GREG JINKERSON writes:

Kristor has made brilliant remarks about the drawbacks of protectionism, but all of his criticisms are leveled against state-planned protectionism, rather than answering the axiomatic truth that a businessman is just as bound up morally with his community as any other individual. I don’t know where Kristor stands on the issue of an entrepreneur’s free moral obligation to the community where he does business, but judging from Kristor’s allusion to his own theological writings, I get the impression that he is sensitive to the spiritual dimension of trade, and I am in no way presuming to inform him of something he is already well aware of. I am as alarmed as Kristor by the idea of granting bureaucrats in Washington D.C. the power to dictate how and with whom private businesses are permitted to do business. But central planning and pure free trade are not the only two options available, and in criticizing the latter, I need not embrace the former.

I am very concerned about the blasé attitude taken by large national corporations toward the lives of American communities and families. I am not saying that such corporations should be required by law to take Americans into consideration when making business decisions, I am only expressing my wish that American companies would see that there is such a thing as a reasonable profit, and that while deciding where to build my next factory, the question of which location will yield the largest profit is not the only relevant question, on any Christian model of social teaching. Of course, Kristor has pointed out quite correctly that when an entrepreneur like Steve Jobs chooses to build in China, that preference is perfectly rational, and I would go further and even say that Jobs’ decision to do so is morally good; after all, why should Jobs expose his company and its investors to confiscatory taxation at home when such meddling can be avoided abroad? I am in total agreement that the blame for the outsourcing belongs with our own intrusive tax/welfare system.

But that reality does not let greedy corporatists entirely off the hook. The fact remains that all of life, at least all of Christian life, is to be oriented by the cardinal virtue of charity. Although the mixture of big business with big government is an evil mixture, it does not follow that charitable impulses have no place in how a business ought to conduct itself in a Christian society. Is Kristor familiar with the late Roger Milliken, who Patrick Buchanan described as having exemplified, “the finest in American free enterprise”? As Buchanan has written in this obituary from last January,  Milliken for 63 years led his family business, Milliken & Co. to become “the largest privately owned business in America.” Buchanan writes further that, “Into his 90s, Roger was holding strategy sessions in Washington and walking the halls of Congress to convince free-traders half his age that, Esau-like, they were swapping the manufacturing base of their nation for a mess of Chinese-made pottage down at the mall.”

What I find most extraordinary about Milliken’s career was the capacity he showed to put his money where his mouth was. He didn’t simply rail against the transnational, global drift of our vanishing manufacturing base. He made enormous personal sacrifices to do something about it, and from what I can tell from Buchanan’s piece, Milliken was in no way crusading for government intervention, but rather a spiritual or cultural change of the American mindset. “Intellectuals deride ‘paternalistic capitalism,’ the idea that men who begin and build companies know better than investors, unions and markets what is best for them and their workers… When his carpet plant in La Grange, Ga., burned down on Jan. 31, 1995, Roger could have collected the insurance money, taken advantage of NAFTA, built a new plant in Mexico, employing the same low-wage labor some of his rivals were using, and pocketed the difference as profits for his company. Instead, he arrived in La Grange the morning after the fire, gathered the stunned workers, told them he would find temporary jobs for them, then pledged to have the most modern carpet factory in the world built on that same site in six months. He moved his La Grange workers to plants across the South, even to England, and called friendly rivals to ask them to hire his people. He moved to La Grange, oversaw the design of the new plant, brought in 3,000 construction workers and craftsmen, and directed the round-the-clock triple shifts to rebuild his burned-out factory.”

I think that Milliken’s act of mercy to the workers of La Grange was heroic, and I don’t doubt that it strengthened community ties there when the factory fire could far more easily have torn the town apart. Only a thoughtful Christian would take the financial hit that Milliken obviously took in order to seek the higher-order benefit of the whole community. State-run protectionism is indeed a nasty proposition. But the failure of protectionism has done nothing to remove the duty of the strong to protect the weak.

