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As an ardent fan of Capitalism, I see its virtues every day and see how it has been one of the single greatest forces for human good that has ever existed in the world. I know that Objectivists also view laissez faire as something to be defended and promoted. Clearly global trade is something at the heart of Capitalism. My question has to do with the increasingly prevalent view that global trade has been nothing but a raw deal for American workers and that cheap Chinese made goods were traded for American jobs by "capitalist cabals". Indeed even major capitalists lend credence to this view when they are quoted as saying that there will be an "inevitable decline" in American living standards relative to the world ( http://www.businessinsider.com/billionaire-howard-marks-us-standards-of-living-are-likely-to-decline-relative-to-the-rest-of-the-world-2011-7 ).

The question I have for you is this, which one is it: Capitalism and global trade will lift all boats or has global trade just been a way to drive American workers' wages to the level of slave pay in 3rd world countries? If we are to defend capitalism and its associated global trading on moral grounds, how does one explain it to average Americans who see massive unemployment, a flood of Chinese made goods and wages spiraling lower and lower in the manufacturing area? Laissez faire would have perfectly open borders to trade, however what do you do with all the workers that used to buy all the goods who no longer can because they have no wages to buy them with (they got fired because it was cheaper to go to the 3rd world for equivalent workers) ? It seems like American business, in the era prior to Globalism was a bit of a closed, socialist system that put a "chicken in every pot" and kept everyone happy. Even untrained workers could make a living in some low tier factory and now that is vanishing. This is clearly leading to a democratic backlash against Globalism and even Capitalism. My question is: how to Objectivists see this situation given that they would have a stake in the promotion and defense of Capitalism? Stated otherwise: how does one defend Global Business to an angry group of workers who feel that all they got was a huge reduction in income, power and standard of living and who are starting to agitate for the "good ole' days" of the New Deal? We can choose to ignore it but we do so at our peril because it is not too hard to imagine a demagogue using the anger of millions of displaced workers to agitate for strongly anti-capitalist laws.

asked Jul 25 '11 at 11:12

Danneskjold_repo's gravatar image


edited Jul 26 '11 at 15:16

Greg%20Perkins's gravatar image

Greg Perkins ♦♦

The truth is on our side so fear not. I constantly remind people of the idea of comparative advantage.(http://en.wikipedia.org/wiki/Comparative_advantage) Don Boudreaux who blogs at Cafe Hayek is a great source for free-trader logic as well. His war with Ian Fletcher is a super source for defenses of free trade that anyone can understand.

(Jul 25 '11 at 12:07) DarthGalt DarthGalt's gravatar image

I think Greg's editing of the title of the question takes the focus off Globalization which is a particular facet of Capitalism that I wanted to focus the question on. I think "Capitalism" can mean "good ole 1950s" to some people so we need to be clear. I wanted to discuss the status of Capitalism with its huge focus of late on free global trade. This is where I think most of the political friction is coming from today: people who think their jobs were outsourced to people making much less money. How, they ask, does Capitalism and open global trade benefit them ? How does one answer this?

(Jul 26 '11 at 13:29) Danneskjold_repo Danneskjold_repo's gravatar image

This question boils down to "What can one do?" which is answered by Ayn Rand in her book, Philosophy: Who Needs It. Her answer is do not remain silent.

(Jul 28 '11 at 15:53) Rand Langley Rand%20Langley's gravatar image

If governments weren't able to manipulate the money supply, and distort the linchpin price mechanism necessary to the proper functioning of capitalism - you wouldn't see the massive flight of skilled manufacturing jobs to 3rd world countries.

However, just looking at the US - there has been a never ending and exponential increase in the money supply since 1913. The impact has been a tragic disconnection between price and value - distorting the ability for consumers and producers to agree. As a result, produces look elsewhere to better match perceived value with wages (price) demanded.

(Jul 29 '11 at 16:18) Sergio Sergio's gravatar image

The question was not "why is this all happening" but "what to do". There is value in Rand L's suggestion to speak up and set the record straight but is there is any realistic way to get "to there" from "here"? The mixed economy has messed things up so much that many lives have been negatively impacted. People now want the pain to end and to "get back" to what they had. Telling them that there is no sugar daddy that will make things right is a tough sell when they are looking longingly at the stability of Denmark. I am seeing how socialism sells itself without much marketing :-(

(Jul 30 '11 at 09:51) Danneskjold_repo Danneskjold_repo's gravatar image
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One defends Capitalism in today's climate by first noting that what we're experiencing does not include truly free trade, and is therefore not true Capitalism. For example, the US government provides financial incentives for companies to move overseas -- and China manipulates its exchange rate, so that labor and goods appear less expensive to their trading partners than they would otherwise be. Inside China, industries are heavily driven by cronyism of all kinds.

