Andrew Lilico: Why trade is green

I decided to have roast lamb for dinner on Sunday.  I had my fourteen-year-old at the supermarket with me, and when I reached for the delicious New Zealand leg joint we later enjoyed, he scolded me thus: “But Dad!  That’s from New Zealand!  That’s so environmentally unfriendly — why not get the British lamb over there?”  I was therefore obliged to offer him an extended discourse upon why, in fact, purchasing the sort of products we import into Britain is typically more environmentally friendly than buying the domestic variant, not less.  Since my son’s error is a common one, and even seems to be drifting into policy formation, I thought I would explain my thinking to you, Dear Readers.

The fundamental basis of trade was set out by David Ricardo, more than a century-and-a-half ago.  Economists call it by the intimidating title of the “Theory of Comparative Advantage”, but the idea is actually very simple and intuitive, and comes down to the same concept as Henry Ford’s famous “division of labour” — indeed, it is the main basis of all commerce, whether international or domestic.  The idea is this: People (and countries) differ in their relative capacities.  One of us might be, say, an excellent farmer but only moderately good at designing pension schemes.  Another might be moderately good at both farming and pension scheme design.  If the person with the relatively greater skill in farming specialises in that, and offers for trade the extra food she produces through this specialisation, then the person that is moderately good at each can focus on pension scheme design (eschewing farming) and trade the extra pension schemes he has time to produce in exchange for food.  Trade allows us each to focus on our area of relative (or “comparative”) advantage.

So if in trading with New Zealand the Britons find that New Zealand sells us lamb, what that means is that New Zealand is relatively better at producing lamb.  Let’s strip away the complexities here and say that what it means is that lamb produced in New Zealand is, for the same quality, cheaper.  What does “cheaper” mean?  Again, setting aside certain complexities, it means “produced employing fewer resources” — less land, less energy, fewer minerals, fewer trees felled, and so on.  But what about the fact that the New Zealand lamb is produced in New Zealand, and so has to be transported all the way here?  Doesn’t that destroy the argument?  Typically not.  For the price of New Zealand lamb sold in Britain incorporates the cost of transporting it to Britain.  So if the lamb imported into Britain is cheaper than the British variant (for the same quality), that means that, even after allowing for the costs of transporting it, New Zealand lamb is produced using fewer resources than is its British alternate.

So is that the end of the matter?  Have we illustrated that the way to produce the most stuff using the least resources is always through trade?  Nearly, but not quite.  For many economic transactions impose some costs that are not borne fully by those involved in the transaction.  For example, when an importer buys lamb from a freezer ship company that has transported it from New Zealand, there will be a number of costs that neither the lamb importer nor the freezer ship companies bears.  The freezer ship, as it approaches shore, may produce a wake that tends to speed erosion of the local beach, or have leaks of fuel that float as scum onto that beach.  These costs will reduce the profits of people selling deck chairs and ice creams on the beach, but neither the importer nor the freezer ship company will (under normal market transactions) pay.  The freezer ship may disturb fish as it goes on its way, it may release CO2 that contributes to global warming, it may carry sailors that have ‘flu who pass it on to locals in the importing country, and so on.  These costs that are external to the normal market transactions are called “externalities”.  There may be externalities in the transport process.  There may also be externalities involved in the production process — for example, perhaps the sheep are cleaned with chemicals to destroy parasites and these chemicals leach into the soil damaging the flowers grown by the farmer next door.

Often anti-trade greens believe that it is enough to point out the possibility of externalities to make their case.  They are wrong.  The anti-trade green needs to argue (a) that the externalities involved in production and transported of traded goods are greater than those involved in the domestic production of the same good (which is often far from obvious, particularly in cases when the domestically-produced good requires artificial conditions — e.g. consider a British-grown banana compared with one imported from the Caribbean); and (b) that the externalities involved are greater than the resource gains that trade naturally brings with it in the first place.  Step (b) will very rarely, if ever, apply.  Trade typically involves very significant efficiency gains — that is why when trade conditions change there are often profound structural changes in economies, involving the closure of many “traditional” industries within that economy and the switch to new activities.  Obvious examples of this in recent decades are each of the transition periods after new Member States joined the European Community — e.g. structural changes in Britain from the 1970s, in Greece and in Spain in the 1980s, and in Eastern Europe today.  These profound structural changes illustrate the significant difference trade makes, and hence the large resource gains involved.  Externalities (though real and sometimes worthy of policy responses such as pollution permits or taxes, or even outright bans) are typically only very small percentages of the total costs of production and transport, dwarfed by the differences in costs that give rise to trade.

As a consequence, if we were to accept the urgings of anti-trade greens, and stop buying imports that needed to be transported, the result would typically be that production of the same goods domestically would involve much greater use of resources — more land built upon, more energy (and hence more CO2 emissions), more trees felled, more minerals dug up.  And all in the name of being green.

