The original article from Paul Fabra is available here: Pouvoir d’achat et mondialisation | Les Echos
Paul Fabra - Published on May 16, 2008, at 01:01
The erosion of purchasing power continues to poison, in France, the political relations between the governing and the governed. This new national crisis is bound up with a degradation of the structures of capitalism that affects practically all the so-called “developed” countries. What is at stake is nothing less than their capacity to remain so.
On both shores of the Atlantic, the malaise dates back some twenty years. That is no small thing. Might its principal cause not be the conjunction of precariousness and the lack of any prospect of a significant rise in the pay slip? What if it were the capacity of enterprises to attract and retain a motivated and loyal workforce that had become deficient, owing to disproportionate financial constraints? For the first time in two centuries, apart from the Great Depression of the 1930s, the standard of living of the majority of the population appears compromised.
In an article published on 5 May by the “Financial Times,” a famous Harvard professor goes as far as a former man of power (who could become one again) can go in criticizing what is the conceptual framework of his country’s international policy — and also that of the European Union and Japan. Lawrence Summers writes: “In opposing (...) economic internationalism, workers are only expressing a belief that has gradually taken hold of them: that what is good for the world economy and the business that champions it is not necessarily good for wage-earners. Rational arguments are not lacking to justify this point of view.”
Summers advocates far-reaching cooperation among the main States in matters of taxation, regulation, minimum labor standards, and so on. A program of good will. There remains the conclusion: “The decoupling between the interests of the business world and those of nations is perhaps inevitable; a decoupling between international economic policy and the interests of American workers is not.” If the director-general of the WTO, Pascal Lamy, is to be believed, the Doha negotiations carry within them a dismantling of the obstacles to international trade four to five times more “efficient” than previous rounds. A peremptory reason to let them get lost in the sands?
The burning question is this: could the incomparable driving force that generalized free trade represents for economic growth — the dazzling progress of China, India and others is telling — be turning against the great commercial powers of the developed world that promoted it? Today as yesterday, the notion of “comparative advantage,” derived from the work of David Ricardo (1772-1823), lies at the heart of the debate. It remains the only known justification for the universal liberalization of trade.
Confusion reigns around this subject in the business schools and among managers. One oscillates between the idea of economic war (the opposite of trade) and the myth of the best of all possible worlds. There is nothing like reflecting on the dynamics of comparative advantage (which it would be more apt to call “comparative disadvantage”) to free oneself from these contradictory fantasies. In the exchange economy (called the “market economy”), each transaction is an independent transaction. That is where one must begin. Whether the transaction in question takes place within a village market or within the planetary village changes nothing. Hence, in passing, the scandal constituted by the practice of securitization, brought to light by the contamination of “subprime” loans: a device designed to disseminate the effects of the original contract between a given lender and a given borrower is a lamentable one.
A simplified (“stylized”) example, famous in the history of economic thought, illustrates wonderfully the minuscule starting point of the dynamics of exchange. Here are two artisans facing each other. Both make shoes and hats. One is more gifted than the other at both tasks — but not in the same proportions. In a day he will make five hats to his competitor’s four (competitive advantage: +20%). For shoes the gap is wider: three pairs against two (competitive advantage: +33%). It is in their mutual interest that the artisan more “competitive” at everything specialize in making shoes (where he is at his best), and that the lagging artisan follow the same rule, confining himself to hats, where he too is at his best — without, however, coming close to matching his competitor’s performance.
The small community they form together thus draws on the work of all its members. Production (and hence income) is almost doubled compared with what it would be if the one “best” at everything remained alone in the field. And neither of the two is obliged, through taxation for instance, to assist the other in order to let him survive.
From this down-to-earth hypothesis Ricardo moved to another just as telling for us. He supposes that Portugal surpasses England in competitiveness both for the production of wine and for that of textiles. Yet each of the two countries will have an interest in specializing in the sector where it is at its best — Portugal in wine, the English in cloth — and in exchanging their products. Lo and behold: the modern theory of free trade was built on the idea that the more developed country is also the less competitive (in terms of labor productivity).
With admirable prescience, owing solely to the virtue of logic, Ricardo tells us that in this natural arrangement there are two losers: the English capitalists, who would earn far more if they moved capital and labor to Portugal; and the consumers of both countries. But it is quite clear that the fate of English consumers would be gravely compromised if industrial capital were to leave their country. Ricardo rejoices greatly that the English capitalists, through “man’s natural reluctance to leave the country of his birth” — in other words, through economic patriotism — renounce maximizing their profit. The theory of “perfectly free trade” he handed down to us excludes, by construction, the mobility of the factors of production.
Globalization is nothing other than the delayed — but limitless — revenge of the “capitalists.” For how long?