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April 18, 2008

Time for a More Nuanced View?

Friedrich von Blowhard writes:

Dear Blowhards,

When the professors at our Lousy Ivy University taught me about the wonderful benefits of free trade in their discussion of two countries trading two products, I don’t remember them addressing a number of points which now seem rather striking to me.

Like, for example, the impact of free trade on where R&D activities will occur. The following is from a post in February by The Angry Bear:

Where is R&D going? China, of course.

Take a gander at the following article.

Some highlights:

Sixty-two percent of global companies ranked China first "as the most attractive location for prospective R&D."

Multinationals have set up 1,160 research institutions by the end of 2007.

Total revenue of the hi-tech industry (foreign companies) exceeded 706 billion U.S. dollars.

Patent applications as of 2006 put China fourth in the world.

And here is the kicker: 40% of those applications came from foreign companies.

Yes, yes, globalization will raise all boats. The only boats I see rising are the foreign companies in China.

Nor do I remember any discussions of free trade and national security like this one by Emmanuel at the International Political Economy Zone on the bid by Chinese telecom manufacturer Huawei and Bain Capital for U.S. defense contractor 3Com:

…the only way to avoid furriners buying ever larger chunks of America is to get US finances in order. With $170 billion giveaway packages to further fund the US jihad on fiscal sanity (and whose proceeds probably end up in China anyway), nobody is counting on that to happen soon. US deficits from here to Chongqing will only see to it that more and more of America is sold off. Enough with this protectionist nonsense. This is free trade, pal: if the US wants more borrowed time, it had better be prepared to give up this "national security" jive talking. The real owners of the US are in the PRC. Deal with it.

Or any discussions of how free trade with a government-run economy might turn out, like this one by Brad Setser on the World Bank’s China Quarterly report:

The [World] Bank wasn’t able to find much evidence of a real rebalancing of China’s economy. Investment growth continues to outpace consumption growth. Industrial production continues to grow faster than services. So investment and industry are continuing to rise as a share of China’s GDP…The Bank also highlights another key point - for all the talk of the strong growth in Chinese consumption, consumption is still falling relative to GDP.

Or exactly how currency manipulation generally might impact 'free' trade, as from this post by Macroman on the economic communiqué issued at the recent G7 meeting:

Macro Man has long thought that the endgame for the current dollar downtrend will be a commitment from the relevant authorities to act to turn it around. However, it's far from clear that the G7 are the relevant authorities; after all, it's not Japan or Germany or the UK that is buying billions of EUR/USD every month; it's China and Russia and the Middle Eastern Countries. And Macro Man didn't see their names attached to any document expressing concern.

Or even a discussion of how free trade might impact international environmental issues, as we can see from this NASA satellite photograph taken in 2006:


Golly, maybe it’s time for a more nuanced view of free trade, you think?


Friedrich von Blowhard

posted by Friedrich at April 18, 2008


Your China numbers are not surprising. China has lots of brilliant, well-educated people who haven't had a good chance to get a fair price for their brilliance. This trend is going to balance out eventually, but for now we're going to have artificially high growth in China because we had artificially low growth there in the past. The world would not be a better place if new CS PhDs from Tsinghua spent their careers begging the government for grants rather than cashing in IBM stock options.

Some of the other criticisms are legitimate, but it should be noted that the Chinese government can't stay weird forever. In a fight between them and human nature, they can win some of the time, but they'll lose to attrition.

And the pollution may be a sign of a good thing. Poor people don't care as much about low air quality, simply because the "Low air quality + lots of jobs" package is the most attractive out there. If we raised trade barriers, that giant cloud would be hovering over Eastern Europe or dispersed over the Midwest.

Posted by: Byrne on April 18, 2008 8:20 AM

I, like you, was always taught in my fancy overpriced University that free trade is just grand in any and all cases.

Don't you find though that even thinking these sorts of heretical thoughts feels like you've somehow joined a cult that you should be slightly embarrassed about? It's uncomfortable, even though everything you said in the post most definitely strikes a chord.

It sure does feel like somebody's pulling a fast one though. I still wonder if that's just a very human reaction to what I don't truly understand or if there is something there.

Posted by: Karl on April 18, 2008 8:32 AM

I seldom discuss economics, because I really don't know much about it on a global scale.

However, the R&D issues you discuss seem to me to involve some issues you don't address. Since I am in the tech business, I can address these issues.

