JC has a question concerning the different consequences of free trade versus automation:
Interesting discussion on free trade on your blog. Im still going thru the comments on the last one. I have to admit this discussion is all new to me and I have a lot of homework to do to keep up. But I have a question which I shall preface thus:
If for example an American manufacturer moves to another country with lower labor costs, etc., and sells products to American consumers at a lower price than they would have had they stayed in America and hired American workers, the lower priced consumer goods would not really help them since they wouldnt have jobs to take advantage of the lower prices.
I’m thinking this is just the same as a manufacturer deciding to automate production and laying off workers because it’s cheaper to use machines, which is what is happening in America where manufacturing output continues to grow because of American ingenuity in technology but unemployment remains high. It would be like the manufacturer moving the factory overseas because it would be cheaper to produce there. My question is: How is free trade bad, while automation is good in the example I gave above? (I’m assuming you think technological advances in manufacturing is good of course.)
Im looking forward to spending more time over at Vox Popoli. I know you put it up mainly for yourself, but Im sure you are aware that a lot of people are getting a real education reading the posts there and participating in the discussions.
There are several ways that job losses through automation is preferable to job losses through free trade, but JC is right to point out that there are still some material problems presented by it. This is something that has concerned me for some time, and I’ve been contemplating a post about it ever since Chateau Heartiste brought up the issue a few weeks ago.
First, when jobs are lost to automation rather than free trade, the capital and the profits remain in the domestic market. Second, it’s much easier to prevent free trade than technological progress because in the one case the national interest is in line with the domestic producer, in the other it opposes the producers interest. Third, (and this is a consequence of the first thing), the transition of labor from an automated industry to a new one remains viable when the capital and profits remain within the domestic market, otherwise, labor has no choice but to move where the capital investment is taking place.
This is why dishonest advocates of free trade falsely attempt to claim that the free movement of labor is not part of the free trade doctrine. They know that no one will support free trade once the understand that it intrinsically necessitates the large-scale export of their friends, relatives, and neighbors to other markets, and quite possibly their own expatriation. In the case of automation, on the other hand, there is a reasonable expectation that the capital will be reinvested in the domestic market, thereby creating new jobs in that market. That doesn’t mean the process won’t be painful, or as increasingly concerns me, because there is no real productive need for the excess labor, it will be mopped up using a combination of makework private sector jobs, public sector sinecures, and welfare payments.
Of course, in the case of automation, such a solution is possible because the profits have increased and remain within the country. In the case of free trade, not only have the jobs disappeared, but so have the capital and the profits that would pay for either jobs in a new industry as well as the social safety net.