Wednesday, October 10, 2007

Free Trade: Bhagwati Takes on the Critics with Harsh Rhetoric

Dani Rodrik makes the following observation about a recent op-ed from Jadesh Bhagwati:

Jagdish Bhagwati is a sweet and courteous man in private, but his writing often makes me cringe. That is not because I frequently disagree with him, but because of the rhetoric he uses to attack his intellectual opponents. It's as if he has an evil twin that sometimes takes control of his writing hand.

The passage that made Dani cringe seems to have been:

But Mr Blinder seemed unaware of the fact that outsourcing via the internet was the mode of service transactions that the US lobbies were keenest about in the Uruguay round of trade negotiations: they saw that they would be the big winners, as no doubt they are. They hugely dominate transactions in high-skill and high-value services in architecture, law, medicine, accounting and other professions. Mr Blinder, when challenged, shifted ground to arguing that, as services became tradeable online, the number of jobs that would become “vulnerable” would rise pari passu, requiring adjustment assistance. However, there is hardly any serious trade economist who has objected to providing adjustment assistance. The first adjustment assistance programme in the US goes back to 1962. Virtually all trade legislation since has tried to improve on it. Many trade economists have written extensively on the subject. Mr Blinder, who started talking poetry, has therefore wound up talking prose. We free traders have no problem with him as he backs into our corner. But if he is to remain the new icon for those who oppose free trade, they have to be pretty desperate.

Something tells me that Alan Blinder can rise above this rough rhetoric. The specific passage that surprised me was the notion that the possibility that compensation might theoretically be possible cures all ills. Professor Bhagwati earlier had noted the 2004 paper by Paul Samuelson:

Autarky real per capita well being, does not deny that new technical Chinese progress in goods that America previously had competitive advantage in can, ceteris paribus, lower permanently measurable per capita U.S. real income. Nor does it deny that technical progress in China's export goods can, ceteris paribus, hurt permanently her own net measurable per capita real income itself when demand inelasticity prevails. Ergo, the winds of dynamic comparative advantage cannot be counted on to create in each region new net gains of the gainers assuredly greater than the new net losses of the losers. However, correct Ricardian theory does imply that worldwide real income per capita does gain net, so that winners' winnings will suffice worldwide to more than compensate losers' losings--some cold comfort in a scenario of many semi-autonomous nations.

Bhagwati would correctly note that the Chinese likely gain more than the losers lose –so in theory – the Chinese winners could compensate the American losers. But seriously – when do we ever see such compensation taking place?


Anonymous said...

So at one moment we're reading perelman's destruction of feldstein as an empirical scientist. Now we read of some argument between bhagwati and blinder, though it's not clear is blinder is taking part in the debate. bhagwati's analysis may be one sided, a soliloquy so to speak. Frankly it sounds like he's just discovered the wheel and fire. He throws in a couple of latin phrases, a lawyer's trick it is, to give substance to his argument.

Exactly what's new in the land of Oz? One economy's gain is another's loss, if not in equal measure. This is worth arguing about? Other than the knowledge that a guy named Ricardo talked about such issues a long while back, why is this worth discussing now? Is China going to compensate workers in other parts of the world because they've lost ground to an exploited work force? Did England compensate India for destroying its textile industry 150 years ago? And now vice versa? Yah win some, you lose some. What's with the big theoretical discussion? Are professional economists becoming the most unproductive thinkers in this country, or is that ranking still in the grasp of the hedge fund managers? In fact, I'd like to read a treatise on hedge funds and their effect on global productive distribution. Should be an interesting read.

J.Goodwin said...

Autarky real per capital well being

Does this make any sense at all? My understanding of an autarky is that it is an isolated economy. Isolated economies do not trade in significant quantities with other economies.

Therefore, I ask, what the hell is this guy trying to say?

ProGrowthLiberal said...

J. - I think that you interpreted Samuelson's opening correctly. What he seems to be comparing is real GDP with v. without trade. I quoted pnly the abstract. The entire paper is written quite well. said...

Well, arguably China is compensating the US by lending us money so that our long term interest rates stay low, keeping us out of recession, and with the held-down yuan/rmb allowing Americans to buy all that cheap stuff from their country at Wal-Mart. After all, aren't those what the gains from trade are supposed to be all about, cheap stuff to buy?

What I find a bit odd in this discussion is the claim that there has been adjustment assistance in the US since 1962 and that it has been steadily increased. Really? I think there was some effort back then, but my understanding is that it was eliminated. Also, Clinton put some in, but again it was eliminated. The politics of this in the US are the Republicans don't want to "waste the money" and the Dems would rather cater to the protectionist pressures of the AFL-CIO, who (accurately) see adjustment assistance as a substitute for their preferred protectionism. That countries like Sweden have done very well, thank you, with generous adjustment assistance is not to be discussed.

In any case, I do not know where that line came from, although perhaps some other country than the US was being referred to.

BTW, I also note that while Bhagwati has been very pro-free trade, he has supported restrictions on short-term capital flows in developing countries. In this regard, he is not a pure Washington Consensuser, if that is a term.

