Tag: liberalization

Beware of Americans Proselytizing the Chinese Economic Model

In a Cato paper released earlier this month, I argued that the glacial pace of America’s economic recovery and its growing public debt juxtaposed against China’s almost uninterrupted double-digit annual economic growth and its role as Congress’s sugar daddy have bred insecurity among U.S. opinion leaders, many of whom now advocate a more strident approach to China, or emulation of its top-down approach.

I cite, among others, Thomas Friedman of the New York Times, who is enamored of autocracy’s capacity to facilitate China’s singularity of purpose to dominate the industries of the future:

One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century. It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power, and wind power. China’s leaders understand that in a world of exploding populations and rising emerging-market middle classes, demand for clean power and energy efficiency is going to soar. Beijing wants to make sure that it owns that industry and is ordering the policies to do that, including boosting gasoline prices, from the top down.

Friedman’s theme—but less googoo eyed and more all-hands-on-deck!—is echoed in an op-ed by China-expert James McGregor, which ran in yesterday’s Washington Post.  McGregor conveys what he describes as an emerging sentiment within the U.S. business community in China.  That is: the Chinese government is hell bent on creating national economic champions; is using its increasing leverage (as global financier and fastest-growing market) to impose its own interpretations of the global rules of economic engagement in support of its comprehensive industrial policy, and, ultimately; the United States must wake up and rise to the challenge by crafting some top-down industrial policy of its own.

I don’t dispute some of McGregor’s premises.  China’s long process of market liberalization has slowed down, halted, and even reversed in some areas.  Policies are proliferating that favor local companies (particularly state-owned enterprises), hamper the operations of foreign-owned firms, and impede market access for imports.  Indeed, many of these policies are likely the product of industrial planning. 

But McGregor’s conclusion is extreme:

The time has come for a White House-led, public-private, comprehensive examination of American competitiveness against a clear-eyed view of China’s very smart and comprehensive industrial development policies and plans…What technology do we protect? What do we share? What are our commercial strategic imperatives as a nation? How do we retool the U.S. government’s inadequate and outdated trade bureaucracy to provide thoughtful strategic focus and interagency coordination? How do we overcome the fundamental disconnect between our system of scattered bureaucratic responsibilities and almost no national economic planning vs. China’s top-down, disciplined and aggressive national economic development planning machine?

Central planning may be more en vogue in Washington than usual nowadays, but to even come close to reaching his conclusion requires disregarding many facts, which is how McGregor gets there sans tongue in cheek.

First, in an effort to preempt any suggestion that China’s protectionism is nothing exceptional and can be remedied through the World Trade Organization and other channels, McGregor offers this blanket statement: “Chinese policymakers are masters of creative initiatives that slide through the loopholes of WTO and other international trade rules.”  I realize that op-ed writing forces one to economize on words, but that statement, which serves as McGregor’s springboard to socialism, cannot suffice for an analysis of the facts.  One of those facts is that the United States has been successful in compelling changes in China’s protectionist practices in all of the formal WTO disputes it has lodged that have been resolved thus far (6 of 8 formal cases have been resolved).  If China violates the agreed rules of trade, and its actions impair benefits or impose costs on U.S. interests that are too large to ignore, pursuing a WTO case is a legitimate and proven channel of resolution. Chinese protectionism can be addressed without the radical changes McGregor counsels. 

But I think McGregor—sharing the tactics of other in the media and politics—exploits public angst over a rising China to promote his idea as the obvious and only solution to what he sells as a rapidly-metastasizing problem.  McGregor argues that China is aiming to create national champions through subsidies and other preferential policies, while charging foreign companies admission to its market in the form of technology transfer, joint-venturing requirements, and local content rules.  McGregor claims, that this appropriation of foreign technology will be used to “create Chinese ‘indigenous innovations’ that will come back at us globally.”  Ultimately, McGregor fears that “American technology companies could be coerced to plant the seeds of their destruction in the fertile China market.”

It is telling that McGregor doesn’t consider U.S. government expropriation of those companies’ technology assets as planting the seeds of their own destruction.  Indeed, it is nothing short of expropriation when technology that is owned by individual companies in the private sector, making unique decisions to improve their own bottom-lines on behalf of their own shareholders is suddenly subject to the questions McGregor wants answered: What technology do we protect? What do we share? What are our commercial strategic imperatives as a nation?  Those questions, let alone the answers, imply that the U.S. government should have at least de facto ownership and control over these privately-held technology assets.

