Business in the Global Community; R. McGee

THEFREEMAN IDEASON LIBERTY BUSINESS IN THE GLOBAL COMMUNITY by Robert W. McGee E conomic nationalism is on the rise. Hardly a day passes without an article or two about the disharmony that trade causes. French farmers insist they should be protected from foreign fruits and vegetables and ask for a special GATT provision to protect themselves. The French film indus try insists on quotas on American-made films in order to protect French culture. French fishermen rampage through the streets of Marseilles destroying containers of foreign fish, thus violating the property rights of business owners. American sugar interests lobby Congress to give them sub sidies so they can charge three or four times the world price for sugar, a policy that de stroys the sugar industry in the Caribbean. Japanese high-tech companies, auto man ufacturers, and steel companies are accused of "dumping" their products on our mar kets. The language takes on sinister tones, as when some domestic producer accuses a foreign producer of "invading" the domes tic market with low-priced products. In recent months, our government has been "talking down" the dollar in relation to the yen, making it more expensive to buy any Japanese good. Recent articles have said Dr. McGee teaches at Seton Hall University. He is co-compiler, with Bettina Bien Greaves, of Mises: An Annotated Bibliography (FEE, 1993).

that the present dollar-yen exchange rate makes it impossible for the average Japa nese exporter to make a profit in the United States, which is one reason for the decline in the Japanese economy. Trade barriers in the United States, such as tariffs, quotas, and anti-dumping laws, make it impossible for Latin American flower growers to sell their products profit ably in the United States, giving them the incentive to grow marijuana or opium pop pies instead. Textile protectionism in the United States has caused hundreds, if not thousands, of small Asian textile companies to go out of business because of our tariff and anti-dumping policies. All of these restrictive trade policies re duce social harmony and invite retaliation. Wherever such economic nationalism oc curs, it breeds conflict. A policy of free trade can counteract nationalistic tenden cies, reduce disharmony, overcome petty prejudices, and raise the standard of living for the vast majority of the world's popula tion.

Free trade exists only where there are no barriers to voluntary exchange. In a world of tariffs, quotas, "voluntary" restraints, and anti-dumping laws, it cannot be said that free trade exists. The Benefits of Voluntary Exchange Voluntary exchange has the effect of breaking down barriers, increasing toler ance, and reducing economic nationalism. It destroys provincialism and replaces paro chial attitudes with a more global outlook. Young Iranians who drink Coke and watch American videos (even when their govern ment spews forth anti-American propa ganda) can see for themselves that America is not the evil place their leaders say it is. The invasion of American jeans, videos, and other products played a substantial role in the crumbling of the Berlin Wall and the Iron and Bamboo Curtains. Western televi sion broadcasts and products gave captive nations a realistic look at the West, which made it increasingly difficultfor leaders to 377 378 THE FREEMAN • JULY 1994 spread lies about capitalism and the non Communist world.

One facet of economic nationalism is the belief that doing business with foreigners is somehow unpatriotic, un-American, un French, or un-whatever. Governments and special interest groups would have us be lieve that it is better to buy a shoddy, domestically made product at a high price than a lower priced, better quality, foreign product. But consumers, for the most part, reject this line of reasoning. Acting in their own self-interest, consumers buy what they want from whomever they want. Most of them don't care who made a product or where it was made. They simply want the best goods they can find for the prices they can afford. Free trade allowsthem to do this. What is good for individual consumers is good for the country, too. Although it is not usually the intent of consumers to in crease the wealth of their country by making purchases, the effect is just that. The pur chases they make increase the business volume of the companies that sell them products, thus expanding profits and em ployment. The fact that some consumers might purchase foreign products instead of domestically made products does not change this result.

The Seen and The Unseen Protectionists claim that allowing con sumers to buy foreign-made products causes unemployment at home. And that is true, to a certain extent. If a consumer is permitted to buy a Japanese car, Detroit loses a sale. If enough customers purchase Japanese cars, Detroit automakers willhave to layoff some employees. That is what is seen. But what is not seen is the effect that buying a foreign car has on all other seg ments of the economy. If a consumer can save $2,000 by pur chasing a Japanese car instead of an Amer ican car, he is better off. Not only will he have the car he wants, but also $2,000 to spend on other things. The Japanese auto dealer (who is located in the consumer's town and who employs local people) also gains from the exchange. The employees who work for the auto dealer will be able to continue working because of the demand for their employer's product.

Other industries also benefit. If the con sumer can save $2,000by buying a Japanese car, he can spend the extra $2,000 on any number of other things. He can take his family on a vacation, which benefits restau rants, motels, airlines, and so forth. Or he can buy clothes or put on an addition to his home, which benefits local businesses. Even if he puts the $2,000 in the bank, someone benefits because the bank has more funds available to lend to someone else who might want to put an addition on their home or buy an automobile. The problem is that the purchases he makes with the extra $2,000are not easy for economists or politicians to see. Allthey see isjobs being lost in De'troit. They do not see the jobs that are being created in countless other industries because free trade allows consumer resources to flowto the areas they deem to be of highest value to them. Studies done by the Institute for International Eco nomics and others have found that protect ing a domestic industry by raising a tariff, implementinga quota, or having a voluntary restraint agreement with some country ac tually destroys more jobs than it saves.

Although some tariff or quota might save 20,000 jobs in the auto industry, it also destroys 30,000 or 40,000 jobs in other industries, or prevents them from coming into existence. Some studies show that the job loss/gainratio is more than three-to-one, which means that for every 10,OOOjobsthat are saved because of some protectionist policy, more than 30,000 jobs are lost or never created. Protectionist policies do not enhance so cial harmony, they reduce it. Special interest groups use the force of government to do what they themselves cannot do with out committing a crime-rob consumers of a portion of their purchasing power. Free trade does just the opposite. It allows con sumers to buy the products of their choice at whatever price they can find in the interna tional· marketplace. The spread of trade PEACE, POLITICAL SCIENCE, AND PEDAGOGY 379 results in a higher standard of living for the vast majority of the population. As individuals become more familiar with the products of other countries, they tend, over time, to change their opinions of foreigners.