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Anonymous said...

At this point and for the foreseeable future, Trade Adjustment Assistance is a peehole in the snow.

Anonymous said...

But seriously – when do we ever see such compensation taking place?

I dunno. En passant? that is parri passu, ceteris paribus, and ex post facto. Ergo, a posteriori...

i see what you mean by rough language.

now maybe i'm just a hick, but my guess is that a talent for remembering phrases, foreign and domestic, passes for serious thought, not only among economists of course..

but i guess we can be grateful that no one takes economics seriously, except the politicians of course, and they have free choice and can mix and match to suit their decor.

BruceMcF said...

Two of the features of Ricardo's argument that assured that each participating nation was individually better off were balanced trade and the freedom to not trade.

The former does not come close to applying for a nation like the US with trade deficits in excess of 5% of GDP, or in even more striking terms, a trade deficit that is more than 25% of the amount of imports funded by exports.

And the latter, the freedom to say "no" to a particular trade because it is not economically appealing, is something that the US has long been accustomed to being a problem only for low income nations, but over the past twenty years the US has become increasingly dependent on imports in a growing range of industries.

And it goes without saying, and therefore probably ought to be said, that when we move beyond Ricardo's original robust argument to the sophisticated modelling of marginalist economics, the assumptions either poorly anchored or completely unanchored in reality increase. If we have left the scope of Ricardo's argument, there is little prospect that we fall within the scope of the more recent marginalist extensions of the argument.

Anonymous said...

My point is, are economists in the business of excusing every perspective that benefits only the wealthiest segments of society, and doing so under the guise of well researched theory? Well researched, there's the rub. Come on fellas. One ideologue quotes from the same sets of numbers to prove the opposing point of view of another. That's the problem. We're being fed ideologies rather than theoretical constructs supportable via testable hypotheses. Bhagwati used a lot of fancy words to say very little in the way of useful economic theory, but ideologues rarely do.

Free trade is not a theoretical concept. Even if there are benefits to both sides of a trading partnership, does any one ever bother to check out the spread of the benefits in either economy? I'm sure that the average Chinese laborer is thrilled with the advances in his/her new economy. Now they can slave away for a well connected party member rather than the party itself. And I'm sure all the former industry workers through out this country are thrilled that they now have the advantage of buying less expensive cheap crap coming out of China, and other such quality oriented manufacturing sites.

YouNotSneaky! said...

But if you don't have free trade, why shouldn't American winners compensate the Chinese loosers for the gains they are not experiencing? Arguing for compensation when going autarky->free trade but forgetting about it when sticking with autarky is just the tyranny of the status quo. Lack of a policy change also has winners and loosers.

This isn't to say that distributional issues, income equality etc. aren't important and policies to address these may be desirable. Just that "you should compensate the loosers" isn't a really good argument by itself. Which is actually part of the point behind Kaldor-Hicks.

If somehow free trade helped those worse off and hurt those better off (as perhaps it did when the better off were large landowners and the worse off everyone else) would you still argue for "winners compensating the loosers"?

This isn't even to get into the question of what makes trade special. If a domestic firm invents a process that produces some good cheaper, outsells its competitors and drives them out of business that will also have loosers and winners but no one's clamoring for compensating the loosers in this case. Which sort of suggests that free trade just serves as a useful boogeyman for certain segments of both the left and the right.

Again. None of the above implies that distributional concerns aren't valid. Just that the argument "but the loosers are not actually compensated" by itself, misses the point and is wrong.

Anonymous said...

The issue is not so much the compensation of losers. Free trade is descriptive only of the end result of a process. That process might be described as the freedom to exploit for the sake of advantage in the global economy. We talk about trade between nations as though it were being conducted by distinct and separate entities. In fact it is often operators in both economies who take advantage of each locality for the purpose of enriching a limited number of participants in the scheme. At one time it may have been American or British firms competing with one another and each against still others. Each exploiting the comparative advantage of its economy. This is no longer the case. Businesses are not national, but global in their focus and, probably, in their ownership. Recently labor has become the primary exploitation target. The new advantage is cheap labor. Capital is moved to the locality that can best exploit its workers. The owners span multiple economies, and are the only winners.

YouNotSneaky! said...


Admittedly I don't know that much about trade assistance. But this looks current:

and here's a comparison between old and new trade adjustment assistance programs as amended in 2002:

I don't know if these TAA levels are adequate or if the programs are designed appropriately, but honestly, without a good bit of detailed data and a few judgment calls (which should be made explicit) I don't think anyone around here can either (maybe I missed something obvious).

Both of those "features" of the Ricardian argument are pretty much irrelevant to it. Unbalanced trade just means that a good called "consumption today" is being traded for a good called "consumption tomorrow" and, roughly, it's the same thing. And of course HOW a particular trade arrangement comes about really is a separate question of WHAT its effects are (in the sense that they are what they are).

