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Trade and the Moral Community
Much of the recent trade debate between Rodrik, Mankiw, Tyler and others (see Tyler's excellent post for links) is primarily not about positive economics but about the relevant moral community. Rodrik, for example, hasn't argued that trade does not increase aggregate wealth he has argued that trade is not guaranteed to increase national wealth - something quite different. I consider three moral communities and the case for trade.
Peter wishes to trade with Jose. The individualist says the relevant moral community is Peter and Jose and presumptively no one else. Trade, the right of association, is a human right and on issues of rights the moral community is the individual. When Jose offers Peter a better deal than Joe it's wrong - a moral outrage - for Joe to prevent Jose at gun point from trading with Peter.
The more common view expressed implicitly by Dani Rodrik, but by many others as well, is the nationalist view, the moral community is Peter and Joe. Joe gets a vote on Peter's trades. Peter should be allowed to trade only if both Peter and Joe benefit, otherwise too bad. Jose counts for less.
A third view, that of the liberal internationalist, says that Peter, Jose and Joe count equally and are together the moral community.
Now how does the positive economics apply to these three cases? Peter and Jose presumptively are better off from trade otherwise they wouldn't trade so the individualist economist (the economist who takes Peter and Jose as the relevant moral community) will support free trade. The liberal internationalist will also support free trade because there is a strong argument from positive economics that trade increases total wealth (comparative advantage, specialization, competition etc.).
In between, we have the nationalist economist for whom it depends. The case for trade for the nationalist economist is pretty good - after all the individuals involved benefit and the world benefits - so the case is reasonably strong that Peter and Joe taken together will also benefit especially if we consider many trade pacts on some of which Joe benefits directly. Nevertheless, Rodrik is correct that when you exclude Jose it is possible to come up with examples where Joe's losses exceed Peter's gains.
I would argue, however, that economists are too quick to take the nation as the relevant moral community. It is quite possible, for example, for Peter to benefit from trade but for Peter's city to be harmed, for Peter's state to benefit but for his region to be harmed, for his country to benefit but for his continent to be harmed. Why should we cut the cake in one way, excluding some from the moral community, but not in another? Indeed, geography is not the only way we can define the moral community. Why not ask whether English speakers benefit from free trade or Christians or left handed people? Each of these is just as valid as asking whether the collection of people called the nation benefit from free trade.
I understand individual rights and I understand counting everyone equally but I see less value in counting some in and some out based on arbitrary characteristics like which side of the border the actors fall on.
Posted by Alex Tabarrok on April 30, 2007 at 07:25 AM in Economics, Philosophy | Permalink
Comments
I am so glad you raised the issue. As a citizen of a LDC, it always baffles me how (virtually) everyone in the US seems to overlook the point you raise whenever discussing trade, but also immigration.
Posted by: LDC liberal at Apr 30, 2007 8:12:30 AM
Nice post Alex!!. Are you willing to extend the argument to open borders as the previous commenter hints? Do you see a difference? I always wonder if anti-trade, anti-immigration folks just expect poor people in LDCs to die or suffer in misery quietly.
Posted by: kevin at Apr 30, 2007 8:49:33 AM
This posting is a fine illustration of Across Difficult Country's definition of libertarianism as applied autism.
Posted by: Steve Sailer at Apr 30, 2007 9:36:08 AM
Alex makes an almost valid point, but there's a bit of sleight of hand in here as well: in making this about Peter, Joe, and Jose, Alex is implicitly ignoring distributional impacts within LDCs. How about we really get universalist and start to worry about Pedro's interests as well? Then the same argument that says that there's no guarantee of national benefit to the US says there's no guarantee of national benefit to LDCs. And even if we're good universalists, we might legitimately care about that more than we do about the net gains or otherwise to Peter and Joe.
Once you admit that distribution (a) matters, and (b) is affected by trade, things get a lot more complicated than trade = good --- regardless of whether you're a universalist or not.
Posted by: conchis at Apr 30, 2007 9:46:27 AM
It wasn't too long ago that the relevant moral community was defined differently. It was based on race, and many state governments prohibited economic transactions that benefited both individuals because they were thought to harm the white race as a whole. Can't have blacks taking all the good jobs for lower pay, or for that matter, marrying all the white women. Legalized discrimination (aka Jim Crow) was one of the most shameful periods in our nation's history. Today, you can't find a single politician who thinks that it was right to treat people differently based upon the color of their skin, but virtually all of them think it's still perfectly acceptable to discriminate based upon an equally uncontrollable and irrelevant factor--the location of their birth.
Posted by: Nathan Benedict at Apr 30, 2007 10:17:01 AM
Nice post.
Sir Henry Sumner Maine, Ancient Law (1861, p. 141):
“[T]he movement of the progressive societies has hitherto been a movement from Status to Contract.”
