Does free trade breed poverty and pollution?

In the minds of some environmentalists, free trade ranks right up there with the Exxon Valdez as a despoiler of nature. A group called Global Exchange claims that free trade has caused poor countries to "cut down their forests, overfish their waters and exploit other natural resources." Says the Sierra Club, "Current trade rules are too often used to undermine environmental protection ... in the name of free trade."

That's one common indictment of globalization. Another popular one is the charge that expanded commerce among nations has put downward pressure on wages in Third World countries, aggravating income inequality and worsening the lives of the poor.

In the mythology of the left, this all fits together. Free trade, it's said, unleashes a ruthless cycle of competition that punishes both poor nations and rich ones, by forcing all into a brutal and debilitating competition. Poor nations that allow rampant pollution and ecological destruction can take industry away from countries which try to protect the environment. Places where workers toil for pennies can attract multinational corporations, which see big profits from paying starvation wages.

Socially responsible countries are forced to lower their standards to compete. The more trade there is across borders, the more intense the pressure. It's an endless race to the bottom that everyone loses.

But mythology, while it can produce entertaining tales, doesn't have to be rooted in reality, and most of the left's case against free trade is not. In fact, a growing body of evidence indicates that globalization advances the very goals it is accused of sabotaging.

The latest proof comes from a study published last year in the American Economic Review by economists Werner Antweiler, Brian Copeland and M. Scott Taylor. They looked at data on a major pollutant, sulfur dioxide, over the period from 1971 to 1996, when trade barriers were coming down and international commerce was expanding.

Environmentalists will be reassured to learn that countries which opened up to trade generated faster economic growth -- which, these scholars say, produced more pollution. But that was not the only effect. It turns out that as nations grow richer, they and their people demand a cleaner environment. The first result comes sooner, but for the vast majority of countries, the second one has been much more important.

"That effect becomes pretty dominant," says Antweiler, an economist at the University of British Columbia. As a general rule, "if trade liberalization raises gross domestic product per person by 1 percent, then pollution concentrations fall by about 1 percent." In other words, Antweiler and his colleagues conclude, "free trade is good for the environment."

Poor people may prefer pollution to starvation, but as their income rises, they no longer have to make that cruel tradeoff. The AER study, it should be noted, did find an exception to the rule -- communist countries, whose governments were not overly influenced by the desires of their citizens.

The claim that free trade will increase poverty and inequity also appears to be built on sand. It discounts the most important economic experiment of our time -- China's decision in 1978 to open up an economy that was among the most tightly closed on earth. Since then, World Bank economists David Dollar and Aart Kraay point out in a recent issue of Foreign Affairs magazine, "China has seen the most spectacular reduction of poverty in world history."

Over the last two decades, as trade has proliferated, the number of poor people in the world has dropped by 200 million, even as the earth's population rose. And countries that have liberalized trade have seen their average growth rates rise, while closed economies lagged.

Dollar and Kraay accept the prevailing view that in China, at least, progress against poverty has coincided with rising inequality -- that though the poor have gotten richer, the rich have gotten richer faster. If that were the price of progress against poverty, it would certainly be worth paying. But another study suggests that far from increasing income gaps, free trade shrinks them.

In a working paper for the respected National Bureau of Economic Research, economist Shang-Jin Wei of the International Monetary Fund and Yi Wu of Georgetown University looked at urban-rural earnings disparities in some 100 different cities in China and nearby rural areas. What they found was the opposite of what is claimed by critics of globalization: The more open the city is to trade, the smaller the urban-rural gap. "Globalization has helped to reduce, rather than increase, urban-rural income inequality," they conclude.

For a long time, many people on the left have said they're 1) against poverty and pollution and 2) against free trade. One of these days, they're going to have to make up their minds.

I am going to assume you mean well, but have simply not thought through some of the beliefs you have about free trade and global sourcing. Let’s take your first assertion and put in under the microscope:

”Free trade allows big companies to hire labor world wide. It becomes obvious that they hire the lowest cost labor. Right? Right! If they are paying less in labor costs per unit, then overall wages must be going down. Right? Right!”

