Thursday, November 29, 2007

Globalization and Your Feet, Part II

Yesterday, I wrote about an excellent piece on globalization and international trade that appeared on Tuesday's "All Things Considered" on NPR. Yesterday evening, the second part was broadcast, telling the same story from the side of a worker in Honduras. While Honduras benefited tremendously by the arrival of the sock industry after tariffs were removed 20 years ago, much of that benefit is threatened if the U.S. restores the tariffs. These tariffs would protect the U.S. sock industry, but as shown in the example of Tuesday's broadcast, that industry has already moved on. I personally doubt whether it would return.

Addressing the Wednesday broadcast, it provided a poignant story, humanizing the economic benefit of trade and the potential costs if that trade is lost. My only significant criticism is in the last paragraph of the story. The reporter makes it seem as if physical capital is totally transferable and mobile. That is not the case. While some of the technology may be moved, much may be abandoned or sold. Chances are if a firm is relocating, they will buy new (read improved) capital. And one doubts the firms would take the buildings with them. They will remain, offering grim reminders of what could have been - or hopefully offering a place for new opportunities to take root.

I look forward to your comments.

1 comment:

Greg VanSlambrook, Brebeuf Jesuit, Indianapolis said...

Tim, thanks for spreading the word about this story. I used it in class today and the kids were definitely into it. They were fascinated at how the new industries were moving into the town to replace the sock industries - like you said, what a great example of creative destruction. Some were flabbergasted by the politics of the negotiating between Bush and the Congressman - one said "Isn't that bribery?" Another comment was "So the US sock workers are better off with the tariff, the US consumers are worse off, and the Honduran workers are worse off - so what's the best choice overall?" So we went through a domestic supply and demand model with a perfectly elastic "world price" and talked about lost surplus, as well as reviewing the concept of comparative advantage. It was a great discussion and I've never heard a story that better illustrates some of these concepts, it really made them come alive. My students also made connections to a part of Wheelan's "Naked Economics" - a suggestion to other teachers, Chapter 11 of that book goes along very well with this NPR story.