Adam Smith Institute

37. "We should all boycott multinationals which have children and women working long shifts for low pay in sweatshops."

It is true that conditions in developing world manufacture include those which would not be tolerated in advanced economies. People work long hours in conditions we would not accept, and the labour force sometimes includes children. However, the conditions should not really be compared with those which took a couple of centuries or more to achieve in the developed world, but with the alternatives available in their own countries.

In poor countries children work as a matter of economic necessity. They work mostly in agriculture, or sometimes as scavengers on rubbish dumps. They work long hours for little pay in unsanitary conditions. Some work as child prostitutes. Those who have jobs with multinationals are in many ways the lucky ones, even if the conditions could be described as sweatshops. They get much higher pay than the average in their countries, and have jobs where most of their peer group do not. There are long waiting lists for such jobs, and those already employed there try to gain similar jobs for other members of the family.

The pay is very low by Western standards, but very high compared with what they might make elsewhere in their own countries. For them it is a chance to advance themselves and their families. It is that cheap labour which makes them attractive to multinationals. Without it, they would have no reason to establish factories and create jobs there. If we forced them to have the same pay and conditions we are used to, it would take that opportunity from them.

It took us decades into our industrial development before we could afford to improve pay and conditions. Our aim now should be not to deny opportunities to developing countries, but to shorten the time in which wealth can lead to improved pay and conditions.

It's difficult for satirists to keep ahead of a reality that verges ever closer to madness. Tim Worstall has a field day over at the Globalisation Institute site. Frederic Bastiat wrote a legendary spoof about candle-makers demanding protection from unfair competition by the sun.

We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him.

Syracuse has a proud history of candle production but attempts by importers to undercut our producers have put that tradition at risk. I am pleased that the Department of Commerce heeded our call to take action against these unfair practices and recognized the importance of this decision to local producers.

31. "In a new form of economic colonialism, multi-nationals are forcing harmful products such as junk food, high tar cigarettes and baby milk onto poor countries."

It's worth noting that predatory NGOs in search of campaigns to secure and boost their funding pick on 'scapegoat' or symbolic targets that are readily identified, and can easily be turned into whipping boys. Urban myths are spread about their alleged behaviour, and boycotts are born.

Yet multi-nationals do not force anyone to buy their products. As wealth increases, people seek for themselves some of the luxuries which rich countries have long enjoyed. It may be unfortunate from a diet point of view that many young Orientals prefer McDonalds' hamburgers to the healthy Chinese cuisine they were used to, but they do. They like it for the same reasons that young people in the West do.

High strength cigarettes have falling sales in advanced countries, but sell in the poorer ones. Again, this is not because their inhabitants are tricked or coerced, but simply because they like them. They might only be able to afford a few cigarettes a day, and prefer to make them count.

While breast milk may be better for the child, helping them with antibodies, mothers in developing countries sometimes appreciate the convenience of packaged milk. The same is true in rich countries. It is up to mothers to decide whether the convenience, and often the necessity, of continuing to work merits the trade-off. It is said that in poor countries powdered milk might be mixed with water which has not been properly boiled to kill diseases. The packaging and advertising both handle this responsibly, stressing the importance of hygiene.

Multinationals are supplying what the market wants. It might be sad for sociologists to see poorer countries trying to emulate our vices, but some products are assoc¬iated with increasing wealth and the convenience this enables people to afford.

29. "We should ban cheap imports made possible by low wages and poor working conditions."

The opportunity to sell us goods gives some people in poorer countries their start on the road to economic growth. The wages which might look like "subsistence" to us, might look like survival to them.

If other countries can make goods more cheaply than us, we should be buying those goods, and diverting our production to what we can do best. Everyone benefits from this. It is called the Law of Comparative Advantage, and has countries committing their economy to what they do best, each buying the goods they need at the price of the most efficient producer.

In a healthy economy, capital is continually being turned over from industries which are no longer competitive to the new ones which are. The world economy grows, and the poorer countries get richer by doing some of the things we used to do. We, in turn, do new things. To ban cheap imports is to leave us paying more than we need for goods which we cannot sell in the rest of the world.

Some industries in developing nations pay much less than our workers would accept, and have conditions well below those we would tolerate. The question is how those wages and conditions compare with what else is available in their countries. In most cases they represent a step up from peasant agriculture and malnutrition. It was the same when Britain industrialized.

It is those low wages which give them entry to our markets, and which set their feet on the first rungs of the economic ladder. We are better off because we buy cheaper goods; they are better off because they get our money. As economies become richer they can afford better working conditions; we should be helping them do that as fast as possible. Far from banning their goods, we should be buying more.

There's an interesting point over at the Globalisation Institute. Tim Worstall quotes the fact in the Telegraph that this year for the first time in human history, more of us will live in towns rather than in the country. He rightly points to the abject poverty of rural life in many parts of the world, but quotes the Telegraph article on what urban conditions mean for some.

Shenaz and her husband, Subir, both in their early twenties, made their living sifting household rubbish for metal, squatting on the floor of their shack searching for anything that might be worth a few precious rupees - an iron bed spring, a brass door catch, a few strands of copper wire - anything that had a price with the scrap dealers. Like millions of others, they had come from a village in rural India to scratch a living in the city...

Shenaz and Subir lived on the edge of an open sewer, in a wooden box not much bigger than two large packing cases, actually and metaphorically at the bottom of India's billion-man economic dust-heap. Surely village life was preferable to this, I wondered? Shenaz smiled. "Here we eat every night," she said, "and we even save some money."

That peasant life, out in the villages, that hip wading, is even less attractive. Yes, of course, we all want the lives of those slum dwellers to get better: that means more development, more wealth creation, more trade, yes, you've guessed it, more globalisation.

