On loser's expectation from free trade...

I was reading the Letters To Editors at New York Times today, about the overwhelming (100%, in fact) retort to Steven E. Landsburg's article on "What To Expect When You're Free Trading".

The writing is supposed to provide a short, clinical response to those who lose out in globalization; in this case, the workers who lose their jobs. In pure and simple terms, the losers should just suck it up, since they get low price from imports. No one should be responsible to "compensate" the losers for anything, since they don't complain when they were riding high tides (ie. when they were having jobs and a good life).

Naturally it attracts landslide rebuttal. No doubt the conclusion drawn in the article makes all sense to economists, they have failed to account for so many factors that they ignore in their modeling or assumptions. As to the human or intangible factors that they are unable to measure (or simply don't know how to measure), they just ignore it.

So, the argument goes, while workers lose jobs, they enjoy low prices. But the economists would not care if the workers simply don't have the money to buy, regardless of how low the prices go. And there is nary mention of what the effect is when communities and towns disappear. What is the costs for creating a permanent bottom strata in society who find itself deeper and deeper into the quicksand. To that, Landsburg would sing praise to capitalism.

To most economists, politicians and observers, everything can be reduced to or be explained with, the dollar sign. For that, it's interesting to look at the 2008 Index of Economic Freedom, in which Hong Kong takes the highest ranking again (an honor that this small former British colony has held for many years now, since this Index was compiled 14 years ago).

I have the privileges to grow up in Hong Kong, and witness how capitalism goes about, first-hand. A few things struck:

(1) Having known how the most laissez-faire microcosm works in Hong Kong, and to see how America touts the argument of capitalism time and again, to justify this and that, the American and economists way of simplistic view of capitalism is almost laughable.

(2) Hong Kong has changed and morphed dramatically (and drastically, in so many times) over the decades. No one would blame others for losing their jobs, and moan and groan about it. Just look at how all of the manufacturing jobs in Hong Kong disappeared and are now all shifted to China's factories over the 1970s and 1980s. Do I ever hear anyone complain about it? Not one instance.

(3) Hongkong'ers are hardworking and resourceful. This is not to say that people from other parts of the world (eg. America) are not. The difference is in the government - the government of the former British rule (and not, the current Chinese rule).

(4) The former British government in Hong Kong had laid out the most basic, yet comprehensive infrastructure and support network for its denizens. Public transportation is inexpensive. Public housing is well-managed and plentiful (versus the woes suffered by housing projects in US), providing housing to citizens at very low cost. Basic infrastructures like airport, port facilities for freight and cargo, sewage, water management, ultra low income tax (and no capital gains tax), legal framework, the rule of law that is rid of corruption and cronyism, a professional police force that people can trust. But there is only minimal social safety net (don't count on social welfare to feed the elderlies). The rest is up to the people themselves. Along the way, the resourceful people in Hong Kong transform itself from manufacturing of low-end plastic goods, to higher end electronics, to move up the ladder of high end apparels, to service and financial industry that are among the best in the world.

(5) No reasonable private institution is going to pour billions and billions into some projects that they might not be able to reap any benefits from. I would strongly argue that, without a framework and infrastructure that only the government can and will provide, it is extremely naive to expect that market capitalism is going to strive to the fullest extent. This kind of social capitalism is what makes Hong Kong, and others like Singapore successful and competitive. The governments of these places have not truly democratic; but in a way, true democracy that tie the hands of politicians in the west (like United States) which could lead to cronyism much more easily.

(6) So, back to the article of Landsburg which labels those who lose jobs as losers are despicable. Perhaps if the government has had the foresight to allow a better infrastructure for its citizens (so that people won't have to worry constantly about losing health care from employers, or defaulting on mortgages, etc), it would have truly free the hands of the resourcefulness of Americans to pursue their dreams, rather than treading water in the face of globalization onslaught.