30 May 2008

Trade cannot do what Charity does

Fascinating times lead to interesting conclusions, some warranted and some not warranted. Consider Ronald Bailey's article in Reason 29 MAY 2008 (H/t: Instapundit) about the need to increase free trade and the benefits that would come from it looking at a recent Copenhagen Conference on this issue by Kym Anderson:

Anderson looked at a number of econometric modeling scenarios and calculated the cost and benefits that would obtain from full trade liberalization under realistic assumptions derived from the current World Trade Organization's Doha Development Agenda negotiations. Anderson estimated that liberalization of global merchandise trade would mean an annual increase of $287 billion per year in global GDP, of which $86 billion would go to developing countries. This compares very nicely with the $104 billion in development assistance that the governments of industrialized countries gave to developing countries in 2006.

In other calculations, Anderson found that the long term effects of trade liberalization would be that global income in 2098 would be up to 10% greater than it otherwise would have been. The associated net present values from freer trade range from $50 trillion to $424 trillion. Consider that in 2007, total gross world product was $53 trillion. In other words, both the immediate and long-term benefits from free trade are enormous. Anderson reports benefit cost ratios ranging from 269:1 to 1121:1.

Unfortunately this only looks at government assistance to developing countries, which is by far not the whole story. Consider the following from the USINFO site on charity for the year 2006 written on 26 JUN 2007 by Jeffrey Thomas:

Americans increased their charitable donations significantly in 2006 to more than $295 billion -- a record, according to a study released June 25 by the Giving USA Foundation, which reports on charitable contributions.

The overwhelming majority of this money was donated by individuals, not corporations or foundations, according to the chairman of Giving USA, Richard Jolly. Donations from individuals, including bequests, accounted for 83.3 percent of total giving last year, or $245.8 billion, he told USINFO.


Americans long have preferred to donate their money through the private sector or to private charities. Of the $122.8 billion of foreign aid provided by Americans in 2005, the most current data available, $95.5 billion, or 79 percent, came from private foundations, corporations, voluntary organizations, universities, religious organizations and individuals, according to the latest annual Index of Global Philanthropy, which is published by a Washington research organization, the Center for Global Prosperity at the Hudson Institute.

The Giving USA report does not take into account the value of contributions Americans make in terms of time and labor. More than 61 million Americans volunteered for charitable and national service organizations in 2006, and about half of all Americans participate in volunteer activities each year, according to Brooks. Volunteerism is “a major cultural phenomenon in the U.S.,” Brooks says.

Consider that the annual charitable donations in foreign aid, $122.8 billion, is roughly 43% of the proposed estimate of what increases in global trade would accomplish. Even better is that this aid is targeted and accountable by individuals and private organizations who ensure that money spent on projects that they solicit funds for are, indeed, well spent. The amount of American after-tax income that is donated to achieve such levels? 2.2% via the USINFO article, with a substantial portion of that coming from households with sub-$100,000 per year income.

When I took a look at the FY 2007 budget for the US in relation to foreign assistance, the amount the US puts forward via its government is interesting: International Assistance Programs came to just under $17 billion, and there would be some portion of the State Dept budget also devoted to this, but would be a fraction of their $14.4 billion budget. There are other 'freebies' tucked into places like Dept. of Agriculture, Interior and so on, but that total should be well under $20 billion per year, across the federal government, and certainly under $30 billion. So US charitable giving outstrips US government foreign aid by at least 10 or 15 times, or a 10:1 to 15:1 ratio.

Over at Charity Navigator a 31 MAR 2008 article by Arthur C. Brooks looks at the donations of money and time:

Q. Are Americans more or less charitable than citizens of other countries?
A. No developed country approaches American giving. For example, in 1995 (the most recent year for which data are available), Americans gave, per capita, three and a half times as much to causes and charities as the French, seven times as much as the Germans, and 14 times as much as the Italians. Similarly, in 1998, Americans were 15 percent more likely to volunteer their time than the Dutch, 21 percent more likely than the Swiss, and 32 percent more likely than the Germans. These differences are not attributable to demographic characteristics such as education, income, age, sex, or marital status. On the contrary, if we look at two people who are identical in all these ways except that one is European and the other American, the probability is still far lower that the European will volunteer than the American.

