Friday, December 22, 2006

Markets as Part of the Solution

The Foundation for Economic Education (FEE) publishes a daily email service with relevant stories from around the world. While not agreeing with everything it reports, I find little gems about the economic illiteracies of sections of rich world thinking.

Today’s FEE has one such gem:

“The best help for the poor is unrestricted market opportunity.
Nike Ends Labor Contract with Supplier Over Child Labor Concerns

"By severing its contract with Saga, Nike is likely to score moral points with its customers in the West. But it's also likely, observers agree, to sink Saga, a corporate giant that makes about 6 million of Pakistan's annual production of 40-million soccer balls. Saga estimates that as many as 20,000 families could be affected, since 70 percent of the local market relies on them for work." (Christian Science Monitor, Friday)


This kind of report always worries me. We want desperately to help the poor in the world to move from desperate poverty to opulence. We also have wage labour in our opulent economies much higher than in poor countries. Nike will ‘score moral points’ with the opulent families in rich countries for further reducing the living standards of thousands of already poor families in poor countries. But the rich folks won’t see that, except as famine victims when it’s too late to develop a market economy.

Development takes time. Markets are a long-term fix. Poverty is the consequence of a lack of markets. Smith expressed this clearly when he wrote about the income of the common labourer in the 18th century being higher than the income of labourers in the 17th century around the time of Charles II’s restoration, which were higher than the time of William the Conqueror in the 12th century, which, in turn, were higher than at the time when Caesar ‘visited’ Britain in 54 BC.

With globalisation we are not talking about it taking centuries to raise world living standards, but nor are we talking about decades. World markets are spreading fast enough to raise the incomes of 20,000 Pakistani families by the second or third generations. Interrupting economic growth is not part of the process.

If the ‘moral’ urge in rich, protectionist countries is to undertake development in poor countries as fast as possible, the energies of the rich moralists should be directed at reducing protectionist barriers against agricultural and manufacturing produce of the poor countries.

Nike is not part of the problem; it is part of the solution. So those with heavy moral boots should tread carefully. They could start, for example, by lifting tariffs on footwear, underwear, and such like from poor countries, which would do much to expand production facilities in poor countries and by increasing demand for labour, raise their wages and allow them to keep their jobs.

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