After reading last week’s article detailing how foreign imports have damaged Ghana’s economy(“A fair chance at trade,” Oct. 6th), I couldn’t help but imagine many students patting themselves on the back for already being aware of the “evils” of free trade and the World Trade Organization. What people must realize is that these arguments usually draw their conclusions from anecdotal evidence and miss the overall benefits of free trade. Often the greatest barrier to development is not free trade itself, but a lack thereof.
I am not trying to make light of the difficulties that countries like Ghana face, nor do I believe that their complex problems have easy solutions. Civil strife, disease, massive debt loads, and corruption have stalled-and in some cases, reversed-the economic growth of many countries. Learning about the despair faced every day by the majority of the world’s citizens can lead us to feel guilty, often rightfully so.
However, we must not let this disillusionment with the state of the world cloud our judgment. While capitalism is obviously not perfect, it has more potential for human prosperity than any other production system we have yet encountered. For those who disagree, I suggest they take an economics course as an elective as soon as possible. Free markets, including international free trade, present the greatest opportunity for the elimination of poverty worldwide. The benefits of international trade have repeatedly been proven empirically and are evident both throughout history, and more recently, in the rapid growth of East Asian economies.
The classic argument supporting free trade is based on 19th-century British economist David Ricardo’s writings about comparative advantage. Ricardo’s theory shows how nations that specialize in what they are most efficient at producing will experience economic gain at all levels of society through increased output and/or cheaper prices.
Imagine yourself or your family attempting to independently produce all of the things you use on a regular basis. Obviously your living standards would drop dramatically as your efforts would be concentrated on mere survival. It is the same scenario for a country as a whole that attempts to be self-sufficient.
This is not to say that there are only winners in trade. It is a fact that when lower-priced foreign goods are introduced into an economy, certain industries may not be able to compete, and many workers and business owners temporarily lose their sources of income.
However, those who benefit always outnumber those who are disadvantaged. Usually only a small percentage of the population lose their jobs, but all consumers benefit from the availability of lower-priced goods. When consumer prices are low, purchasing power goes up and real incomes are high.
In the case of developing nations such as Ghana, lower prices help both consumers and the local business sector. Taking advantage of lower prices for tools and machinery, for example, allows industries that have a comparative advantage in the world market to increase productivity, hire more workers, and ultimately pay more taxes.
Using tariffs on foreign goods to shield special interest groups from competition will not only harm the poor-who are in need of low prices-but will also encourage sectors of the population to engage in industries that are not suitable to their particular nation’s resources. Expending efforts illogically will lower productivity, decrease incomes and provide less tax revenue for needy governments. Without adequate cash flow, governments will be swamped by an ever-increasing debt load and will be unable to fund the infrastructure and social programs that are essential for a higher level of economic and social development.