                                                 — Comments —

Thomas Fink writes:

This is a fascinating debate. But as far as I have read there is one elephant in the room no one mentions. How can free trade be free when the one thing that is essential for every trade is not traded free? Which is money. This is the fallacy of Friedman and even Hayek. The utter complexity of the market, which, like climate, will never fit completely into a computer because it is the unseen hand of God working, this market is distorted by men, who think they are like God and can create something out of nothing and control it. But their something goes back into nothing which is called bankruptcy. Since John Law bankrupted France by printing worthless paper bills and made it ready for the revolution it is the same game.

And we are tumbling now towards a really big big nothing. And some will blame it on free trade. But they should look harder.

Kristor writes:

I agree completely with everything Mr. Jinkerson says. Corporations – which is to say, businessmen – ought not to be forced by the state to behave in certain politically preferred ways. They ought rather in all their acts to do their best, on their own recognizance, to cleave to the Christian virtues (some will do better at this than others, naturally). This will redound to their benefit – to their profit – whether they are Christians, or not (particularly in a business community that is predominated by Christians and their virtues). One of the things that brought Christianity as a real option to the conscious awareness of ancient pagans was the reputation of Christian merchants for extraordinarily honest, upright and fair dealing – and for their concomitant extraordinary business success. The Christian virtues just are the virtues, for anyone. Pagans saw this, and saw that the Christians were unusually virtuous, and successful in life. So they were attracted to Christianity: by its fruit was it known.  

Charity is first in importance for any wise person, but so is prudence. For the business enterprise, as for the human person, charity does not consist in sacrifice to the point of self-immolation. Charity in business must balance many different factors, including – but not limited to – the welfare of employees and their communities. Businessmen must first attend to their customers; their duty of charity to their customers obliges them to honest dealing, efficient production and delivery of good products and services – and a fitting concern for financial vigor of the firm itself, which is the forecondition of all the other business virtues. To do good, or therefore well, the firm must first live. So it must see to its own prosperity and causal efficacy (these are two ways of expressing the same idea: wealth is properly speaking the capacity to act – is the ontological leverage of the agent). For example, if an insurance company never paid claims it would frustrate its basic purpose, destroying its sales, and would soon fail; but if it blindly paid all claims and accepted all risks it would likewise soon fail. If it erred in either way, and failed, it would no longer provide the benefits of coverage to anyone, and would leave its policyholders naked, meanwhile turning its employees on the street. 

Accounting profit is not a perfect measure of business success – and no successful businessman is foolish enough to think that it is – because it may be earned in good ways or bad, or by sheer luck. But, over the long run, and all other things being held equal, a company will generate more profits, and will be more valuable to its shareholders, if it increases good will. Good will toward the company – of employees, customers, competitors, vendors, bankers, and regulators – is so important for business that it is accounted for explicitly on the books as an asset. Good will is a measure of likely future profits, and thus of the present value to society of the enterprise; for a company that is held in high esteem is more likely to get what it wants out of any negotiation, because people are eager to do business with such firms. Everyone wants to invest in admirable companies, or work for them, or count them as customers, or buy their products. Good firms get good deals. But no one wants to deal with a miser, a boor, a liar, or a cheat. 

Good will may be earned in a number of ways. Milliken shows us the way of paternalistic concern. Another is shown by the many companies, large and small, that are wholly owned by all their employees. Steve Jobs earned fanatical good will for Apple by a fanatical devotion to great products. At my firm, we earn good will by doing the best work we can for our clients, and by cleaving to the highest standard of integrity in everything we do, always putting the interests of our clients ahead of all others. 

But it is interesting to note that, while good will contributes concretely to accounting and economic profit, and to shareholder value, it doesn’t work to pursue good will for its own sake. Ditto for pursuing profit in any other form for its own sake. It is the firms that seek profit for its own sake that get themselves into moral, legal and financial trouble. Profit of any sort is not the proper end of our operations, in business or anything else. Profit, pleasure, happiness – these properly are but by-products and inditia of excellence in the pursuit of the good. The great entrepreneurs and managers, the ones who go down in history as giants of enterprise, are not motivated by money. This is demonstrated by the fact that, despite their great personal wealth, they continue to work insane hours to build great companies that achieve great things, however they understand and measure greatness. Like Steve Jobs, they are motivated by a love for the good. The sharp operators and careerists whom everyone despises, on the other hand, are worshipping Mammon. They are idolaters. They mistake what business, and life, are finally about. 