First you got to tell me what you mean by "exploitation". This is not a rhetorical move. Do you mean that the workers are worse off after trade than before it? That they receive lower income/wages? That they get paid less then their marginal product (Joan Robinson's definition I believe)? That their surplus value is being appropriated (Marxist definition)?
Of course in the last two instances, it's entirely possible that one can be both more-exploited and better-off/richer at the same time (which I think John Roemer pointed out somewhere in a different context). said...

I stand corrected. The TAA was started in 1962 but had little funding until after 1974. Expenditures then rose to 1.6 billion in 1980. Then Reagan cut the program way back. In the late 90s about $200-300 million per year was being spent on it.

After 2002 it was expanded. In 2005 about $900 million was spent on about 55,000 workers. This is small change compared to the nearly 2% of GDP in Sweden that has been spent at times.

YouNotSneaky! said...

Is it possible that the high number for Sweden includes all forms of labor market adjustment assistance and not just that related to trade?
This paper (I readily confess to just googling the topic):

puts Sweden's TAA at .77% of GDP rather than 2% and also appears to single out Italy as the lowest among OECD in terms of TAA at .11%, which is much higher than the number you give for US (text). It does seem to matter how one measures TAA, as table 1 suggests. Total "active labor market policy" for Sweden is 1.86% though which is closer to the 2%. In general US is towards the bottom, comparable to Italy, Switzerland and Japan.

It's also important not to confuse supply of TAA with demand for it. Someone (like Paul Krugman more than 10yrs ago talking in the context of NAFTA) might argue that the low number for US reflects the relative lack of need for such assistance (i.e. trade opening does not cause much dislocation) rather than the willingness by the government and society to provide it. After all, it seems like the total amount of assistance is a function of the number of people who apply for it. To the extent that DOL may reject some applications there's a supply side to it but the other consideration is surely also worth of attention.

Also, I suspect that the high-TAA/free trade policies of the Scandinavian countries (which are the most open in the world, barring city states like Singapore and Hong Kong) would find favor among many a free-trade promotin' economist, Bhagwati amongst them.

At least now we've moved from "when do we ever see such compensation taking place?" to "is the compensation enough?". Now if we could just get to "the issue of compensation is a red herring, even for egalitarians"

Anonymous said...

Suggest that you begin looking through the help wanted ads for that long sought after position of laborer in a Chinese factory. Which form of exploitation do you most long for, but not recognize? You can be paid a subsistence wage. Or possibly no wages at all after months of promises. You may be fortunate enough to garner one of those new and exciting positions which provide permanent housing within the factory compound. Granted that living standards may be abysmal, but you'll have the peace of mind that comes from conscription. Exploitation? Like mining under ground under conditions that rival the worst that we have to offer in this country.

True there is a new and growing class of professionals and business investors that are prospering beyond JP Morgan's wildest imaginings. That's what results from having so many more people to exploit to one's own advantage. "Less than their marginal product." I like that. A phrase that only an economist could coin. It makes exploitation so much less tawdry. You'll know exploitation best when you suffer it, though its not difficult to recognize when you see its results. No, not the impressive high rises and fancy cars of the nouveau-riche, but the miserable hovels of the working poor. Such circumstances prove the value of totalitarian communism. Or any other form of totalitarianism, for that matter.

YouNotSneaky! said...

Jack, I assume that your answer then is "all of the above". Or at least "they're worse off". If that's so, I'm sorry but that is wrong, whatever impression you might have. The basic evolution of distribution of per capita income in China looks like this:
1970 - everybody poor and equal, even the party bosses, more or less.
1970-1980 - the upper half of the distribution goes right, increasing income for the top, I dunno, 40% or so. The rest basically stay where they are.
1980-1990 - the lower half starts moving right as well though not as fast as the upper half. Everybody's gaining.
1990-2000 - the whole darn thing is speeding to the right with perhaps top 20% or so outpacing everybody.

So you get average increase in per capita income, a very large decrease in poverty and some increase in inequality.

And yes, a lot of that growth has been export driven. And these changes really are too big to be explained away by data errors or even data manipulation.

To argue that a vast number of Chinese workers have NOT benefited from trade with US and other developed countries is just empirically impossible.

YouNotSneaky! said...

""Less than their marginal product." I like that. A phrase that only an economist could coin. It makes exploitation so much less tawdry."

You might want to address this to one of the people who's photo appears on the header of this blog.

"It's a terrible thing to be a worker exploited in the capitalist system.
The only worse thing is to be a worker unable to find anyone to exploit you."

J.Goodwin said...


I see this as a good point. Reliance on foreign trade for goods and services necessary to keep your own economy going can be viewed as equivalent to the status of the very poor. They have to buy certain non-luxury goods just to survive, and are therefore particularly affected by price fluctuations. A "small" interruption in the absence of a necessary good can cause catastrophic effects down the line.


It's only trading consumption today for consumption tomorrow if both economies are "going concerns."

Otherwise, you're trading consumption today for international economic turmoil and global depression tomorrow.

Anonymous said...

$900 million in 2005 was 0.00007% of US GDP.

Anonymous said...

