Pictured here is a banner ad that ran across the top of my Cafe Hayek page earlier this morning. (And here’s the page that I got when I clicked on the ad.) Note the sales pitch for this boot-merchant in the banner ad: “Designed in America, Made in Italy.” What a splendid example of globalization! American producers cooperate with Italian producers to their mutual advantage. The availability of workers in Italy actually to stitch materials together into boots raises the productivity of boot designers in America; the creativity and effort of boot designers in America raises the productivity of the workers in Italy who actually construct the boots. (Productivity, do note, is properly reckoned as value-added.) In other words, these American workers and Italian workers complement each
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Pictured here is a banner ad that ran across the top of my Cafe Hayek page earlier this morning.
(And here’s the page that I got when I clicked on the ad.)
Note the sales pitch for this boot-merchant in the banner ad: “Designed in America, Made in Italy.”
What a splendid example of globalization!
American producers cooperate with Italian producers to their mutual advantage. The availability of workers in Italy actually to stitch materials together into boots raises the productivity of boot designers in America; the creativity and effort of boot designers in America raises the productivity of the workers in Italy who actually construct the boots. (Productivity, do note, is properly reckoned as value-added.) In other words, these American workers and Italian workers complement each other, each making the other more productive of value – and each, thus, helping the other’s wages to rise.
Also, this greater productivity that is promoted by the opportunity for these specialized workers on different continents to cooperate together in a process of production also benefits consumers. After all, it’s only because the final product – the boots – are valued by consumers that the efforts of these workers at producing boots has any value. And the greater the value that consumers attach to the boots – expressed in consumers’ willingness to spend their own money purchasing the boots – the more productive is this cooperation of American and Italian workers and, hence, the higher will be the pay of these workers.
This last point is worth more emphasis. The availability of skilled Italian boot-makers raises the productivity – and, hence, raises the pay – of Americans who work at designing footwear. Presumably the Italian boot-makers are the best such workers in the world, all things considered, for constructing the kinds of boots that these American boot-designers design. (If these Italians weren’t, then this boot-making company would move the boot-construction phase of the production process to where it would be done better, whether that be in some other place in Italy, some other place outside of both Italy and the United States, or some place within the United States). By producing more boots per day than could be produced by workers anywhere else, these Italian boot-makers increase the number of customers for the design-work of American boot designers.
Likewise, presumably the American designers are the best ones, all things considered, for these Italian boot-makers to work with. Were this claim untrue, the Italian boot-makers would have incentives to work with boot designers other than these American ones. These American designs for boots, therefore, increase the number of customers for the boot-construction efforts of the Italian workers by making the final product – the constructed boots – more attractive to consumers.
Let me repeat: the “off-shoring” from America of boot construction (in this case to Italy) raises the wages of American workers, and the “off-shoring” from Italy of boot designing (in this case to America) raises the wages of Italian workers. If the government of either country had obstructed this “off-shoring,” it would have lowered the wages of some of its workers as well as reduced its GDP and, most significantly, reduced the average standard of living of its citizens.
Protectionists protest. “Americans can assemble boots just as well as can Italians!” The economist answers: “Obviously not, for the boot-making company didn’t off-shore the task of constructing the boots to Italy on a whim or because its CEO enjoys visits to Italy. It choose to have the boots constructed in Italy because that’s where most value is added at the lowest possible cost.” (A similar protectionist protest and economist response would occur in Italy regarding the off-shoring from that country of the task of designing boots to America.)
Protectionists, however, are a stubborn lot. Such logic often eludes them. Protectionists persist: “Americans as a whole would be better off if we both designed and constructed the boots!”
The economist sighs. Although the protectionists fancy themselves to have discovered a brilliant new truth – a devastating argument against free trade – the economist has heard it before, countless times. So he takes a deep breath and another sip of strong coffee (Italian roast?) and replies: “To actually construct the boots in America requires workers and other resources. These workers and other resources in the U.S. must therefore be diverted from whatever else they are doing, or would otherwise do, if they are going to construct boots.” (Pause for yet another sip of coffee, that the economist notes in the silence of his thoughts is from beans grown in Guatemala.) “If a tariff or other government-imposed trade barrier is required to create the artificial conditions necessary to prompt workers in America to move from their other tasks into boot-construction, it is almost certainly the case that these artificial conditions are prompting these American workers – and some other resources – to move from jobs at which they are more productive and useful to their fellow human beings, and into jobs at which they are less productive and useful to their fellow human beings.”
Pause for a third sip of coffee, at the end of which the economist notices is taken from a mug made in China.
“By artificially diverting workers and other resources into stitching together boots in America,” the economist continues, “Uncle Sam, first, reduces the productivity of American boot designers; their pay over time will fall. Second, Uncle Sam’s actions result in Americans on the whole producing less total output – measured in value – than otherwise. Third, other workers in the U.S. – we cannot practically identify them, but we know that they exist – lose their current jobs because Americans must reduce their spending and investing elsewhere in order to pay the now-higher prices for boots and because Italians and other non-Americans, as a result of Uncle Sam’s trade restrictions, spend and invest less in the United States. Fourth, consumers are harmed. They get fewer or worse-quality boots and pay higher prices for them.”
The protectionists – or, at any rate, the bulk of protectionists – don’t follow. They see only the additional jobs of boot-stitchers in America, the artificially higher wages of these boot-stitchers, and the artificially higher revenues of boot-stitching factories in America. From what they see, they leap confidently to the conclusion that Americans on the whole are enriched by government policies that prevent the off-shoring of boot-stitching. They think themselves to be brilliant. They do not realize that they are instead blind.
One final remark: the above-pictured banner ad is further evidence of the important and happy truth that today “Made in USA” (or “Made in You-name-the-country”) labels are meaningless. Most goods – and more and more services – are “Made on Earth.”