Originally published September 20, 1982
The apparent clincher in George P. Brockway’s “How Our Sun May Rise Again” (NL, July 12-26) is his rhetorical question about explaining “the steadily increasing prices of electric irons and TV sets and cameras and automobiles, despite their being produced in the allegedly more efficient and assuredly lower wage Orient.” Steadily increasing compared to what? All the items he mentions have had small increases in price over the years relative to either the overall price level or disposable income.
Consider the following data on average annual increases from the end of 1970 to the end of 1971: Disposable income climbed 10.2per cent and the consumer price index for all items rose 8.1 per cent. Meanwhile, the prices of new automobiles and footwear went up only 5.1 per cent; household appliances, 4.8 per cent; apparel, 3.8 per cent; and television sets, a scant 0.3 per cent. All these are consumer goods that were heavily affected by imports from East Asia, especially the last two items. The answer to Brockway’s question is that his factual premise is all wet, not for the first time.
Brockway is also careless in describing the theory he sets out to overturn (by assertion). Like other valuable insights, the principle of comparative advantage was elucidated somewhat imprecisely by its formulator, David Ricardo, and has been refined in the 165 years since 1817. The principle does not depend on the trans-national immobility of capital. It is valid as long as some factors of production are geographically immobile to some extent: physical capital, mineral resources, skilled labor, entrepreneurial talents, whatever. Clearly, such immobilities are ubiquitous, otherwise there would be no differences in wages and other returns to factors of production among nations or among the regions of one nation. (The principle, pace Ricardo, does apply within a single country.)
Ricardo would not have discarded his law, nor would he have been as pessimistic as Brockway is about the American capacity to come up with “sunrise” industries. More likely, he would have remarked upon our repeated success over the years in replacing “sunset” with “sunrise” industries. To be sure, the international transmission of industrial knowledge and skills, as well as capital, is swifter than it was in the past. But that swiftness tends to raise, not lower absolute standards of living here “and elsewhere, although it reduces the disparity among industrialized countries’ standards of living, which is a good thing, not a bad one.
New York City
George P. Brockway replies:
Dick Netzer is agile at the old debater’s trick of answering resoundingly a question different from the one asked. When I said that various items produced in the Orient are steadily increasing in price, I meant precisely that. Netzer says that their prices haven’t gone up so much as disposable income, which is another question. Since his statistics, if they prove anything, prove my point, I’ll refrain from questioning his choice of dates or inquiring into the effect of shifting exchange rates or comparing the behavior of the prices of American-made versions of these products with those of the same products produced in the Orient.
As to the history of the Law of Comparative Advantage, I certainly do not question that refinements have been made in it since David Ricardo formulated it 165 years ago. As a practical matter, however, these are beside the point: The present putative Oriental advantage is the result of cheap labor and often unsafe working conditions. (Chinese doctors are good at reattaching chopped-off fingers and arms, because they have so much practice at it.) It would be dishonorable to treat American workers as Oriental workers are treated, and it is dishonorable to throw our citizens out of a job in furtherance of Oriental exploitation.
The Ricardian argument, moreover, implicitly requires that workers displaced by the transfer of their industries abroad will immediately find comparable positions in industries that (for some reason the theory cannot explain) stay home. My factual premise, which Netzer unaccountably thinks is “all wet,” is that millions of Americans are out of work because we have exported their jobs, and that billions of ‘dollars’ worth of American plants are standing idle because we have exported their industries.
It may be that, as Netzer says, I am too pessimistic about the prospect of coming up with sunrise industries to replace sunset industries. If the real world were as optimistically fast-paced as he pretends, I should think he would at least have suggested a few sunrise industries to relieve my gloom. And I’d dearly love to have him explain why certain industries are sunset here but sunrise in the Orient, unless the difference lies largely in wage scales and working conditions.
Finally, I must diffidently point out that the rhetorical question Netzer has tried unsuccessfully to answer is only one of three that I asked, and the least important at that. And I really must object that I did not and would not rely on a rhetorical question in the middle of my essay as a “clincher.” I have more respect for my readers than Netzer allows.