Free Trade, Fair Trade, Outsourcing and the Future

Analyze free trade, fair trade, outsourcing and the future of (types of and well-paid) employment in the United States. Can America sustain economic leadership without maintaining a critical mass of manufacturing employment, producing ‘real’ things?

    Since the beginning of time man has had to decide what to produce, how to produce, and what to consume in the process. Factors of production (land, labor and capital) are the building blocks of an economy, and different methods of managing factors of production move in an out of popularity. In general there are two schools of thought: 1) free trade, capitalism, or market economy, and 2) fair trade, communism, socialism, or social responsibility. Differing economic well being, and subsequently differing levels of prosperity, poverty and personal income, combined with a global trend toward economic integration lead to clashes between differing schools of economic thought, and debates over the role of sovereign governments, corporations, individuals, and international governing bodies like the United Nations. Two of the disagreements concern the domestic and foreign dimensions of outsourcing, and the future ability of today’s leading economies, like America, to stay leading economies as jobs migrate from high priced labor pools to low cost labor pools.

Free Trade

    Free Trade begins with free individuals; individuals who make individual choices about what to produce, how to produce, and what to consume in the process. “If one wishes to advocate a free society – that is, capitalism – one must realize that its indispensable foundation is the principle of individual rights. If one wishes to uphold individual rights, one must realize that capitalism is the only system that can uphold and protect them.”[i] In other words, to insure individuals are able to make free choices, and subsequently conduct free trade, they must possess rights. “A ‘right’ is a moral principle defining and sanctioning a man’s freedom of action in a social context. There is only one fundamental right (all the others are its consequences or corollaries): a man’s right to his own life.”[ii] “The right to life is the source of all rights – and the right to property is their only implementation. Without property rights, no other rights are possible.”[iii] Individuals with rights, protected in the form of property rights, have the ability to benefit from factors of production, and if conjoined by consent into a larger social entity can benefit from Smith’s “invisible hand” and Ricardo’s comparative advantage. “Individual rights are the means of subordinating society to moral law.”[iv] “The most profoundly revolutionary achievement of the United States of America was the subordination of society to moral law.”[v] “In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business.”[vi] The owners and employees protected equally in their right to life, and their ability to participate in government, but the owners obtaining a higher share of the wealth obtained or created.

Fair Trade

    Fair Trade begins “[a]s a matter of consistency, a person who recognizes that he or she is a moral being should ascribe dignity to anyone who, like him or herself, is a moral being.”[vii] Moral beings with a higher portion of the factors of production have a duty, noblesse oblige, to the less fortunate. “For example, Kant famously argues that a wealthy person has a duty of charity that an impoverished person lacks”[viii] Corporations, a conglomerate of individual moral beings “[a]t a minimum, [multinational enterprises] have a duty to ensure that their offshore factories, and those of their suppliers and subcontractors, are in full compliance with local laws,”[ix] and share wealth created among the stakeholders in society. The focus of fair trade is not on enhancing the wealth of owners of the factors of production, but sharing increased wealth with all of the members of a society. Members of a Fair Trade society surrender individual rights to the collective whole, allowing the whole to decide what is in the best interest of the collective. Productivity is increased because “workers whose minimum daily caloric intakes are met, and who have basic non-food needs met, will have more energy and better attitudes at work; will be less likely to come to work ill; and will be absent with less frequency.”[x] Fair trade advocates argue “that the reason for paying returns to owners is not that they ‘own’ the firm, but that their support is necessary for the survival of the firm, and that they have a legitimate claim on the firm.”[xi] Customer in a fair trade society benefit because “given the level of reinvestment of earnings in large corporations, customers indirectly pay for the development of new products and services.”[xii]

Contrary Point of View

    Detractors of the Fare Trade doctrine point out that “Of course, the corporate executive is also a person in his own right. As a person, he may have many other responsibilities that he recognizes or assumes voluntary – to his family, his conscience, his feelings of charity, his church, his clubs, his city, his country.”[xiii] “If [there] are ‘social responsibilities,’ they are the social responsibilities of individuals, not of business.”[xiv] An executive partaking in a socially motivated act “becomes in effect a public employee, a civil servant, even though he remains in name an employee of a private enterprise.”[xv] Detractors also point out that “[Fare Trade] does not differ in philosophy from the most explicitly collectivist doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means.”[xvi]
    Detractors of Free Trade view Free Trade as a coercive ideology, advocating the subjugation of the less fortunate, and thus less protected, to the will of the fortunate for the purposes of enhancing the wealth of the fortunate.

