Moron in the White House
With professor Benjamin Powell of Texas Tech on antisweatshop movement, migration myths, financial crisis and Donald Trump.
Professor Powell, you have published a book on Immigration with Oxford University Press a couple of months ago. What are the major myths believed by the public which you attempt to tackle in the book?
The public, in the United States, is prone to believing many myths about the impact of immigration on the economy that are completely at odds with the social science that has studied the impact of immigrants. Chief among these myths is that they "steal our jobs." There is simply know evidence of this, it is a classic case of Bastiat's seen and the unseen. People see when an immigrant replaces a native born worker in any given job. But they don't see that jobs that were created by immigration because the native born people were freed up to do work they are better suited to. On net, immigration neither creates or destroys jobs. Another one is that immigrants will impoverish our wages. The debates among scholars only find negative wage impacts on natives without a high school diploma and even in that case they find that the effect is small and temporary. The majority of natives become slightly wealthier because immigration.
In Europe of today, immigration is the policy problem of utmost importance. How would you respond to the argument that in the past massive migration (such as in the case of the US at the end of the 19 century) was different from what we experience today in Europe. There seems to be no hope for migrants from Syria to assimilate (in Germany), there is a huge cultural/religious incompatibility, there is a huge security risks etc. Can we use lessons from the past on the problems of the world in the 21th century?
I think Europe has a tougher problem with immigration than the United States but it is primarily a result of European Countries' own economic policies rather than a character flaw of the immigrants themselves. The main difficulty is that immigrants have a hard time integrating into the European labor market. High minimum wages relative to productivity price many of them out of the market. Laws that make it nearly impossible to dismiss workers once they are hired means that employers do not want to take a chance hiring an unproven immigrant (substitute young person for the word immigrant and you have a reason for high youth unemployment) when they can hire an older native born worker who is a known quality. Furthermore laws often explicitly prevent refugees from working. All of this leads immigrants to turn inward and enclave and need state welfare support. Meanwhile it provokes resentment among the native born populations. Less labor market regulation in Europe would go a long way to improving these other aspects of immigrant assimilation.
What policy recommendations follow from that? What would you suggest in terms of migration policy if asked by US or EU authorities? (Could you somehow respond to the argument that "we" should help "them" in their own countries, so that they would not need to risk their lives trying to get to US/EU. But studies show that with higher income in the poor countries, actually more poeple will be able to - and will - migrate and the flow of migrants is likely to stop only much later, after GDP reaches certain level - such as GDP of Albania.)
To quote one of my favorite economists, Ludgwig Von Mises "Without the reestablishment of freedom of migration throughout the world, there can be no lasting peace." I think we need to move to a regime of no blanket quantitative restrictions on immigration (screening to prohibit criminals and terrorists is fine). That will do more to promote the escape from poverty for "them" in the 3rd world by "us" in the first world than anything anything else. It will also modestly enhance the wealth of destination countries. If economists' estimates can be believed, moving to a world without immigration restrictions would roughly double world GDP.
You extensively lecture and write on sweatshops. Could you give us an idea about the importance of its existence and the process of elimination thereof due to global trade. How many poeple are we talking about (escaped poverty thanks to sweatshops)?
Almost every country that is rich today went through a stage of development that looks something like production in poor countries that have sweatshops today. So in a sense, everyone now wealthy escaped poverty though economic development that involved sweatshops. Sweatshops bring with them technology, physical capital, and the opportunity to accumulate human capital. These are all proximate causes of higher standards of living. This was more than a 100 year process in Great Britain and the United States. But the Asian Tigers of Hong Kong, South Korea, Taiwan, etc, all did it in a generation. Today there is so much more technology and physical capital in the world that the process can go much quicker if a country adopts the institutions that embrace private property rights, economicfreedom, and the rule of law.
Antisweatshop movement still exist, however. Do you know of some "successful" campaigns in the West in which people stopped buying sweatshop products and can you describe the consequences.