The nationalists defend status: membership in the "national community."
The contract philosophy is the great liberal meme to affirm and spread. All sorts of good "externalities" from such affirmation.
Posted by: Daniel Klein at Apr 30, 2007 10:56:41 AM
I understand individual rights and I understand counting everyone equally but I see less value in counting some in and some out based on arbitrary characteristics like which side of the border the actors fall on.
The problem is that you consider it "arbitrary" -- once you say that citizenship is an arbitrary construct, then of course you're not going to see any reason to treat in-group differently from out-group. In the old social contract model of government that's given to us in our high school civics classes, though, our fellow citizens are part of our community, defined by our mutual willingness to sacrifice certain rights in favour of certain benefits. The other members of your community aren't going to subscribe to that kind of arrangement if they end up getting the short end of the stick, e.g. if A trades cross-border with B, and the low cost of labour in B's country forces down the valuation of C's labour, C being A's neighbour. Is that what C is paying his taxes for? Sure he still gets great benefits like roads and a military and nuclear weapons, but it's unsurprising that he wants more.
In a reductionist view, suppose the border is just the delineation between residents of a condo and those outside the condo. Or a co-op or whatever. The rules may prevent you from operating a business from the condo, or bar you from subdividing and renting out your rooms and so on and so forth, except to people who are already members of the co-op or condo association. This is, of course, a restraint of trade, imposed on you by the other members of the co-op or the condo association, and it's one they impose for their own benefit. That's part of the price of living in that condo or co-op. And it applies, I am sure, to people who inherit their membership (e.g. from a parent's estate), or simply happen to be born there (e.g. children living in their parents' condo), all by the accident of birth. It makes perfect sense to me.
Whether this is an optimal strategy to pursue is a different matter -- you could say that the cost of maintaining societal cohesion or distributional equity or whatever by preferring in-group trades to out-group trades is such that your society will eventually lose ground to other societies without that preference and get crushed in the next war. Trade tends to make everyone richer overall, even if it makes some people poorer. But that's a choice societies can make, through the wonderful mechanism of voting.
I always wonder if anti-trade, anti-immigration folks just expect poor people in LDCs to die or suffer in misery quietly.
I suspect they expect the inhabitants of LDCs to develop themselves -- it's not like developed countries developed by magic or anything, or developed through trade with the advanced economies of Arcturus and Alpha Centauri. Band together, put together a government that's not ridiculously corrupt, and experiment with the many paths to development we've seen throughout human history. Admittedly, crony-capitalism export-driven development (e.g. Korea, now China, probably most of Southeast Asia too) empirically seems to work much more quickly than the various attempts to develop advanced industries from scratch solely for domestic consumption (didn't one country try that with computers?), so cutting off trade kind of closes that path. And an important element of many development strategies is, I think, sending your people to developed countries to learn about advanced technology and business management and all that, so it can be brought back home and applied. Closing the borders makes that rather harder as well. But there's no reason I can see to think it's impossible. People in LDCs are human just like people in more advanced economies -- they're not monkeys or anything. It's just much, much harder without trade.
Posted by: Taeyoung at Apr 30, 2007 11:20:42 AM
Great post. It's always easy to poke a hole trade nationalists' logic using ad absurdum, ie, if it's bad to trade with person in Country W, what about a person in State X, City Y or Block Z? In the end, it's all about the distribution of rents from trade. Those who have something to lose manage to find a "moral" reason to prevent it. Bunk. Bottom line -- trade has made us well off, but we cannot expect those benefits as a monopoly right!
Posted by: David Zetland at Apr 30, 2007 12:02:39 PM
Yes, but when has nationalism ever been philosophically appropriate? I read Rodrik as (implicitly perhaps) pointing out that when we give recommendations to policymakers, we don't get to choose the "moral community." With respect to US (or any other country's) trade policy, policymakers take their own nation as the "moral community." With politicians, the question is always "Is it in the national interest to do xyz?" When a cable news network covers a potential trade policy it does not ask, "Will the Bangladeshi come out ahead?" but instead, "Will the US come out ahead."
You and I, as economists, may look at the border as arbitrary. But for everybody else in the country, these choices depend on whether they are the "national interest" or not. As academics and policy advisors, it is disingenuous for us to pretend that free trade is always in the "national interest."
It is also immoral to mislead people into giving up their livelihoods for the greater good (the "international moral community"), for example by misleading them into adopting free-trade policies they wouldn't adopt if they had full knowledge.
