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Economic rationalism has little left to offer : Comments
By Andrew Wear, published 6/11/2007Economic rationalism is looking increasingly irrelevant in Australia.
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Posted by ed_online, Thursday, 8 November 2007 6:16:10 AM
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Mr Smith
I agree entirely that competition is more important than ownership, and that merely changing the ownership of an enterprise doesn't necessarily improve anything. Indeed, private monopolies may well be even worse than public ones, and for that reason – as I said above - I did not support the full privatisation of Telstra. The idea that private ownership is a virtue in itself is not, in my view, an element of "economic rationalism", but support for competition certainly is. This reinforces the point that what opponents and proponents of “economic rationalism” understand by the term is very different, and opponents’ pictures of it (such as the one in this article) often seem a “straw man”, making it hard to debate. Like ed_online, I disagree that we should deny other countries the benefits of trade unless they match our labour etc standards – an unrealistic and unreasonable demand to impose on developing nations. Re-read your Econ 101 textbook on comparative advantage. Both Australia and China (for example) will gain from trade, even if China’s comparative advantage is (for now) based on cheap labour. Look at the data on poverty reduction in China since it adopted its “open door” policy. The percentage of the population in absolute poverty - living on US$1 a day - fell from 64% in 1981 to 10% in 2004, the largest and fastest large-scale drop in poverty in history. Trade and economic reform, not foreigners’ pious good intentions, brought about this transformation: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2007/04/16/000016406_20070416104010/Rendered/PDF/wps4211.pdf [PDF, 0.3Mb) Do you really think those exploited children producing goods for export markets would be better off if they lost their jobs? This article by economist Paul Krugman is one of the most readable explanations I’ve seen of the reasons why rich countries shouldn’t impose their standards on developing countries: http://hei.unige.ch/~baldwin/ComparativeAdvantageMyths/PraiseCheapLabour_PK.ht Posted by Rhian, Thursday, 8 November 2007 3:23:46 PM
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Ed_online & Rhian
You will probably be aware that the WTO already has certain minimum standards even though they are totally inadequate. For example it is against WTO rules to use prison labour for export goods (and please don’t ask me if I really think those exploited prisoners would be better off if they lost their jobs). The WTO’s concern is not with the exploitation of prisoners but that other producers in the global marketplace should not be expected to compete with those that would gain advantage through such abuses. My assertions are merely a logical extension of an already well-accepted principle. Labour isn't the only issue here and China isn’t the only case in the basket. Interestingly, the United States is already miles ahead of us on this one and even some of the Republicans have joined in on plans for drafting laws to deal with this issue. They have several concerns one of them being that free trade concessions should be reciprocated and another being that their balance of trade isn’t looking like ‘a win-win situation’, its almost as bad as ours. I am not suggesting that western nations impose their standards on other nations per se - merely that importers be required to observe the same standards as local producers or something comparable at least. Believing that one good cliché deserves another I must say that I really do think those exploited children would be better off if they lost their “jobs” just as the children of pre Industrial Revolution England were better off than those that were dragged into the dark satanic mills after the Enclosure Acts. The abundant fallacy of the “poverty-reduction” argument is (unwittingly) illustrated by Rhian’s point about China: “The percentage of the population in absolute poverty - living on US$1 a day - fell from 64% in 1981 to 10% in 2004.” That’s great except for the fact that $1US bought a hell of a lot less in 2004 than it did in 1981. As for China’s “open door policy”, protectionism by any other name would smell as sweet. -Mr Smith Posted by MrSmith, Friday, 9 November 2007 1:23:08 AM
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If the US is considering imposing restrictions on cheap imports, then ask yourself this question: who benefits? Here's a clue, its not the low-paid in developing countries.
