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Pencil_Pusher

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The most effective way for a developing country to assure that their industries are overwhelmed by foreign competition is to squander what little capital they have in efforts to develop industries in sectors where they will always be at a competitive advantage instead of using their resources to invest in sectors where they can compete.

 

At one point Saudi Arabia was attempting to become self-sufficient in food production, so they began to invest heavily in wheat cultivation. There is simply no way that a Saudi Arabian wheat farmer will ever be able to compete with wheat farmers in more temperate climates, ever. Instead of using the proceeds from the industry in which they enjoy a huge natural advantage, namely oil production to buy the wheat, they set out to make it themselves at a dramatically higher cost. Instead of procuring one ton of wheat for X barrels of oil on the open market, they produced one ton of wheat for 10X barrels of oil. Not only did they get ten times less wheat for the same price, they foolishly sqandered the proceeds from the sale of the other 9X barrels of oil that could have been invested more productively on virtually anything else. This is one of many reasons why Saudi Arabia will go tits up if the price of oil ever drops below $15 a barrell for any length of time. Whatever the tarrif, the result is the same - squandered capitol, less development, and more misery. For more dramatic examples, just take a look at any Soviet Block nation of your choice, China in the Good Ole Days of the Cultural Revolution, or the tremendous prosperity currently being enjoyed by the denizens of North Korea under the tutelage of their Dear Leader, Kim Jong Il.

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although income is a big part of one's quality of life, it is hardly the only factor that controls it. equating the quality of one's living with how many goods one can afford is just plain silly (you may save money by eating fast food everyday but it can't be considered quality eating, be it because of the food itself or the quality of the experience). you may derisively comment on what you perceive as other's limited understanding of the economy, but your reducing one's way to betterment as decreasing out of pocket expenses by any means necessary is just plain simplistic or disingeneous. anyhow without getting into the social benefits of locally operated businesses, equating the take over of local retail by chains as progress is misleading: for example, don't tell me you don't miss Chubby and Tubby (including for cost), or that you'd rather purchase your lumber for projects that matter at home depot versus a local lumber outlet.

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JayB said:

The most effective way for a developing country to assure that their industries are overwhelmed by foreign competition is to squander what little capital they have in efforts to develop industries in sectors where they will always be at a competitive advantage instead of using their resources to invest in sectors where they can compete.

 

This gleefully ignores the fact that unfair trade practices are used by larger countries against smaller countries that don't have the resources to subsidize industries or commodities. If the markets were truely free you might have a good argument. But in practice the less developed countries just become little economic colonies of the bigger boys. How quaint.

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Chubby&Tubby? That was the worst store in the world. Is anyone surprised they went out of business.

 

And, I love Home Depot. And Costco. Don't assume that everyone else associated a negative experience with shopping at these chains - from the sales volume, you're obviously in the minority.

 

Also, economists don't just focus on income and consumption - these are easy to measure and solid indicators, but the ideal metric is "utility". You have to measure it indirectly by tracking behaviors. For instance, when a Walmart locates in town and a bunch of store go out of business, you can observe that consumer utility increased - if it did not, why would consumers have chosen to shop there?

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Hey PLC, gotta question. I remember in my economics class that tarriffs inevitably hurts the country that puts the tarriffs on. Is this generally correct? What about subsidies? Just interested becuase of the recent tariff war on lumber with Canada.

 

Yes, tariffs hurt the country which imposes the tariff both by driving up the cost of goods (effectively reducing income) and by causing a misallocation of productive resources (which also reduces income). In the case of the lumber trade with Canada, when we impose a tariff, all we're doing is increasing the price of lumber in the US. The relative disparity between the US and Canadian cost structures also lead to an INCREASE in the volume of lumber coming from Canada. Since the price of lumber went up, Canadian firms were able to bring on-line less effecient machinery and hire less effecient workers at a profit.

 

So, market share for US lumber firms fell, the cost of lumber for consumers in the US went up, and the tariff funds were essentially transferred to Canada.

 

Direct Subsidies are also poor strategy (in most cases, excluding things like basic research) - when Canada was subsidizing their lumber companies, they were essentially tranferring wealth directly from Canadian taxpayers to US consumers.

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While economics is often good at measuring movement of capital and direct cost benefits, it rarely acknowledges wide-ranging social costs. Such as cost to folks of lower wages from Walmart, environmental costs, community-social costs (degredation of main street businesses), and social costs of medical care if your employer doesn't provide it. Economists often ignore these because it doesn't fit into their system of analysis. But that doesn't mean they are not real costs to people, just ignored in the calculations.