The Altagracia Project is often hailed as a success story by anti-sweatshops groups. Its housed at the site of the former BJ&B factory, which was a major producer of baseball hats for Nike, Reebok, the Gap, and other major companies. It employed more than 2,000 workers in 2001 but under harsh conditions. Workers were agitating for a union and UNITE helped them gain publicity and allies with the United Students Against Sweatshops. The publicity eventually forced BJ&B to recognize the union in 2003 and enter into an agreement that would “give workers a 10 percent wage increase, educational scholarships, paid holidays, and the establishment of a workers’ committee to deal with health and safety concerns at the factory.”The agreement was “hailed by many as a sign of the success of transnational organizing, particularly the strategic role played by USAS in exerting pressure on universities to take action through the WRC.”
The activists’ victory was short lived. Soon the economic forces described above began asserting themselves. Yupoong threatened to close the factory and shift its production to overseas plants when the agreement was renegotiated just a year later in 2004. Activists again pressured the factory to negotiate and it stayed open but it began laying off workers. Finally, in 2007, Yupoong closed the BJ&B plant because it was no longer competitive. The plant closure was really just the final nail in the coffin for the workers. The work force had already shrunk from 2,000 before before activists pressured the factory to only 234 at the time of its closure.
Today, the location of the BJ&B factory is the site of the Altagracia Project. The Altagracia Project, founded in 2010, “was up to operate as a model factory, showcasing that a factory could pay a living wage (three times the average wage for garment workers in the region), respect workers’ rights to join a union, and at the same time turn a profit.” Thus far, the factory has been successful in selling its products at more than 600 college campuses throughout the United States. It remains to be seen if the factory will be profitable in the long-run. Even if it does stay in business, it is hard to judge the net effect of activist activity in the Villa Altagracia region as anything other than a horrible failure.
The laws of economics are clear. When the cost of labor increases companies use less of it. Even these supposed “success stories” of the anti-sweatshop movement are not immune from these forces and activists’ actions ultimately made the vast majority of effected workers worse off.
Let us talk about the US now. What are the major changes in terms of economic policies which can be attributed to the last financial crisis? Are we learning the right lesson?
The U.S. policy makers took exactly the wrong lessons away from the last financial crisis. In the face of the crisis they expanded the size and scope of government but the crisis was not some failure of capitalism. It was interventionist government policies that caused it. Or as my colleagues Peter Boettke and Steve Horwitz dubbed it, the market that collapsed was "The House that Uncle Sam Built." But now we are saddled with more regulations and a bigger government that is going to cause more crises in the future.
Last question: The phenomenon of Donald Trump. Hope or danger for the US? Can he win? Is his anti-establishment approach something which can bring about a meaningful policy changes which standard parties do not seem to offer?
As one of my favorite political commentators, H.L. Mencken noted nearly a century ago "As democracy is perfected, the office of president represents, more and more closely, the inner soul of the people. On some great and glorious day the plain folks of the land will reach their heart's desire at last and the White House will be adorned by a downright moron.” His rise has to be disheartening to anyone who loves liberty. None of the major candidates with a shot of winning the election are strong supporters of liberty. But Trump might be the most dangerous of them all.
Benjamin Powell is the Director of the Free Market Institute at Texas Tech University and a Visiting Professor in the Rawls College of Business. He is the North American Editor of the Review of Austrian Economics, past President of the Association of Private Enterprise Education, and a senior fellow with the Independent Institute. He earned his B.S. in economics and finance from the University of Massachusetts at Lowell, and his M.A. and Ph.D. in economics from George Mason University.
Professor Powell is the author of Out of Poverty: Sweatshops in the Global Economy (Cambridge University Press: 2014), editor of Making Poor Nations Rich: Entrepreneurship and the Process of Development (Stanford University Press: 2008) and co-editor of Housing America: Building Out of a Crisis (Transaction: 2009). He is author of more than 50 scholarly articles and policy studies. His primary fields of research are economic development, Austrian economics, and public choice. Dr. Powell's research findings have been reported in more than 100 popular press outlets including the Wall Street Journal and the New York Times. He also writes frequently for the popular press. His popular writing has appeared in the Investor's Business Daily, the Financial Times (London), the Christian Science Monitor, and many regional outlets. He has appeared on numerous radio and television shows including, CNN, MSNBC, Showtime, CNBC, and he was a regular guest commentator on Fox Business's Freedom Watch.
Professor Powell will deliver the Franc Cuhel Memorial Lecture at the Prague Conference on Political Economy in April 2016 and is a visiting faculty of the new PPE master's program at the CEVRO Institute.