3.5.4.3  ‘Unfair Competition’ from Developing Countries

 (This is a current extract from the Patterns of Power Repository.  An archived copy of this page is held at http://www.patternsofpower.org/edition02/3543.htm)

Gabor Steingart argues that free trade is no longer in the interests of the Western democracies because the rising Asian economies are not competing fairly.[1]  He argues for Western protectionism against the East.  Among his complaints against India and China are these:

·      They allow inadequate working conditions.

·      They disregard damage to the environment.

·      They use child labour.

·      They fail to provide an adequate Welfare State.

He argues that the West is endangering its values by trying to compete with companies that do not have to match its standards, but his arguments conflate several issues and he fails to demonstrate that protectionism would solve the problems that he identifies:

·      A Western worker may have a better working environment and receive better benefits, but these can be regarded as part of overall remuneration.  The mix between pay and benefits is irrelevant to the application of Ricardo's theory.

·      Damage to the environment is partly a local issue, in adversely affecting the workers, but when it affects other countries (an issue discussed later in this chapter: 3.5.7) it is not just a free trade problem.  Economic protectionism may not be the most appropriate solution.

·      Use of child labour is a breach of the child's human rights, which have Legal (5.2.2), Moral (4.2.4) and Political (6.3.7) aspects in the governance of those countries.  There are three Economic aspects:

      The countries using child labour have a temporary advantage, in lower costs, which fits into Ricardo’s theory in the same way as any other reason for low wages. 

      The prosperity of those countries, though, would eventually be damaged because their workforce would have less of a formal education and they would be unable to compete with the increasing productivity of developed countries.

      There might be no better economic option for the families involved.

·      The lack of a Welfare State has a direct bearing on whether education is available to children and whether families can survive without accepting low-paid work.  These factors may lead to low wages, but that does not affect the application of Ricardo’s theory.

These four allegedly unfair competitive ‘advantages’ in developing countries do not alter the basic propositions that the people concerned are choosing work as being better than starvation, and that developed countries benefit from cheaper goods.  Protectionism is not the right response, either economically or morally.  Persuading consumers to pay higher prices for ‘ethically-produced’ goods might be a logical response – but that is a moral issue, which is dealt with in the next chapter (4.3.5.2).

© PatternsofPower.org, 2014



[1] Gabor Steingart, Head of Der Spiegel’s Washington office, gave a lecture at the LSE on 10 June 2008 entitled The War For Wealth: The true story of globalization and how Western society can survive, which is also the title of his book.  An MP3 recording of the lecture was available in April 2014 at http://www2.lse.ac.uk/publicEvents/events/2008/20080523t1155z001.aspx.