16A012 Trade, Free and Managed by Jim Davies, 4/5/2016    


The current brouhaha about job "exportation," which has given Donald Trump such an advantage with voters who resent the loss of theirs, reminds us of the need to try to clarify what the heck has been going on.

Blame is heaped, by the many commentators who do not know their economic backsides from their elbows, on employers who capriciously close a factory here and open one in Mexico. That's wrong. If you owned such a factory, why on Earth would you do that? - you'd know the importance of close, day to day control of what's happening on the shop floor, so why move it all to a land whose customs and culture you don't know, whose language you can't speak?

Here's a shot at understanding the reasons.

Over many decades, labor in the United States became prohibitively expensive. The choice for employers was to reduce that large component of the cost of goods sold, or to go broke. Naturally, many of them picked the former, and did it by moving where labor was cheap. Here's why US labor became so costly.

One: Unions were favored by government laws. We need not delve into detail; the union claims are clear enough, we need only believe them. The claims are that by joining a union, an employee can secure better pay and conditions than by negotiating on his own. This is a true and well justified claim, and the result is that employers were paying more than the true market price for the labor they hired, exactly as the union recruiters had promised. The result of that is that American-made goods became uncompetitively expensive.

Two: other government laws, not necessarily lobbied for by unions but always by voters, required employers to provide a range of benefits to their workers extra to their wages. A forced "contribution" to their "Social Security" benefits, for example. A range of "occupational safety" regulations had to be observed, and all of them costing money. More recently health insurance had to be provided, at large and rising cost. Minimum wage rates have been mandated, recently sometimes rising to an absurd $15 an hour. And of course punitive taxes, especially the corporation tax, highest rate in the world, add to the employer's costs. His business model might produce goods or services competitive on the world market if he paid workers a market rate of $X, but these many factors combined with union pressure to force the expenditure of $2X or $3X.

So he did the rational thing, and moved South - or stopped manufacturing altogether, sometimes importing equivalent merchandise from Asia and becoming a sales agent. It's not easy these days to find American made shoes or textiles, and the auto trade, once the envy of the world, is a basket case only too well known.

But he didn't do this out of dislike for American workers, nor out of lack of patriotism. The blame lies squarely upon government, with unions close behind.

Now, in the case of a factory that was relocated to Mexico to take advantage of low labor rates, most of its output might be shipped North again for sale on the US market; and prior to the NAFTA agreement there might be an excise tax levied at the entry port. That would take away part of the employer's advantage; he'd save on wages, but lose on import taxes. So the inter-government agreements of the 1990s canceled those taxes, and were cleverly named "Free Trade" to help sell the arrangement to voters. The trade was managed, not free; as usual, government people lied.

The lie was subtle, though. Government was certainly responsible for throwing Americans out of work, but not by canceling import taxes; the causes were those listed above, and the "Free Trade" deals were merely necessary to keep the scam going. The scam, that is, of ensuring that American workers (those that remained employed) enjoy a higher living standard than they earn, courtesy of government participation. The scam has worked; today, the blame for lost jobs is placed not on government and unions where it belongs, but on "Free Trade." Even Trump, who ought to know much better, appears to swallow this lie when he promises to impose heavy taxes on imports from Mexico, while in the same breath he claims he favors free trade. Sure.

What, then, is genuine free trade, such as will prevail in the coming zero government society? Very simply, none of the government interferences noted above will occur, for it will not exist.

There may well be associations of people called "unions" that offer services at rates attractive to those needing to hire help; but in no way will they be compelled to accept those offers if they prefer some other; and if one does accept them, the union will not be able to hide behind some immunity law if it fails to deliver the service contracted.

There may very well be employers who offer attractive benefits (health insurance, safe and pleasant working environments, paid time off, etc) so as to attract the best qualified staff - but nobody will force them to do so if they prefer to hire on the cheap, or to pay a high wage with few "benefits", so leaving the employee free to spend what he earns any way he wants.

And there will of course be no interference with what wage is agreed freely by both parties; thus everyone who wants one will have a job, for there is always some price that clears the market. Unemployment will therefore be zero, and the social benefits of that in areas where "the devil finds work for idle hands" of ill-educated youths whose skills are nowhere good enough to reward employers forced to pay a minimum rate, will be enormous.

Such freedom will make the Former USA the most competitive producer in the world, and hence boost living standards to unprecedented highs. The main difficulty people will have will be in understanding why we waited so long to live without the parasite of government.






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