White American kids don't study hard sciences and math. They are too lazy and comfortable. This is no secret. Even in U.S. universities, in any high tech or science field, you will find Asian kids dominating.

Could it be that R&D flows to China primarily for this reason, and not because of free trade? Chinese have always been inclined toward tech fields (going back to ancient times when they invented gun powder). Chinese society encourages hard work, self-sacrifice and the obligations of the individual to the group.

Free trade may well be a problem. I think that it's only natural that R&D flows to China and the rest of East Asia. That's where the talent lives.

Posted by: Shouting Thomas on April 18, 2008 9:38 AM

It helps to keep in mind that the transnational elite have moved beyond the concept of loyalty to the nation-state. In their view that is akin to reminiscing fondly about the era of the city-state. That is why they exhibit no sense of patriotism within their families and clans, and why they endorse economic policies such as these.

They may be right, it may be time to move on. But this will be devastating to Americans in the IQ range of 115 and below.

Posted by: Don McArthur on April 18, 2008 10:20 AM

Oh, but it's all going to work out for the best, not to worry. You don't think so? What's the matter, can't you understand clear thinking? Oh, I see: You don't really care about utopian projections, is that right? You want things to work out well for yourself and for those you care about within your actual lifetimes, is that right? Peasant! Don't you know that you must sacrifice for the sake of the larger free-trading good?

Hey, this piece by Andrew Rothkopf for Newsweek International about the new global elite may interest you ...

Posted by: Michael Blowhard on April 18, 2008 11:33 AM

remind me again fo all the new technology coming out of china? all the new art? music? tennis shoes that last more than a month? anything non-lethal and crappy? for god's sake they are stealing military technology from the ruissians! show me where a totalitarian regime has invented anything.

Posted by: cjm on April 18, 2008 5:25 PM

The "asians are smarter" stuff is ridiculous BS, and its mostly promoted by those who don't work in the engineering or scientific field.

The truth is that there are LOTS of native US engineers and scientists who are more than able to compete with the asians, and LOTS of kids who can and are doing the work.

The TRUTH is that US universities give preference to asians, both to domestic and overseas students, to attend. And US companies hire asians here because of H1-b and Affirmative Action. There are many white engineers who are out of work because of AA and H1-b. And its not because the asians do high quality work. Its simply policy to reduce costs and fill quotas.

Oh, and what about those pointy-headed econ types who say that the US will just rely on high-tech while their manufacturing base has been shipped overseas? Hahahahahaha! What a lie that is!

See, you all got suckered by the global corporations. They have shipped everything overseas to a fascist slave state, so as to take away your freedoms and create the same system here. China is not going to become like the US--the US is going to become like China, sans the monoethnic culture. That's the near future.

Oh, and isn't it interesting to see the global corporations getting behind the "global warming" scam (how do you think Al Gore got his $300 million for his "green army"?) while their chinese slave state belches filth like crazy into the atmosphere? All the better to keep us de-industrialized and poor, so as to rule us.

Nobody is going to escape from this global corporate fascism that the elites are setting up. Not here, not in Europe, not nobody nowhere. We are all touchable and in deep deep trouble.

Posted by: BIOH on April 18, 2008 10:30 PM

Yes, I think Washington should either:

A. Tell China to force their country to abandon R and D business activities.

B. Force US companies to isolate themselves from the smart minds in China who cheaply undertake R and D activities.

Yes, that would be brilliant. And while Washington is at it, they should force 70% of those in college to major in a science degree, regardless of what the market demands. Washington knows best.

Posted by: thehova on April 18, 2008 10:45 PM

BIOH, gotta question the statement "The TRUTH is that US universities give preference to asians, both to domestic and overseas students, to attend."
Although Asians are overrepresented at top US universities based on population percentages, evidence suggests they should be accepted in even higher numbers.

Also, take a look at >the names of the high schoolers that were just selected to take this year's USA Math Olympiad. These selections are based solely on the scores achieved in previous levels of competition.

The question for me is why non-asian US parents aren't pushing their kids more in math and science. They'll have their kids take up lacrosse or water polo to try to get them into an Ivy League school, but they won't push them in academics.

Posted by: Julie Brook on April 19, 2008 9:50 AM

Since being laid off, I have become more pro-free-trade rather than less. I have found it easier to set up an import/export business selling used semiconductor process equipment to China and selling silicon raw material to the U.S. I am also selling optical parts and analytical instruments to Asia on behalf of U.S. companies.

