Coddling winners, trampling losers

A conference asks the question: Is comparative advantage broken?

Published June 26, 2006 4:37PM (EDT)

Live blogging, from the past! How the World Works is going to try something new today -- pseudo real-time blogging from a conference that took place two weeks ago.

A link from the China Law Blog led me to a Friday posting on globalization and the U.S.-China relationship by economist Stephen Roach at Morgan-Stanley's Global Economic Future digest. In his article, Roach mentioned that he had recently participated in a seminar on "Global Competition and Comparative Advantage: New Thinking on International Trade" sponsored by the Woodrow Wilson International Center for Scholars.

As regular readers of this space will know, if there's one thing we can't get enough of here, it's geeky economist discussions of comparative advantage. Is David Ricardo still right, and everyone benefits automatically from increased trade in which all parties specialize in their most lucrative niches? Or have technological advances broken the theory, allowing developing nations like China and India to advance at the expense of the developed world?

As it turns out, the Wilson Center put the video of the entire one-day conference online. This presented me with a dilemma. In the case of a topic so apropos to my interests, including appearances by famed economist Paul Samuelson and numerous other experts whose names constantly pop up in discussions of free trade, I feel compelled to watch the whole conference. But that would require the whole day, which would mean very little blogging.

Then it occurred to me that I could do what any real blogger would do in such a situation, and just blog the conference as it progressed. I invite readers to join me in pretending that the conference is actually happening right now, and you're getting breaking news summaries every couple of hours.

So: The day begins with Democratic Sen. Paul Sarbanes introducing the first panel, featuring Paul Samuelson, and economists Ralph E. Gomory and William J. Baumol, co-authors of the 2000 book "Global Trade and Conflicting National Interest." Sarbanes, who seems like a fairly smart guy, goes straight to the key question: Do Ricardo's theories sitll hold up? He notes that recent work by Samuelson, Gomory and Baumol has argued that there are real losers in a free trade world, and "I don't think we can blithefully assume that everything will work out to the advantage of the United States in the end."

Nationalist interests aside, Sarbanes also makes a much more critical observation, one that has come up in this blog repeatedly: If you're going to support expanded trade, you need to compensate the people who lose out. "But regrettably, for some time, changes in tax code and government policy have moved in the opposite direction -- giving more to the winners, and less to the losers."

The underlying message: If trade and income inequality grow at the same time, so will political tension. As Roach notes in his analysis, protectionist sentiments in Congress are strong and growing: There are no fewer than 20 anti-China bills currently pending in Congress. Sarbanes himself is on record as supporting a tougher stance on China on such issues as currency revaluation and whether China's various industrial policies could be considered illegal under the rules of the World Trade Organization.

But what do the economists say? On the left and right, the vast majority of those economists warn against protectionism even as they point out the potential negative impact of free trade policies. It will be interesting to see how Samuelson et al. negotiate this territory.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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