brief, but I promise to post a more extensive reply this weekend.

    Chang’s Kicking Away The Ladder is on my need-to-read list at the moment. However, I feel confident in arguing that most successful states adopted an outward-orientation in trade policy, even if selectively engaging in protectionism, rather than pursuing the import-substitution industrialization strategy. Whether industrial policy or low trade policies played a greater role in the Asian success story remains a debated subject — see “Korean Growth Experience” by Arvind Panagariya for a contrast between his views and those of Dani Rodrik, for example.

    Oxfam’s statements sound almost like import-substitution, however:

    In the past most of today’s most developed economies have used policies to protect their industries from foreign competition until they were big enough to survive without support. But now they are using the WTO to deny poor countries the same route to economic development. [maketradefair.com]

    The infant industry argument isn’t yet dead, but I think that the bulk of academic literature opposes it and that there are a number of good reasons to be skeptical of it. I will make an effort to dedicate a future post to outlining my reasons for that opinion.

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