Grim
Domestic competition could in theory induce innovation.

Infant industries arguments, however, are used in favour of developing countries protecting new (hence “infant”), capital intensive industries requiring large lumps of capital to be economically viable – car or aircraft manufacture, for example – which (it is argued) will not spontaneously evolve in developing countries in the face of the economies of scale and incumbency advantages of established competitors. Hence they cannot by definition face domestic competition (or they would not be “infant” industries) and will almost inevitably be monopolies or oligopolies.

Moreover in practice, and not only in developing countries, industries capable of persuading government to “protect” them are often concentrated either geographically (e.g. agriculture) or structurally (such as Australia’s car making oligopoly), making collusive behaviour and interest group lobbying more profitable and feasible – “rent seeking” (http://en.wikipedia.org/wiki/Rent-seeking) in the economic jargon. This is even more true in developing countries such as India, where protected industries were often either state owned or heavily regulated.

You have the trade equation upside down. When we import from other countries, we gain the fruits of foreigners’ labour. When we export, they gain the fruits of ours. The whole point of exporting is not to obtain foreign currency but to obtain the things that currency will buy – i.e. to import. By concentrating on things we’re relatively good at making (such as LNG and education services) and exchanging them for things that the Chinese or Japanese are relatively good at making (such as TVs and T shirts), both parties gain. It’s called comparative advantage and it’s one of the most compelling arguments in economics (http://en.wikipedia.org/wiki/Comparative_advantage).

VK3AUU

China’s inequality has increased enormously, but it has also raised more than 400,000 people above the absolute poverty line in a generation. The ILO observed that "A reduction in poverty on this scale and within such a short time is unprecedented in history" (ILO World Employment Report 2004-05, p.156 http://www.ilo.org/public/english/employment/strat/download/wr04c3en.pdf).

It would be perverse to reject a growth process because it makes the rich richer, when it is also so successful at making the poor less poor.

Under Mao, it was bad governance which kept the peasants poor. I was there 13 years ago and the countryside still looked pretty poor, even though the cities were getting better, although overall, pollution was getting worse. They are probably doing better than the Indians economically, although the culture is completely different.

David

I would argue that we need tariffs on imports into Australia from those industrialising companies employing slave labour (China, India) to tilt the playing field back our way. One issue seemingly forgotten in an otherwise lucid article is that in its industrial heyy-day, and certainly during the 200 years of the industrial revolution from Walpole's time to 1914 the UK suppressed by brute force any claim of its workers for a fair day's pay for a fair day's work. Just like China and India today. Same state of affairs in the USA, when it was industrialising. Any economy can grow rapidly on the backs of slaves.

She'll be right mate. As long as we can export coal and iron ore to the Chinese, the Aussie economy will continue to charge along. It won't matter that all our manufacturing industries and farmers have gone out of existence. We can all live on welfare from the income generated by the miners.

That seemed to be the attitude of Howard and his merry men and Rudd thinks that the Aboriginals will all get up off their a88es and keep us after he has said sorry to them.

David

HenryVIII

No modern industrial economy has ever grown rapidly on the back of slaves – look at the differences in living standards in the North and South of the USA at the time of the civil war, echoes of which still persist today.

The freedom of workers to move into industries and locations where their labour is in most demand and attracts the highest wages has been an essential part of the process of improving living standards in every successfully industrialising economy, as it is today in China.

How do you expect third world countries to match first world wages when their average productivity – the volume of stuff typically produced by a worker – is a tiny fraction of what we can produce here, with our developed infrastructure, advanced technology, and educated workforce?

The choice for Chinese workers is not between their wage levels or our wage levels. It’s between the wages and conditions in their new industries – shocking and miserable as they are by our standards – and the conditions and wages they can eke out in those parts of China not yet exposed to the trade-driven development of the costal cities, where living standards are much worse.

This article by Paul Krugman exposes the moral vanity of those who want to “protect” foreign workers from exploitation by denying them the opportunity to improve their living standards:

http://hei.unige.ch/~baldwin/ComparativeAdvantageMyths/PraiseCheapLabour_PK.htm

VK3AUU:

The shift in Australian employment in the past two decades has not been from manufacturing to mining but from production industries (mining, manufacturing, agriculture) to services (finance, business services, health, community services, retailing) as it has been in pretty much every rich, developed economy. Again, this is driven by comparative advantage – concentrating on doing what we do relatively well and exchanging some of it for goods and services others produce relatively well (for example, cheap manufactures from China).

Australians’ real earnings are at their highest level ever, and unemployment at its lowest in a generation. This is much better than trying to preserve its economy as an industrial museum of textile workers or even chip manufacturers.

Rhian,
" The whole point of exporting is not to obtain foreign currency but to obtain the things that currency will buy – i.e. to import."
No cash profit motive? That is a totally unique and original argument.
As I recall, the Japanese in the sixties were very keen on gaining foreign currency; specifically American dollars.
I thank you kindly for the link to the Wikipedia article on comparative advantage. i particularly liked the example of the fit young man and the old man, and the "mutual" benefit they could provide each other. Clearly, however, the young capable person could not have been a Capitalist; with no altruistic motive what would -and always has- happen is that the old man would end up a virtual slave, no doubt constantly reviled for doing everything badly, and forced to live on scraps.
"...but it has also raised more than 400,000 people above the absolute poverty line in a generation."
400,000, in a country of 4,000,000,000. Very impressive.
"It would be perverse to reject a growth process because it makes the rich richer, when it is also so successful at making the poor less poor."
It would, however, make perfect sense in a finite world, with finite resources and finite real wealth, to reject a growth process which makes the rich richer, at the inevitable expense of the world's -current and future- poor.
grim@thecomensality.com