This book is about how to reduce poverty and improve global living standards. Topics include economic growth, income inequality, corruption, sustainable development, the future of technology, and much more.
Below is a sample of questions answered th...
Free trade is the right of producers and consumers to buy and sell goods and services across borders with minimal restriction. This includes the freedom of shareholders to move their companies overseas and hire new employees.
I included the Enabling Trade Index in my Market Freedom Index, which recall, measures the following aspects of trade freedom: The tariff rate (tax penalties for buying and selling products internationally), trade barriers (other restrictions on international trade), restrictiveness and size of the bureaucracy of the border administration (these are the government agencies that inspect, certify, and approve inbound and outbound goods), openness to foreign investment and labor (for example, the right of an American company to invest in Chinese companies and hire their workers), and more.
Countries' friendliness to free trade, as measured by the Enabling Trade Index, correlates with scores on the Standard of Living Index. See figure 15.
Figure 15
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Sources: Standard of Living Index | World Economic Forum's Enabling Trade Index (2014).
The horizontal axis is nations' scores on the Enabling Trade Index (higher is better). The vertical axis is their scores on the Standard of Living Index. The strength of the correlation is R^2=0.70. Every 1% increase in trade freedom correlates with a 0.70% improvement in standard of living. In other words, nations that are twice as friendly to free trade have a 70% better quality of life on average.
Chile (CL) is the biggest "exception" on the graph. It has only been friendly to free trade for a few years. That's why. The country hasn't had enough time to catch up with the developed world.
Chile's GDP per capita is skyrocketing thanks to recent trade agreements and market reforms in the early 2000s. It still lags in other areas, though, such as inequality. That's also why its standard of living is lower than the other OECD nations.
Give it 20 years or so and Chile's quality of life will be on par with Western Europe and North America. That assumes, of course, it continues to liberalize its economy. Progress will be faster if the country reduces inequality to a level comparable to Scandinavia.
Why would anyone be against free trade?
There are all sorts of specious arguments, which I'll discuss, but the real reason is corruption. Corruption is when a special interest uses its wealth to influence the government to give it special privileges. Today, this is done through lobbying and campaign contributions.
Corruption is not just monetary influence over politicians. It's monetary influence specifically for gaining advantages over competitors. Anyone can lobby for a just cause. But when a company lobbies for advantages over rival firms—that's corruption.
Lobbying for free trade is not corruption because it levels the playing field. Free trade allows all the people of the world to come to business arrangements with each other. That's very democratic. For instance, if I want to do business with someone from Germany, and they want to do business with me, we should both have that right. Stopping us would be tyrannical.