So I say: Buy your imported goods in confidence that your purchasing choices are typically greener than a more expensive domestic alternative.  And in the particular case of New Zealand lamb, I can strongly recommend peas, sweet potatoes, mint sauce, parsnips and butternut squash as accompaniment.

Comments

[Ken Stevens]

,,And what was wrong with the Welsh lamb, eh? ;-)

[Tony Makara]

To look to antiquated economic theorists like David Ricardo is just as out-of-date as the communists looking to the moribund theories of Karl Marx. As a nation we must become more self-sufficent when it comes to foodstuffs. Too much food is imported, food we can produce ourselves, food we should be producing ourselves. Of course we shall always have to import produce like bananas, coffee and tea, even yorkshire tea! However I worry that our dependence on imports leaves us vunerable, especially if our currency were ever to lose a great deal of value. We would then become hostage to food inflation which in turn would fuel demands for more wages etc. Living off imports is all very well when they going is good, but being dependent on imports is a bad thing, as the Romans found out.

A major mistake that politicians have made down the years is that they subscribe to the abstract theories of academics rather than dealing with the real world, the here and now. This leads to free-market economics becoming orthodoxy rather than something that is flexible. This has also killed any new and radical thinking in the field of economics. While we continue to look up to economists who lived in another era, in another world, we won't find the solutions needed to the economic dilemmas of today.

[ceidwadwr]

I do not think low price is an indicator of quality product. I don't buy frozen lamb because it does not have the same taste and texture as fresh and I buy British lamb because I want to support British farming and our countryside.

If you want to cook a real treat for your son might I suggest next time purchasing a Welsh Mountain sheep (or other hill variety) hopefully finished on heather. He will be eating lamb at its best whilst at the same time feeling good that he has done a little bit to help keep our rural society going.

[Andrew Lilico]

I see, Tony@10:52. And shall we reject atomic theory because it was proposed long ago by Dalton (and even long before that by Democritus)? I guess that mechanics must be pretty dodgy since it goes back to Newton. And as for mathematics, it must be all but useless, what with Pythagaros and all that!

[Tony Makara]

ceidwadwr, yes, very often imported goods are shoddy and although cheaper do not represent true value-for-money. Many people in our country subsist on a poor diet lacking in nutrition precisely because the food is dirt cheap to buy. I once saw a loaf on sale for as little as 15p, I bought one just to look at the quality and it was dreadful and had no taste, no freshness, and would only have been edible with wads of butter on top. I gave the bread to the birds, it was literally unfit for human consumption. It is a worry that people are buying and eating this sort of food. Especially children whose bones are not yet built.

[Tony Makara]

Andrew Lilico, good to see that the art of non sequitur argument is not yet dead.

Atomic theory and mathematics don't change but society and the economics of that society do change with time.

[William Norton]

Tony Makara:Living off imports is all very well when they going is good, but being dependent on imports is a bad thing, as the Romans found out.

Sorry, Tony. Bad example. Rome wasn't dependent on imports, except perhaps of slave labour (although that is doubtful). What started the rot in the 3rd century was political instability (too many civil wars) and hyperinflation from churning out devalued coinage. Internal trade collapsed, so that the regions concentrated on local self-sufficiency and this accelerated fragmentation of the single empire. (Although arguably the fatal stroke was an inability to counter the Huns in the West: they managed to hang on in the East for another 1,000 years.) Roman history actually supports Andrew's case, not yours.

However I worry that our dependence on imports leaves us vunerable, especially if our currency were ever to lose a great deal of value.
If we adopt your siege economy policy and stop trading with other countries, the value of the currency won't matter, will it? Make/provide things that foreigners want to buy and the currency looks after itself.

As it happens, basic food production is about the one area where there are arguments for protectionism, a sort of pre-emptive anti-U Boat policy. But that's really another issue altogether (and in theory, so long as the govmt maintained a sufficient strategic reserve it wouldn't matter if it was frozen New Zealand lamb or frozen Welsh lamb).

Ceidwadwr:If you want to cook a real treat for your son might I suggest next time purchasing a Welsh Mountain sheep (or other hill variety) hopefully finished on heather. He will be eating lamb at its best whilst at the same time feeling good that he has done a little bit to help keep our rural society going.

Thanks for the tip - and this is the crux of the matter. Some purchasers would attach value to doing their bit for rural society, so for you the possibly higher cash price represents better value for money return. Someone else who did not appreciate such issues would not derive the same value from the purchase. In a free market people trade on the basis of their desires and own values, not someone else's.

Personally, a nice piece of Welsh shoulder of lamb, cooked in rosemary: can't be beaten, rural society or no rural society.

