Years ago, for reasons even now I don’t fully understand, I co-chaired a tutorial in political economic systems in a certain English university. This was unusual because I was not and am not an academic; I was not attached to the university in any capacity; I had a hangover of gargantuan proportions.
This particular college was renowned for accepting students whose parents were rich enough to send them to an Oxbridge university but sadly the combination of their wealth and genes had produced morons. Through the red mist of my hangover I was being confronted by 11 or 12 Paris Hiltons & George W. Bushs.
At the tail end of the Thatcher era the political mantras of free market economics had been firmly established. I started by suggesting that the flaw in many economic theories in their purest form was not the theory in itself but the ability to implement that theory i.e. a centrally planned economic model on paper could produce a utopian, perfect society but that if you actually tried to have a centrally planned economy it would collapse for lots of reasons, primary amongst them that mankind is venal, greedy and irrational.
I may as well have suggested that we end the tutorial, go to the pub, ingest a world class collection of illegal drugs and that the Hiltons & I then retire to my room for some vigorous group sex. Come to think of it, I might had more success with that idea. Damn.
Nice but dumb little rich kids that they were, they had a total inability to grasp the distinction between a theoretical economic model and what we laughingly refer to as the real world. The tutorial degenerated into a satisfying chaos of misunderstanding and confusion and myself and the co-chair buggered off to the nearest bar for a cure.
Fast forward to the present. Millions of indigenous US jobs are being moved overseas leaving many of those millions unemployed and the question arises: is this a good or a bad thing? The answer lies in understanding the question. Ask it aloud, as Lou Dobbs of CNN found out, and supporters of this corporate policy will accuse you of being everything from a communist to an idiot – which of course does not actually answer the question. Is it anti free market economics to regulate the ability of U.S. corporations to shut down their US manufacturing operations and move them overseas? Of course it is, but this pre-supposes that there actually already is a free market.
Government by definition is a distortion of the free market. Its very existence is a perversion of free market economics – if you have a government, you need to fund it which means you need taxation. Simple: Government = Taxation = Regulated Markets. Real free marketeers would campaign for the total removal of government: let market forces sort it out!
There is a long list of other things that those free market capitalists should be looking for that are key elements of a genuinely free market system, amongst them: no immigration controls or borders of any kind (free movement of labour); no financial regulation; perfect information (everybody needs to know everything otherwise you get unwanted distortions in the market such as cartels and monopolies); perfect rationality.
Very few, if any, of those claiming to be free market capitalists are actually in favour of any of these things. Mankind is venal, greedy and irrational and we need laws to referee. In fact what they want is regulated markets that tend towards perfect free market systems. Generally they are protesting against specific regulation that disfavours their sector of the market. As an observer what you have to do is try and determine whose interests are served best by the proposed change in regulation.
For instance, say two companies manufacture and sell trainers, both completely within the US. Company A moves its operations to Vietnam and reduces their labour costs from an average of $8 per man hour to 15 cents a month (all numbers made up by the author because he can’t be bothered to research, but you get the point). Say this means each pair of their trainers is now $2 cheaper to manufacture. If they pass this cost saving onto their customers in full then the US consumer is benefiting from this competitive advantage. If they, however, keep the two dollars than only their shareholders benefit via higher profits – a much smaller pool and not necessarily US based. The US economy benefits because the consumers now have $2 to spend on something else, this stimulates demand, all is good. As long as the negative impact of losing all those wage packets is less of course. But what about company B? What if they can’t compete with A on price or their shareholders have profit envy? Inevitably, they will follow company A to an overseas facility. More jobs lost presumably in exchange for either competitive advantage or profit.
Looking at how complicated a simple example gets highlights the fact that when you introduce the endless complexity of the real world the real truth about economists emerges: past a certain broad level they are only ever ‘right’ by accident.
So, a good or a bad thing? These corporations want unfettered access to the US market and claim to be proud US companies. In reality they expend huge effort to avoid paying taxes, making no or the minimum contribution to the maintenance of the regulated market they need to survive – the IRS estimate as much as $70bn ($70,000,000,000!) per annum is lost to offshore tax havens. There is little evidence that these companies have any sense of patriotism or real commitment to the well being of the US and its citizens. Making them keep their operations in the US has a certain appeal, both economic (jobs kept, tax revenues maintained) and from a sense of natural justice.
However, protectionist economic policies have a long history of failure, as they go against the tenet that mankind is venal, greedy and irrational. Personally, I’d let them go if they want to. The US government should make sure to get their taxes and that they help the unemployed get re-employed via retraining programs etc. but with the US political system so hopelessly compromised by (and dependent on) the body corporate this is hardly likely.
Tell you one thing though: if I was a US citizen I’d think very, very carefully about buying anything made by these corporations and making them ever richer and yet getting less and less in return.