A sticky Saturday in my backyard. The kids are gushing sweat like two BP wells.
“Ok. I’ll go to Wal-Mart and buy a swimming pool.” Across the fence, my neighbour Stephanie is sunbathing. She jumps up. “Wal-Mart? They get their stuff from workers paid $1 an hour in foreign countries while people here are losing their jobs!”
Here we go again …
Stephanie was probably at the G20 summit throwing stones at police last week. She has good intentions, but a poor understanding of economics.
“Stephanie,” I say. “You focus on one visible aspect of free trade, and ignore other crucial effects.
“Suppose Ben gets a bicycle from Jerome for $100. Suddenly, Canada opens up to international trade. Ben can now buy an Indian bicycle for $20. Four things happen:
1- Ben is $80 richer. With this money, he can stimulate jobs in other Canadian businesses.
2- Jerome is $100 poorer — at most. He can try to match his competitor’s price, or leave the bicycle business. For now, he goes out into the street and screams anti-free trade slogans.
3- Julia, an Ontarian unable to afford a $100 bike, can now get one for $20.
4- Baijk, an Indian, earns a living working in a bicycle factory.
Of the four effects, only the second is bad for Canadians. And it’s more than outweighed by the other three.
Stephanie doesn’t budge: “You economists just look at numbers. What about poor Jerome?
“We could compensate him. For example, we could take $50 of Ben’s new wealth and give it to Jerome. When the pie gets bigger, everyone can get a bigger slice.
“But, in India, a factory with no minimum wage exploits Baijk while polluting the environment!”
“True. But nobody forces Baijk to work in that factory. He chose to work there because his other options — prostituting himself or scavenging scrap metal from mountains of trash — are worse to him. The hard truth is: The only way Baijk can earn a better wage is if more multinationals like Wal-Mart compete to ‘exploit’ him.
“And remember: 100 years ago, Canadians had neither minimum wage nor environmental standards. We were poor and couldn’t afford such luxuries. Arguing against free trade on this ground denies poor countries the same development path we followed.”
Stephanie has heard enough. She picks up her Naomi Klein book, and resumes sunbathing. Economics is senseless and boring, she says.
I know. Now let’s go get that swimming pool.
Hat tip to Steven Landsburg, for the inspiration.
David Descôteaux is a Researcher at the Montreal Economic Institute.