Much of the foreign trade increases only come about because of such things as micro-lending systems and charities actually able to go into poorly developed areas and provide targeted aid beyond humanitarian assistance. There is a problem with depending on government solely as a way to develop trade via foreign assistance, and it is clearly pointed out by the Charity Navigator article:

Q. Monetary giving doesn’t tell us much about total charity, does it? People who don’t give money probably tend to give in other ways instead, right?
A. Wrong. First of all, there is a bright line between people who give and people who don’t give. People who do give time and money tend to give a lot of it. According to the Center on Philanthropy, the percentage of givers donating less than $50 to charity in 2000 was the same as the percentage giving more than $5,000. Similarly, the same percentage of people who only volunteered once volunteered on 36 or more occasions in 2000.

Second, people who give away their time and money to established charities are far more likely than non-givers to act generously in informal ways as well. For example, one nationwide survey from 2002 tells us that monetary donors are nearly three times as likely as non-donors to give money informally to friends and strangers. People who give to charity at least once per year are twice as likely to donate blood as people who don’t give money. They are also significantly more likely to give food or money to a homeless person, or to give up their seat to someone on a bus.

The problem with seeking government solutions to problems such as building economic structure in poor nations is that it must go through the highly bureaucratic structure that, itself, takes up anywhere from 35% to 55% of the funds just to ensure accountability of those funds and pay for government overhead. Private and institutional charities instead compete on the lowest amount of overhead so that the most relief is provided, and charities that spend more than 10% on overhead are seen has having a problem. Trade, going through commercial channels, can and does develop minimal means of manufacturing or labor markets, but the support of society to ensure that things like a 'work ethic' are developed and that the poor have an opportunity to gain jobs from such commercial activity is a charitable concept.

Trade liberalization in and of itself does not build institutions of liberty, freedom, self-worth or ensure that societies are reinforced by it. China is better since 1972 not for trade but for the removal of Mao, and yet the authoritarian and fascistic state that has grown up since his death has not improved the actual ability of individuals to express themselves freely, take part in an open government via democratic means or even have better health. China, today, is one of the world's largest polluters in carbon dioxide and sulfur dioxide, has a 20% nation wide unemployment rate, has nearly 17% of its population below the poverty line, has 25 to 50% of all loans being Non-Performing Loans which puts the amount of GDP depending on that poorly structured debt at between 30 and 60%. Due to pollution *alone* the city of Beijing loses an estimated $1.5 billion/year due to health effects and poor sanitation. And it has LOTS of trade with the US and the rest of the world! Just one of its companies supported by the State, Huawei Technologies, has infringed on intellectual property rights to undercut competition and sell knock off equipment of reputable manufacturers. In the US. And then seeks to buy its way into the market via a leveraged buyout. It has also been cited for competition practices depending on blackmail and coercion. It, too, is part of that 'global trade' system, and yet its mafia style tactics and willingness to break international copyright laws is abundantly clear.

That is the problem with gross growth numbers for global outlooks: it ignores the problems that have come in with current 'trade liberalization' in the way of ensuring accountable enterprise activities on a global basis. This is a problem with the modern view on trade, deriving from the Wealth of Nations view, which I have looked at before. It is a nasty bit of learning that trade is to support National interests, and while more trade is better, when it undermines the National interest and degrades the ability of a Nation to manufacture or support itself in key areas, it becomes a negative factor. The division of labor on a global scale argument only goes so far as it does not address liberty on a global scale. We have three major places where trade was placed as the key to creating liberty, and yet in each of those places it has failed: President Wilson would not attack the Ottoman Empire which was allied with Germany and placed US trade and corporations as the reason and trade as the means to increase liberty in the region in 1917, President Nixon proposed the same for China starting in 1972, and Presidents Carter and Reagan proposed the same for Yugoslavia in the late 1970's and early 1980's. In each of these instances of large scale trade views to increase liberty and increase security for the citizens of those Nations, it was a failure.