Back in the early days of the Industrial Revolution the choice was stark: work or starve to death. Apparently you think people should starve to death. In reality, the 'dark satanic mills' represented a significant opportunity for people to improve their lives. The standard of living improved massively in England as a consequence of the Industrial Revolution. Grinding poverty was the norm in 17th century Europe, just as it is today in sub-saharan Africa and other parts of the world. Capitalism lifted Europe and the US out of poverty, and it is doing the same in China, India and Eastern Europe today. Do you doubt that poverty has fallen in China? This is not only confirmed by their rise in income but also demonstrated by a fall in unemployment. Recently, there have even been reports of labour shortages! Posted by ed_online, Friday, 9 November 2007 6:44:49 AM
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Mr Smith
The dollar-a-day benchmark is in “real” terms, i.e. adjusted for inflation (actually its $1.08 a day in 1993 prices, but dollar-a-day is a recognised shorthand). It’s the world’s most widely recognised measure of absolute poverty in developing countries, and is one of the benchmarks for the UN’s Millennium Goals. So the reduction in poverty in China is real: http://mdgs.un.org/unsd/mdg/Metadata.aspx?IndicatorId=0&SeriesId=580 Other welfare indicators for China, such as life expectancy, literacy, infant mortality etc have also improved dramatically. My guess is that the prohibition on trading the products of prison labour is not so much intended to protect prisoners from exploitation – most countries require their prisoners to work, including Australia – but rather because market labour costs are not costed into their prices, so they are in effect subsidised. ed_online’s point about living standard improving in the industrial revolution is spot on, and very similar to what’s happening today in China, except it’s happening much faster in China. By our standards, working conditions and wages in the early and mid nineteenth century Britain were atrocious, environmental protections nonexistent, public services such as water and sewerage rudimentary at best, and decent education and health services accessible only to those who could pay. But this represented a massive improvement on pre-industrial life, and also a necessary stepping stone to the much higher living standards enjoyed in the 20th and 21st centuries. If you deny the Chinese the right to do the same, you not only condemn them to poverty now, you also kick out the rungs on the ladder to prosperity taken by the West and more recently by Hong Kong, Singapore, Taiwan and Japan, all of which reached western living standards through economic policies including openness to trade and, initially, comparative advantage based on cheap labour. As Krugman’s article says, “as long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress”. Posted by Rhian, Friday, 9 November 2007 10:39:31 AM
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Coming in late ... Rhian correctly identifies that the author is attacking something which never existed. "Eeconomic rationalists" was a term of abuse by those who lost influence to more effective policymakers in the 1980s and were unable to refute them with reason, facts and logic.
The common approach of the ERs was: clearly identify the problem; ascertain the facts; develop policy options in the light of the best empirical evidence, sound principles and theory and the best understanding of the issues; and detail the costs and benefits of alternative options to the decision-makers such as the Hawke Government. Sounds good to me, it's underpinned my work as an economist but is sadly lacking in the approach of all parties at this election. Posted by Faustino, Friday, 9 November 2007 5:20:11 PM
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I understand the Chinese have artificially kept their currency low. This means we can buy their goods at a cheaper price than otherwise, thus we benefit from higher purchasing power and higher standard of living. If prices are kept low, Chinese firms can keep selling their goods to us, making more profits, employing more people, and reducing poverty. Looks like a win-win situation.
It is true there have been some shoddy goods, but so what? If consumers are unsatisfied with the quality of imported goods, they will stop buying them. Chinese companies will soon get the message, and if they want to stay in business, will change their practices. Anyway, China doesn't have a monopoly on 'shonky businesses', just watch ACA or TT most nights.
Maybe I have it wrong, but it seems to me that increased competition in the airlines, banking and telecommunication sectors has been a good thing for consumers.
I agree that "we are all entitled to freedom of association & the right to collective representation" but it is one thing to be free to associate, another thing to compel to associate. For example, unions should not be given powers to enter businesses without permission of the business owner; nor the power to force employers to pay wages and conditions beyond what they can afford; nor the power to tell employers who they can hire or fire.
The same applies to all other special interest group. They should use the market place, not the law, to further their objectives.