Nations are places

It’s obvious that nations are places, right? But somehow that fact is lost in much of the debate over trade and immigration. Instead, the argument usually goes something like this: Trade and immigration help some people and hurt others, though gains should exceed losses in the aggregate. How do we weigh benefits to winners against harms to losers?

But trade and immigration policy don’t just affect people. They affect places. Why should that matter? Places experience neither pleasure nor pain. Places do not love. If you prick them, they do not bleed. Isn’t it right that economists ignore places, and focus on how policy affects human beings?

No, it is not right. It is dangerously obtuse. You will often hear economists laud the indirect benefits of market economies. Where markets flourish, virtues such as tolerance, diligence, entrepreneurialism, and creativity thrive as well. Markets depend upon trust, and market-based societies tend to develop unusually strong habits of trust between unrelated strangers, as well as institutions for punishing violations of good faith impartially. Where there are markets, there is industry, human capacities are exercised, and profitable collaborations are encouraged. Markets promote wealth, and affluence leads to beautiful private spaces, and then beautiful neighborhoods and vibrant cities for all. Markets create incentives for human beings to improve themselves even more than their homes, filling the world with interesting, passionate, talented people.

These indirect effects of economic activity amount to what I’ll call “emergent public goods”. These are distinct from (but complementary to) traditional public goods, like roads and parks, that governments explicitly purchase. But here’s the thing: In successful nations, access to emergent public goods is the single greatest asset most citizens have. Why would so many people from broken countries give up whatever wealth they’ve accumulated to live in the United States or Western Europe? Because access to the public goods on offer in those places is worth more than all that they own, and more than the awfulness of having to start over in a strange place, confused, mute, and alien. Even when direct public goods are withheld (for example, from illegal immigrants), emergent goods flow like air to everyone, simply by virtue of where they are. “Opportunity”, the fudge by which economists turn the pain immigrants endure into net-present-value enhancing rationality, is nothing more than an emergent public good. And opportunity, like other emergent public goods, is attached to place.

I am (very reluctantly) trade-skeptical at the moment, and not because I think that the United States’ present aggregate losses are larger than its gains from trade. On the contrary, I wish to see Americans’ current debt-for-goods trade stop despite any aggregate gains, because I think that this trade pattern is undermining America’s capacity to sustain and enlarge its portfolio of public goods. It is not that unbalanced trade is hurting people (although of course it is hurting some and helping others). Unbalanced trade is hurting the place, and the place, the privilege of living in this extraordinary country, is the most important asset Americans have, however long they’ve lived here.

Trade in services (i.e. outsourcing) and immigration have broadly similar distributional effects. There is little economic difference between a programmer in India writing code very cheaply and the same individual coming to the United States and doing the work for less than the local prevailing wage. Nevertheless, I’m inclined to favor the immigration, but not the trade, under present circumstances. Why? Because when a worker immigrates, the productive economic activity happens here, in this place, and that is oxygen to America’s portfolio of public goods. When Americans trade debt for services performed overseas, the good side effects of human industry happen somewhere else, and the bad side effects of accumulating debt happen here. It’s all the same to the people. But unbalanced trade hurts the place.

Nations are places. Quality of place is incredibly valuable, and potentially fragile. Any consideration of trade or immigration that tallies up gains and harms to people is incomplete if it fails to take into account how different economic arrangements affect the quality of places.

Update History:
  • 04-June-2007, 02:25 p.m. EDT: I’ve cleaned up several small grammatical errors and tightened the text a bit since first posting.

5 Responses to “Nations are places”

  1. shawn writes:

    too right!

  2. Nick Ormsteel writes:

    I suspect that your Indian programmer adds more to the public good if he is in India than if he is in the US.

  3. Nick — That begs a question: Whose public good? This piece wasn’t intended to address the question of “national generosity”, i.e. when it makes sense for a well-off country (by whatever measure) to forego value that would be better distributed to a less well-off country. My claim is only that from an American “emergent public goods” perspective, it is better that the programmer be onshore than off. Which is better from a global-public-goods maximizing perspective is an entirely different question, and a tricky issue to deal with, though I do hope to make an attempt at some point.

  4. Nick Ormsteel writes:

    Yup, agreed. However, the question of so-called “national generosity” is a critical component. First world countries are happy to *appear* generous when it comes to overseas aid, but as soon as the cameras are pointing elsewhere they win it all back (and then some) at the trade table.

    China is the only poor nation with some clout in terms of international trade (which is only by virtue of the extraordinary opportunities it affords). Thanks to its wise use of this power it has lifted literally hundreds of millions of people out of abject poverty — the greatest social transformation in human history. The cost of this incredible achievement? The gradual opening of the world’s biggest market to US and European companies. And rich first-world folks (none of whom protest about overseas aid) still find something to complain about!!! The mind boggles…

  5. Oh, boggle thy mind! I’m one of those rich first-world bastards who finds something to complain about. Nevertheless, we’re more on the same page than off. We certainly agree about what China has done, how amazing its transformation has been. (Although environmental issues are a big caveat.) I’m just fundamentally a bit more optimistic than you, re “…they win it all back (and then some) at the trade table.”

    Trade is supposed to be positive sum, “win/win”. I think that to a first approximation, it often is. But sometimes it has not been. You suggest that “first-world folks” have created losses elsewhere against their own gains, and I won’t dispute that that has sometimes happened. But right now, it is China whose gains are matched by losses elsewhere (in terms of future capacity and obligation, not present wealth). China’s gains may well have been “worth” others’ losses, in some global sense. But alarmists like me think that costs both to the first-world, and globally in terms of potential for future upheaval, instability, crisis, and conflict, have grown intolerably large, and that we need to find a more sustainable positive-sum approach as we move forward.