On the overall scale of things, looking at the Reason article's $53 trillion level for the global economy, the US accounts for nearly $13 trillion of it (Source: indexmundi) for the year 2006, or nearly 25% of it. Now, if US charitable giving were emulated by the REST of the top 10 nations in the world, we might have a system of global interaction that would support societies by individuals and private concerns addressing the needs of poverty, hunger and basic education on how to keep oneself fed. In fact US charitable giving at $295 billion places it, GDP-wise in 2006 as the 34th largest nation in the world between Malaysia at $309 billion and Sweden at $285 billion out of a list of 210 nations. The foreign aid amount via charity falls lower, of course, at 122 billion between the 57th placed UAE at $130 billion and 58th New Zealand at $106 billion. Throw in $20 billion from IAP and other government sources and that pops it up to right after 54th Morocco $147 billion.

If China, Japan, India, Germany, UK, France, Italy, Russia and Brazil had private charitable works equal in percent of post-tax income to the US, that personal contribution would not only foster commitment to international growth but have accountable systems via private institutions to go with it. The argument that external government donor aid plays a larger factor is belied by this the results seen at indexmundi for external donor aid where the US comes in fourth ($6.9 billion) after the UK ($10.7 billion), France ($10.1 billion) and Japan ($8.9 billion).

That $6.9 billion comes out of the IAP, State Dept and other federal funds sources as donor aid and note that the fraction missing is quite high even just taking the IAP *alone* ($17 billion) the overhead is in the 40% range. If you are hot for international trade, then, the idea is to get governments out of the way for promotion and development of it. What National governments are given TO DO is to protect their Nations and ensure that trade does not undermine their societies or their Nation. Wealth and wealth production is not the same thing as liberty expressed through human freedoms: it is a measurement of buying power, not human liberty. China is going great guns on unstructured debt, lowered life spans, suppression of political and religious organizations, and utilizing its workforce for national power vested in the government, not its people. Also notice where China sits on the giving side of the equation from its government.

It is in this area where we confuse the ideal of Wealth of Nations with the hard-headed reality of the Law of Nations, where National gain and prestige is not necessarily equivalent to human liberty and freedom. The idea that mere cash 'empowers' an individual is belied by a place like China that is slowly grinding its people, no matter how wealthy, for its national ends for its government. One cannot decry Tibet and then support the idea that increased trade is helping the people of Tibet due to the goliath that controls it being able to do what it wants without respect to human liberty and freedom. And with the Chinese poverty line set far below that of the US, indeed looking more like the poverty line for a rural based economy, that 16% below that line points to a major problem in China beyond what trade can accomplish.

Trade liberalization when it is not hard and deeply coupled with the expansion of teaching human liberty and the price to secure it does not promote EITHER. A fine and dandy 'global labor pool' devolves towards the lowest, poorest common denominator for liberty and rights as those are the most available for the highest profit margin on output. And when pay gets too high in one region, the transnationals shift to others leaving those who had jobs without them. My article on NAFTA looks at this and the results for a place like Mexico with 'free trade' with the US. The local job pathways out of poverty and for self-sustainment by agriculture were broken by cheap, industrial crop production in the US (any high capital expenditure system becomes an industrial enterprise, as opposed to a manual labor one). Jobs along the northern border for low end manufacturing in textiles and other goods shifted jobs from the US south east and midwest to northern Mexico. Labor headed north for those jobs and to the US as higher paying work with no penalties worth mentioning was available there, which depressed local pay scales and increased pressure on social services. The manufacturing sector then saw the Far East as the next place to go (Philippines, Malaysia, China) and soon the factories in northern Mexico were idling down or shutting down. The US then went for its 'biofuels' binge and increased food costs in Mexico which now had no local agribusiness due to the hard competition it suffered from the US for nearly a decade. Those people had to seek jobs northwards, also. The last employer of opportunity became organized crime which is now supported transnationally and that is leading to a criminal based insurgency backed by foreign organizations on the other side of the US border.

Trade liberalization may have put more money into the pockets of Mexico in general, but it is now getting them killed at a higher rate than ever before due to the economic effects on the poorest there. This is really not the harbinger for a rosy world of the future with a non-accountable 'global labor pool' and 'global business climate' that has no adherence to Nation based societies and cultures. In treating labor as a commodity we ignore the human aspects of labor to be creative and have free reign via liberty for self-expression and support of society. It is possible to get both richer and no more free, because money does not buy liberty and freedom. The US should understand that because we have the saying that tells what *does that* and money cannot buy it:

The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.

- Thomas Jefferson

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