It’s national election season again. As always happens in this season, in every developed country, the old battle horse of national competitiveness gets a new coat of shiny paint and is led out by its sparkle-strewn tether to support politicians misconceptions and mis-talks. There is a very widespread misconception that nourishes unreasonable thoughts and false notions on the economy.
Sorry but at this time, in this season, I feel a compulsion to resort to teaching, so, pay attention. There might be a quiz.
The misconception: Countries, (or “nation-states”) such as the US, Canada, Mexico, Belgium, or France don’t compete with each other like soccer teams, for example, compete against each other. In soccer, when one team wins a point, the other team loses a point. When the economy of one country picks up speed however, it is not (NOT) the case that the economy of another country (or of several countries) must slow down. The reverse is true. When the Mexican economy grows, some Mexicans are better able to buy American corn, or American video games, making some Americans richer than would be the case if the Mexican economy stagnated.
The confusion has three sources. The first source is simply ignoring that the producers of one country are also potential customers for the producers of all other countries. Those who compete with American workers, are often also buyers of American-made products. If they are not at the moment, the richer they become, the more likely they are to become buyers. One of the international functions of those who compete with American producers is thus to enrich American producers, perhaps different ones. The relationship may be more indirect. Foreign worker A competes with American worker B and he uses the money he gets from beating B to buy from American worker C. If I am C, my interests are not well lined up with those of my fellow American B. That’s a fact, no matter what politicians say in the language of football. However, if I am American worker C, in the long run, I am better off if fellow American worker B becomes richer than if he does not. For one thing, he will be able to support better equipments, such as schools, from which I will profit.
This is counterintuitive, difficult for people to understand because there is even more international indirectness to the process. It goes like this: When Mexicans earn more money, they buy more Korean products; Koreans use the additional income they receive from Mexicans to buy more American products. The principle is the same: the richer my neighbors, and my neighbors’ neighbors, the more they are able to become my customers. If you want to find out about the intricacies of this matter written for non-specialists, you might want to look at my series of essay on this blog with the word “protectionism” in the title.
The second source of confusion is the idea, widespread among Americans, that the US does not export anything anymore. It stands to reason that you shouldn’t play exchange games if you don’t produce anything that others want to buy. The idea is simply false. Depending on the ever-changing price of crude oil, the US is one of the countries that exports the most in most years. It ranks usually number one, two, three or four.
In 2010 or in 2011, I am too lazy to check, exports from the US amounted to $7,000 for each woman, child and man, not peanuts, for sure. I also asserted that the US is usually number one worldwide in exports of manufactures, specifically.
The third source of confusion is the verbal short-cut that many or most commentators take to talk about exports and imports. That one is a source of persistent and highly significant fallacies from a practical standpoint. By way of introduction, below are five statements about international trade. Three are false, one might or might not be true. One is true.
a) France exports wines;
b) the US imports cars from Japan;
c) Mexico exports guacamole;
d) China produces and exports steel;
e) Kuwait exports petroleum.
The problem is one of identifying the relevant actors. It’s an important problem because it has big implications for action, for political action in particular. When you name a country, a nation-state, there is a strong tendency to think in terms of that country as a polity, as a political system. This is usually further reduced in turn to its government. Thus: “In 1939, the United Kingdom and France declared war on Germany.” Or: “The US does not allow most Mexicans to stay in its territory indefinitely.”
The answers to the quiz:
a) France does not export wines. French economic actors that are not creatures of the French nation-state in any way, shape or form, produce and export wine.
b) The US, a country, a nation-state, does not import any cars. American individual and corporate car buyers import cars through companies that are non-governmental in every sense of the word.
c) Mexico does note export guacamole. Just to say that aloud tells you how ridiculous it is. Dozens of private Mexican companies, maybe hundreds, export guacamole to the US. None of these is in any way connected to the Mexican government except in the trivial ways that they may be regulated and that they pay taxes. (Or probably not either.)
d) Steel is produced in China by companies that approximate the legal and regulatory status of private companies found in the West. Steel is also produced in China by companies owned, lock-stock and barrel by the Chinese government or by one of its branches, such as the Red Army, in particular. Thus, when an American company, or a Mexican company, receives a shipment of steel from China, the steel may have been made in privately owned plants or in government-owned plants or the shipment may contain steel of both origins.
e) All the petroleum produced in Kuwait belongs to the Kuwaiti government. Exports of such oil are therefore Kuwaiti government exports. It is true that Kuwait exports petroleum products in the quiz above. It’s the only true statement in the quiz.
Why do we care about these unusual distinctions? The short answer is that it’s important to know against whom or what you compete. It’s important also to know against whom or what you don’t compete. And, strategically, you don’t want to play in a three actor-game as if there were only two players instead. You don’t want to oversimplify. Here is an example of why:
Year ago, leaders in the California wine industry approached the federal government to ask for redress in the following situation: American wines (80% from California) were hit with a one dollar a bottle duty when they entered the European Union while EU wines met with no such obstacle in the US. (Tech note: an import duty is a tax raised on foreign products only. It gives domestic products an advantage of cost in the domestic market.)
California wine producers were in effect telling the federal government:
“You represent us. Get the EU to cancel the duty or raise an equivalent duty on EU wine entering the US.” Sounds reasonable, right?
The federal government’s response was a curt “No.”
Can you figure why?
If it were really countries that competed, there could not have been this kind of disjunct between the wishes of California wine producers and the actions of the US government. They, the California wine producers, compete hard with French and Italian and Spanish wine producers (all in the EU). It does not mean that the US and several EU countries compete. If I am a steel worker who drinks wine, for example, I want the best man to win in the competition between EU and American wine producers. Or, I may prefer American producers to know that I am absolutely paying a premium for this preference. This is a respectable choice but you have to know, it’s undeniable that it costs you.
Briefly: There are a couple of important exceptions to these related stories: When Boeing and Airbus go head-to-head to sell planes to a South African airline, it’s pretty true that the United States, the country, is one of the competitors. Do you see why?
In general, don’t just assume that countries compete economically. Instead, ask yourself what or who in which country competes with what or whom in which country. In most cases, you will find that the answers have no implications for what the government should do, with one exception: More education and better education are always fine bets. In fact, they are fine bets even if they contribute nothing to anyone’s competitiveness against anyone.