International Trade and Taxpayer Funded Transportation

John Ray at Dissecting Leftism found this very interesting article by economist Sean Gabb that makes the argument that much of the outsourcing of our industries and jobs has been made possible by the fact that we have created such an efficient transportation system. Our roads, railways, and airports are paid for largely by taxpayers and we all benefit from having them. But so do foreign manufacturing firms and nations. And since they don’t pay taxes for those roads and bridges, they are being inadvertently subsidized by all of us, which artificially lowers the costs of imported goods that compete with our own.

The subsidised infrastructure that we have is biased towards transport over long distances. It raises the maximum scale of production. Internal economies of scale in a factory are worthless if distribution costs make the price of output uncompetitive in all but very local markets. Centralised production for a national market may be worthwhile in a country where distribution costs must be reflected in price. It will be far more worthwhile in a country where distribution costs are partly met by the taxpayers.

What is true of national distribution networks is also true at the level of international trade. British and then American control of the seas has made shipping safe from piracy. British and American control of the Middle East has externalised many of the costs of oil drilling and movement. British and American armed interventions stabilised less powerful countries for the sale of our industrial output, and then for the development of manufacturing industry in places where the local ruling classes could be bribed and assisted into making labour both cheap and docile.

These facts go far to explaining why Chinese apples undercut Kentish apples in Kent, and why it is worth concentrating the manufacture of virtually all electronic goods in a few coastal regions of China, and why most of the clothes we buy are put together in Turkish and Bangladeshi sweatshops. It goes far to explaining why, when I drive home every summer from the family trip to Slovakia, I share fabulously expensive motorways with lorries that pay a pittance per mile, and burn diesel at prices – even allowing for taxes – far below the real cost of extraction and transport, and that are carrying goods to places like Manchester and Leeds where once whole armies were employed in their manufacture.

In short, the manufacturing side of the globalisation that traditionalists denounce proceeds from a pattern of comparative advantage that makes sense only on the basis of systematic externalisations of cost. This is not a natural order. It is not free market capitalism. It is instead a global mercantilism in which a cartel of ruling classes has decided that certain regions should specialise in certain activities. If notebook computers are not made in Basingstoke, it may be less because firms in Canton are better at making them than because their final prices all over the world do not take fully into account their costs of manufacture and distribution.

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