Don Boudreaux, over at CafeHayek, quotes Roger Scruton’s criticism of the “globalized form” of the free market. Here’s the quote:
Although I’m very much in favor of the free market, I’m very suspicious of the globalized form of it, and the way in which it does not respond to the demands of local communities and local forms of value. So this is a problem for real conservatism – to develop an economic doctrine that does not menace the local communities on which we all depend.
Don is in the top 5 worldwide defenders of international trade and so his response is, as always, quite good. He focuses on the disruption that new suppliers bring to local communities and points out that there’s nothing special about the suppliers being foreign: Walmart is just as capable of bringing disruption.
But I think–and this is rare–that there is a response to Scruton that he missed. Well, he didn’t exactly miss it–it’s implicit–but I think it should be explicit.
Suppliers, whether domestic or foreign, succeed in any community by providing goods and services that people want. Precisely because we in the United States are relatively free to buy goods from other countries, local communities get served better.
As I sit here writing, I’m in my Altra shoes in which I played pickleball Saturday morning. I believe that they were made in either China or Vietnam. As one person in the Monterey community, I find the makers have nicely responded to my local demand for shoes that help my plantar fasciitis rather than make it worse.
READER COMMENTS
Thomas Lee Hutcheson
Aug 7 2022 at 8:36am
I do not see how your example which is perfect for showing the benefits of localized disruption, says anything about the costs. The community may benefit from the new Walmart outside of town, but the fate of all the small businesses “in town” can be sad. And it’s worse when a one-factory town is hit by a decision to move production elsewhere (and almost anyone will be sadder if “elsewhere” is a place with a horrible human rights record).
Don Boudreaux
Aug 8 2022 at 12:53pm
Mr. Hutcheson-
You comment:
The costs of this creative destruction are obvious; they’re pretty much all that everyone – other than a competent economist – sees. Given the context of this discussion, David hardly needs to point out that the creation of new products or new forms of enterprise displace older products and older forms of enterprise.
What’s not obvious is that the benefits of this competition exceed the costs. We know that these benefits exceed the costs precisely because the small businesses in town choose to shutter their doors when new competitors arise. If the costs to these small businesses of shutting down were greater than the benefits enjoyed by those who take advantage of the new competitors, the owners of the small businesses would – to escape the cost of shutting down – cut their prices to attract enough customers to remain in operation.
But whenever a business that is confronted with new competition refuses to cut its prices sufficiently to remain in that particular line of operation, the reason is that that business’s owner has better options than to continue to operate earning only the lower ‘profits’ that are possible in face of the new competition.
Therefore, rather than join the economically untutored public in focusing on the “sad” result of businesses being creatively destroyed by new competition, excellent economists such as David Henderson survey the whole picture. Doing so requires emphasis of the benefits of this competition – benefits that, again, exceed the costs but that are largely overlooked by most policy pundits.
Among the many important ‘unseen’ realities made visible by the economic way of thinking is the fact that firms and workers who are displaced by competition ultimately choose to be displaced. They do so by refusing to accept the lower incomes that would prevent them from being displaced. That this choice is often unpleasant is undoubtedly true. Yet when we take into account the whole range of relevant actions and decisions that fuel the competitive market process we see that – contrary to what many people suppose – the market does not ignore or even discount the costs of competition. These costs are fully internalized.
Jon Murphy
Aug 7 2022 at 9:40am
Further, to the extent existing producers do not serve “demands of local communities and local forms of value,” that means there are opportunities for new producers to enter those markets and serve those needs. Despite popular claims (dating back to at least the socialists of the early 1900s), free markets do not imply homogeneous monopolies.
Philo
Aug 7 2022 at 3:17pm
Scruton notes that, e.g., a community might be unhappy that a Walmart has opened nearby and driven several mom-and-pop retailers out of business; the community might want to retain the small retailers because they play a valuable social role. But this desire must be quite weak: the people actually prefer to shop at Walmart, else the mom-and-pop stores would not be driven out of business. And the social role of the latter changes greatly when they no longer constitute the most efficient way of satisfying local consumers. Mom and Pop had best find some different economic activity that actually contributes positively to the community, and in which they may continue to play a valuable social role.
Brandon Berg
Aug 8 2022 at 3:55am
Plantar fasciitis can result from a number of different causes, so there’s no guarantee that what works for one person will work for another, but if you haven’t yet tried it, I would recommend stretching your hamstrings. The usual advice focuses on stretching calves, which may be helpful in many cases, but in my case tight hamstrings turned out to be the real culprit.
David Henderson
Aug 8 2022 at 10:04am
Thanks, Brandon.
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