Posted by: David Bedoll at Apr 30, 2007 12:06:19 PM
But there is a potential reason to treat the nation as the relevant moral community and also the city and the state (in the U.S. sense of the term). And that reason is related to Tyler's realization that one of the things that people want to buy when they get richer is more government. When people vote to tax themselves to provide services to fellow citizens, they bind themselves together, to a degree, in a relationship of dependency and obligation. There is no such relationship between all left-handed people (but there is, to an extent, between all Christians-- and I understand that some Christians do preferentially trade with other Christians).
So there is some ethical basis for giving Joe's well-being more weight than Jose's. But the complicating factor is that Joe, even when his standard of living is harmed by trade, is still very much richer than Jose, so that mitigates against worrying more about Joe than Jose.
And even without this difference in relative wealth, I think the case for giving Joe a veto over trade between Peter and Jose is extremely weak (given how damaging and open to abuse protectionism has been historically). But we can't pretend there's no ethical basis at all for favoring one's fellow citizens over others.
Posted by: Slocum at Apr 30, 2007 12:07:21 PM
Although you don’t see much value in which side of the border an actor falls on, politicians do. A politician’s primary incentive is either to get or stay elected, not maximizing the gains from trade. Actors that cannot vote for a politician carry no weight. Thus it would be a good strategy, from a political stand point, to “help” Joe at the expense to Jose* to get Joe’s vote, even at the expense of economic efficiency (something meaningless to politicians).
*Peter presumably will also be hurt, but Peter would probably already be supporting a candidate who supports free trade, so our politician never had his vote to begin with.
Posted by: Jeffrey Kirchner at Apr 30, 2007 2:06:56 PM
Why not ask whether English speakers benefit from free trade or Christians or left handed people? Each of these is just as valid as asking whether the collection of people called the nation benefit from free trade.
Uh, no. None of these groups have jointly decided to live under the same government, and hence given over a measure of their liberty so that rules can be made for (presumably) the benefit of all.
Posted by: TW Andrews at Apr 30, 2007 3:15:36 PM
I think Slocum and Taeyoung hit on the important thing here: discrimination based on citizenship is anything but arbitrary. For Tyler to throw out rhetoric like that is disappointingly disingenuous (maybe even dishonest).
From the libertarian point of view, I can certainly see how the national distinction seems a little more arbitrary. But from the point of view of the rest of us, a nation is a distinct political unit that we contribute to, and in exchange, receive substantial benefits from. When a company has grown its business by generating revenue from Wall Street, employing educated Americans as employees and taken advantage of markets, supply chains and infrastructure that our society has made possible or directly provided, they owe something to that society. Honestly, restrictions on trade are not that much different from paying taxes, from this point of view.
And why are nations more important than cities or states? I think its pretty obvious. Most of our contributions run directly to the federal government and most of the benefits from being a US citizen directly back. And there is a substantial degree of similarity across states and cities that prevent arbitrage opportunities from damaging the system.
There are plenty of good arguments to be made about whether the internationalist or the nationalist perspective is more compelling, but to pretend that the national distinction is simply arbitrary... please, I think it deserves a little more respect.
Posted by: mpowell at Apr 30, 2007 3:18:42 PM
In general, the idea is that it is the community upon which demands of justice can be made is the political community which exercises final sovereignty over the coercive shaping of social institutions. There are people who argue counter to this (for example, see A.J. Julius on Nagel in PPA last year), but they tend to be arguing for massive transfer of goods and rights to the third world, not for lower tarriffs. In other words, I'm not sure if this argument leads to places you would like...
Posted by: stringy at Apr 30, 2007 3:18:42 PM
but virtually all of them think it's still perfectly acceptable to discriminate based upon an equally uncontrollable and irrelevant factor--the location of their birth.
Nathan, that's incorrect. It is uncontrollable, but it isn't irrelevant. To begin with, following P.F. Strawson, I'd argue that a truly objective outlook is impossible. How much I like a person is in some measure a function of how easily I can identify with them, which perforce means that people who are similar to me in feelings and outlook get preference. Further, my interests are more likely (though not certain) to converge with those who are similar to me in outlook.
This does not preclude my recognition that some forms of differentiation or gradient are, in fact, counter-productive to me because they actually arbitrarily divide me from people who actually are quite similar to me in outlook, bar some simple arbitrary characteristic like skin color. But that doesn't mean that I have the same amount of commonality or congruence with every human being on earth. Plenty have attitudes or feelings that I find loathsome or inimical to my interests, and borders are a simple (if far from perfect) heuristic.
Posted by: Bernard Guerrero at Apr 30, 2007 3:32:06 PM
Democracy is two wolves and a lamb voting on what to have for dinner.
Trade policy decided in a democracy is fraught with chances to get it horribly wrong due in part to a lack of understanding of Ricardo's Difficult Idea, while at the same time fully understanding that that lamb looks awfully tasty.