Gross measures of income distribution do not elucidate the worker's situation in China, or any of the many economies based on the exploitation of local assets including labor. The plight of the Chinese labor force has been well documented and described through a wide variety of media venues. What measures there may be of the quality of life for those laborers can only be suplied by their government, not exactly a bias free source of such information. It is unlikely that a more prcise measure of income and quality of life for that vast segment of the Chinese population is not likely to be made available and if so will be subject to error, both intentional and statistical.

Is their economy wealthier than previously? No doubt. Is that wealth reaching out and improving the lot of the Chinese people? For some, of course. For the vast majority, not likely. Their's is an enormous population. As such distribution is all the more significant in determining quality of life. Their economic success is based upon exploitation of labor, a significant factor ini manufacturing costs. Their raw materials are no less costly than any others. Their plant and maintenance costs are cheaper, but again based upon the significance of the labor factor and its exploitation. But what the hecks the big deal about the suffering of a few lowly Chinese laborers? Of course their suffering in exploitation is the buttress of the suffering of laborers in every other economy. Call it spread of effect. Even if a large segment of their work force, say 20%, is gainiing, there are still one billion others that provide the fodder for that exuberance. That sure soounds like a lot of exploited Chinese workers.

Anonymous said...

jack is right.

both as to the present facts and to the fundamental question.

economic theories that depend on ignoring most of the relevant facts and being wrong about their own assumptions are possibly useful for academic consideration and other philosophical purposes.

just as carefully selected statistics can be employed to make the worse case appear the better.

the fact is that so far economic "theory" is not adequate to describe the complexities of the real world.

in any case what is useful is that all of the affected parties make their best guess about how they will be affected, short and long run, and decide whether they want to risk the changes.

this is what happens anyway, when the affected parties are informed and have a voice in the decisions.

all the economic theories contribute to the discussion at this point is pseudo intellectual rationalizations for one side or the other.

YouNotSneaky! said...

"s their economy wealthier than previously? No doubt. Is that wealth reaching out and improving the lot of the Chinese people? For some, of course. For the vast majority, not likely."

But it is likely. In fact it's pretty darn likely. Does that mean that there's no more poverty in China? Of course not. But compared to what was there 30 or 20 or even 10 years ago it is much much less. Perhaps you're just not aware how desperately poor China really was 30, or 20, or even 10 years ago.

You can see the improvements in aggregate income statistics. You can see it in aggregate poverty statistics. You can see it in micro level income statistics. You can see it in official government statistics. You can see it in statistics gathered by independent sources. You see it across datasets. You can see it in health statistics. You can see it if you visit China. You can see it if you observe Chinese immigrants to US and talk to them. And so on.

There is just no way that one can plausibly argue, based on empirical data that the vast majority of Chinese people have NOT seen dramatic and perhaps even unprecedented (for how quickly it happened) improvements in their standards of living.

Perhaps this dramatic improvement in the lives of ordinary Chinese is based on the exploitation of their labor. I don't know, partly since you prefer to keep that term vague. But see Joan's quote above.

"Even if a large segment of their work force, say 20%, is gainiing, there are still one billion others that provide the fodder for that exuberance"

No, the point was that the 20% was going up faster than the bottom 80%. But the 80% was still going up very fast.

If what's been happening in China in the past 20 years is based on increasing exploitation of labor then there many many countries in the world that could really really really benefit from that kind of increasing exploitation.

Anonymous said...

Let's clarify a point. I'll accept the 20% figure as the measure of those whose quality of life has been substantially improved. That amounts to about the entire population of the US. Yes, a great many people in China have seen their economic boats rise on the crest of a tsunami tide. The other one billion are also doing better? I don't think so. Think about what would be required for it to be so. Where would the resources have come from? Does China's manufacturing
sector so far out pace all other economies so that a population approximately five time larger than ours would benefit in some significant way? Certainly seems unlikely that after the 20%ers there would be something left for the rest. I'm curious as to where your statistics, which you label empirical data, come from. The Chinese government has not been noted for sharing economic data with the rest of the world. Those visiting here would certainly be representative of the 20%ers, so their opinions of the quality of life at home will be unique to their own good fortune. Reports from visitors to China are no better than anecdotal evidence, to say nothing of the limited view of China that is represented by areas open to tourism. By the way, most of the manufacturing centers can't be seen from satelite view. The pall of dirt that floats overhead obscures the view. It's a wonderful life.

Anonymous said...


you can see it in their soot filled skies.

you can see it in their stocks of organ donors.

you can see it in their new hordes of city dwellers in situations subject to short notice.

and the absence of family ties...always problematic to some.

but my beef here is not so much with chinese "progress" as it is with the economists rationalizations.

i read the argument for comparative advantage when i was a simple minded sophomore and was as convinced as anybody else. after all, it's cute and counterintuitve, so while not hard, you can feel smart because you understand it and the unwashed don't. it works like this, you see. a country, A, perhaps a big country with amber waves of grain has a comparative advantage in growing food. so it puts all of its workers into food production, while country, B, perhaps a small tropical country has a comparative advantage in, say, making straw hats. fine country A grows food and exchanges it for hats from country B and both countries are better off.

until, the free market moves, and the deman for hats falls, or there is a partial crop failure, or the cost of shipping or there is a war.

then country A has to do without hats for a while, and country B has to do without food for awhile.

now this is not an argument youwill read in your basic econmics text, or in you r daily newspaper, though i have no way of knowing if real economists talk about it.

to judge from what of their writing i do see, they are still stuck on cute.

because of course as every economist knows, the purpose of an economy is for us all to work as much as possible at the lowest possible wage making plastic beads to sell to the natives at the lowest possible price.