In business, as in any other department of life, there are difficult decisions to make. The question before us is the businessman’s decision whether to locate a facility in the U.S. or elsewhere, and specifically whether such decisions ought to be left to businessmen – the Free Trade option – or derogated to state bureaucrats – the protectionist option. Advocates of the latter often seem to overlook the fact that any American businessman, however moral or immoral he may be, must naturally prefer to locate facilities domestically if he can justify doing so, if only because his lines of communication and supply will thereby be shortened, and the disparate systems of law to which he must conform minimized. It takes an awful lot to overwhelm the great and manifold natural advantages of doing business close by (it’s just so much easier, in every way; and harried businessmen are desperate to save time, far more than money). Whenever these advantages are overwhelmed by locating overseas, the businessman’s first duties are to his firm and to his customers; he is duty bound to produce his goods as efficiently as possible, given the circumstances. 

That manufacturing is leaving our shores should tell us that we have a really horrible systemic problem, created somehow by our public policies, that is causing the departures. In logistical terms – i.e., in terms of the thermodynamic costs of the actual physical operations of business that are accounted for in currencies, albeit but poorly – it is crazy for Apple to manufacture in China, other than for the Asian market. That Apple is doing so indicates that our system is deeply, deeply whacked. It is just as indicative of insane public policy as that old story of the Ukrainian peasant who, in Soviet days, found it profitable to fly to Moscow every week with a suitcase of oranges he had picked from the tree in his back yard to sell on the street. Erecting new legal barriers to such trips will force us to operate our businesses even less efficiently – i.e., at greater human cost, to customers (the very people whose benefit is the primary raison d’etre for business in the first place) – than we otherwise could, even as it prevents us from coming fully to grips with the problems we have created for American business, that discourage it and drive it away. 

If we as a people want to preserve our manufacturing base, all we need to do is reduce the systemic costs we artificially impose on domestic operations, and manufacturing will come home for the same reason it left.

Laura writes:

Thank you.

I don’t know of anyone who is articulating these principles of good business as eloquently as Kristor has. But then liberal Christianity is so overwhelmingly anti-business.

Hurricane Betsy writes:

I really liked Greg Jinkerson’s and Thomas Fink’s contributions. Thank you so much. They were well-thought out and expressed. 

Aaron S. writes:

Kristor’s remarks on free trade are mostly apt, and I have a great deal of sympathy for the things he typically writes. That said, I think he doesn’t appear to realize that he’s swallowed the liberal logic of negative freedom uncritically. Greg Jinkerson begins to get at this in the “Global Free Market” entry: “free markets” versus “state tyranny” is a false binary.

I’ll come at this from another angle: what exactly constitutes the “freedom” in a free market? Is it simply absence of any restraint upon economic actors? No state involvement? The problem with this libertarian notion is that a host of mechanisms — governmental and cultural, formal and informal, legal and ethical — condition the transactions making markets effective. They need preserving, just as moral codes governing, say, sexuality do.

Thus I’m a bit surprised to find Kristor defending economic liberty in terms he would never extend to other matters. Would Kristor accept the Mandevillean claim that manners are enough, and which religion we accept is a matter indifferent to the support of commerce?

Moreover, how often is “you’re trampling my autonomy” the moral sine qua non for liberals, and how often does it actually mean something beyond “I don’t like this”? Conservatives ought to see that choice, by itself, is a moral cipher. Are we magically to assume that it produces good outcomes so invariably when it comes to economics? Adam Smith certainly didn’t.

Next, another, related question: where is the “market”? Do we effectively have one “market” of the type Smith or even Hayek envisioned when the various players have radically different conceptions of their own actions and goals? Folks like Worstall get around this by claiming that individuals and the entire world are the only realities, and that those are the only perspectives by which we ought to measure well-being; the market is the globe. How is this not cosmopolitan liberal dogma?

