Sunday, November 26, 2006


Today I heard on the local radio a social activist who presented an anti-globalization discourse and a plea. He asked that we fashion our consumption behavior by considering such issues as the exploitation of poor workers in developing economies. As it is, we over-consume. He gave an example of sports shoes for which we pay upwards of US$ 100. In the developing country where the shoes are manufactured, the workers who labored on the production of these shoes were paid about 25 US cents.

I was reminded of a story I heard many years ago from my economist father. While on an official visit to Indonesia he started walking from his hotel to some meeting place, a distance equivalent to 10 minutes walk. His host suggested that they mount a man-pulled rickshaw as a good alternative. When my father refused to be pulled by a skinny, bare-footed old man, the host suggested that if he does not allow the man to pull him the old man will starve.

Another argument that is frequently brought against removal of trade barriers is that ex post trade the process of adjustment in sectors that need to be reduced in size accelerates and will be very costly. The dislocation will affect a large portion of the labor force.

During a short visit in Canada on the eve of the implementation of NAFTA (North American Free Trade Agreement) I met a friend who owns a car parts manufacturing plant in Toronto. He was very apprehensive about the possible impact of NAFTA and speculated about moving his plant to the USA, closer to his market. Today, my friend's plant employs upward of 1,500 workers – a threefold increase.

Similar arguments are often made within countries. In Israel there exist massive subsidies of manufacturing activities that are located in the peripheral regions of the country. Generally, the plants take advantage of the subsidies in place of moving the activities offshore. Often, the activities are on the verge of closing. It is true that the plants create jobs. However, investment in human capital and training programs for the local population would create a more fundamental impact on the peripheral economies by creating an economy that is similar to the economy in the developed parts of the country.

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