The Merchant of Menace

Whoever has the most gold at the end, wins.

"I keep whining and whining until I win." -- The Candidate

   Business executives praise the benefits of competition, which to them means selling more stuff than the other guy, cutting the other guy out of opportunities to do any business, until he is forced to shut down. Result: Winner takes all.
   During the colonial era, nations operated the same way, setting things up so that the mother country imported raw materials from the colony, kept the manufacturing facilities at home, and sold the completed products to the colonies, keeping the profits to itself.
   Then, to close the cycle even tighter, laws were passed mandating that all exports and imports between the colony and the mother country be carried only on ships registered to the mother country. The goal was to cut out all competition from other nations.
   Politicians and business executives praised such a system for keeping jobs at home, providing marketing opportunities for companies in the nation, and keeping out competition, thus ensuring prosperity for everyone in the nation.
   Sound familiar? It's an attractive notion, promising to expand job opportunities, especially in manufacturing, and prosperity as exports outweigh imports and improve the balance of trade. The result, believers promise, will be that we sell more stuff than we buy, and become rich in doing so.
   However, there comes a point when we have sold so much stuff and bought so little that we have all the money and the other guy has none. That may work on an individual or small company level, as long as the other guy, the customer or the competitor, can go elsewhere for a job or market opportunities. But on a national level, it doesn't work.

   This was the dominant economic theory in the 17th and 18th Centuries, and it's called mercantilism. Merchants rule, supported by politicians, protectionists, exporters and any who believe in the natural superiority of one nation over all others.
   The danger, however, is that when one nation enriches itself at the expense of other nations, the winner soon runs out of markets. The winning nation has all the money and the loser has none. Result: Insanely high prices chasing fewer goods in the winning nation, and poverty in the losing country.
   The definition of mercantilism, then, according to Sean M. Flynn, author of "Economics for Dummies," is this: "Trade is one-sided, set up to benefit the mother country at the expense of the colony."
   Common sense says that such an arrangement can only be disastrous. Consider the experience of Spain, when it colonized the New World, intending to find and take home all the gold its conquerors could find. All the money went back to Spain, and the result was hyperinflation, and the people in the Americas were impoverished.
   Or consider the experience of England, which wanted to keep all manufacturing at home, while America supplied raw materials at low cost and was forced to buy only English-made goods at higher prices. Result: Revolution.
   Adam Smith, founder of modern economics, diagnosed the fatal illness of mercantile theory in 1776, in his book "The Wealth of Nations," in which he detailed the advantages of international trade.
  Later, David Ricardo (1772-1823) wrote the obituary of the mercantilist zombie with his arguments for free trade and comparative advantage.
   "Few ideas have been so widely accepted by economists and as roundly rejected by many other people as the doctrine of free international trade," said Bob McTeer, president of the Federal Reserve Bank of Dallas.
   Adam Smith drove a stake through the heart of mercantilism some 240 years ago, wrote Charles L. Hooper, a visiting fellow with the Hoover Institution, in 2011, "but the rest of the world never got the memo."
   "Unfortunately, the archaic and counterproductive ideas of mercantilism are alive and kicking in 21st-Century America," Hooper added.
   Many politicians and business leaders, then, are mercantilists, preaching an economic dogma that has been shown to be destructive many times over. And as the nation stumbles its way toward a presidential election, it's important to recognize that the rantings of candidates assailing other countries for "stealing jobs" from America ignore the reality that companies have long had a practice of relocating the facilities from high-wage regions to other areas with abundant labor at lower wages, or cheaper energy, or for other savings in the cost or production.
   It happened in the New England textile industry, as companies moved to the Carolinas. That's no different in principle than relocating to another country.
   But who really wins in the competition to cut costs and increase profits? The corporate magnate, with the support of government officials and those who believe, falsely, that long-term prosperity is a one-way street, and only by destroying the competition can a nation be successful for all its citizens.
   Meanwhile, as jobs go to low-wage countries, workers there gain money to buy products made by workers of higher skill (and higher wages) at home. Result: Both sides prosper.