There is this belief that "free-trade" benefits large corporations at the expense of everyone else. I can tell you that this is hogwash. All of my previous employers have been companies with 30 or fewer employees. All of them have manufactured and sold product world-wide (I established some of the sales networks myself). Indeed, it is possible for a one or two person company to become a "transnational". I worked with a guy to build an analytical instrument (laser actuated surface acoustic wave analysis) which I sold to a customer in Germany.

Talk to your seat mates on your next flight to Asia or Europe. I will bet you donuts to dollars that more of them work for small companies than work for the giant corporations.

I am definitely into free trade because I have far more opportunity than I would otherwise.

Posted by: kurt9 on April 19, 2008 2:44 PM


With Affirmative Action, by definition, white men should be far more highly represented in universities, period.

Also, there's a lot more to science and engineering than test scores. Its been my experince that study drones are not good engineers, and others I've talked to say the same. They lack creativity and common sense. PhD's make some of the worst engineers, for example (the same is true in other fields too). Unfortunately, universities have no other way besides test scores to evaluate students. It just shows you the limits of a university education, really.

The proof of what I've just said is that the US has been losing its lead in advanced technology since the influx of asians and H1-b engineers and scientists. If they're so great, then why are we losing ground? Makes sense--asians here, asians there, and the lead evaporates. The chinese for example, needed US engineers to help them construct the Three Gorges Dam. And the tallest building in the world in Dubai? Its designed by mostly white US engineers too. I've got nothing against the asians personally, but give credit where credit is due. We owe the previous generations much.

The reason why white engineers and scientists are telling their kids not to go into math and science is that they have seen the field erode for the last 30 years with H1-b, affirmative action, and the university discrimination against white men. The foreigners are brought in to drive wages into the dirt. Why bust your hump in school to make $50 an hour 10 years into the career when law, finance, and business can make you so much more? I wouldn't advise anyone to become and engineer these days. You're just a white collar drudge, changing jobs for pay increases every 3-5 years to try to keep up with inflation.

Producers are punished under our "free trade" system, and the money changers are rewarded far out of proportion to their worth. That's the real truth.

Posted by: BIOH on April 19, 2008 6:31 PM

The NY Times claims this fine Sunday morning that we should embrace 'scientific globalization,' too.

Hmmm .. I wonder.

Posted by: Don McArthur on April 20, 2008 8:20 AM

Karl: I, like you, was always taught in my fancy overpriced University that free trade is just grand in any and all cases.

Don't you find though that even thinking these sorts of heretical thoughts feels like you've somehow joined a cult that you should be slightly embarrassed about?

Yes. My family is starting to look at me funny, though that may just be projection and paranoia on my part. Then again, I'd love to be convinced that I was just turning into a paranoid crank about this stuff.

kurt9 - Trading is good - human beings have always traded. Free trade, as an ideal, is a good idea, subject to constant common sense re-evaluation by trading nations. But we do not have a free trade system, and our current idiotic practices are, well, destroying us. The fact that me and mine are doing all right (so far) in this global economy doesn't make me incapable of looking at deficit and debt stats and realizing that as a nation we're boned. I'm astonished at the number of intelligent, educated, successful people I come across online who seem unable to think about these things except in terms of their personal lives.

Apropos of this topic, something I came across this morning re the old mess o' pottage. The gummint trade stats site is fascinating (and sobering). Look around and run the numbers. (Warning: will suck you in and eat up your precious time.)

Over the last decade or so I've seen the cheerleaders for globalization and "free" trade transform their arguments, starting out like carnival barkers promising wealth for everybody and, more recently, furrowing their brows and switching to moral admonishments - how it's "our" moral duty to wave bye-bye to the middle class so the Third World can meet us somewhere south of the middle, wage-wise. (While one can see that there will be more competition for limited resources like oil, I have my suspicions that gutting the American middle class is not really the only way to raise living standards for Chinese and Indians. The easiest for the Chinese and Indians, and the most profitable for the geniuses of our short-term thinkin'/ADHD corporate class, yes. I figured that the adoption of the holy "moral duty" line was a veiled admission of the bankruptcy of the original arguments.) To summarize the change in the "sell" to the American worker:

First we get:

1) "The rising tide will raise all boats!"


