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Globalization, comparative advantage, and the decline of America

I previously published an essay, From Information Economy to Marketing Economy, where I explained how the workforce is shifting to favor jobs involving marketing. That essay was meant to be informative, and not an editorial.

This post is an editorial. After thinking about free trade and globalization for several months, I have decided that I am against it, and that America needs to put a stop to it at once, otherwise our economy will rapidly decline and we will no longer be the world’s superpower. We may have already reached the point of no return where it’s too late to prevent this from happening.

Those who favor free trade and globalization usually speak in terms of comparative advantage. America does what America is good at, other countries do what they are good at, and everyone benefits.

The problem here is that free trade proponents ignore the real source of comparative advantage. They assume that it’s America’s God given right to be better at something than the rest of the world. But being better at something doesn’t happen by itself, it requires investment in America. Unfortunately, all the investment is now happening outside of America.

If there is a car factory in the United States, but no car factory in Malaysia, then the United States has a comparative advantage in car manufacturing compared to Malaysia. It may more properly be called an absolute advantage if Malaysia doesn’t have any means to produce cars. However, as soon as you put up a car factory in Malaysia, then suddenly America no longer has the comparative advantage. Now Malaysia has the comparative advantage because the workers in the Malaysian factory will get paid a lot less money than American workers, so the same car will cost less money to manufacture in Malaysia.

Based on the above example, it’s easy to see how we are losing all of our manufacturing industries to foreign competition. America used to be the world’s manufacturing powerhouse because the factories were located here. Now that the factories have moved overseas, we no longer lead the world in manufacturing.

What’s not so easy to see is how we are losing our information industries as well. Just as a car factory is a resource that can give one nation an advantage over another, so is an educated, trained, and experienced workforce. When there is a group of engineers who know how to design computer chips in the United States, and no such group of engineers in China, then the United States has a comparative advantage in computer chip design.

Unfortunately for the United States, big corporations are happily opening up computer chip design centers, and anything else you can think of, in countries such as China or India where the labor is cheaper. We are creating the skilled workforce in foreign countries that will cause the United States to lose its comparative advantage in all significant industries.

People who argue in favor of free trade will point out that despite losing various American industries to foreign production, our economy has done very well and we are still the richest nation in the world. Yes, this is true, but only because we were able to give up some of our industries to foreign nations still have a powerful economy. We can’t give up all of our industries and expect to have a powerful economy. Yet this is exactly where I see the United States headed. We are giving up our comparative advantage in every conceivable industry.

Contributing to the illusion that the United States is still on top is the fact that a lot of the sources of production in foreign countries are owned by Americans. For example, Motorolla opens up a plant in a foreign country, and Motorolla owns the plant and keeps the profits. These profits go to Motorolla’s shareholders and corporate officers. This money trickles down to average people via the marketing economy, so it seems like everyone is benefiting from this (except for the laid off engineers, but hey it serves them right for not foreseeing this occurrence when they went to engineering school, right?).

The best case scenario, with all the sources of production in foreign countries, is that the foreign workers will learn exactly how to operate such sources of production, and will use their knowledge to open up their own competing businesses. The worst case scenario is that a foreign government will confiscate the sources of production, or just start taxing them so heavily that they are no longer profitable, unless converted into foreign owned sources of production. We are just downright stupid if we think that foreigners will happily allow factories and knowledge centers in their own countries to continue to make Americans rich when they could be getting rich from them instead.

The reason why nothing is being done stop the decline of our economy is that there is an unholy alliance of big business and liberals who are happy with the status quo. Big business is happy to be increasing their profits at the expense of American workers losing their jobs. The salaries for CEOs at big corporations have never been higher. They are making tens of millions of dollars a year; they couldn’t be happier.

Liberals favor globalization because they hate America, and they are happy to see America’s world pre-eminence decline in favor of more deserving underdog nations. The liberal feels great guilt that he is rich while the rest of the world is poor. By making the world more egalitarian, increasing the wealth of poor third world nations, but decreasing the wealth of America, the liberal feels less guilty.

Because liberals control the Democratic party, and big business usually has strong control over the Republican party, there is no impetus in Washington to do anything about the problem of globalization. When someone speaks out about the problem, and Pat Buchanan comes to mind here, he is branded as an “extremist” and is ignored.

One day soon, America will wake up and discover it’s no longer a world leader in business, but more like a third world nation with a few rich corporate executives, a middle class much smaller than the one we have now engaged mostly in marketing activities, and a large teaming mass of low paid service workers, many of them immigrants from the very countries to which we are exporting our jobs and our comparative advantage.

posted Tuesday, February 10, 2004