Bloggers World: Free Trade Dispute on Bahama Pundit

First Published: 2005-11-18

Larry Smith in his November 2nd column in The Tribune discussed "the internet and the growing power of the blog." His discussion of this new phenomenon was comprehensive including its virtues and limitations.

A good illustration on how a "Blogging" works is the following "posting" made recently on the Bahama Pundit website. This posting is the latest in an exchange of comments following "On Why Free Trade Isn't Free", an article originally entered into the website by one of its contributors.

A Pundit in a posting dated November 4th stated that my comments of October 28th did not "prove my position is erroneous; rather, they seem to reinforce it."

This is an amazing conclusion and warrants further comment.

1.) "In pure theory Communism is as democratic as the American electoral system." (Bahama Pundit).

This comparison is so narrow that it is without substance. The valid comparison is 72-years of Communism in Russia versus 229-years of Democracy in the United States.

"The catastrophe of Communism included the creation of a totalitarian state; the reintroduction of slave labor on an epic scale; and politically induced famines and government created poverty of unprecedented proportions; political purges and mass executions resulting in the deaths of an estimated 100 million people." The absolute horror of the Russian experience can be grasped in the work of Aleksander Solzhenitsyn or in the callous statement attributed to Josef Stalin "The death of one person was tragic, the death of a million a mere 'statistic'."

According to its founders, Communism was a state where all classes were absorbed into the "proletariat" and the state withered away. It was the utopia envisaged by Karl Marx that historically followed from Capitalism and Socialism. This utopia proved to be an illusion that unfortunately captivated liberals of the West for decades; in practice the state did not wither away; and after 72 years Communism failed completely.

Pundit's statement ignores this history and trivializes both the Communist and American experiences.

2.) "If your economy is not a producer [of computers, telephones, satellites and programmes] you have begun at a disadvantage, and your trade can't be free." (Bahama Pundit).

This statement has two dimensions: the conditions for growth and the wisdom of free trade. With regard to the first, my original statement contended that Ireland was a good example of what is possible for a small underdeveloped country.

Ireland is a small island country that experienced poverty and starvation on a massive scale in the mid 19th century and achieved independence in 1922 after a 3-year guerilla war with Great Britain. After 1960 it reformed its education system. At that time Ireland did not provide universal secondary education and its tertiary system was limited. In the 1970s it aggressively courted foreign investment in high tech companies in Ireland. It provided them with a unique investment environment that included one of the best educated populations in Europe. It succeeded admirably; it got a high-tech light manufacturing base; and it became the center for financial services in the European Union. In the 1980s Ireland also conquered a crippling tendency to fiscal irresponsibility. In one generation it went from the poorest country in the European Union to the most prosperous.

This seems to support the proposition that, for the Bahamas, Ireland is one good example of what is possible.

Ghana & South Korea. One can also find clues about the "conditions for growth" by looking at pairs of countries. With a real sense of drama one can contrast "resource rich" Argentina and "resource poor" Japan after World War II.

Samuel Huntington, a Political Scientist from Harvard, uses two countries that had similar natural resource endowments:

"In the early 1990s, I happened to come across economic data on Ghana and South Korea in the early 1960s, and I was astonished to see how similar their economies were then. These two countries had roughly comparable levels of per capita GNP; similar divisions of their economy among primary products, manufacturing, and services; and overwhelmingly primary product exports, with South Korea producing a few manufactured goods. Also, they were receiving comparable levels of economic aid.

"Thirty years later, South Korea had become an industrial giant with the fourteenth largest economy in the world, multinational corporations, major exports of automobiles, electronic equipment, and other sophisticated manufacturers, and a per capita income approximating that of Greece. Moreover, it was on its way to the consolidation of democratic institutions. No such changes had occurred in Ghana, whose per capita GNP was now about one-fifteenth that of South Korea's.

"How could this extraordinary difference in development be explained? Undoubtedly, many factors played a role, but it seemed to me that culture had to be a large part of the explanation. South Koreans valued thrift, investment, hard work, education, organization, and discipline. Ghanaians had different values.

_ Samuel Huntington concludes "In short, cultures count."

_ Thomas Friedman, the New York Times journalist, claims that these elements cannot be defined; he simply calls them "the intangible things."

_ Orlando Patterson, a Harvard University Sociologist, states that "Culture is a repertoire of socially transmitted and intra-generationally generated ideas about how to live and make judgments, both in general terms and in regard to specific domains of life."

The point is that these basic factors facilitate constructive societal change and should be discussed and highlighted.

3.) "To compete, we make other nations richer, because we don't control the basic materials and objects (and…skills, and attitudes, though we have more control over them) needed to become competitive." (Bahama Pundit).

This statement in part is based on the fallacy that, when two parties exchange goods and/or services, it is not likely to be a win-win exchange for both parties since one is inevitably more "powerful." For Pundit this takes on even greater meaning if one of the parties is a foreign-owned corporation, hence the conclusion that trade makes "other nations richer." This is an "accepted" and "popular" assertion that has its roots in the economics of Karl Marx and not Adam Smith and his successors. Pundit does not provide evidence to support the assertion whereas the undersigned did so with an "Alternate History of Free Trade."

Furthermore, the underdeveloped nation can "control" its intangibles if it has the national will.

The World Bank's Latin American and Caribbean Studies Group in a recent study "Closing the Gap in Education and Technology" builds on the concept of "Human Capital", these are investments in human resources that improve productivity. The Group develops the theory that there is a strong interaction between Human Capital (the quantity and quality of the knowledge base) and a society's ability to absorb foreign technology; to adapt and modify that technology; and then to create new technologies. The success of this process is a key ingredient to economic growth. Taking refuge in "popular" assertions only diverts attention and energy from the more important tasks at hand.

References:

I David Horowitz, Unholy Alliance, Regnery, 2004, page 55.

II Martin Amis, Koba The Dread: Laughter And The Twenty Million, Talk Miramax Books, New York, 2002.

III The MIT Dictionary of Modern Economics, The MIT Press, 1999, page 69.

IV Samuel P. Huntington, "Cultures Count", in Culture Matters: How Values Shape Human Progress, Edited by Lawrence E. Harrison and Samuel P. Huntington, Basic Books, 2003, page xiii.

V Thomas L Friedman, The World Is Flat: A Brief History of the Twenty-First Century, Farrar, Strauss and Giroux, 2005, p. 330.

VI Orlando Patterson, "Taking Culture Seriously: A Framework and an Afro-American Illustration", page 208, in Culture Matters.

VII David De Ferranti et all, "Closing the Gap in Education and Technology", The World Bank Latin American and Caribbean Studies Group, Washington, D.C., 2003, page 1.

Ralph J Massey

The Nassau Institute

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