From the Comments: Liberalization is about much more than just the economy

Andrew is skeptical of NAFTA’s achievements:

NAFTA isn’t the only major factor at play, although you’re right that it has provided Mexico with some huge economic benefits. This is especially true in the factory towns along the US border, which are able to absorb a much larger absolute amount of surplus labor from poorer, less developed parts of the country today than they could a generation ago. That said, I’m still ambivalent about NAFTA on account of the severe short-term economic and social dislocation it caused, e.g. to US factory workers who were undercut by Mexican competitors and to small Mexican farmers who were undercut by major US agribusinesses. It strikes me as a hastily and abruptly implemented policy change that caused a lot of needless collateral damage in the short term. Whether this damage was worthwhile in the long term depends a lot on one’s role in the North American economy at the time. On the whole, I’d say NAFTA has been a mixed bag.

This, I think, is in response to the 2003 academic paper (published by three economists) that I cited in defense of NAFTA’s success. It is a paper that only focuses on economic indicators (such as per capita income or total factor productivity). Here is what it found: NAFTA has not had a discernible effect on the US or Mexican economies. The displacement of US factory workers and Mexican farmers that Andrew mentions had been going on long before the implementation of NAFTA. Basically, NAFTA merely reduced the amount of paperwork associated with the changes in both economies. It has not hastened the changes.

Similarly, it appears that the growth of Mexican and American purchasing power parity are simply part of a hemisphere-wide trend that has also been going on for decades. In short, economists have found the economic effects of NAFTA to be negligible. So why do they continue to overwhelmingly support it?

My answer to this question can be found, I think, in Andrew’s keen perception of the changes in Mexican society:

Over the same time that NAFTA has been in place, Mexico has also become much more Protestant and nondenominational in religious affiliation, better educated, and, as I understand it, somewhat better governed and administered. Maybe I’m mistaken, but I have no reason to suspect that the religious shift had anything in particular to do with Mexico’s improving economy or trade liberalization. “Church-planting” missionaries of the sort that have evangelized Latin America don’t look for a particular economic or policy profile in a country before imposing themselves on it, although they do generally appreciate a certain amount of poverty and dysfunction, as long as they’re reasonably reasonably safe in country, since people in economically healthy, well-governed countries are less receptive to their pitches. This is a very cynical analysis, but the cravenness in “mission field” circles can be mindblowing.

What’s happened in much of Latin America in the last decade or so is that these evangelism programs have hit critical mass. They’re now self-sustaining operations being run mainly by Latin American evangelists pestering their own countrymen, or sometimes people in nearby countries. Gringo missionaries are still working in Latin America, but they’re no longer critical to the growth of evangelical churches there. (Besides, there’s much more street cred to be had in evangelizing a recently restive Muslim village in Northern Ghana, or, as my relatives and everybody at their church called it, Africa. I bless the rains….)

Liberalization is about much, much more than economic growth. The decline of Catholicism in Mexico, for example, is an incredibly good trend. This is not because Catholics suck, but because Mexican society is becoming more diverse. Liberalization means opening a state’s political, economic and social institutions to the world.

Undertaking liberalization thus exposes a society to changes. Sometimes societies may have a tough time with changes, especially if there are deeply entrenched political structures in place. Most often, though, these changes tend towards more political liberty (see “1994 Mexican Elections: Manifestation of a Divided Society?” and “Institutionalizing Mexico’s New Democracy,” both by Joseph Klesner, and be sure to read between the lines), more social diversity and, yes, more economic growth.

Of course, with new and overall positive changes come new challenges. The differences between the old challenges and the new, however, are cavernous. Politically, gridlock supplants revolution. Socially, vice replaces desperation. And economically, policy replaces cronyism.

Now, this is a broad view, but I think it is a concrete one nonetheless. There are two major objections to liberalization that I would like to briefly discuss.

The first is my assumption that diversity is, in and of itself, a good thing. Some people simply cannot stand diversity, whether it be of the ethnic and linguistic variety or of the intellectual variety. The former form of intolerance is often to be found among conservatives; the latter in Leftist circles. However, the fact that people I don’t like disapprove of diversity is not a good excuse for being a proponent of diversity.

So what follows is my concise defense of diversity. Diversity opens individuals up to higher degrees of tolerance. It gives individuals more choices. Its very nature makes people smarter by exposing them to more points of view. Added together, these benefits are a recipe for wealth and stability and peace.

There is a tendency, however, for diverse organizations (including societies) to have more conflict. It is this conflict that conservatives and Leftists alike point to as proof that diversity is an undesirable plague. Yet, under the right framework, conflict from diversity produces immeasurable amounts of wealth (see also this paper by economists Quamrul Ashraf and Oded Galor). This framework revolves largely around well-protected property rights and the protection of a handful of other rights (free speech, free press, etc.).

It is this framework that, conveniently enough, allows me to segue into the next most common objection to liberalization: that it doesn’t work and often makes things worse for a society. The data in this regard is not much clearer than the data on NAFTA’s effects on Mexico. That is to say, there is not enough evidence to prove conclusively that trade liberalization leads to economic growth. However, data over the past 30 years or so does suggest that states which undergo liberalization efforts tend to have economies that grow steadier, polities that oppress less and societies that adapt to cultural change more easily. If you can find evidence that you think may refute my argument (“that the rough overall trend of liberalization is beneficial to mankind”), you know where the ‘comments’ section is.

3 thoughts on “From the Comments: Liberalization is about much more than just the economy

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