Posted by: plagiarist at Apr 30, 2007 4:09:29 PM
To continue that thought, the notion that With politicians, the question is always "Is it in the national interest to do xyz? is quite false.
Politicians are interested in doing what it takes to get the most votes possible. If that means screwing over the wolves via taking bribes (i.e. campaign contributions) from the lamb, and to use that money to persuade voters to vote for them, then that is what they will do. Alternatively if it means slow roasting the lamb in order to get the wolves to vote for the politician in question, then they will do that.
Politicians have a remarkable ability to rationalize most anything to themselves and to voters alike. This is a far cry from saying they have any form of moral right to do so.
Posted by: plagiarist at Apr 30, 2007 4:18:18 PM
The difference is quite obvious if you remove the libertarian economists' assume-we-have-a-can-opener blinders. We live in a world where violence -- perpetrating and preventing it -- is the fundamental fact that social organization must deal with. All property rights come out of the barrel of a gun.
Once you realize that, the reason why we prefer the welfare of our fellow citizens to that of non-citizens is obvious:
The people in your country are the people who would fight on your side.
Posted by: Steve Sailer at Apr 30, 2007 8:25:55 PM
replace Once you realize that, the reason why we prefer the welfare of our fellow citizens to that of non-citizens is obvious:
The people in your country are the people who would fight on your side.
with this
Once you realize that, the reason why we prefer the welfare of our fellow race to that of other races is obvious:
The people in your race are the people who would fight on your side.
and you have the exact reasoning why apartheid was implemented in South Africa.
Posted by: hmmmmm at Apr 30, 2007 8:53:08 PM
The people in your country are the people who would fight on your side.
Or shoot or run you through, if history is any indication.
- Josh
Posted by: Wild Pegasus at Apr 30, 2007 9:10:51 PM
I would advocate Peter and Jose stomping the mud out of Joe, but that would weaken an already small market.
Posted by: Ray G at Apr 30, 2007 9:27:45 PM
U.S. state politicians have tried to limit trade and immigration from other states, but have mostly been smacked down by the Supreme Court. So some politicians have seen the relevant moral community as something smaller than the whole nation. (School politics seems to have as the relevant moral community some subset of the school district.)
There are likely a few cases where restricting trade between Peter and Jose will bring more net benefit to Peter and Joe, but they are fewer and further between than most economic nationalists and autarkists believe. The steel tariff fiasco is a good illustration of this.
Adam Smith pointed out that one's fellow-feeling diminshes the further away and the more unlike one other people are. Political communities are ways of drawing boundaries, both to allow the community to treat outsiders as less worthy of consideration, but also to create a larger group of "people like me" than might occur naturally.
Posted by: Anthony at May 1, 2007 1:30:53 AM
Italics off.
"Hmmmmm" seems to be saying that the entire concept of the nation-state, and national borders, is inherently racist.
"Wild Pegasus" seems to be saying that because civil wars and conflict have occurred throughout history, it is *equally* likely that one's fellow national citizen would kill their countrymen as defend them in war against other countries - and that since *permanent* national cohesion is impossible, ergo, any attempt to defend national cohesion is pointless.
Autism applied, indeed.
Posted by: Morgan at May 1, 2007 4:13:23 AM
Who cares that the formerly cohesive crime-free neighborhood I lived at in Texas for a few years during high school is now an anomic cesspool infested with people whom I can hardly communicate with and who's gangbanger kids pull knives and guns on resident on occasions? That all has nothing to do with economics so, in the libertarian scheme of things, the problem doesn't really exist.
Open-borders libertarian, keep repeating that mantra: economics is everything, all else is illusion.
Posted by: tommy at May 1, 2007 6:50:25 AM
I know there are some kooky nationalists who think that the nation really is the morally relevant moral community. But moral relevance is only part of the story. As a liberal internationalist, I support trade in principle because I’m fairly confident that it will increase total welfare worldwide. But, morality aside, there are important political reasons for caring about the effect of trade on national welfare. To the extent one can convince either political party that a certain policy is good for national welfare, it will be hard for that political party to oppose the policy. If a policy is apparently bad for national welfare, even if it’s a morally good policy, it’s going to be hard to convince either party to support the policy.
Which raises an interesting political/moral/intellectual question: If reason tells you that a policy is bad for national welfare, but you believe it’s a morally good policy, is it right to attempt to downplay valid arguments that the policy is bad for national welfare? If trade is bad for national welfare, is it right to tell the “noble lie” that trade is good for national welfare? Is it right to deliberately use the wrong model to analyze it? If you’re not sure which model is right, is it right to choose based on which model gives a politically convenient answer? Is it right to refuse to ask the question because the answer is politically inconvenient?
Posted by: knzn at May 1, 2007 9:45:20 AM
