Hacker News Reader

Comment by chroem- | Hacker News Reader

It's funny, because all of the countries which have done extremely well (China, Brazil) have protectionist economies while the countries that have stagnated or suffered (US, EU) have fervently implemented free trade policies. Hell, the US even had a protectionist economy from the founding revolution to the mid 20th century as part of the American School of economics.

It's time to critically reevaluate these free trade policies and what they're really doing, not what we're told they're supposed to do.

View on HN

1. You can't compare the performance of middle-income/poor countries to rich ones. It's much easier to grow a poor economy 10% annually than a rich one due to labor and capital being used so inefficiently at the start.

2. The US has hardly suffered in the study time (1988 to 2008). 1.6% real gdp growth/capita per year.

3. How has Brazil done well? It's 1988 to 2008 growth is 1.3%, below that of the US. More open Mexico has done better (1.4%).

4. Chile, a middle-income country known for free trade, grew 4.2%

5. China is a bit of an anomaly with its incredible 8% year over year growth (possibly the highest in the world). It has many unique factors allowing it to drive high growth (one of which is strong institutions that historically had crippled, not helped, growth).

source for numbers: http://www.wolframalpha.com/input/?i=%28%28brazil+real+gdp+p...

Similarly, we should prevent NY based companies from purchasing Salesforce and Oracle, in order to foster the creation of local competitors. And California should prevent their tech companies from making use of NY-based investment banks when they go public.

That's the way to prosperity!

That's a complete and blatant misrepresentation of what I am saying. Empirically, countries that have not put all of their eggs in the proverbial free trade basket have been much more prosperous than those that have. You can't deny that.

> ...all of the countries which have done extremely well (China, Brazil) have protectionist economies while the countries that have stagnated or suffered (US, EU) have fervently implemented free trade policies....Empirically, countries that have not put all of their eggs in the proverbial free trade basket have been much more prosperous than those that have.

Are you saying that Brazil and China are wealthier than the US and EU?

I also think that this is a curious way to describe China's recent history in going from Mao to Deng...

The article is about how different countries and demographics have fared over the last few decades of globalization. Countries like Brazil and China have experienced massive relative increases in wealth while other wealthier countries (who also happen to firmly be on the free trade bandwaggon) have stagnated or declined.

So your point is that capitalist countries became much wealthier and they also did this much earlier than protectionist countries did, and this is somehow a bad thing about free trade?

Let me state the question more clearly: according to your theory, why can't we trade-barrier our way to prosperity within a country as well as between countries?

I do agree with you that developing nations (e.g. China, India, Brazil) doing catch-up growth have grown faster than frontier nations (USA, Japan) that can't do catch-up growth. I would be very wary of attributing this to protectionism.

I don't think anyone believes protectionism is good for EVERYONE, that's a straw man that sounds as ridiculous as you've made it sound.

Rather, protectionism is good for the countries that apply it. And in particular for certain populations in those countries. Wealthy capitalists are almost always best served by unfettered free trade (if there are no limits on what the wealthy can do with their wealth, the wealthy benefit, surprising no one). Middle-class or working-class people are far better served by protectionism.

If California tech companies insisted on only California law firms to take them public then yes it would be better for California than having them send all their money out of state to New York.

Could you clarify what you mean when you say it's better for California? I live in California. Is it better for me?

I think I'll skip forward and answer the question for you, because the meaning of "better for California" is besides the point.

What happens if California tech companies are restricted to using only California law firms to take their company public?

CA tech companies currently choose New York law firms sometimes. Now they'll have to choose CA law firms. In the short run, this means they'll have to pay more, or sacrifice timeliness or quality of legal work, or not IPO at all. In the long run, more law firms will be created to meet demand -- if it's still around.

The short-term result is: CA tech companies IPO later or not at all, or they pay more to do it. Existing CA law firms, ready to do IPO work, make more money -- given the time-sensitivity of the demand, they make a lot more money. More CA law students decide to specialize in stuff that would push them towards IPO work. The quality of the legal work done is, overall, not as good as what you could get in New York. More effort is spent resolving disputes that arise from legal mistakes, and IPO prices aren't as high as companies could get them because law firms entering the IPO business take longer as they learn how to do IPOs. Companies' product stagnates because they have to put off investments. Employees with options are unable to sell their stock as soon.

