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Why does free-trade increase income inequality? watch

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    Could somebody give me a brief explanation why free-trade and a lack of protectionism leads to increased income inequality?

    This is to help me with my essay due in for tomorrow so would be a great help if anyone could reply soon
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    Anyone?!

    I'll give rep for a good, helpful reply
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    surely it is something like...
    My company make blobbydobs.
    I pay my workers the minimum wage to make blobbydobs.
    I discover I can get them made in India and brought to the UK for less per unit cost than I do now.
    My workers ask for a wage rise.
    I say no.
    I tell them I can get them made elsewhere cheaper.
    Then either
    They go on strike.
    I shut the factory and move production to India.
    or
    They are frightened of losing their jobs so accept no pay rises.
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    lol.

    what are the details of your assignment?

    It is generally regarded that the bottom third of the world (so e.g. most of Africa) do not benefit from free trade, in fact atm suffer from it. This is because they are so unproductive that many things can be made cheaper elsewhere. So in terms of global income inequality this could be talked about.
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    (Original post by danny111)
    lol.

    what are the details of your assignment?

    It is generally regarded that the bottom third of the world (so e.g. most of Africa) do not benefit from free trade, in fact atm suffer from it. This is because they are so unproductive that many things can be made cheaper elsewhere. So in terms of global income inequality this could be talked about.
    There's free trade between OECD countries and the least economically developed nations? That will be news to all involved.

    More information about the assignment would be useful.
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    (Original post by hypocriticaljap)
    surely it is something like...
    My company make blobbydobs.
    I pay my workers the minimum wage to make blobbydobs.
    I discover I can get them made in India and brought to the UK for less per unit cost than I do now.
    My workers ask for a wage rise.
    I say no.
    I tell them I can get them made elsewhere cheaper.
    Then either
    They go on strike.
    I shut the factory and move production to India.
    or
    They are frightened of losing their jobs so accept no pay rises.
    This.

    It's a very simple model of specialisation. You can use a Ricardian or Heckscher-Ohlin model to justify trade through comparative advantage or effective factor endowment.

    If a country has justification to specialise in a given output, in the UK for instance (or at least it used to be) Financial Services - through comparative advantage or 'skilled worker' abundance. On the other hand if a country such as India has an advantage in the provision of phone assistance through call-centers (I know it is horribly crude, however it's a stylised example), it requires only low skilled workers.

    The UK will specialise in Financial Services, whilst all 'low-skilled' individuals who once worked in call-centers will lose their jobs to those in India.

    However it's important to bear in mind it provides justification for workers to retrain, which may provide them with a better living eventually.
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    (Original post by danny111)
    lol.

    what are the details of your assignment?

    It is generally regarded that the bottom third of the world (so e.g. most of Africa) do not benefit from free trade, in fact atm suffer from it. This is because they are so unproductive that many things can be made cheaper elsewhere. So in terms of global income inequality this could be talked about.
    I disagree.
    Africans need money for food, they are given money for their work.
    Yet the protectionist system of CAP harms the Africans because they cannot compete in agriculture.

    Free trade helps them, because it allows them to build themselves out of poverty.

    Western protectionism harms them because they are unable to compete as can be seen with CAP.
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    Sorry if this is too late, hope you get it in time. Basically what you need to talk about it Keynes' Paradox of inequality. This is that free trade reduces inequality between nations but increases it in nations. A simple reason for the later is that as mentioned in above posts, developing countries tend to have comparative advantage due to their low labour costs. Therefore, whilst free trade (providing they are more competitive than their international rivals) benefits a few factory owners immensely as they are making a lot of profit, their low wages means that hardly anyone benefits from this increased wealth.

    Hope this helps
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    *comparative advantage in primary/secondary business
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    It's supply and demand basically. If there's no minimum price, then so long as supply is sufficient, the price of the produce will go down. People are going to compete under the free market mechanism, undercutting eachother to the buyer in order to "gain the contract" or sell their crops.

    Put it this way, if you've got something to sell, and someone else has it, you're going to undercut them in order to sell it (even though you'll drive the price down).
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    (Original post by Teaddict)
    I disagree.
    Africans need money for food, they are given money for their work.
    Yet the protectionist system of CAP harms the Africans because they cannot compete in agriculture.

    Free trade helps them, because it allows them to build themselves out of poverty.

    Western protectionism harms them because they are unable to compete as can be seen with CAP.
    free trade leads to more globalisation. can we agree on that?

    and globalisation is harming the bottom third of the world.

    this is not my view but that of a professor at my uni (John Sutton if you know him).
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    (Original post by danny111)
    free trade leads to more globalisation. can we agree on that?

    and globalisation is harming the bottom third of the world.

    this is not my view but that of a professor at my uni (John Sutton if you know him).
    Globalisation is what has allowed China to develop huge amounts of wealth.
    Globalisation bring greater wealth, though it may not be distributed proportionately, those at the bottom do benefit.