To see this, consider Jeff W.’s example, which Kristor gives inadequate credit. Suppose our trading “partners” are manipulating currency, creating tariff barriers, dumping cheap goods, and adopting wholeheartedly the mercantilist program. What is the economist’s response? Just like the liberal, he gives us a set of scary counterfactual conditionals, coupled with the smug assurance that “freedom’ will make things turn out well in the end.” But the fact that the counterfactual scenarios (most having to do with diminished overall short-term wealth) are true is largely beside the point. The question is really about the long-term effects of current practices, beliefs, and goals. What if our “partners” intend to overtake us by enslaving their own populations? Is this a “market”? Will our “free” behavior save us? Will the fact that they’re “giving us stuff practically free — don’t you see that controlling this will just make us both poorer!?” save us? Here’s where the inevitability talk begins. So if one is the type of person who believes, say, that liberal capitalism was “fated” to defeat Soviet communism, then happy dreams to you. But I think most people have the common sense not to enter that ideological fog. The important matters at hand are just where a proper market begins and ends, and just whom it is serving. These questions can’t be answered by adverting to the market itself any more than moral questions can be settled by pointing to choice and freedom. Traditionalists should know better.

Yes, free trade is often — maybe even usually — better. But the exceptions are of critical importance, and not as rare as we are typically led to believe. Are we prepared to sell our souls for a cheap pair of jeans?

Hannon writes:

I have greatly enjoyed the free trade thread. For me the most important idea throughout is that a Christian ethic should pervade all business matters, for both customers and purveyors. An American society that had not suffered a marked diminution of those same principles in all its endeavors would be something to behold.

Your commenters seem to be of two camps: a libertarian-sounding free trade position, versus retaining or implementing some measure of protectionism. Since a lot of regulation impacts free trade, I include it as well. I know that Kristor is not a libertarian, so I am left wondering what he sees as the proper shape of things at the interface between actual free trade and the consumer. What should the state properly regulate with regard to international trade? For example, if we know a country to be “illegally” or unethically by our account using child labor or prison laborers to make goods destined for the United States, who should make it their priority to take action? Many traders are understandably reluctant to divulge or publicize any negative revelations that would affect their business. Should we restrict the agency of government in this case to discovery and announcement, while any action against the country or company in question is taken by the importers and consumers? Should the government play no role at all? What about preventing defective or unsafe products from arriving at our shores to begin with? Absent the Christian ethos that appears vanishingly scarce today it seems most unlikely that these issues could be abated by private interests whose everyday material focus is making money.

Businesses of all sizes have proved, too often, to be operating at the expense of regular folks who have elected their representatives to help protect them from immoral polluters and crooks while they get on with their own business of family and community life. Surely these citizens deserve to live in the quiet confidence that such issues are being handled by others whose job it is to monitor various industries? If businesses cannot manage their own scrupulousness with high marks– does anyone believe they would do better at this if regulation was gutted?– and consumers are (understandably) unable to take on a regulatory role, where does that leave us?

The modern collusion between corporate and governmental America should not be underestimated. Sarah Palin recently shared her thoughts on this subject and I tend to agree with her message here.

As another commenter remarked, American banks must be considered, too, since money is a vital aspect of “free trade”. These institutions have time and again proved that they need to be regulated to protect depositors– the savings and loan scandal of the 1980s comes to mind– yet the federal “regulation” today is even worse than any industry shortcomings. A reminder here, if anyone needs it, that what banks do with money every day to create artificial wealth is both obscene and alarming:

Business and responsibility, and a view to the good as Kristor says, are essential partnerships in a healthy society. I am a businessman also and fully sympathize with people who do creative things with ideas and money. At the same time, the focus of doing business is to thrive financially and we should not be surprised that this dominant material prerogative should be in conflict with other values at times. We all play a regulatory role to the extent that we are active participants, and the more robust our involvement the more likely we are to scale back the federal behemoth.

Chris writes:

While I agree in theory with some of Kristor’s commentary, there are some points he makes that are certainly incorrect and others that I believe can be seen from an equally plausible alternative viewpoint. My degrees are in economics and history, and while I’ll be the first to admit that degrees often mean less than nothing these days, this is not an uninformed opinion of someone not familiar with econ 101. That said, I think a takedown of some of the free market fundamentalism that masquerades as well informed is in order. 

For one, when he claims that our Chinese competitors are selling us goods below their price of production, this is rarely actually true. It would be more accurate to state that while they may temporarily subsidize production to the point that they lose money on a particular good or class of goods, they do so only until they capture a market so to speak. 

