Thursday, February 14, 2008


With the economy’s decade long exuberance becoming sedated and its fuel’s energy becoming forced to reconsider spending habits, the Free Trade forces, pro and con, have become seriously conflicted. Neither side knows what is right or wrong because no-one can really predict the long term outcome of either stance. Effective crystal balls in this domain are hard to find when it comes to free trade and our global economy. Undeniably free trade is the ultimate economic equalizer . . . at least globally.

For all of us staunch capitalists it is difficult to deny that there are signs the pro free trade argument may not be all we had hoped for.

Between countries of approximately equal standards of living, the impact on the participants is tempered and there is no overwhelming and imbalanced loss or gain. One example is the U.S. Canada trade relationship which is the world’s largest. Although there is no such thing as absolute Free trade, the current arrangement has contributed positively to both countries. There are many factors that affect the impact, but overall the outcome is positive.

When there is serious imbalance such as has existed between the U.S. and China or the U.S. and Mexico the long term impact on the respective societies can be extreme. Furthermore the current “arrangement” with China hardly resembles anyone’s definition of free trade since China has made it difficult for anything American to be brought in. Meanwhile, the American consumer has fuelled the creation of a vast Chinese middle class almost equal in size to the population of the U.S.

As long as there are new clusters of people on Earth whose life styles aren’t on par with that of the U.S., there will be someone willing to work for “lower” wages. With six and a half billion of us, there is a long way to go before there is anything resembling standard of living parity. If the world’s population continues to grow at present rates, it will never happen. Millions of service jobs currently performed by U.S. workers are vulnerable and potentially up for grabs by countries developing their own skilled work forces such as India, China and the Philippines. The lower the barriers to trade, the more opportunity for our corporations to find alternative sources for goods and services. While this has historically enabled the U.S. consumers to enjoy products they might not have otherwise been able to afford, it has also “spread the cash” far and wide.

Unfortunately, too much of the cash spent by U.S. consumers was borrowed, and too much of that borrowing was extracted from leveraged escalating real estate values. Now we stall for a while. By “we”, I mean everyone from here to New Delhi. Everyone has depended on the U.S. consumer, including Russia and Saudi Arabia, not just China and India.

This “stall” is an American consumer forced into restricting the “buy” urge. There is hope that this “stall” period will stimulate savings .

So what do you do?

Do you support free trade and watch incomes of the middle class continue to stall? Free trade works really well when you are the one doing the “selling”. Free trade has absolutely nothing to do with this new beloved term that has forced its way into our lexicon – outsourcing. Hiring foreign workers isn’t “trading”, it’s simply availing oneself of “cheaper labor”. All countries would wish to see it’s population employed. Or do you support protectionism to protect jobs? Protectionism would simply mean more expensive goods. Can you visualize almost every product in your local WalMart increased in price by a multiple of 10? Your 5 year old’s runners would be $200.00 instead of $20.00. Life would change. Reality - globalization is unstoppable. Our population is growing but the global community is shrinking.

No politician currently running for the office of president is presenting any answers to this dilemma, principally because there are none, . . . just opinions on differing sides of the argument. If you are your brother’s keeper, globalization is good and you await a note of gratitude from the recipients of your ‘debted’ benevolence. If you’re not your brother’s keeper, you’ll look for someone to set some onerous tariffs before your company out-sources your job. The odds are not good that your CEO will feel benevolent with your bank account, and history suggest he won’t suddenly discover altruism or wisdom. Just be grateful he’s not moving to Dubai.

Lack of moderation has brought us to the current economic slump. Moderation should absolutely prevail on both sides of the free trade argument and in the implementation of any corrective measures for us to weather the next few years. Another reality is that real average income has not only been stagnant for a whole generation, it has dropped. When you add this to spreading income inequality and wealth concentration, you get pressure for the implementation of balancing measures.

This is where creative minds get pushed.


  1. Corporations, in their rush to enrich themselves and stockholders, have created an addiction to must have bobbles. Shoes, cell phones, cars, new and better things are all the rage. Their advertisers have done a remarkable job in helping to push this addiction to new highs. Instead of growing their companies slowly and responsibly they go for the quick buck. And to help them make the quick buck are nations willing to provide cheap labor. No worker rights or benefits, just cheap abundant labor. And while those same countries openly practice protectionism American workers are left to fend for themselves. Economists tell us that protecting our jobs would be a bad thing. The economists also tell us that we will be happier in a truly free trade environment. The problem is that economists seem to leave the workers out of the main part of the equation.
    So, while corporations cry loudly that there must be a level playing field to compete, the people of this country, who are this country have to deal with just the opposite. They no longer have a voice. They must sit back and watch their dreams and livelihoods shipped overseas. Meanwhile, politicians are busy making the economic numbers look rosier by underreporting the jobless rate leaving out those who have stopped looking for employment. And underreporting inflation by leaving out gas and food by saying it shouldn’t be counted.
    Free trade probably does work but with rules to put everyone on a level playing field. But this would cut in to profits and the corporation will not let that happen. Because greed is an addiction that can only be satisfied with more of everything.

  2. Good article James,

    I'm conflicted by "outsourcing" and it's relation to free markets - it's really not just a switch to lower cost labor - in the majority of cases I've seen - it's a switch to much lower quality, shoddy, or defective products and services that were previously domestically produced with much higher quality.

    I don't blame corps. from chasing lower cost, BUT the consumer has allowed them to get away with providing garbage. If the consumer held the company up to providing a high quality product, I wonder if it's really cheaper than domestic sourcing.

    This goes for most H1-B engineers I've worked with, tech development projects that have been off-shored (usually takes 3 times longer with inferior results), off-shore customer call centers (usually an exercise in futility), and pretty much ANYTHING made in China.

    From a consumer goods perspective, the consumer can help stem the tide, buy spending the time to find domestically produced goods (I've been checking source of origin on everything I buy, especially now food, starting in the 70's), and complaining loudly to corp. HQs about shoddy goods and services (Dell was forced to have domestic support for business customers). Return poor quality garbage. Corps might start to see that the lower cost labor may not justify lost customers or two-thirds of production that gets returned.

    Shipping development is tougher to counter, but I made sure management knew how much longer (7-8 months) dealing with a European design center cost the project compared to previous developments with domestic design centers. I hear the same from friends and collegues all-over - outsourcing develpment has not produced anywhere the cost savings predicted.

    Penny-wise and pound-foolish indeed.