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Just the Basics by Dr. Rodrigue Tremblay : The Messenger vs the Message
Posted, Wednesday, January 18, 2017, 8:30 am
When considering what the Trump administration may do, one must distinguish between the messenger (a businessman-politician somewhat obnoxious and bullying, who attacks and tries to intimidate almost everybody around) and his main message, which is to correct the flaws of economic globalization, as it has favored mega banks and large international corporations at the expense of domestic labor and national governments. On may not like the former and agree with the latter.
On that score, a few words are warranted about international trade policies, and the way the Trump administration is expected to approach them.
For the last 30 years, indeed, what has been called “international free trade policy” for trade in goods and services have really been an “international free trade and free investment policy”, allowing mega banks and large international corporations to move freely while workers do not have the same privilege.
According to basic economics, the free movement of goods and services between countries, which is based on the comparative economic advantages of each trading nation, in relative labor costs, in resources availability and other considerations, is usually net beneficial to all countries. That is because free trade leads to economies of specialization, to economies of scale, and to an overall increase in productivity in all trading countries. With the increase in labor productivity, real wages are expected to rise in all trading countries, and so is the standard of living when the prices of better quality imported goods decline while the price of export goods increases.
However, considering that domestic labor forces are generally immobile internationally, when national corporations and mega banks are allowed to move freely their capital and their technologies internationally, the home country may lose part of its comparative advantages. Employment and wages in the home country may suffer. Such a loss of comparative advantages may negate part or all of the economic advantages arising from the free trade in goods and services.
It is only when one considers the world’s total advantages of the free movement of corporate capital and technology that economic globalization may be considered net positive. When one considers the economic advantages of one individual country, especially the net economic advantages of its labor force, the free movement abroad of industrial capital and of technologies may reduce or may even nullify entirely the net economic benefits resulting from the free trade in goods and services for that home country.
Therefore, what is good economically and financially for mega banks and for large international corporations, for their CEOs and for their shareholders, is not necessarily good for the labor force of the host nation, when a country’s enterprises move their capital and their technologies abroad.
On this score, we can say, from an economic viewpoint, that the message by the Trump administration regarding the off sourcing of American industrial jobs abroad by U.S.-based international corporations is correct. Domestic employment and wages may suffer when U.S.-based corporations move their capital and their technologies to other countries and import the goods produced abroad. This does mean that free trade is not beneficial to countries. It only means that if domestic labor is immobile internationally, the free movement of corporations, their capital and their technologies, may reduce the economic advantages of their home country.
International free trade in goods and services is beneficial to all countries involved. — There is no economic reason to back away from it, unless one does not understand basic economics.
However, mega banks and large international corporations should not be allowed to move at will their capital and their technologies internationally, when domestic labor is immobile, except within a well designed industrial strategy.
Prof. Rodrigue Tremblay, economist and former Minister of Industry in the Quebec government
Very Interesting and Useful!
Posted, Wednesday, January 18, 2017, 11:20 am
Thanks for sharing the new article of Dr. Tremblay. It is very interesting and useful. Convey my congratulations to the author for his capability of analytical and systematic presentation of a complex situation. I would be happy if that material could be published widely.
The Current Status Quo can no Longer be Sustained!
Posted, Wednesday, January 18, 2017, 5:14 pm
The article states the obvious. Namely that Donald Trump will have troubles keeping his promises, and we can expect much turmoil following his planned changes.
I will take a more distant look to what just happened. Change was inevitable, as the current "status quo" no longer can be sustained. The fact that some rich people get richer is small potato.
"Globalization" did not happen overnight. I remember President John Kennedy talking about removing tariffs etc. The U.S. benefited from "globalization", not only the rich oligarchs. There were talks then about a "post industrial society" etc., without considering the social impact that would create. Because of the economic globalization, we in the U.S. have lived pretty well for a long time. In fact it may have been too good for a too long time, as compare to our low productivity. We have now about 20% of the U.S. population on social services support, because we can still print money with impunity because of our status as a reserve currency. This cannot be sustained any longer…
We are approaching a situation similar to the one experienced by the old USSR when it imploded, not because of President Ronald Reagan’s wisdom, but because its own Marxist-Leninism stupidity.
A Thought-provoking Article!
Posted, Wednesday, January 18, 2017, 9:47 pm
This article is beautifully written, highly interesting and thought-provoking. Thank you.
Trump’s Windmills of his Mind!
Posted, Thursday, January 19, 2017, 12:59 pm
There is no “SHOULDS” for Donald Trump. There are only the windmills of his mind. He is governed by the “id” with no “ego” or “superego” to refrain him, to balance him, to give him pause, to give him empathy, to give him reason or reasoning…AND his court and courtiers do not fall far behind … From Cabinet Members to the Ruling Pied Piper Republicans in the House and Senate.
Nice of the author to throw a word of caution… to the turbulent windmills ahead.
Given the Trump Track Record … and the track Record of his Court and Courtiers… he is wasting his words. So sad.
Trump : une bonne chose !
Posté, vendredi le 20 janvier, 2017,11:24
Plus vite il fera exploser son pays en ruine, plus vite le monde se portera mieux sans les USA.
Relance de la consommation aux USA ?
Posté, vendredi le 20 janvier, 2017,19:23
Étant donné que Trump veut faire revenir les entreprises américaines aux USA, les entreprises qui faisaient d’énormes bénéfices avec la main-d’Ōuvre bon marché ą l'étranger vont faire moins de bénéfices, et il va relancer la consommation aux USA puisque les américains auront davantage d’emplois.