More generally however, they manipulate the terms of trade and their currency so that they continue to produce goods at a profit while making our own industries uncompetitive by keeping the purchasing power (real wages) of their consumers/workers low via these currency and trade manipulations. The reason Foxconn, the manufacturer of iPhones and other devices employs more people than the industrial remnants of Detroit is a case in point. Foxconn makes money. They do so because the price of Chinese labor is kept artificially low, for if they paid a “free market” price for labor in China, either Apple would be forced to charge far more for the iPhones and similar devices (hurting US consumers in the short run) or Foxconn would make a profit at best commensurate with a normal profit (equal to the opportunity cost of instead investing that money with a return at the prevailing interest rate). They make a far better profit than that however. Again, this comes at the expense of their workers. It may seem as if this benefits us, and it does in the very short term. After all, iPhones would be far more expensive if assembled here, or even in Mexico. They do so at the cost of their workers purchasing power. What does China as a political entity receive from socializing some of the cost of this production to their workers while allowing Foxconn to benefit? 

It is simple really. The Chinese authorities are not interested, short term, in increasing the economic well-being of their subjects beyond the minimum to maintain social stability. They are interested in amassing power. The ability to manufacture high tech devices like iPhones brings them power in many different ways. The process of their industrialization–now in an advanced stage–allows them to wage industrial scale warfare, or at least credibly threaten to do so by gaining the expertise to build the components necessary for modern militaries. It also provides them with large trade surpluses to wield as political weapons. Additionaly, once an entire industry leaves a high wage nation such as ours, it is very hard to rebuild it. In the same way transitioning from the qwerty keyboard to a more efficient design is fraught with high initial costs, so it is with reclaiming many of our lost industries. The longer they have been gone, the higher the costs (finding the workforce with the necessary skills, shuttered equipment if not sold off becomes obsolete over time, etc). Also, with production facilities comes engineering capacity. There is often no substitute for on-site engineering ability, so it is not something easily outsourced back to us, as free traders might like to imagine. Eventually this is followed by even higher “value chain” activities, like the design and basic research to design and make high tech products. This brings them industrial leverage with which to move into higher value industries later for their mercantilist designs. 

Something also never mentioned by free traders is what happens in a world with absolute free trade and populated by an undifferentiated mass of homo economicus. According to free trade theory, all wages worldwide would essentially equalize, barring a few natural advantages like more resources per person in the U.S. vs. China. This of course is both undesirable to Americans, and also only a half truth, due to the incorrect assumption that the world is populated by undifferentiated consumer/producers. With China in mind we might believe that as their standard of living rises inevitably, despite it being held down artificially by the government, that other even lower wage countries will begin to undercut them, keeping the goods we buy from them now low. This is a half truth. Without going into all the HBD arguments, the Chinese will not face significant competition from the bulk of the third world for production of high tech products now or ever in any timescale meaningful to an American consumer alive now. There are maybe a few exceptions to this, but low wage Africa, Latin America, or some parts of Asia will not alleviate the pain consumers will eventually feel once China has captured enough of a high tech market to be the primary producer. They will have permanent pricing power, provided they don’t exploit it too vigorously and we never erect tariffs. Eventually, as our economic situation deteriorates, our human capital deterioration will also accelerate. Granted, the ongoing deterioration of overall American competency has many causes, but the de-industiralization happening now is not helping. 

Another fact explicit with China, but also true of some of our other competitors, is that not only do they not reciprocate the generous import policies we have, but when they do import high technology from us, it is often only for as long as they need before they can reverse engineer said technology. Punitive tariffs seem as good a punishment for such behavior as I can fathom. 

The fact that China also builds vast public works that will prove to be wasteful boondoggles to the Chinese economy is a different matter not directly pertinent to the trade issue, although it is a good example of how government direction of economic activity goes horribly wrong in the vast majority of cases. Promoting their private industries and manipulating their currency to gain advantage over ours does not truly fall into that category, given their motives for doing so. 

I will concede that the primary reason for our slow decline and anemic growth are our stupid economic and social policies. De-industrializing and having more people go on the dole contributes to that, and frankly I’d rather pay a bit more for consumer products as a form of welfare than the types of welfare we have now. A generalized tariff combined with a more targeted tariff against the most egregious abusers of our openess (China) will not in any appreciable way increase the economic power of the feds. As it stands, they are already knee deep in regulating companies here, picking winners and losers, and punishing firms seen as an enemy to their agenda (see the kickbacks to GE or the attacks on Gibson guitars). 