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Hmm... I seem to read an awful lot of controversy over free trade these days, and whether it works economically for developing countries. The World Bank's free trade policies have left many developing countries in poor shape. I don't see every economist agreeing that free trade is unassailable.

 

Why do trade barriers exist? Is there ever a good reason for tariffs?

 

Are state industries (one way to be protectionist) always a bad idea, even in the short term?

 

What are alternative methods of keeping international competition from overwhelming developing industries?

 

The only controvery about free trade comes from ignorant xenophones (like Pat Buchanan) or from labor unions and indistries which would like protection from international competition.

 

The problem with World Bank and IMF plans is not that they favor free trade - it is that they favor taking on large debts and they inevitably lead to graft. You really can't expect a beaurocracy to run a country.

 

Trade barriers exist because a vocal minority will extract large personal benefits from the vast majority. If we banned the import of, say, cherries, the orchard owners in Washington would recieve a huge winfall, where-as the consumers would notice that the price of cherries went up by a couple bucks. The benefits are concentrated, while the costs are distributed. That does not make the costs any less real or important.

 

The only "good" reason for a tariff that I can think of is to protect a strategic industry. This is the rationale behind the steel tariffs. Supposedly, if we stopped producing steel and went to war, we'd be at the mercy of the Chinese (world's low cost steel producer). This theory is wrong, for a variety of reasons (see Nucor Steel), but at least it is defensible.

 

The "alternative method", in fact, the only method of developing an economy is to focus on the production of goods and services in which your nation has a relative competitive advantage. For instance, while the US may be able to produce sugar for less cost than any other nation, it is not really to our advantage, since those sugar workers can be put to more productive use in this country, where-as in some nations sugar production may be to their relative advantage.

 

There are now quite a few countries which have emerged from 3rd world misery to wealth, some of which are now amongst the richest nations in the world. They all did it the same way - by promoting trade, reducing barriers, encouraging foreign investment, and investing in education.

 

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Chubby&Tubby? That was the worst store in the world. Is anyone surprised they went out of business.

 

what does worst mean? the stuff was cheap and reasonable quality (often the best popular brand available)

 

And, I love Home Depot. And Costco. Don't assume that everyone else associated a negative experience with shopping at these chains - from the sales volume, you're obviously in the minority.

 

yeah right, comparison of sales volume among retailers is an adequate measure of quality of living rolleyes.gif

 

so are you implying you buy your lumber at home depot?

 

Also, economists don't just focus on income and consumption - these are easy to measure and solid indicators, but the ideal metric is "utility". You have to measure it indirectly by tracking behaviors. For instance, when a Walmart locates in town and a bunch of store go out of business, you can observe that consumer utility increased - if it did not, why would consumers have chosen to shop there?

 

sorry but if 'utility' means more than consumption and income it is not apparent in your discourse. it' s not because people shop there that it represents a better model (there is more to life than maximizing profit).

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Chubby and Tubby was a disorganized mess, with unpredictable inventory, a sever lack of parking, a poor location, and low quality crappy merchandise. Does it really shock you that they went out of business?

 

I buy lots of stuff from Home Depot. I don't have a big use for lumber, but I do buy crown molding, carpeting, washer/dryers, fertilizer, plants, etc.

 

OK, so why do you think Home Depot and Walmart are so successful, if they are not providing a superior model for the majority of consumers?

 

It may come as a shock to you, but most people LIKE Walmart-type stores, and PREFER them over "main street" - even if the prices were the same. Walmart has lots of parking, everything is in one brightly lit, well-organized store, aisles are wide. It's just a lot more convienent and effecient to shop there.

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Chubby and Tubby was a disorganized mess, with unpredictable inventory, a sever lack of parking, a poor location, and low quality crappy merchandise. Does it really shock you that they went out of business?

 

it was disorganized, there was plenty of parking for the size of the store, location was good, they had both crappy and good quality stuff for *cheap*. and it was so for the several decades they were in business .... so what changed? actually it did surprise me they folded and perhaps it shows that retail price is not the single best measure of the service provided.

 

I buy lots of stuff from Home Depot. I don't have a big use for lumber, but I do buy crown molding, carpeting, washer/dryers, fertilizer, plants, etc.