What is wrong with allowing each of these companies to decide for themselves whether they want to license or transfer some of their technology to Chinese companies, as the price of doing business in China?  Some will, some won’t, but the presupposition that those who do are selling the golden goose is not based on fact.  Let companies decide for themselves how to use their resources, and don’t treat industry as a monolith, as in “What are our commercial strategic imperatives as a nation?” 

Had we tried to answer and implement the answer to that question in the face the Japanese “threat” two decade ago, we’d be bereft of some of the most ingenious technological breakthroughs and the hundreds of industries and thousands of products that “our system of almost no national economic planning” has yielded.

When we peel away the chicken-little rhetoric, when we dispense with neo-Rahm Emanualism (“Never manufacture a good crisis and then let it go to waste”), when cooler heads and analytical minds prevail, the economic question boils down to this: What has been more successful at creating growth, central planning or decentralized dynamism?  For both China and the United States, it has been the latter. 

My bet is that China’s re-embrace of greater central planning will be brief, as it wastes resources, yields few -if any- national champions, and limits innovation.  For similar reasons, U.S. opinion leaders will eschew central planning, as well.

Ending the Black Market in Low-skilled Labor

Alex Nowrasteh and Ryan Young of the Competitive Enterprise Institute make the case for immigration reform in an especially appealing way in a fresh op-ed this week in the Detroit News.

In a commentary article titled, “Fix immigration rules to crush black market,” they dissect a well-meaning but flawed Obama administration effort to fix the dysfunctional H-2A visa program for temporary farm workers. Instead of fine tuning an unworkable law, Nowrasteh and Young advocate liberalization:

That means making H-2A visas inexpensive, easy to obtain, and keeping the related paperwork and regulations to a minimum. That means no minimum wage hike. No costly background check requirements. People rarely break laws that are reasonable and easy to obey.

When legal channels cost too much in time and money, people will turn to illegal channels every time. That’s how the world works. Getting rid of immigration’s black market begins with admitting that fact.

Hear, hear.

Was Bill Clinton Also an “Extremist” on Trade?

This has not been a good week for the national Democratic Party. Along with losing the Massachusetts Senate seat, the party took another step toward making hostility to trade liberalization a plank of party orthodoxy.

As my Cato colleague Sallie James flagged earlier today, the Democratic Congressional Campaign Committee issued a press release yesterday criticizing a Republican candidate in upstate New York for contributing to the Cato Institute. And, of course, everyone knows that Cato is “a right wing extremist group that has long been a vocal advocate for extremist, unfair trade policies that would allow companies to ship American jobs overseas.”

Among our sins, in the eyes of the DCCC, is that Cato research has supported tariff-reducing trade agreements, such as the North American Free Trade Agreement (NAFTA). Our work has also advocated unilateral trade liberalization—getting rid of self-damaging U.S. trade barriers regardless of what other countries do—which violates the conventional Washington wisdom that we can’t lower our own barriers without demanding “reciprocity” and “a level playing field” from other nations

There is nothing extreme about our work on trade. It fits comfortably within mainstream economics expounded not only by Adam Smith and Milton Freidman but by such liberals as Paul Samuelson and Larry Summers.

In fact, for decades, the Democratic Party embraced lower barriers to trade:

  • In the 1930s and ’40s, President Franklin Roosevelt and his Nobel-Peace-Prize-winning Secretary of State Cordell Hull lead the United States away from the disastrous protectionism of President Hoover and a Republican Congress.
  • Democratic Presidents Kennedy, Johnson, and Carter all supported successful agreements in the General Agreement on Tariffs and Trade to reduce trade barriers at home and abroad.
  • Bill Clinton, the only Democrat to be re-elected president since FDR, persuaded a Democratic Congress to enact NAFTA in 1993 and the Uruguay Round Agreements Act in 1994, which created the World Trade Organization. Clinton also championed permanent normal trade relations with China in 2000, which ushered that nation into the WTO.
  • In the previous Congress, scores of House Democrats co-sponsored “The Affordable Footwear Act,” which would have unilaterally lowered tariffs on imported shoes popular with low-income Americans. Liberal Democrat Earl Blumenauer of Oregon visited the Cato Institute in July 2008 to speak in favor of the bill. (Will he be the next target of a DCCC press release for cavorting with “extremists”?) In the current Congress, a similar bill in the Senate is currently co-sponsored by such prominent Democrats as Dick Durban (Ill.), Chuck Schumer (N.Y.), and Mary Landrieu (La.).

