We don’t need to destroy our economy to save the planet
As I’ve studied green issues, I have frequently come across the “buy local” train of thought, but I’ve never seen it embraced as completely as it was in this Gristmill post by Jon Rynn — at least not since my undergraduate courses on international trade and economic philosophy. It’s very easy to understand the intellectual impulse behind his arguments, but don’t think I’m overstating the point in calling his recommendations potentially disastrous. Buying local is a common and appealing idea, so it’s worth reviewing the economics behind Rynn’s proposals.
Economic self-sufficiency is an old idea. Before the revolution in economic thought that began in the 18th century, it was a key part of the mercantilist economic philosophy. This widely embraced strategy emphasized that trade was a zero-sum game, and that the wealthiest nation would be the one which produced and exported the most and imported the least. It was, on the whole, a destructive and inefficient way of doing things.
The insights that slowly overturned this world view centered on the gains from specialization and trade. To illustrate this most effectively, imagine a world in which you had to do everything for yourself. To get along, you’d have to grow your own food, build your own tools, make your own clothes, build your own house, and so on. It should be clear that in such a world you’d be very poor and miserable.
If there were another person around to help you, however, then each of you could focus on a few key things. One person could spend all his time on growing food while the other built tools and made clothes. Each person would be able to accomplish more by specializing, and at the end of the day after exchanging goods, both would be better off. If we increase the number of people to 100, everyone becomes wealthier still. One person might get very good at making shoes, another would excel at animal husbandry, another at plowing, and so on. Everyone produces more than they could by doing everything themselves, and through trade, they’re all able to enjoy a higher standard of living. This model is extendible to a global scale.
The production of many goods in the world economy is fairly concentrated. Take ball bearings, for instance. Ball-bearing manufacturing is a low margin business with large economies of scale (that is, the best way to make them cheaply is to make a whole lot of them). As such, there aren’t all that many manufacturers. Were we to require every metropolitan area to produce their own, the efficiency of ball-bearing production would drop precipitously, and ball bearings (along with all the tools that use them) would get a lot more expensive. As a result, people wouldn’t be able to buy as many ball-bearing-oriented goods as they currently do.
Everything, actually, would get more expensive. Since more people, globally, would be employed in ball-bearing manufacture, fewer people could be employed in other jobs. Labor for those other jobs would become scarcer and more costly, making whatever those workers used to produce more expensive. This would be the case for just about every manufactured good and for agriculture. By unwinding the gains from specialization and trade, we would force local areas to produce what could be more efficiently made on a larger scale. Goods would become much more expensive, workers could afford fewer goods, and the range of products available to any one consumer would be significantly reduced.
This is bad for humanity for other reasons, too. Trade is a source of insurance. Without trade, the current drought in the American southeast would be a famine. Thousands, perhaps more, would die or become refugees. Now we could say that buying local is good, except in cases of famine, but why draw the line there? Why not say buying local is good, except in cases of hunger? Except in cases of generally poor living conditions?
Trade also allows humanity to produce goods that local areas could never afford to make. There are two primary manufacturers of jumbo jets in the world. Global markets just don’t support any more. Local markets would support none, in all likelihood. In a buy local world, only the richest areas (if any at all) could afford to produce computers and televisions. Most labor, of necessity, would be employed on the production of basic food and tools.
Even in the heyday of manufacturing, industries did not produce merely for local markets. Detroit didn’t become rich making cars for Detroit, and Britain didn’t grow wealthy making textiles for Britain. International trade was integral to the development of wealth. And the truth is, even if we did manufacture far more goods here at home, manufacturing employment would not return to the levels it once enjoyed. Technological progress has eliminated the need for many of the rote and repetitive tasks that once required manual labor. Despite steady declines in manufacturing employment, we remain responsible for about a fifth of global manufacturing output. In order to once again create a large manufacturing employment sector, we would need to roll back the gains from trade, and specialization, and the gains from a century’s worth of technological progress. Doing this would leave America and the world desperately poor.
It is also absurd to suggest that we’ll be left unable to import unless we increase our manufacturing output. That’s simply not how the economy works. We produce and export a host of valuable goods and services, earning our country foreign exchange that we can use to purchase foreign goods or invest in foreign nations. We currently consume more than we produce because other nations are willing to lend to us. If they grow reluctant to do that, our currency will depreciate until foreign goods become more expensive relative to domestically produced goods, our exports increase, and our imports decline. It’s possible that adjustments like that might be painful for the nation, but they’ll be nowhere near as painful as a sudden drop in all imports and exports.
There is simply no way to localize economies and boost manufacturing employment without drastically reducing quality of life. So let’s talk about the real issue. International trade allows us to use our scarce resources in the most economically efficient way, making us wealthier and giving us more choices. The use of some of those resources, however, imposes costs on others that aren’t included in any price. Fossil fuels, for instance, add carbon to the atmosphere and lead to climate change, but the price of gas or coal does not include an extra amount to help pay for or forestall global warming. Because that cost isn’t included in resource use, producers overuse fossil fuels, and our patterns of production and trade are therefore skewed. We use too much of some things, and do too much of other things.
Some international shipments would not take place if we all paid a fair price for carbon; the extra cost would make it more economical to produce a good locally. Other shipments would take place anyway. The inefficiency induced by producing locally would generate more pollution than producing things elsewhere and shipping them in. By deciding to just produce everything locally, we ignore these distinctions and incur huge losses. By introducing prices for negative externalities (like carbon emissions) we get to enjoy the benefits of economic efficiency and the benefits of resource protection.
Economic nationalism and protectionism have long been rightfully derided as intensely damaging to local and national economies. If we want to reduce our ecological footprint, then the most efficient way to do it will be to operate within the international trade and financial system. The desperately poor don’t emit much, but that doesn’t mean that actively seeking global poverty is the best way to clean up our world.