 

and where will you go to buy reasonable quality lumber when home depot has driven everyone else out of business?

 

OK, so why do you think Home Depot and Walmart are so successful, if they are not providing a superior model for the majority of consumers?

 

because they fit in better with the urban sprawl/car culture. these urbanization choices don't have to be made this way.

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Stefan said:

Jim said:

Gotta save costs so keep wages extremely low, fire anyone who smells of union, fore employees to work off the clock. If Walmart really cares for its employees then why don't they provide a reasonable health plan, a livable wage...

 

I think the vast majority of people are smart enough to decide if wage and benefits are good enough for them.

 

by this reasoning, sweatshops are a practical example of capitolism... is that the euphamistic spin you would use for that? rolleyes.gif

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Fence_Sitter said:

Stefan said:

Jim said:

Gotta save costs so keep wages extremely low, fire anyone who smells of union, fore employees to work off the clock. If Walmart really cares for its employees then why don't they provide a reasonable health plan, a livable wage...

 

I think the vast majority of people are smart enough to decide if wage and benefits are good enough for them.

 

by this reasoning, sweatshops are a practical example of capitolism... is that the euphamistic spin you would use for that? rolleyes.gif

 

Good point Fence.

 

I have thought about this. My conclusion. I would support sweat shops. Why? Their lives are better than they were before. Seriously. People really had no money in SE Asia until the sweatshops started. More people died of starvation and of course, all the fighting..... Sweatshops are bad, but they are good in the long run. Hell, the US had sweatshops in the 1800's during the beginning of the industrial revolution. Then the people became organized and unions started demanding better working conditions. I expect the same thing will happen to sweatshops in the far east. It just takes time.

 

Sweatshops bad in the short term.....but good in the long term.

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marylou said:

Um, organizing is illegal in most of the countries in question. rolleyes.gif

.

 

Cultures will change.....give it time.......you can't have "everything" now in the "information" revolution that is just getting started.

 

You couldn't do many things in the former USSR. Things changed.......

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Stefan said:

Fence_Sitter said:

Stefan said:

Jim said:

Gotta save costs so keep wages extremely low, fire anyone who smells of union, fore employees to work off the clock. If Walmart really cares for its employees then why don't they provide a reasonable health plan, a livable wage...

 

I think the vast majority of people are smart enough to decide if wage and benefits are good enough for them.

 

by this reasoning, sweatshops are a practical example of capitolism... is that the euphamistic spin you would use for that? rolleyes.gif

 

Good point Fence.

 

I have thought about this. My conclusion. I would support sweat shops. Why? Their lives are better than they were before. Seriously. People really had no money in SE Asia until the sweatshops started. More people died of starvation and of course, all the fighting..... Sweatshops are bad, but they are good in the long run. Hell, the US had sweatshops in the 1800's during the beginning of the industrial revolution. Then the people became organized and unions started demanding better working conditions. I expect the same thing will happen to sweatshops in the far east. It just takes time.

 

Sweatshops bad in the short term.....but good in the long term.

 

yellaf.gifthis wont work in SE asia though hommes... if they unionize...the U.S. will take their business elsewhere...then they are really fucked!

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Stefan said:

marylou said:

Um, organizing is illegal in most of the countries in question. rolleyes.gif

.

 

Cultures will change.....give it time.......you can't have "everything" now in the "information" revolution that is just getting started.

 

You couldn't do many things in the former USSR. Things changed.......

 

Organizing was de facto impossible or illegal in the US for quite a while, too, right?

 

Perhaps Stefan is right. I can see how sweatshops could give a developing country a foot in the door of international trade. Once the industry is established, workers can organize (with the help of progressive organizations and information from the developed countries) to demand better conditions. Since the sweatshops' production has become important to the national economy, eventually a smart government will relent and conditions will improve. If the government planned well, the proceeds from years of exploitative production will have improved infrastructure and other areas of industry so that the country's economy will be able to bear the shock of its sweatshop labor being moved by the multinationals to less-developed countries.

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Why don't I hear about more sweatshops in Mexico than in Asia?

 

Is labor more pricey in Mexico?

 

Is it because the humidity is less and people sweat less?

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PLC said:

The relative disparity between the US and Canadian cost structures also lead to an INCREASE in the volume of lumber coming from Canada. Since the price of lumber went up, Canadian firms were able to bring on-line less effecient machinery and hire less effecient workers at a profit.