[Tony Makara]

William Norton, I refer to the dependence on grain and the transportation thereof by sea. Of course as you rightly allude the reasons for the fall of the Roman empire were manifold. On the subject of what you claim is my seige mentality, just what have you against any nation achieving high-levels of economic self-sufficency? I am not talking about autarchy here, but rather making our nation able to supply itself where possible, creating economic security and creating work for our people.

[William Norton]

Tony: the grain came from what are now Tunisia and Egypt (controlled by Rome) and the sea it crossed was the Mediterranean (that swiggly blue bit running right through the middle of the empire). They weren't imports.

I'm not accusing you of having a siege mentality, but of advocating a siege economy. What have I got against "high levels of economic self-sufficiency"? (1) It doesn't work. (2) We'd be better off trading with other countries.

And yes, you are advocating autarky.

[Tony Makara]

William Norton, of course I recognize that we would still have to import many things, still I believe that we should supply our home market where possible. I'd certainly be sad if we no longer imported coffee, especially Turkish coffee which I'm rather partial to, along with Kiwi fruit which I believe happens to be the most nutritious fruit on the planet.

[William Norton]

Tony, you seem to be weakening your previous position. So let's test that.

Suppose our friend Ceidwadwr (apologies for taking name in vain) decides rural society is on the way out and digs up all those heathery Welsh hillsides to plant Turkish coffee beans. This results in two crops: (a) a very inferior dirt-like product which costs the same as your normal brand; (b) using a massive array of heated greenhouses a product which is the same quality as your normal brand but which costs 100x as much.

Would a Makara government ban the import of Turkish coffee on the grounds that the UK was now self-sufficient? If not, why not?

[Andrew Lilico]

Tony@12:55

Ahhh, I see....! So social sciences are *different*, and have no underlying rules or fundamentals, but just change all the time as society changes. And of course no-one ever quotes "antiquated" thinkers from the past in the social sciences - such as Locke, or Burke, or Hobbes, or Plato, or Machiavelli, for their views are entirely irrelevant to today!

[Tony Makara]

William Norton, the way to do this is to give British producers an advantage. If people want to import foreign goods they should be allowed to do so but targeted tariffs would ensure that British products would always be less expensive and penny for penny would be the best value-for-money. The option to import would be there, but if the imported good was a threat to British agriculture then it would be subject to tariff. As for the Welsh producing coffee beans, well somehow I don't think the Welsh climate would allow it but take the point that you are making. The problem is that cheap foreign imports always leave us vulnerable in the case of currency depreciation. Imagine a situation where we can't import and at the same time don't have sufficient agricultural infrastructure to produce for ourselves? People would starve. Of course crops could fail here, that I know, so as ever its about getting the balance right. Produce what we can for our home market and import the things we cannot produce.

[Tony Makara]

Andrew Lilico, economic systems are defined by their particular time-frame. A major failing in Marxist thought has been to apply out-dated economic models to contemporary society. Economics is continually evolving as a tool of analysis. We really can't compare economics with other branches of learning and there is only really a cross-over with political science. I'm certainly not calling for a Pol Pot style year zero when it comes to the field of knowledge, but I think we have to recognize that the works of Ricardo and Marx are only of interest from a historical perspective.

[William Norton]

Tony: so what you're saying is that you don't mind British businesses importing foreign goods, it's only British people actually buying them that you object to.

You say "if the imported good was a threat to British agriculture then it would be subject to tariff". In my fanciful example it's actually the Welsh who would be mounting a threat to Turkish agriculture, but ignoring that, do you consider the imports to be a threat if we can either produce something at the same price but worse quality, or at the same quality but a much more expensive price (i.e. if we cannot match them for both quality and price at the same time)?

As a consumer of Turkish coffee, how would you feel if you were told you could from now on only have an inferior Welsh version (I'm not disparaging Wales) or had to pay 100x the old price? Remind me why people import coffee in the first place.

[Adam in London]

It's the corn laws all over again (it's also the unreformed CAP all over again) - both the corn laws and the CAP were a disaster, making food more expensive and channelling capital into unproductive agricultural industries.

Putting to one side the issue of making food more expensive now in case of a catastrophic currency depreciation at some point in the future, what do you think would happen in such circumstances? Would the food stay in the country? or would producers decide to export (as happened during the Irish famine)? Is the correct solution to the currency problem to try and stock ourselves full of pork and beef, or is it to sell those foodstuffs and buy in cheap maize?

Then you need to throw in the changes to infrastructure changes less trade brings about. If you're less able to move stuff in and out of the country during times of plenty, it's far harder when times are tough. Hence in the early 1980s self-sufficient Ethiopia starved, yet trading Kenya survived when they both faced the massive drought that struck the region.

