I have been thinking lately how countries seem to be motivated primarily by pragmatic self-interest often (historically) with violent results. The antidote to this could be a single world government. But then I started to think how in the game civilization 2, trading with your enemies/neighbors is economically beneficial. I don’t know much about economics so my question is: if a single capitalistic/democratic world government would be less prosperous economically without the trade between nations that we now have?
Economically, this doesn’t seem much different from having multiple capitalist nations with completely free trade. On the other hand, the lack of an “enemy” might mean that it’s harder for the government to convince the people that it’s really necessary to put up with rationing of luxury items or somesuch.
Although Civ is an enjoyable strategy game, I don’t think you can draw a deep conclusion about global economics from it.
For example, you say that trading with your enemies/neighbors is economically beneficial. For both sides?
I assume you mean that when your civilisation makes a scientific discovery, you can sell it in turn to every other civilisation. Sure, this is good for you.
However when playing with another human, you can agree to exchange all such knowledge freely (and indeed always research different topics). This benefits both of you, but diminishes the income of the computers.
In real life, the monopoly of a vital resource distorts the price.
Consider how gold is expensively dug up, then ‘buried’ again in vaults.
Or how the fact that oil occurs more often in deserts changed the World economy…
I knew I should have kept civ out of it! Like I said, I don’t know much about economics. So scrap the rest and just pretend I only asked the question at the end.
There shouldn’t be any rationing of anything as long as there’s not an interplanetary war or disaster. In the hypothetical democratic/capitalist world society, everything would be at or around market value.
It probably depends on your starting point. On argument would be that by eliminating all tarriffs, quotas, customs delays and other issues you would lower the price of goods and in doing so spur consumption and economic growth. Trivially one could add that if one were to largely zero out military spending the added resources would help fuel the boom as well. Free exchange (or at least a free market) of ideas is another hypothetical benefit.
The flip side is that the more integrated the world economy is the more likely that economic downturns will percolate through a larger area, with no islands of prosperity to help fuel the recovery.
The whole Civ thing is that the government gets money from trade - the people pretty much just love the luxuries, regardless of whether they are domestically produced or imported.
Regions will do better or worse than other regions just like they do in the U.S.
If people all over the globe were able to move freely, along with goods and capital, without restrictions, then yes—the world would be better off. Restrictions on the movement of goods, capital, and people puts a significant drag on the economy. Much of that well-being is simply lost—it’s not like a tax where money goes from one hand to another. (Note that non-lump-sum taxes also have an effect whereby they destroy welfare.) The world would be unambigiously better off as a result of the increase in welfare created through increased economic efficiency.
It may be a net loss, however, depending on the form of the one-world government.
Is this a factual question?
Yes. Any international economics textbook will address the nature of the welfare loss caused by restrictions on trade.
If there were a single world government, who exactly would they be competing with?
In the short run, a single world government would be an economic boon, because it would mean the removal of all international trade barriers.
In the long run, it would be a disaster, because governments work better when they have to compete with each other. Today, a government which pursues wrong-headed economic policies sees its standard of living fall behind that of its neighbors. A democratic government in such a situation will eventually be voted out of office; a dictatorship will eventually be conquered by a more efficient neighbor or overthrown by revolution. The process of correction can take decades, or even centuries–even today, there is plenty of bad government in the world–but it does happen, and with a single world government this would be lost.
With whom are governments competing now? Mercantilism is dead—it is more out of date than young-earth creationsim and just as logically & factually barren.
Think of the U.S. Would the States be better off if all the individual states could impose tariffs on goods, block capital flows, and prevent the flow of people from other states?
I think people are ignoring the valid arguments many people who oppose many aspects of global trade. They see it as a “pull-down” argeement- a race to the bottom. Many, like Ralph Nader, say that one reason why American workers connot compete against workers in countries that don’t protect their workers. An American worker can’t compete with a child in a sweatshop who works 70 hours a week. So, to me, it appears that if a world gov’t resembles the US model, it would be terrible for many countries to have to adjust. If it resembles a country with less worker protections, I think it would be terrible for the average American. So to me, it would depend on how the gov’t worked.
Right. But let’s leave that out of the question.