 

So, market share for US lumber firms fell, the cost of lumber for consumers in the US went up, and the tariff funds were essentially transferred to Canada.

 

How do differences in price structures (what does that mean?) cause an increase in lumber imports from Canada? I would have thought that US producers would see increased sales to US companies since the Canadians' prices would have increased as a result of the tariffs.

 

Are the Canadians reducing operating costs (less efficient workers and equipment) because they will be seeing less sales volume? That doesn't jibe with "increased exports to the US". I must be missing something.

 

Does the increase in lumber price offset the losses caused by reduced sales to the US? If so, it seems that the tariffs would hurt Canadian workers and equipment vendors but benefit US and Canadian lumber companies.

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PLC said:

The only "good" reason for a tariff that I can think of is to protect a strategic industry. This is the rationale behind the steel tariffs. Supposedly, if we stopped producing steel and went to war, we'd be at the mercy of the Chinese (world's low cost steel producer). This theory is wrong, for a variety of reasons (see Nucor Steel), but at least it is defensible.

 

What about Nucor Steel? (Their management and compensation plans seem to be pretty reasonable and egalitarian, that's all I know.)

 

I would think that there is some value in a diverse economy. Countries will economies based around a single resource like tourism, oil, diamonds, or cheap labor seem to be the most subject to total collapse if their business moves elsewhere, and also the most subject to corruption (Saudi Arabia, Congo, etc.). How can a country with few options for competitive advantage in many areas diversify its economy?

 

Man, this is fascinating. I avoided econ like the plague in college, but for some reason it gets me all hot now. Thanks for the replies, everyone. Geek_em8.gif

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Mexico was big right after NAFTA, but labor has gotten too expensive. Same thing keeps happening.

 

It's referred to the "race to the bottom".

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How do differences in price structures (what does that mean?) cause an increase in lumber imports from Canada? I would have thought that US producers would see increased sales to US companies since the Canadians' prices would have increased as a result of the tariffs.

 

A difference in "cost structures" basically means that it is cheaper to produce lumber in Canada than in the US; I don't know if this is because salaries are lower in Canada, if Canadian firms have invested in newer, more effecient equipement, or what... I just read that Canadian timber firms operate at a significant cost advantage to US firms. This cost advantage allowed the Canadian firms to underprice the US firms and grow their market share.

 

In response, the US firms lobbied congress to impose a tariff.

 

Wood products are a commodity, meaning there is one price in the market, driven by supply and demand. The tariff artificially raised the market price of timber, but not enough to compensate for the Canadian's cost advantage.

 

In response to the tariff, Canadian timber companies increased their output, allowing them to realize further economies of scale (as I recall now, this had something to do with needing to earn a return on their equipement investments).

 

Essentially, because of the particulars of this case, the Canadian companies were able to increase their market share in spite of a tariff. You could say that the tariff was not high enough to be effective, but if it had been much higher, it would have caused a strong economic shock in the construction market in the US.

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A difference in "cost structures" basically means that it is cheaper to produce lumber in Canada than in the US; I don't know if this is because salaries are lower in Canada, if Canadian firms have invested in newer, more effecient equipement, or what...

 

then why do they export their uncut lumber the the U.S.??? confused.gif

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What about Nucor Steel? (Their management and compensation plans seem to be pretty reasonable and egalitarian, that's all I know.)

 

Nucor produces high quality recycled steel. Even if there was no tariff, companies like Nucor would still exist because we will always have a large, ready supply of steel available for recycling. We're not going to ship it to China to be melted down. So, the strategic argument doesn't hold water for me...

 

I would think that there is some value in a diverse economy.

 

There is, obviously, value in diversifying your economy, especially away from the production of commodities which are especially subject to price fluctuations. This has to be done over time, through investments in infrastructure and education, as well as trade enhancement. In some sense, it is easier for developing nations with dictators - a dictator can be good or bad, but a beaurocracy will almost always be corrupt.

 

Having raw material wealth can be a great boon if used to advantage (like Iceland is doing with their hydrogen economy initiative) or it can be a curse, as seen in Saudi Arabia and Russia with oil wealth.

 

The per capita income in OPEC nations has already fallen by 50%; it will continue to fall as populations increase and oil consumption begins to be replaced. If they had invested in education and infrastructure, they could have had a permenant 1st world economy. Instead, they are doomed to return to poverty.

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