Actually, free trade does not necessarily allow big, or small, companies to hire labor worldwide. It allows people to exchange goods across borders without excessive tariffs. However, to your point about outsourcing: let’s say FloridaCracker Inc. makes TV sets in Florida and pays assembly line workers $15 per hour. Finding that the price of its sets has to be $300 and the price of sets made in Taiwan is $200, FloridaCracker Inc. has a decision to make. It’s materials costs are already as low as the Taiwanese, but the labor component is too high. It offers its workers a 50% pay cut. It’s workers refuse, figuring they can get more elsewhere and begin practicing “want fries with that?”

FloridaCracker, Inc. - run by you - decides to go the Taiwanese one better. You have heard about the low labor costs in Uganda. Much lower than in Taiwan, Mexico, China, etc. Pollution laws? Never hear of them. So what do you do, Mr. Cracker, but move your assembly line, lock stock and barrel to Uganda. You labor costs have now dropped from $15x8x5=$600/week (+benefits) to $2. There’s lots of abandoned farms where you can set up your factory. People are starving so you have labor lined up outside your door. All of a sudden you can make TV sets much cheaper than they can in Taiwan. Right? Right?

But … but … You mean that there is more to making TV sets than choosing the location with the lowest labor cost and most permissive pollution laws? Who would have thought it?

Free Trade does not cause pollution and poverty.

Pollution is caused by people who are too careless or stupid to not cause it -- in general, in industry and manufacturing the less pollution an enterprise creates the more efficient and market-adapting it is. In the US our regulators rely on micro-managing and over-specifying solutions and limitations in such a way as to enable and even force bad management in the regulated businesses. That cost -- of poor regulation style -- imnho, overwhlems the price advantage 3rd world slavers get on wages and natural resource exploitation.

Still, as we practise it now, free trade DOES greatly enable and contribute to serious pollution in those slaver states.

"Poverty" will always be with us -- but the real issue is that "free trade" encourages states with immature non-free governments to become slaver states. It may be that this is the proper prograssion of states, but even if so, intelligent caring peoples in the mature, free states such as ours can and should take steps to ameliorate it. And ...

Most importantly we must protect our own free state. From what? Not from direct economic harm for economically who wouldn't, and all should, welcome lower prices on goods. Even from slavers. Even lost jobs are not the harm, for with our freedom and liberty we easily can best the production costs of slavers, should we try. And there's the rubstone, there's the true risk, the ever-present danger. There is a natural effect of dealing with slaver states that keeps us, our leaders and business executives, from trying. That blocks our industry's great advantages -- massive, almost unbeatable advantages -- our a free people, of economic liberty.

What is that danger, that strong poison? It is the unavoidable corrupting influence of the slavers, of dealing with the slaver states. That corruption is in direct and indirect forms. Direct bribes and "business benefits", indirect from our business leaders coming to take on the attitude that even we free men are like slaves, and the mismanagement there resultant. Both direct and indirect forms are strong poisons, unavoidable when slaver states and slavers are dealt with.

But slave states must be traded with! I wholeheartedly agree. How can it be done? Can it be done?

It can be done, it must be done. There is a simple and historically proven solution that provides protection from the poisons of trade with slavers.

Smuggling. We must allow for extra-legal smuggling.

The fines and financial penalities extracted from smugglers are better than tarrifs in dealing with slave states. And we can't completely prevent trade. Too forceful a ban corrupts the police and customs agents enforcing it.

Legal free trade with slavers corrupts our political class and our business leaders. Forceful trade bans corrupt our police. Only allowing for smuggling works.

Banning trade in products that are produced in slaver states while keeping the enforcement against smuggling at a low to low-moderate level serves both to minimize the poisons of corruption resultant from dealing with slaver states, while meeting the society building social requirement to deal with them.

A strong and lasting nation is made up of a great body of law-abiding people, in which there are always a number of outlaws, law breakers. For the government tand teh nation to long survive it is needed to keep the law-breakers out of the law making and enforcement.

That means -- as being a nation rich and ready to spend those riches -- allowing for a healthy but illegal industry of smuggling.

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