Anonymous said...

What is most apalling has more to do with the lack of freedom in too many of the economies with whhich we do our "free" trading. Free trade is becomiing a simple rouse through which an ownership class can avoid laws governing the work place. We have a problem in a coal mine and a dozen unfortunate miners face serious jeopardy. In China several hundred end up dead or missing. Here a corporation is bankrupt and its workers somehow see their pensions get washed away.
In China some workers wait endlessly to receive the pay they've been promised. Maybe it shows up, maybe it doesn't. These are not circumstances that occur throuoghout their economy, but we don't have any reliable way of knowing how wide spread and severe is the exploitation. What is well established is that their competetive advantage is based on dismal wages and work conditions. Trickle down doesn't work any better there than it does here, but there is always a "trained" economist to argue in its defense.

YouNotSneaky! said...

"The other one billion are also doing better? I don't think so. "

Well, as crazy as it may sound to you, they are.

"Think about what would be required for it to be so. Where would the resources have come from? Does China's manufacturing sector so far out pace all other economies so that a population approximately five time larger than ours would benefit in some significant way? Certainly seems unlikely that after the 20%ers there would be something left for the rest."

You seem to think that this is a zero sum game. That if someone somewhere gets an extra dollar's worth of goods then that means that that extra dollar's worth is taken away from someone else. Hence the question "where does it come from?" (it's produced) and "there (is nothing) left for the rest". But this just isn't how it works, at least in China. The fact that per capita production (or consumption) is going up means that per person more stuff is being produced. Ok, you may not care about per capita income and focus on the median or the mode or just the bottom of the distribution. But the fact that the average is increasing means there is more and more to be spread around to everyone. So you don't have to take from one person to give to another. And China's increases in income and standards of living have resulted from increased organizational efficiency, increased saving and investment, better technology and ... it's export driven growth strategy. And China's poor have received a good bit of benefit (though by no means all and probably not even the majority) from these sources.

"I'm curious as to where your statistics, which you label empirical data, come from."

These numbers are all over the place and although in some instances the magnitudes are controversial they all point in the same direction.

For per capita incomes and standards of living you can look at UN, Penn World Tables, World Bank (whatever problems one may have with the WB, their statistics are widely respected), Chinese government, US government, EU country governments and a host of other places.

There's a ton of research and data on inequality in China (which has gone up) and I'll let you google that yourself.

Numbers on poverty come from UN and other sources. For example:
Here's some more:
This book:,M1
has an article by Danny Quah in which he calculates that between 1980 and 1992 the number of people in China living at less than 2$ per day has fallen from between 360 to 530 million to between 152 to 198 million. As a fraction of total population that's going from a poverty rate (.37, .54) to a poverty rate of (.14, .17). The estimates are intervals because they take account of potential for monkey business in statistics that you seem to be so worried about. (pg 36).
A pretty broad and widely used data set for inequality and poverty is the Deininger and Squire data set:

There's more. And it all reaches the same conclusions, though again the magnitudes may vary.

So. What data are you basing your conclusions on? I mean, data. Not anecdotes or rhetorical stories. Impugning someone's motives is not an argument either.

And let me emphasize once again that the existence of this phenomenon (growing average income and falling poverty rates in China) is NOT controversial regardless of researchers' ideology.

"Those visiting here would certainly be representative of the 20%ers, so their opinions of the quality of life at home will be unique to their own good fortune."

Of course. To some extent. They may very well have family members in less fortunate circumstances and so on. But I don't quite understand why I should take the word of some guy with an Anglo-Saxon name on an internet blog over some person who's actually, you know, like, from China.
At any rate, the stories they tell are in accordance with what the numbers and other evidence shows. Your stories are not.

"Reports from visitors to China are no better than anecdotal evidence, to say nothing of the limited view of China that is represented by areas open to tourism"

Of course. To some extent. But the anecdotes accord with the data and the numbers.

Look, I know the difference between data and anecdote. But I mentioned both because both paint the same picture.

And again, it's not like you're providing me with hard numbers on data to support your view here. You're not even telling anecdotes.

Anonymous said...

where, in ricardo's argument, do we find mention of unequal exchange rather than an ideology of multi or bi-lateral gain. in his 'principles', didn't he conveniently(?) forget things like the methuen treaty and its consequences. 'comparative advantage' and 'balanced trade', by assuming away reality, make for great ideology.

ever read what han deqiang, others, have had to say?

bit of a mismatch between your beliefs and the realities they see/analyse.

no problema...propaganda uber alles, and there have been sufficient decades of that to generate cadres of truly faithful.

anyway, speaking of trade without taking account of transnats and intracorporate transfers, etc, ignores the modern world of companies and countries in favor of a nation-centric unit of analysis.