The long-term result is: You now have IPO legal expertise in CA and New York. Because their respective markets are smaller, there is less specialization and the quality of the legal work is lower than it would otherwise be. Gluts and shortages as the demand for IPO legal work are experienced more severely, with more time spent idle and more people in the business of being a lawyer, instead of doing other things that are useful. The technology industry is smaller, because its companies raised less in IPOs, and because some of its companies couldn't keep up with out-of-state competitors by growing in a timely manner. Some lawyers are wealthier.

So, as a lowly Californian, for me:

1. The price and quality of available IPO legal expertise is worsened.

2. More people will be doing legal work instead of other productive activities, which means the price of other goods and services is higher

3. The rate of technological improvement (in areas related to the CA tech industry) will be lower, and greater proportion of the world's technology industry will be out-of-state.

Who benefits: Partners at some law firms, at a certain point in time.

I think you can, easily. The most globalized countries are nearly all rich - see the KOF ranking for example. Or compare the top buckets in any economic freedom ranking (e.g http://www.heritage.org/index/ranking ) with those in the bottom. Or in terms of pure exports per capita the picture is the same: https://en.wikipedia.org/wiki/List_of_countries_by_exports_p...

People who implement these policies know very well what they're really doing.

What do you expect? Let 3B people in China and India fend for themselves? That just leads to an enormous war, probably the end of the world. You can't be that grumpy, rich old man living on the hill nearby the village. The village is going to storm your mansion.

The benefits of protectionism don't come from creating an export economy; they're the result of allowing local industry to develop and become globally competitive without getting smashed before it can even form.

If you look at Brazil, they're a good example of a protectionist but not heavily export driven economy. Capitalism is not a zero sum game: everyone can have protectionist policies and still win.

Perhaps the words of Lee Kuan Yew can shed some light on the matter for you. He was a prime minister of Singapore for 3 decades and lead the country from extreme poverty to a 1st world economy.

"October, 1985. […] During my official visit, I was given the honour of addressing a joint session of the US Congress. […] I spoke on an issue then at the top of the American agenda - protectionism to safeguard jobs and check growing US trade deficits with newly emerging economies of East Asia. In 20 minutes, I described how the issue of free trade was really the question of war or peace for the world.

Nations wax and wane. I argued that if a nation on the rise, with an excess of energy, was not allowed to export its goods and services, its only alternative would be to expand and capture territory, incorporate the population and integrate it to make for a bigger economic unit.

That was why nations had empire which they controlled as one trading bloc. It was a time-honoured way for growth. The world had moved away from that after the end of World War II in 1945. GATT, the IMF, the World Bank and new rules made possible a prosperous and dynamic Germany in spite of large numbers of Germans returning from the East into a shrunken land area

So also with the Japanese, who had to leave Korea, China, Taiwan and Southeast Asia and be packed into a few Japanese islands. The Germans and the Japanese were able to stay within their boundaries and grow through trade and investments. They cooperated and competed with other nations and were able to prosper and flourish without wars.

But if trade in goods and services was blocked, then China would revert to its historical solution of small warring states conquering one another to gain control of more territory and people until they become one colossal continental empire. This tight, logical exposition may have convinced the legislators intellectually, but many found it emotionally difficult to accept."

Or alternatively they would simply channel their wealth back into their own economy and make their own people more wealthy. That's what's happening in the real world right now, not some bizarre 19th century imperial conquest.

Capitalism is not a zero sum game, and that's where you seem to be tripping up.

Protectionist tariffs did, in fact, play a role in the action of the Great Depression.

Such policies, which were adopted by many countries during this time, contributed to a drastic contraction of international trade. For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934.

[0] https://history.state.gov/milestones/1921-1936/protectionism

Alternately, it may be that people didn't have any money to buy stuff.

Medians aren't the only important thing. If mean incomes increase, (I think they probably have since the top 1-5% will be overrepresented in the US and Europe) then the total amount of money to go around in these countries has increased.

Now there might be barriers to redistributing this money (e.g. these people might be very mobile), but it might also be the case that this money is not being redistributed for other reasons. E.g. a political shift to the right in these countries.

Even if redistribution had increased in the US and Europe, it might not show up in these figures, which only measure income and not, for example, service provided by the govt.

Brazil's economy hasn't done "extremely well" at all except by select macroeconomic aggregates. In fact, it is woefully inefficient, corrupt, wasteful and the country is further crippled by high murder rates (and crime in general): https://en.wikipedia.org/wiki/Brazil_cost

Your neo-mercantilist tripe is clearly uninformed. In fact, the implementation of your ideas would lead to grave human suffering.

Reply on news.ycombinator.com