File spoon-archives/marxism-international.archive/marxism-international_1997/marxism-international.9710, message 31

Date: Fri, 3 Oct 1997 21:48:11 -0400 (EDT)
Subject: M-I: "Tiger Economies" show limits of free trade ideology

Roxanne wrote (in June!):

>Typically, economists have liked to see growth in terms of the classical
>production factors -- labor, capital, technology and natrual resources  --
>being combined to create output.  Differences in competitiveness were
>supposed to be the result of differences in factor endowment...But, in
>today's world, are these factor differences really relevant?  Capital now
>flows freely everywhere, with developing nations having the advantage while
>bankers rush in with the offers of cheap loans...The technology for
>producing most basic is now readily available, if not from textbooks then
>from direct investment, which now flows as freely as capital into
developing >economies...

Precisely.  In today's world two factors -- and two factors only -- decide
manufacturing competitiveness.  They are the cheapness of one's labor and
the quality of one's infrastructure.  Infrastructure here is defined in the
widest possible terms to include not just roads and bridges, but all social
and physical factors, including such things as parts makers and suppliers,
ancillary industries, bureaucratic skills, "good government" (one that does
the bidding of investment capital with a reasonable degree of stability and
predictability), communications, education systems, a docile and skilled
work force, and so on.

The crisis in the Southeast and East Asian "tiger" economies prove the
tentativeness of the free market model in Asia.  Their economies, as it
turned out, were quite fragile, their "gains" simply the result of adding
labor to capital without any real technological or capital deepening input.
Initially, the developing economies of Malaysia, Indonesia and Thailand had
the ideal situation -- rapidly falling infrastructure costs and slowly
rising labor costs.  Profits rose rapidly and more investment flooded in.
But when the cheap labor pool runs out, that same flood of investment
guarantees rapidly rising labor costs, to the point where the rate of
increase in labor costs has easily come to exceed the rate of decrease of
infrastructure costs.

This is what we are beginning to see in Southeast Asia today, particularly
as these economies begin to come into competition with economies like those
of China, Vietnam, and India, where infrastructure is improving rapidly
without any great corresponding rise in labor costs.

Japan, Singapore, Taiwan, and South Korea have, accordingly, moved out of
labor intensive industries while continuing to upgrade their infrastructure,
all with varying degrees of success.  

The lesson from all this, in my view, is that the WTO, APEC, and other
free-trade promotion schemes are simply futile in this regard.  For example,
experience has shown that "backward" nations can only break the vicious
circle of underdevelopment if they heavily protect domestic industry during
early growth stages.      

Current free-trade theories are based on 19th century concepts of fixed
labor advantages.  In today's two-factor world, factor advantages are highly
unfixed.  Free trade between economies with roughly similar labor and
infrastructure costs make sense.  Otherwise, free trade fails remarkably as
an equilibrating force.  On the contrary; it can be quite the opposite.

Louis Godena 

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