Anonymous said...

for your assistance -

Anonymous said...

not sneaky!

for all i know everyone in China is doing better.

but your argument loses a bit in translation:

all those chinese producing... are not producing for the local market. they get a dollar a day and the product gets shipped to America, and the money goes into a big bank account for the Party to spend as they see fit.

and the part of the argument you ignore is the "quality of life" argument. besides the fact that that dollar a day translates into higher prices for the chinese... remember, they are not producing for the local market... the conditions of life may be worse.

i don't know. but i am objecting to the kind of arguments that say sure everything is hunky dory on purely theoretical grounds, or statistics which may or may not mean anything.

shr bu shr?

YouNotSneaky! said...

"ever read what han deqiang, others, have had to say?...for your assistance -"

Uhh.... earnest pining for the glory days of the Cultural Revolution? You're serious?

Anonymous said...

yep, just as serious as a recent FEER article (Have China Scholars All Been Bought) calling into question the quality of data that it seems you rely on.

long ago, bhagwati used the term 'immiserizing growth', which, with a twist, fits the china picture

Anonymous said...

I'll simplify the argument this way. The stats are of no consequence. They're produced by the very people who are benefiting from the situation as it exists. Something like the state of classical economic theory in this country. You completely ignore the fact that it is the cost of labor that is at the center of China's great success. That success made possible not by their ingenuity, but by the desire, dare I call it greed, of the western business interests to take advantage of their labor pool. And like all good totalitarians, in spite of their professed communist inclinations, the peasant class is expendable or, as in this case, exploitable. Their ruling class and the functionaries that serve them most directly have found their salvation in corporate communism. Marx must be spinning in his grave.
And I haven't even touched upon the spread of the exploitation effect on US manufacturing. Check out the current focus on the (formerly) great state of Michigan. There is a story to be told.

YouNotSneaky! said...

Well, if we're just gonna throw out data because it doesn't fit in with our preconceived notions and ideologies then there's no point in having a discussion. As I said before, the data is perfectly respectable and used by lots of folks of lots of political backgrounds.

I'll keep this in mind next time someone starts talking about how economists are detached from reality or unwilling to look at "the facts".

Anonymous said...

As we've seen, or read, in other threads on this blog even the most well respected economists have managed to build reputations on "perfectly respectable data" as summarized and analyzed by those economists. Attaching numbers to an issue does not necessarily lend credence to a particular point of view. In the various fields of the social sciences all too often research is a matter of the seek and ye shall find enterprise. When social phenomenon, as economics certainly is, measured in gross terms our understanding of those phenomena are just that, gross. I'm amused at the routine manner in which economic data is bandied about as though it had the precision found in the measurement of physical reality. A ton of wheat is readily measured on an accurate scale. The distribution of that wheat becomes increasingly prone to error of measurement as its actual quantity is amplified. At a certain point it becomes little more than an educated guess as to who has bread to eat.

Nothing in the social sciences is "perfectly respectable." Least of all their methods of data collection. But one thing that we can always count on is that when that data is questioned persistently it takes on ever greater perfection of representation. Then there is little more to debate.

Anonymous said...

One additional point opn the issue of the usefulness of economic statistics. Have a look over at AngryBear for the thread which pgl links to in his post above. There are some relatively specific budget numbers,(large aren't they?) which are interpreted in several contrary ways depending on the exact manner in which the "statistics" are presented. Yes, the numbers may all be accurate, but it's never the accuracy of the measures that create the illussions. It's the presentation of their meaning. One man's analysis is another man's deception.

Anonymous said...


it's not the case that economists are unwilling to look at the facts... it's that everyone has their own facts.

and some facts are more equal than others.

that really is Jack's point. and for you to complain that he is not willing to look at facts... meaning accept your facts without wondering if there are other facts that limit the significance of ours... is just to miss the whole point of the discussion. said...

Oh goody, a rip-roaring debate about the Chinese economy!

First, to yns. I think on Sweden that there was a time when the TAA did reach 2% of GDP. Clearly it is not that high now, and that is about the level of the overall labor assistance/retraining, etc., as you note.

Regarding China, yes, a lot of bad things are going on, and, yes, there are some really humongous debates about the numbers. But, yns is basically correct. There has been real economic growth in
China that has spread to most of the population, even if a small percentage is making out like bandits, with massive increases in inequality and corruption. There may be some people whose real incomes have fallen, but the vast majority have seen real increases, and noticeable ones. Things are not like they were in the "good old days" of high Maoism.

One sign of this is the debate over on the carbon cap thread. China may have surpassed the US as the world's biggest emitter of carbon. It is not clear that it actually has, the data is fuzzy, but carbon is emitted by high income countries. Most projections did not have it passing the US for several more years, but here it either already has or is about to. And that is a very hard fact. Those reported 10+% GDP growth rates are for real.