    What is a better arrangement for those at the bottom of the pile?

    1/ NO money in a world based around the concept of currency
    2/ Some money

    Personally, I see some money better than no money.
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    Economics can be such bull - it depends on the definition of equality.

    Say Equality refers to equal outcomes of actions, e.g. that every hour of work would result in a set pay to employees provided they have equivalent education(perhaps Work experience?), this would be seen as equality. Thus the previous posts hold true, and the Keynes' Paradox of Inequality.

    However, if you say that equality is being provided equal opportunities and you determine your outcomes, wouldn't free-trade thus ensure and uphold equality? It does not distribute wealth equally, but wealth (by this definition of equality) does not deserve to be divided equally unless each and every individual works hard to attain the outcome (if this makes sense).

    It all depends on the economics perspective you are looking from.
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    (Original post by Teaddict)
    Globalisation is what has allowed China to develop huge amounts of wealth.
    Globalisation bring greater wealth, though it may not be distributed proportionately, those at the bottom do benefit.

    What is a better arrangement for those at the bottom of the pile?

    1/ NO money in a world based around the concept of currency
    2/ Some money

    Personally, I see some money better than no money.
    1. China is not really "bottom third", now is it?

    2. I am sorry but I much rather trust someone who has done research into this (as well as being one of the most respected economists in the country) rather than someone who has no credentials on an internet forum.
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    (Original post by danny111)
    1. China is not really "bottom third", now is it?
    No, but it is the market and globalisation that has lead to a boom in the middle class of China and that has allowed substantial wealth to be developed.

    2. I am sorry but I much rather trust someone who has done research into this (as well as being one of the most respected economists in the country) rather than someone who has no credentials on an internet forum.
    Couple of comments

    1/ That is flawed reasoning. For example, I have studied law for years. Would you take my advise on a legal matter? You would be stupid to. I am absolutely crap at law. The idea that because one studies/researches it they are an expert is flawed

    2/ You have absolutely no idea about my credentials. I could be head of research for the Conservative Party, or a Manager of the finance department for the Eastern region of Lloyds banking group.
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    (Original post by Teaddict)
    No, but it is the market and globalisation that has lead to a boom in the middle class of China and that has allowed substantial wealth to be developed.



    Couple of comments

    1/ That is flawed reasoning. For example, I have studied law for years. Would you take my advise on a legal matter? You would be stupid to. I am absolutely crap at law. The idea that because one studies/researches it they are an expert is flawed

    2/ You have absolutely no idea about my credentials. I could be head of research for the Conservative Party, or a Manager of the finance department for the Eastern region of Lloyds banking group.
    1. Yes, but he happens to possess the John Hicks Professorship at LSE. That is enough for me to make him an expert.

    2. Exactly my point, you could be anything so as far as I am concerned you are nothing.

    ps yes but that was in the past. this is about current globalisation and the current bottom third. i am sorry if i did not make that clear.
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    To clear this up, this is part of the abstract of one of his recent papers:

    "The initial ('impact') effect of globalization, i.e., that associated with trade liberalization, in an initially segmented (but not autarkic) world economy may well reduce welfare in countries with intermediate levels of capability , but these countries stand to be the most important gainers as capabilities are transferred across countries in subsequent phases of the globalization process."

    So atm the bottom third are these "intermediate levels of capability" and are yet to gain from globalisation. Also note "effect of globalization, i.e., that associated with trade liberalization" - clear link between what is discussed here, trade, and globalisation.

    So if this is an essay one could make a short versus long term discussion.
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    (Original post by danny111)
    lol.

    what are the details of your assignment?

    It is generally regarded that the bottom third of the world (so e.g. most of Africa) do not benefit from free trade, in fact atm suffer from it. This is because they are so unproductive that many things can be made cheaper elsewhere. So in terms of global income inequality this could be talked about.
    Africa is suffering from free trade? omfg... inb4, WTO bullcrap...managed trade is not free trade.
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    (Original post by danny111)
    1. Yes, but he happens to possess the John Hicks Professorship at LSE. That is enough for me to make him an expert.

    2. Exactly my point, you could be anything so as far as I am concerned you are nothing.
    That is always a terrible attitude. Just because someone may not be highly qualified, doesn't mean their opinion is any less valuable. Whether you accept it is of course a different matter, however, you haven't chosen not to accept it, you disregarded it entirely based on your prejudice in favour of academic qualifications.


    ps yes but that was in the past. this is about current globalisation and the current bottom third. i am sorry if i did not make that clear.
    Globalisation and the market will help Africa as they will be able to trade their way out of poverty. Western protectionism; for one example CAP, damages their ability to trade their way out of poverty.
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    (Original post by SunOfABeach)
    Africa is suffering from free trade? omfg... inb4, WTO bullcrap...managed trade is not free trade.
    please read my post above yours (#17). this should explain it.
 
 
 
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