I’m not an expert on all things economic, but sometimes economists (Krugman and others) get so into the theoretical details of the field that they begin to miss the forest for the trees in my humble opinion. Free trade fundamentalism and open borders mania fall into those categories.

Steve M. writes:

Kristor writes that “The Portuguese were outcompeted by the British. It’s that simple. The British were better businessmen. And they were, famously, far, far more industrious and enterprising.”

This is the foundation myth of free trade belief, the lynchpin of the entire edifice. Britain, the theory goes, achieved unprecedented economic growth via the application of some brilliant economic theories. And the rest of the world can have the same prosperity by following those same theories.

It’s difficult to see how anybody can take any of this seriously. Britain was very famously an empire, an exceptionally large empire. Britain’s economic policy between the mid 1600’s and the mid 1900’s was colonialism, not free trade. The colonies exported their raw materials to Britain (and only Britain) where they were either made into finished products and sold back to the colonies (and sold to other European countries) or in some cases, such as spices, simply sold directly on the European market. One of the causes of the American Revolution was the Americans desire to establish their own industry and to compete with British manufacturers.

The British did not “outcompete” the Portuguese, the Spanish, and the Dutch: they outfought them. Then they established near monopoly control over the production and supply of various valuable commodities, ranging from nutmeg to slaves, to the rest of the world.

Kristor should read up on the history of the East India Company, or read “Bad Samaritans,” to correct some of his misconceptions.

A reader writes:

I have a B.A. in econ, something I am profoundly ashamed of. I have most of a Masters in Econ and did some courses with Murray Rothbard who was a spellbinding lecturer and like Milton Friedman had a simple, clear, brilliant, wrong answer for every complex question. Economists have spectacularly failed to predict or forestall two massive economic bubbles, two recessions and worsening unemployment (that’s just in the last 10 years). My own view is that the discipline is corrupt.

Free trade assumes two individuals or countries trying to optimize their natural advantages in producing goods and services. The hope is that the market will prevent or punish cheating. In practice, in the real world it is possible to strategically loot an opponent’s economy of particular industries. Unlike free trade theory, which would predict that we would create a new crop of industries (based on our relative advantages) to replace the old industries, this has not happened. It is easy to blame regulations, and certainly that is a large part of it, but there are fundamental problems with us opening our markets while others do not. 

It is better to examine the policies of successful economies. 

The discussion about free trade reveals many of the mistakes economic thinking creates. First, the discussion has revolved around optimizing the production of goods and services. But that’s not the only thing worth optimizing. Japan wanted power. Japan has no natural advantage that makes it adept at producing cars. But it produces excellent cars because it decided to gut our auto industry. 

China is doing the same. A friend of mine recently returned from Kenya where the Chinese are building self-contained colonies to exploit local natural resources. The Kenyans sold wooden carvings and trinkets to tourists to make money. The Chinese saw this and now sell the same trinkets for less money undercutting the locals. When you can oppress your people, the Central planners can do what they want in terms of trade. 

In my opinion, economies are organic (the phrase used by the urban theorist Jane Jacobs). They are expressions of particular cultures and people in a particular place. An economy is part of a complex web of social structures. They are not a series of summed up supply and demand curves. Hernando de Soto has wrestled with this problem for years.

There is another problem. The intelligence of the people in any country is a normally distributed bell curve. Half the people in a country are not as smart as the other half. Smart is not the only economic indicator but it is an important one. All the people in a country deserve a chance to work and live with some level of dignity. That means not everyone can be a knowledge worker or a Free trade columnist. We need to be able to provide jobs for everyone. If only to provide some political stability. 

Yes protectionism distorts the market and increases the price of goods and services. It also helps ensure our neighbors have jobs and prevents the growth of a permanent underclass. Protectionism was also the official policy of the U.S. for its first 150 years and was critical in developing our economy. We need to produce goods and services to have an economy that is stable for everyone. At the end of discussion, we need patriots running our country who think deeply, guided by knowledge of the world as it is-free from ideology and cant. I pray for it nightly.

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