BTW, I have been to China several times, and I have seen enormous changes, although indeed I have been to places that are where the high rollers live (big cities like Beijing and Shanghai), and have not been in the far corners of the western rural areas, where the people whose incomes may be going down are located. But the changes in the biggest cities are simply astounding. I have been in smaller towns that one could mistake for being in the US, if not for all the Chinese writing and people.

Anonymous said...

Barkley et al,
While the focus of this discussion has centered on the effects of the economic "miracle" in China I have tried to respond to the concept, in the original post, of compensation. Not that I would suggest that compensation should be an effective aspect of the so-called global economy. If the end result of free trade were as the free traders would have us believe there would be no need for compensation between trading partners. But free trade in this global economy is not about balance. It's about competitive advantage. More accurately, its about unfair advantage through exploitaion of resources. In this case labor is the resource.

Even addressing these issues as though it were competing economies that were at the center of the debate is incorrect. Global corporations are utilizing the work force of a totalitarian government to their own advantage.
Even if we assume that the lowest laborer in China is now better off than previously, we must acknowledge that they are more likely going from dire deprivation to serious impoverishment as a result of their laborinig efforts. Wonderful!!

That then brings us to the effect of a laboring class that while having experienced some marginal improvement in their lot, are still a grievously exploited force.
The result is reasonably clear right here in the USofA. What had been a vibrant manufacturing economy providiing a good quality of life for its citizens is fast becominig a third world economy with a bifurcated character. The Chinese are experiencing an unintentional consequence of the endless search for cheaper labor. They've got the largest pool of labor. They needed only to be convinced of the fantastic benefits that lie in wait for a controling elite that can make that labor available to the corporate class in the rest of the world. They didn't forsake communism for capitalism. They learned of the riches of corporatism to those in control.Thank you Richard Nixon, and Henry the K I guess, for opening the door to China. Or did they open the door for China?

Anonymous said...

it's funny that a leftish economist would state that the Chinese are better off because they have more money as they move from the land to situations subjct to short notice.

i have never been to China, and I assume that sneaky and rosser are right, but they still miss the point.

money as the measure of all things is what is wrong with both the left and the right. said...


I did not say that the Chinese were happier, if that is the bottom line. There is a rather large literature, going under the label "the Easterlin Paradox," about how rising incomes in a country do not necessarily lead to people saying that they are any happier (and indeed there is considerable evidence that increasing inequality leads to people being less happy, people focusing so much on relative income). In fact, I think the last numbers I saw showed declines in reported "happiness" in China. So, the point is well taken.

However, the issue is also not money. It is what money can buy. And the Chinese, or at least the vast majority of them, are able to buy a whole lot more stuff than they used to be able to, even if they may be less happy doing so as they see the inequalities in their society sharply increasing.

(BTW, reported happiness in the US peaked in 1956. My observation on that one is that 1957 was the year of maximum births in the US... ).

Anonymous said...

It is rather interesting when one recognizes the irony that China's economic success represents. What has been lost in most discussions of China's economy is that it is "officially" a communist economy directed by a totalitarian government prone to some rather draconian methods of control. The "people's" republic has become the biggest lever in the never ending efforts of the corporate class to wring yet another few cents of value out of the people who provide the labor. That leverage is being used to great advantage by clients of that communist economy. Marx must be scratching his head in wonder. Of course simply claiming that China's is a communist economy and that it is a People's Republic does not in any way demonstrate the new truth of the matter. I suppose theirs is what might be called neo-socialist. Corporatism=
global cooperation between predators=free trade=China and its business partners=corporatism.

YouNotSneaky! said...

Coberly, of course money is not a measure of all things and not happiness in particular. But generally having more money does make people better off, even if a whole host of other things matter too and even if they matter more. And this discussion was about the supposed impoverishment of Chinese people in the last twenty years. To be a bit extreme in order to make a point, why do we care about poverty (as opposed to inequality) in the first place if money doesn't matter?

I also disagree with Barkley on the relationship between self-reported happiness and income. I can certainly buy that in developed economies an extra dollar is not going to do much for a person's happiness, if that can be talked about objectively. But for a person who's moving from living on 1 dollar a day to living on 2 dollars a day I believe that's a large improvement in their well being. I just can't see how it wouldn't. Intuition just screams against it. And there are widely known and discussed problems with the "Easterlin Paradox" with an obvious one is that the self reporting at different points in time really is not comparable. Comparing responses across countries and cultures is also problematic because a lot is often lost in translation. For example in Slavic languages a straightforward translation of the word "happy" from English can very easily result in the survey asking a person if they're "lucky" which is a different concept. In some other languages the mistranslation can easily result in being asked if one feels "silly" "ecstatic" "giddy" and so on. And of course some cultures place a value on appearing stoic even if one is bursting with joy inside.

Also my understanding of the literature is that self reported happiness does rise with income until about 10K per year or so or a bit more and stays flat only after that.
I'd be interested in seeing the numbers which purport to show that recent self reporting of happiness has gone down among Chinese. Also to know if Barkley thinks that the whole field of development economics, or at least that part of it which focuses on growth in the poorer countries, is a waste of time in light of the Easterlin paradox. Is inequality all that matters?