Economically speaking, barriers to trade create a drag and waste welfare–so do barriers to movement, transaction costs imposed by different currencies, etc. Eliminating those would be an unambiguous boon to the world’s well-being. That’s the GQ answer.
As I noted above, it is also GQ to say that Ralph Nader’s protectionist arguments, along with Pat Buchanan’s, Ross Perot’s, etc., are on par with young-earth creationism. Free-trade is controversial in the same sense that evolution is controversial.
The standard example of the economic benefits of trade is not about scientific discovery, just that the capital and/or labour available in different areas will be capable of producing goods and services at different relative efficiencies. Based on that, the labor available in different countries and will specialize, if permitted to, in producing whatever goods they can most efficiently. (Even if the country they’re selling to could produce those goods more efficiently than them in an absolute sense.) Products are imported at a lower price than they could be produced locally, and everyone wins!
Well, it’s an argument, but not a valid one. Because it’s wrong.
It’s true that an American worker can’t compete with someone making 70 cents an hour, if they can both do the same job equally well, and if other costs of production don’t swamp the labor savings. But think about what this means - it means that we’ve found a way to cut the cost of production. That’s a good thing.
Think of it this way: Let’s say a widget takes 8 hours of labor. If raw materials go into an American factory, and someone making $10/hr builds the widget, it costs $80 in labor. Same widget made in cheapistan costs $7. That means that people who buy widgets have more money to buy other things. Things that are made out of widgets are cheaper.
Now, is it bad for the American worker who can’t compete? Sure. He’ll have to find something more economically efficient to do with his labor. But this is no different than if his job were replaced by automation, or improvements in assembly. This happens all the time. In the short run, an American worker may lose his job. In the long run, the American workers move into industries where they have a competitive advantage, and abandon ones in which they don’t. This is not only good for American workers in the long run, it’s good for the country as a whole because its work force is optimized and the price of its widgets optimized, and it’s good for all those countries that buy American goods, because American labor is expended where it does the most good.
Is it bad for the person in the ‘sweatshop’? Unless they are there at gunpoint, no. But they are almost never there at gunpoint - they are there because 70 cents an hour is a kick-ass salary for someone in the 3rd world. That’s about $1500 per year, which is almost twice the average income in the 3rd world.
But more importantly, under total free trade, enough labor will gravitate to poor countries that there will begin to be a shortage of workers. At that point, salaries will start to go up. At the same time, the presence of all these companies, with their factories, management, and infrastructure needs start to improve the country, making it more competitve. The rising standard of living of the workforce allows them to become healthier, more educated, and competitive. That drives their salaries up.
This isn’t just theory. It has happened over and over again. Korea used to be the land of sweatshops and poverty. Now it’s a 1st world nation, and the largest shipbuilder in the world. India used to be the same way. Now it’s entering the 1st world, and rather than competing for textile weaving, they’re competing for computer engineers.
Back to a one-world government: It would be a disaster if it was a government in anything but name. If the ‘government’ did nothing but open borders, encourage trade, and maintain the peace, it would be fine. But if it was a typical Democracy with all of its constituents conflicting voting blocs, etc., it would be an unmitigated disaster. The world average GDP is about $8,500. The average in the 3rd world is about $800. The average in the developed countries is almost 20X higher. And the majority of humans live in the 3rd world. In a worldwide Democracy, this would be unstable.
Then there’s currency - How do you manage fiscal policy with a worldwide currency? Countries used to peg their currency to the U.S. dollar, but learned the folly of that a long time ago. Floating exchange rates and localized currencies are much more efficient. Europe is discovering the problems with the Euro in this regard. What happens when the economic conditions in one country would benefit from interest rate hikes, but another country would benefit from interest rate reductions? But now they’re both using the same currency. So it can’t be done.
Plus, things like uniform safety and worker improvement standards are a BAD thing. Because not all workers can afford the same levels of safety and comfort. The anti-globalization types that demand the same standards for all workers are simply dooming the poorer workers to continual poverty, because the hard reality is that they simply cannot afford the same work environment as American workers and still maintain their competitive advantage. So the result of one government for all would be the wholesale creation of welfare states out of the 3rd world, and a subsequent drop in world standard of living.
That is, before the global war.