Is Trade Good for America? Edward and Dave are discussing if trade is good for America. “That’s impressive. America did get wealthier. So how did the gap narrow so much between the United States and Japan?” “The United States grew, but for a while, Japan grew even faster. Japan did exceptionally well between 1960 and the beginning of the 1990s.” “But if the Japanese had stayed poor, America would have become even richer.” “Only if there was a fixed amount of wealth in the world and the nations of the world tussled over it. Again, the Olympic metaphor is misleading. If Japan wins the gold medal in television production, America has somehow lost. In fact, Japan’s expertise and success frees up resources for America to specialize in other areas. Both countries are then better off.” “So how did they do it? Was it because they lost World War II and could start from scratch with all the newest technologies?” “Hardly. How could it ever be a good idea to let somebody destroy your factory? If new technologies are superior to old, you can always junk your old factory and adopt the new technology.” ... “Then what was the secret of Japanese success?” “Some said it was the unique partnership between Japanese industry and its government. Japan had a government agency called MITI—the Ministry for International Trade and Industry—that many people credited with creating the Japanese miracle.” “Were they right?” “MITI did back some winners with government funding and assistance. They also picked some losers. They tried to discourage Honda from going into automobiles and hampered Sony’s activities in electronics. Honda and Sony were eventually great successes. I believe that MITI’s role was not critical to Japan’s success; Japan also had great economic success in times when MITI did not exist or was insignificant. And ultimately, at the end of the twentieth century when Japan struggled economically, those who admired MITI and who had urged the United States to copy Japan’s cooperation between business and government became very quiet.” “So, Dave, what was Japan’s secret?” “There was no secret. The road to wealth for a nation is quite simple. Use your resources wisely. By resources, I don’t just mean the traditional natural resources of fertile land, oil, and minerals, but the know-how, education, ingenuity, and drive of the people. Using your resources wisely means giving the people the incentive to work hard, to innovate, and to take risks. The people of Japan worked very hard and they had an excellent education system.” ... “So America did well. But how could that be, Dave? What about unemployment? When we closed down our plant and Zenith and Motorola closed down theirs, America must have lost a lot of jobs.” “No, America just lost certain types of jobs. Do you like corn, Ed?” “Yes, I do.” “Do you grow your own corn?” “No.” “But you could, couldn’t you? But you don’t, for the same reason you don’t do your own typing. It looks like growing your own corn is incredibly cheap. You just have the cost of a little seed. But growing your own corn is in fact incredibly expensive because of the time it takes to weed, water, and fertilize. That time appears to be free, but it is costly. You have lost the opportunity to work at some other activity, earning money, and using that money to buy corn. Or having the time for leisure. If you think of your household as a nation, you import corn. You produce it in the roundabout way just like America produces televisions.” “But what if I were really good at growing corn?” “Even if you were a fabulous farmer, it could be cheaper for you to work at something else and buy corn instead of growing it. It depends on whether it takes fewer minutes to grow an ear directly, or to earn enough money to buy corn by working at some other job using the roundabout way. You could say that your household has ‘lost’ the corn-growing job. But this would be a silly way of looking at what has occurred. You have lost the job of growing corn and gained a more valuable opportunity.” “What does that have to do with the jobs in Star? Aren’t they gone?” “The television jobs are gone. But they have been replaced by other. Think about agriculture. Do you know what percentage of the American people worked in agriculture at the beginning of the twentieth century? About 40 percent. By the end of the century, that number was under 3 percent. In the case of agriculture, the number f people working in agriculture necessary to feed the American people feel dramatically, not because of imports, but because of better technology. But did that technology cost America job? It cost America certain types of jobs, but the overall number of jobs increased tremendously.” “But didn’t those farming jobs disappear, Dave?” “Not in the way you’d think. A farmer didn’t wake up one morning to find his overalls gone, his tractor vanished, and his fields of grain replaced by a shopping center. As technology improved, some farmers ’incomes fell. Some farmers retired early. Others sold their farms to more efficient farmers. And some just struggled until retirement. But the biggest change cause by that technology was invisible. The dreams of farmers ’children changed. Those children saw that agriculture was not a booming industry. Even though their parents and grandparents had been farmers, they saw that farming was going to be less profitable than it had been. They made plans to become salesmen, engineers, chemists, and pilots. The proportion of the workforce in farming plummeted. But the jobs didn’t disappear.” “You’re saying that the people took different types of jobs.” “That’s right. Some even went into a new industry called television. Can you imagine how poor America would be in 1960 or 2000 if America had made a decision back in 1900 to preserve the size of the farming industry in the name of saving jobs?” “But the agriculture jobs we lost went to other Americans. It’s not like we started importing food.” “What’s the difference?’ “I don’t know. It seems like the two cases ought to be different. When American farmers lose their jobs because other Americans figure out a new technology, at least the inventors who benefit are Americans. When American farmers lose their jobs because foreigners sell food to America more cheaply, the benefits go to foreigners.” “In fact, either way makes America better off.” “How?” “In either case, America gets less expensive food with a smaller number of farmers. That is the important change. You see America losing jobs. I see Americans spending less on food—food is cheaper and fewer Americans have to work in the food business. This allows Americans to make more of other things instead of food. Let me ask you a question, Ed. Do you think it would be good for America if all disease disappeared and everyone were perfectly healthy until the age of 120?” “Sure.” “Why do you answer so quickly? Aren’t you worried about what would happen to the doctors? America would lose all those high-paying doctor and health care jobs.” “Oh come on, Dave. If we could get rid of disease, doctors shouldn’t stand in the way. They would just have to find other things to do.” “And if America finds a cheaper way to make televisions by importing them?” “It’s just not the same. Cheaper televisions are not as important as getting rid of disease.” “But the principle is the same. Would a doctor have a right to force a person to stay sick so the doctor could continue earning the living the doctor was accustomed to? Does a television manufacturer have the right to force a consumer of televisions to pay a higher price to sustain high wages for his workers? But perhaps these are issues for a philosopher. In any case, we don’t lose jobs if we eliminate disease or if foreigners sell America inexpensive televisions. Certain types of jobs are lost. If disease disappeared, we’d lose the medical jobs. People who would have been doctors would now apply their skills to other activities and enrich our lives. Paradoxically, America would lose the high-paying jobs in health care but still become wealthier.”