Anonymous said...


i am not so sure that the costs of that actually higher growth have, for the majority of the chinese, been outweighed by 'real increases'.
there's been a now long run tendency to ignore undevelopment in the countryside while focusing on the urban, and even then to discount evident problems in favor of 'the china story'.

now it may be that china has discovered a new proletarianization pathway that doesn't include 'blood and dirt' but, after following this since the later 1980s, my impression is that it has not, even as that 'path' became overcrowded, i.e. new entrants running higher than ability to absorb, expanding 'floating population', increasing social unrest and state coercion...

not necessarily disconnected from profit rate differentials between domestic firms and the transnat sector nor from increased tech composition of capital...

not so disconnected from export led development
and overinvestment which will become still more evident as the U.S. (et al) continues "slowing".

expect another chinese revolution within no more than a decade.

btw, one of my brothers just returned from 7-8 months in china and agrees that pollution there is widespread and at least extreme said...


You may be right that people are getting happier in China on average. Just did some googling and saw this recent Pew study that claims they are getting happier, although I am aware that this study is in conflict with a lot of other studies on several issues. Do not remember where I saw a study claiming that people are less happy in China, although it is generally true that reported happiness is related to income equality, ceteris paribus.

I am fully aware of the problems with the happiness lit. The journal I edit is one of the main outlets for that lit (Easterlin is on my board of editors), so I see gobs of this stuff, much of it crap. The most reliable studies are panels of a constant group of individuals. Cross individual studies are suspect and cross-country are even more so.


Well, the worst poverty in China is definitely in the countryside. This is why people are pouring off the countryside in history's most massive rural-urban migration ever (and probably ever to be).

Pollution was horrible when I was in China two years ago, and from people I talk to, it has done nothing but get worse. I really feel for those marathonists in next summer's Olympics. Hope they (and the other competitors) do not end up in the hospital.


Anonymous said...


i don't think marx would be 'scratching his head' about it but, given that he understood one primary characteristic of communism had to be statelessness*, would consider that the label was misapplied and that the chinese social formation remained "a despotism", though of a different form.

still, he had made mentions of a early mnc, the british east india company, having been "planted upon Asiatic despotism", noting:

"This is no distinctive feature of British Colonial rule, but only an imitation of the Dutch, and so much so that in order to characterise the working of the British East India Company, it is sufficient to literally repeat what Sir Stamford Raffles, the English Governor of Java, said of the old Dutch East India Company:

“The Dutch Company, actuated solely by the spirit of gain, and viewing their [Javan] subjects, with less regard or consideration than a West India planter formerly viewed a gang upon his estate, because the latter had paid the purchase money of human property, which the other had not, employed all the existing machinery of despotism to squeeze from the people their utmost mite of contribution, the last dregs of their labor, and thus aggravated the evils of a capricious and semi-barbarous Government, by working it with all the practised ingenuity of politicians, and all the monopolizing selfishness of traders.”

*stateless not in the sense of no state but society itself having become the state, no mere change in form but a transcendence.

Anonymous said...

barkley, sneaky, and all

from my perspective, the quality of this discussion has improved way above where it started which was, if i remember, the appropriateness of some clunky state compensation for the losers of the generally best of all possible worlds free trade.

all i was saying is that there is more to look at than just the money. not that money has nothing to do with "happiness," just that money is not the measure of man. and that both economic concepts ant the statistics used to justify them are very likely missing important aspects of the situation, if not the whole point entirely.

speaking of 1956... i tend to agree with that assessment. you probably will not, but i think that by about 1956 America was well into trying to correct the evils that had led up to (not saying caused here) the big War. We had entertainment in which the good guys shot the guns out of the bad guys hand. we still believed in love as opposed to "good sex." we worked hard to overcome racism...

and while my family was quite poor, it occurs to me looking back that we had everything we needed. only the anxiety of not having a job or a roof from time to time made life a bit miserable.. not counting, of course, the misery that humans can inflict on themselves for no good reason at all.

i was thinking about James Herriot's book today.. because he describes a people who are not rich... indeed they would be quite poor by today's standards, yet they had what they needed for happiness... even allowing for Herriot's fictional needs.

and just to spoil the mood... i read somewhere recently about a study that claimed to show that "the rich" were no happier than "the poor." i have a fair degree of contempt for such studies, but was certainly not surprised by the conclusion.

if this has drifted rather far from compensating losers in the free trade game... maybe it suggests a more fruitful place to look for human "happiness" than GDP.

not that GDP has no effect on it.

Anonymous said...

found myself contemplating again today all the gains i have had from being able to buy made in china products at such low prices.

i owned a toaster and a hot plate made in america for over twenty five years each.

i have been unable to find a toaster or hot plate made in china that lasted a year. or really worked during that year.

where do i apply for compensation?

Anonymous said...


send proper request form to:

Capital Set U Free Inc
Office of Consumer Compensation
Limitless Global Assembly Line Way
All Azimuth, 0n∞