[Andrew Lilico]

Fascinating though this discussion is, it does seem to have focused on the issue of whether trade is a good thing per se, as opposed to whether trading is greener than not trading - which was the point of my piece! (Or do you all think it totally obvious that trading will be greener if William and Adam are accepted as winning the other argument?)

[Tony Makara]

William Norton, I did not say that. Go back and read my post carefully, pay attention to the content before that red mist appears. What I said was that people would be free to buy imports if they wanted to, but if that particular import was in danger of taking the trade of British producers then people would have to pay much more for it, making the foreign purchase unattractive. In answer to your question on pricing, I consider imported goods a danger to British producers if they are taking the trade of that producer. We have to protect British farmers and ensure that they can supply our home market without having to compete against foreign produce which is cheaper. This is about doing what is right for our nations farmers.

[Adam in London]

Marxist economics was out-of-date as soon as it was published - at the same time people like William Jevons, Leon Walras, and Carl Menger were blowing the labour theory of value (which forms the root of Marxist thinking) out of the water.

There are some works by economists that show the advantages of moving away from free trade (infant industry arguments for example) but they are by their own admission for very specific circumstances, and whenever they are attempted in more general terms or violating those specific circumstances they tend to fail badly. The fundamental arguments for free trade allowing the most efficient use of resources are still sound.

[Tony Makara]

Adam in London, yes, this is all very much conjecture. My point is that we need a co-ordinated national economy strategy. I am very concerned that our nation is becoming too dependent on imports, all because people have bought into the open-market ideology. I believe in free-trade, but free-trade that is structured to meet the needs of our nation. Britain is consigning itself to economic suicide, all because people believe that capital is greater than country.

[Andrew Lilico]

Tony. Do you

a) Accept that importing goods will mean buying goods produced more efficiently? (e.g. you might accept this but be opposed to trade nonetheless because you favour the interests of British producers over those of British consumers, or because you believe that buying imports increases consumption risk)

b) Accept that if goods and services are produced less efficiently, then that will tend to mean greater pressures on and damage to the environment?

c) Agree that it would follow from (a) and (b) that trade is green? (You might oppose it nonetheless, for example if you believed that favouring British producers was more important than being green.)

What do you say?

[Adam in London]

Tony, if you favour slapping import tariffs over goods left right and centre, you are, by definition, not in favour of free trade. You are in favour of protectionism. Co-ordinated national economic strategy sounds like something staught out of a 1940s corporate state, and we all remember how successful that was. Why restrict yourself to building up the agricultural industry? Why not rebuild British Steel, British Coal, and British Leyland?

What you seem to be advocating is impoverishing ourselves now, in order to try and avoid the risk of supposed more massive impoverishment from an assumed massive currency depreciation - and that's before we consider whether you'd be sparking off a trade war which would see our trading partners slap retaliatory tariffs on British goods exported abroad.

Andrew - I see your point, and would in general terms agree with you. However, if you continue to fail to price for externalities the level of trade (as opposed to whether you trade at all) at the margin will be wrong. The correct 'green answer' is to price up these externalities and then let the market take it's course, rather than declare moving produce around the world and therefore trade, is wholly wrong.

[Tony Makara]

Andrew Lilico, I apologise if we have strayed way off-topic. I certainly found your article thought provoking. I certainly think that home produce will inevitably be the greener.

[William Norton]

Tony - I did read your response carefully. Compare and contrast my interpretation: "so what you're saying is that you don't mind British businesses importing foreign goods, it's only British people actually buying them that you object to" with your own clarification: "people would be free to buy imports if they wanted to, but if that particular import was in danger of taking the trade of British producers [i.e. if any sales took place] then people would have to pay much more for it, making the foreign purchase unattractive". No red mist that I can see.

So - what does that do for your daily consumption of Turkish coffee? Aren't you going to be drinking less of it? Wouldn't it be better if you bought your premium quality Turkish coffee from the Turks and left the Welsh to get on with rearing premium quality Welsh lamb?

Andrew: feel free to join our private discussion, but there's not much point in arguing trade furthers the environmental pricing of goods and services if some of us don't actually believe in trade in the first place.

[Tony Makara]

Adam in London, yes I do advocate protectionism, I believe in free-trade, but qualified free-trade to serve our nations economy. People are becoming blinded by faith-like belief in totally open-trade. Can anyone seriously argue that China isn't becoming a major threat to all the worlds economies? As for re-building our hard industries, yes, I would certainly be in favour of a large manufacturing base. However it would have to be privately owned. We must never go back to the days of nationalized industry. On the subject of a trade war, I don't see other nations as 'Partners' I see them as 'Competitors' and think British government should give British business support rather than opening the door to nations like China.