To learn more about why Democrats (and Republicans) should support free trade, I highly recommend two books: Mad about Trade: Why Main Street America Should Embrace Globalization, by yours truly; and Freedom From Want: Liberalism and the Global Economy, by Edward Gresser, a trade expert with the Democratic Leadership Council.

A Georgian Constitution of Economic Liberty

The former Soviet Republic of Georgia is a late economic reformer, having started such liberalization after the Rose Revolution in 2004. But it is one of the most successful post-Soviet reformers, and it may be the country that has implemented the largest range of serious market reforms in the shortest period of time. Its growth rate from 2004 through 2008 averaged 7.6 percent per year (which includes the comparatively low 2.1 percent rate of 2008 that resulted from the global financial crisis and the war with Russia).

Last month, the government submitted a draft act to Parliament that calls for amending the country’s constitution so that it would safeguard various elements of economic freedom. The amendments would put caps on public debt, spending and deficits; and ban any kind of price controls, state ownership of banks and financial institutions and restrictions on currency convertibility, and any kind of control over the movement of capital. New taxes or increases in tax rates would require approval through a national referendum.

With the possible partial exception of Hong Kong’s Basic Law, I’m not aware of any other constitution that explicitly enshrines economic freedom. I’m told by Georgian colleagues that prospects for passage of the law looks good, with the constitution being amended as early as next month.

CBS News Reports on Prospects for Drug Policy Reform

CBS News has a good report out on recent developments in drug policy, including extensive coverage of the Cato report, Drug Decriminalization in Portugal. Here’s an excerpt:

Portugal’s case is important, Greenwald says, because it provides hard evidence that removes the debate from the realm of speculation.

“If you’re the first state to do it, there’s really no way you can point to evidence of what will or will not happen. … It’s just theory and it’s very abstract,” he said. “The more examples that arise and the more that you can prove that the sky doesn’t fall in,” he said, the more politically feasible drug liberalization will become in the U.S.

So far, Portugal has largely flown under the radar, even in drug policy circles. But Greenwald says that, six months after his paper was released, he’s getting more invitations than ever to present it. In August, New York Times columnist Nick Kristof cited it in a column praising Webb’s reform push.

Read the whole thing.  For more Cato scholarship on drug policy, go here.

George Will and Drug Decriminalization

George Will’s latest column takes a look a drug policy and the views of the new drug czar, Gil Kerlikowski.  Notably, Will mentions Portugal’s experience with decriminalization of all drugs since 2001 and says Kerlikowski is aware of the Portuguese policy as well.  Cato published a report on Portugal’s drug policy in April and the author, Glenn Greenwald, discussed his findings at a Cato policy forum here.  George Will’s shifting views on drug policy (toward liberalization) reflect the shifting views of other conservative pundits and the public more generally.

Will appeared on ABC on Sunday, and discussed his views on drug policy. Watch:

For more Cato work on drug policy, go here, here, and here.

New Poll Shows Support for Lifting Travel Ban to Cuba

Even Cuban-Americans appear to have turned against U.S. policy.  Reports the Miami Herald:

A new poll of Cuban Americans shows a strong majority favor allowing all Americans to travel to the island, a major shift from a 2002 survey that showed only a minority supporting the change, the Bendixen & Associates polling firm reported Tuesday.

Executive Vice President Fernand Amandi said he was surprised by the magnitude of the swing in just seven years – from 46 percent in favor in 2002 to 59 percent in the Sept. 24-26 survey. Only 29 percent were opposed in the new survey, compared to 47 percent in 2002.

…A campaign to allow all Americans to travel to Cuba has become a key Washington battleground this year for those who favor and oppose easing U.S. sanctions on the island. Permitting such travel would allow U.S. tourists to visit Cuba. Only Cuban Americans are now allowed virtually unrestricted travel to the island.

At least three bills lifting all restrictions on travel are now before Congress – two in the House and one in the Senate. While most analysts believe the House may well approve some version of the measure, they say it will have little chance of gaining Senate approval because of opposition from Sen. Bob Menendez, a powerful Democrat.

One would think that even the most rabid hawk could agree that a policy which has failed for 50 years has … failed.  There’s no guarantee that ending economic sanctions would spur political liberalization in Cuba.  But after a half century of failure, it makes sense to try something else.