Bill Gates is good at making money and supporting charitable work, but weak on his understanding of how capitalism works. He called at Davos for a kinder, gentler, "creative" capitalism. As our own Tim Worstall points out on the Globalisation Institute site, that's what capitalism already is. It harnesses desire for self improvement into social good. All right then, how much good does capitalism's creative side do socially? Tim quotes William Nordhaus calculating how much of the benefit of technological change between 1948 and 2001 went to its producers.

The actual number he came to is that only 2.2 percent of the total value created by innovation remained with those who did the innovating. The other 97.8 percent went to the society at large: they got new, or cheaper, or more, gew gaws like edible food, clean water or even mobile phones as a result of the entrepreneurs' attempts to enrich themselves.

The ASI's Tim Worstall has a good piece on the Globalisation Institute site, covering what he calls "the pernicious idea" that developing countries need to shelter behind tariff barriers to protect their fledgling industries. He quotes from Power and Plenty about the 19th century protectionism in America and Europe.

On balance, it appears that the new transport technologies were so cost-reducing that that their effects swamped those of rising European and American protectionism.

Tim Worstall (he of this parish) has a very good post over at the Globalisation Institute. He points out that coffee can be grown in Cornwall – indeed it has been, at vast expense. But should it? Adam Smith made a similar point in his Wealth of Nations:

By means of glasses, hotbeds and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about 30 times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of Claret and Burgundy in Scotland?

Surprisingly the aid brigade (by which I mean those who earn a good living by demanding aid for the world's poor) are almost unanimous in defending protection for domestic industries in the developing world. They deride free trade and claim, wrongly, that all nations need protection to become rich.

They are victims of the old urban myth of mercantilism, and still believe, along with hobgoblins, incubi and vampires, that nations get rich by selling exports and can then afford to buy stuff. In fact it's imports that help create wealth by getting you things cheaper than you could make yourself, thus giving you surplus spending power with the cash you save.

If developing nations have protective tariffs, it means their citizens pay more for stuff, and are poorer in consequence. It means that their businesses have to buy dearer materials, and thus make goods that can't compete on world markets. I'm often asked about this at schools, and surprise people with a rather laidback attitude. Yes, you can have protectionism and still get rich, but free trade is better. The point is that the free market is quite resilient. You can do a lot of things wrong and it still works to some extent, and you can still get rich. I tell them there are three things you can't do, however: genocide, civil war, socialism...

From Power and Plenty:

Another important economic link between Venice and the Ottoman Empire was the sale of high-quality Venetian woolen cloth to the latter. In the course of the 17th c., however, the Dutch and English, yet again, displaced Venice and the other Italian producers in the Levantine markets for these key manufactured goods. Charles Wilson pithily accounts for this by observing that "the Turks wanted cheap, light cloths. The Venetians offered dear, heavy ones." Constricted by guild regulations, Venice insisted on maintaining high quality and high prices. Meanwhile, northerners lowered quality and price... 

That old saw about those who ignore history being condemned to repeat it comes to mind really. Most obviously in the current success of clothing chains like Matalan and Primark: it appears that what the Brits want is cheap and light and so if you lower quality and lower price...

And so many  business disasters can be explained by that "constricted by guild regulation" line. No, it doesn't mean just unions, management has been just as purblind at times: the Austin Allegro was proof that there are things too light, too cheap and too low quality even for the British.

The basic lesson though is obvious, isn't it? The producers who actually provide what the consumers want prosper, those who attempt to supply what suits themselves do not. The next question I suppose is which side of that line Microsoft Vista belongs?

In an interview with the Financial Times earlier this week, Hillary Clinton again voiced her doubts about free trade. Having previously called for the US to take a "time out" on new trade agreements, she claimed the theories underpinning free trade might no longer hold true in an era of globalization, and questioned whether it was worth reviving the WTO's Doha round of trade talks:

I want to have a more comprehensive and thoughtful trade policy for the 21st century. There is nothing protectionist about this. It is a responsible course.

Of course, Hillary's stance is not neither responsible, thoughtful, or comprehensive. And not only is it protectionist, it is it is pure politics too (her attempts to ground it in economics have already been rubbished here, by Daniel Finkelstein). Hillary has blamed globalization for America's economic difficulties because it makes an easy scapegoat. Everything from job insecurity to squeezed living standards can be blamed on foreigners, and an easy solution can be suggested – restrict trade.

The suggestion is that free trade is inherently unfair – a way of shipping US jobs abroad, where workers are easier to exploit. This is nonsense: free trade simply means the freedom to engage in mutually beneficial transactions without the artificial barrier of national borders. It leads to a more economically efficient allocation of resources, boosting productivity and creating more wealth for everyone. As we have seen in India and China, the effect of trade liberalization on developing countries can be particularly benign, lifting millions out of poverty. None of this costs America jobs – just as the US trade deficit rose from $19 billion in 1980 to $786 billion in 2006, employment rose from 99 million to 145 million.

Trying to restrict trade will only hurt the US, accentuating rather than softening any economic downturn. It won't do the rest of the world much good either. Hillary Clinton should rethink her position.

I was speaking on BBC4's World TV programme about capitalism and globalization. Tony Benn deplored how undemocratic it all was, with WTO, World Bank and others not directly elected by the people. I said that it wasn't supposed to be democratic.

The idea that something so vast as a complex global market should be directed by a few elected politicians was laughable. It has billions of inputs which produce an unplanned social and economic order more intelligent and flexible than anything which human minds could direct.

Professor Jagdesh Bhagwati of Colombia University made several valid points about how poorer nations, including India, had thrived and prospered once they had entered that global market-place. He sided with the achievements of capitalism and trade, which I pointed out had lifted more people out of poverty last year than ever before in human history. I do hope and believe they will continue to do so.