Globalisation, is there really such a reason to be so discontented?

By Michael Baxter

Economic theory is unequivocal. Free trade promotes wealth. It’s down to specialisation and is best summed by what many consider to be the most important economic theory there is: The Law of Comparative Advantage.

Theory says that free trade enables each country to focus on what it does best. According to the theory, free trade works in the interest of both sides of a trading agreement, even if one party is better at producing just about everything than the other. Take as an example, a high-powered lawyer who can command a fee of say £1,000 per hour, who happens to be good at cleaning. It may make economic sense for that lawyer to employ a cleaner, even if the cleaner takes longer to do a thorough job of cleaning the lawyer’s mansion than the lawyer would. Both parties gain from the arrangement. As for the cleaner, if they can put in a hundred hours or so of work, they can afford an hour of the lawyers’ time in the unlikely event that someone tries to sue them – a dirty bathroom, perhaps.

But just because theory says that trade makes each country in a trade agreement better off, it does not mean that reality matches theory.

In any case, there can still be losers. So, for example, free trade enables one country to focus on say steel, while the other drops its reliance on the metal to focus on other areas, such as financial services, boosting GDP, but some displaced workers in its steel industry may lose out for years, perhaps decades and maybe generations.

Think of it another way. During the post-war years, most economic growth occurred in... continued on page two >



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