One of the underlying causes of the current problems resulting from the intensive offshoring of entire industries has been the culture of altruism. Government in the US felt that we should "help" the Chinese and other "poorer" countries.

In an Objectivist economy, the non-market incentives to move would not exist. In addition, though, both producers and consumers would be motivated to look at their choices more carefully and rationally. Is it really wise for the long term to base your business in a country run by Communists, where you can easily lose control or even ownership based on the whim of a bureaucrat? Where your IP is more likely to be stolen than protected? And if most of your customers are in the US, might you be hurting yourself by moving, by destroying jobs and thereby reducing the incomes of the people you're trying to sell to?

Equally important, on the consumer side: is buying a product made overseas always the best choice just because it's less expensive? Is a lower price worth the loss of jobs? Do you want to support a communist oligarchy? Every purchase you make is a form of voting; which companies' decisions do you want to support?

I should also point out that cheap goods made overseas aren't all bad. In the world of trade, it's always a two-way street. When you buy something, the seller gets your money, but you get the item you bought. If the seller is pricing the item below true market value -- as is the practice in China -- then the buyer comes out ahead, at least for a while. The problem comes when the industrial base is eroded to the point where the loss of jobs offsets the benefit of cheaper goods. With true Capitalism, this would self-adjust, and everyone comes out ahead. However, this natural adjustment process doesn't happen (or is delayed or distorted) when governments intervene.

answered Jul 31 '11 at 20:44

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Rick ♦

edited Aug 02 '11 at 07:35

I have seen outsourcing happen in detail. It never happened because of altruism where I saw it. It happened because of a confluence of factors: the burden of government regulations in the USA/West, "quick buck" salary arbitrage, relative tax savings and, of course, stock price appreciation (most folks doing the outsourcing take a significant part of their wages in stock). In no case did I ever hear about "helping the Chinese". I fully understand your comments about de-industrialization and wonder what Milton Friedman would do? After a while, de-industrialization is forever...

(Aug 01 '11 at 18:45) Danneskjold_repo Danneskjold_repo's gravatar image

I didn't mean to imply that the companies are outsourcing / offshoring because of internal altruism -- rather, it's the government incentives to offshore that are driven by altruism.

(Aug 02 '11 at 07:35) Rick ♦ Rick's gravatar image

I don't know of any government incentives per se other than a burdensome tax and regulation code that would encourage offshoring. What are the altruistic incentives you speak of? I know that companies run from dis-incentives for sure (regulations, heavy taxes, lawsuit abuse etc.). In fact, from what I see, demagogues on both sides of the political spectrum wail and rail against "offshoring" and "slave labor" and "non flat playing fields". I don't see any government defense of offshoring. Indeed most of the "we helped the Chinese prosper" rhetoric has come from corporate PR depts.

(Aug 02 '11 at 12:11) Danneskjold_repo Danneskjold_repo's gravatar image

Here's a link to an article that describes one of the government incentives to move offshore: http://www.usatoday.com/money/perfi/taxes/2008-03-20-corporate-tax-offshoring_N.htm

In addition, there are also tax credits available for offshoring.

(Aug 02 '11 at 18:29) Rick ♦ Rick's gravatar image

This is what I called "burdensome tax" above. The USA has the highest corporate taxes in the world and has decided to not pursue corporations outside US borders. That should be a reason to celebrate. Let the government cut corporate taxes in the USA and it will see similar growth. The US is one of the very few nations in the world that subjects all its citizens' earnings to taxation no matter where they live -- an American could move permanently to Britain but still has to file a yearly 1040! Thankfully they didn't do this for corporations. As for tax credits, those need to be removed.

(Aug 03 '11 at 09:06) Danneskjold_repo Danneskjold_repo's gravatar image
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Asked: Jul 25 '11 at 11:12

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Last updated: Aug 03 '11 at 09:06