Outsourcing

    “The most critical problem facing the U.S. – and all developed countries – is the aging of the population, which impacts not only our trade balance but also the viability of Social Security and Medicare. Aging will also influence the value of all our assets, including stocks, bonds and real estate.”[xvii] “A self-sufficient economy needs enough workers to produce goods that will be consumed not only by the workers and their families, but also by all the elderly. Historically this has never been a problem, since the young have always greatly outnumbered the old.”[xviii] With the baby-boom generation retiring the number of workers will become greatly outnumbered by the number of retired. The “communications revolution”[xix] corrects what would otherwise be a disaster because “the age profile of [the] developing countries is very young, in contrast to the developed world.”[xx] The result is a larger economy where goods are imported to developed economies, and funds are exported to developing economies. If some migration of jobs is necessary (and perhaps profitable for developing economies) why is outsourcing viewed negatively? “While economists argue whether technology, globalization, deregulation, or changing social mores are most to blame for the widening trade gap between economic winners and losers, the public has no such doubt, It’s far easier for an American worker to damn the Chinese for his falling wages than to damn the personal computer in his den.”[xxi]

The Future

    In the future a countries ability to advance will not be limited by growth in its food supply as once advocated by Malthus, nor by the flight of manufacturing jobs from an advanced economy, a fear today. “National prosperity is created, not inherited. It does not grow out of a country’s natural endowments, its labor pool, its interest rates, or its currency’s value, as classical economics insists. A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.”[xxii] As long as America, or any other large economy, continues to lead in the realm of innovative ideas, it maintains its ability to remain a leading economy. The advantage of innovating in a capitalist society is the advantage of profiting as the owner of the innovation without sharing wealth with the collective; a strong motivation.


[i] Ayn Rand, “Man’s Rights,” Capitalism: The Unkown Ideal, (New York: Signet, 1967) 320
[ii] Ayn Rand, “Man’s Rights,” Capitalism: The Unkown Ideal, (New York: Signet, 1967) 321
[iii] Ayn Rand, “Man’s Rights,” Capitalism: The Unkown Ideal, (New York: Signet, 1967) 322
[iv] Ayn Rand, “Man’s Rights,” Capitalism: The Unkown Ideal, (New York: Signet, 1967) 320
[v] Ayn Rand, “Man’s Rights,” Capitalism: The Unkown Ideal, (New York: Signet, 1967) 321
[vi] Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits”
[vii] Denis G. Arnold, Norman E. Bowie, “Sweatshops and Respect for Persons,” Taking Sides Clashing Views in Business Ethics and Society, 9th Edition, ed. Lisa H. Newton and Maureen M. Ford (Dubuque, Iowa: McGraw-Hill, 2006) 331
[viii] Denis G. Arnold, Norman E. Bowie, “Sweatshops and Respect for Persons,” Taking Sides Clashing Views in Business Ethics and Society, 9th Edition, ed. Lisa H. Newton and Maureen M. Ford (Dubuque, Iowa: McGraw-Hill, 2006) 335
[ix] Denis G. Arnold, Norman E. Bowie, “Sweatshops and Respect for Persons,” Taking Sides Clashing Views in Business Ethics and Society, 9th Edition, ed. Lisa H. Newton and Maureen M. Ford (Dubuque, Iowa: McGraw-Hill, 2006) 337
[x] Denis G. Arnold, Norman E. Bowie, “Sweatshops and Respect for Persons,” Taking Sides Clashing Views in Business Ethics and Society, 9th Edition, ed. Lisa H. Newton and Maureen M. Ford (Dubuque, Iowa: McGraw-Hill, 2006) 346
[xi] R. Edward Freeman, “Stakeholder Theory of the Modern Corporation”
[xii] R. Edward Freeman, “Stakeholder Theory of the Modern Corporation”
[xiii] Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits”
[xiv] Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits”
[xv] Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits”
[xvi] Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits”
[xvii] Jeremy Siegel, “The Way We Live Now,” The Wall Street Journal, (January 26, 2004) A14
[xviii] Jeremy Siegel, “The Way We Live Now,” The Wall Stree Journal, (January 26, 2004) A14
[xix] Jeremy Siegel, “The Way We Live Now,” The Wall Street Journal, (January 26, 2004) A14
[xx] Jeremy Siegel, “The Way We Live Now,” The Wall Street Journal, (January 26, 2004) A 14
[xxi] David Wessel, “As Globalization’s Benefits Grow, So Do Its Skeptics,” The Wall Street Journal, (March 29, 2007) A6
[xxii] Michael E. Porter, “The Competitive Advantage of Nations”