2) "There's a pony in that shitpile for you somewhere! Really, there is! Just keep digging!"


3) "Sucks to be you, loser!"

The "'our' moral duty" line I consider to be merely the more obfuscatory version of (3), above.

P.S. Shouting Thomas and Julie - I respectfully ask you to do a little more research into this issue and not be satisfied with the "American kids won't study science and engineering" line. There's a lot more going on here.

Posted by: Moira Breen on April 20, 2008 6:25 PM

A guy who calls himself "Spengler" has written a editorial over on Asia Times ( about the causes of the recent rice shortages that is causing so much trouble around the world (some of you in S.E. Asia and the like could let me know if this is real or not).

Spengler believes that the recent spike in the price of rice is purely a monetary phenomenon. I agree with him. The spike in rice prices has occurred very quickly, which rules out any of the purported long term causes of increased food prices. Also, rice paddies, unlike corn land, is not be converted over to ethanol production. So, this cannot be the blame.

The reason for the run up in prices is due to the debasement of the dollar, with the result that Chinese and other investment funds are investing in commodities instead. As you know, Chinese and other foreign investors are limited to buying T-bills or buying smaller companies in the U.S.

There has been very little talk of this in the media (surprise, surprise!), but the U.S. government is reluctant to allow foreign investment into the large U.S. companies such as Citibank and the like. The reason cited is the fear that the sovereign wealth funds will provide foreign governments with more influence over our economy. This is a false fear. The sovereign funds want to invest in our economy for the same reason as anyone else would and that is to make money. A sovereign wealth fund is like any other fund, if they do not make money, they loose in comparison to the other players that make money. Indeed, a sovereign wealth fund has even more incentive to make its decisions purely on the basis of profitability. If the fund looses money, the country that relies on that fund also suffers as well. This is not good for the politicos of that country, even if it is a dictatorship or monarchy. Also, there are many sovereign funds around the world. Even if political considerations in their host countries influenced their investment decisions, the fact that you have multiple sovereign funds investing in the U.S. means that the influence of the U.S. government (a monopoly) is replaced by the influence of multiple sovereign funds resulting in a competitive situation even if they are all dominated by their host governments. You have a "monopolistic" situation being replaced by a competitive landscape, and this is always positive.

No, the real reason why the U.S. government will not allow direct foreign investment in our companies is two fold.

First, the U.S. senior managers that are used to getting their lavish bonuses are likely to loose their jobs. They complain to the government that, in turn, works to protect them. The reason why they protect them is that they have much in common with them. The U.S. political class and the corporate senior managers make up a kind of elite class whose members share commonality with each other. They are also a parasite class that contributes little to real wealth creation (when was the last time a CEO lost his "performance" bonus because his company did not perform?). If the current senior managers making their zillion dollar bonuses go away and the companies continue to do well (with somewhat lower paid managers from abroad), what does this say about the value of the political class in the U.S.? The parasites are protecting the parasites and rally support among the American people (the suckers) by claiming that they are protecting the American economy by keeping it in American hands!

The second reason why the U.S. government is loath to allow foreign investment into our large corporations is because they are afraid that such direct foreign investments will ultimately weaken the U.S. federal government's ability to influence the U.S. economy. This is certainly a true. However, as a software developer would say, "Thats not a bug, its a feature". We all know full well that engineers. business people, and entrepreneurs are the wealth creators of society. Government and the political class does not create wealth. They only parasitize wealth by getting in the way of wealth creation by burdensome taxes and meddling regulation. Anything that reduces the influence of government on the economy is always a good thing and we should always work to make this happen. In short, one should always place more trust in markets than in governments.

The point is that direct foreign investment in our economy would solve all of our current difficulties without the need for the FED to debase the currency or, even worse, require that taxpayers money be used to bail out the housing and finance industries. The fact that the U.S. government and the FED are willing to create the economic distortions of currency debase at home and potential starvation abroad, simply to preserve the power and influence of an incompetent, inept elite class goes a long way to illuminate the parasitical nature of our elites.

It is time we work to get rid of our elites.

P.S. I refer to inflation by its true description of currency debasement. Money having value is one of the most fundamental social contracts between a government and a people. A government that debases the currency of its people is one that, by definition, forfeits its right to exist.

Posted by: kurt9 on April 21, 2008 4:27 PM

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