Does anyone think Americans would be richer if each of the fifty states had restrictions on trade with the other states? Thats the interesting question that Martin Wolf, Associate Editor at the Financial Times, asks in his new book “Why Globalisation Works”.
The question itself is a valid one. In the US a product produced in Maine
can be sold in New Mexico without any significant problems. No customs agents inspect the goods. No tariffs are imposed. The resident of Maine trades with the resident of New Mexico no differently than he trades with his fellow state citizens. In fact one of the reasons a central government was originally established in the United States was to see to it that there were no trade restrictions between the various states. It helps explain Americas wealth.
Its not hard to understand why maximum trade improves human well-being. Just think about your own situation. You may sell a product, your ideas or your labour. You buy all sorts of things including the products, ideas and labour of others. In other words you are sometimes a consumer and sometimes a producer.
When you are a consumer do you benefit by having more competitors in the market or less? Does a greater selection make you better off or do you prefer to have a small number of choices? Most people realise they are better off with more choices. If you want to see a film you prefer to have several cinemas around showing different movies. One cinema offering a boring documentary is not likely to inspire your interest. More choices are better. And if you are selling something, do you want more buyers bidding for what you have to offer or fewer buyers? Again it is fairly self-evident that more buyers are good. By increasing the number of possible trades the chances of you finding one that will make you better off increases.
Now go in the other direction. Imagine that it is not just national borders that restrict trade opportunities by regulating, controlling or taxing them. Imagine the same sort of barriers exist between towns or other communities . that every good from outside the region is stopped at the border of your town and a high tax slapped on it to protect the jobs in your community. Oddly, such a system would be more likely to destroy jobs than save them and it would impoverish your entire community.
By restricting your chances of finding the product you want at a price you are willing to pay, the bureaucrats are substituting their will for your own. You have to pay the prices they find advantageous. You must buy the products they prefer and shun the products they dislike. Your ability to make decisions that benefit you are severely restricted.
When we close trade off into smaller and smaller areas the people within those areas become worse off. Poverty increases. People end up living at more primitive levels. Doing the opposite, widening the trading area, produces greater wealth. More modern technologies are used. Consumers are better off and so are producers.
If you really do think trade barriers improve your life why not put more of them into place voluntarily and see if its true. Insist on only buying products produced in your own small community and see if your life improves. In fact, why have a trade relationship with people across town? Why not put up a few internal barriers to trade. Restrict trade to only the people on your street or those living in your house. In fact why even bother trading with others at all? Doesnt that destroy part of your self-employment?
Ah, dont be daft says the protectionist. If you did that youd have to produce everything yourself and no one can do that. Precisely. We trade with others to take advantage of what they can produce that we cant. But what is true for the individual is true for the city, the state, or the country.
The Swedes buy oranges from South Africa because Sweden is not very good at producing oranges. I live in New Zealand. We are pretty good at producing sheep but not so hot when it comes to producing cars. And sometimes I want a car more than I want more lamb. So I trade.
We each take what we produce and exchange it with others because the possibility of exchange allows us to seek out opportunities to improve our standard of living. Stopping such trades can only make us poorer not richer. Trade barriers do not protect us. They impoverish us. They diminish our choices and they make us poorer.
The United States got rich, in part, because Americans were free to trade over a vast area with anyone who was willing to trade with them. Political boundaries didnt matter. The poor people of the world would also be richer if they too had the same freedom. That they dont is one of the reasons why they are poor.
Author: Jim Peron is the executive director of the Institute for Liberal Studies (Auckland, New Zealand). This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the authors and are not necessarily shared by the members of the Free Market Foundation.
FMF Feature Article/3 August 2004
