Freeman

THE PURSUIT OF HAPPINESS

Have a Canadian Orange

Do Lower Prices Kill Jobs?

MAY 01, 2004 by RUSSELL ROBERTS

Suppose gasoline became so expensive that getting oranges to Wisconsin raised their price to $3 each. If that price were expected to persist for a long time, there would probably arise a Wisconsin citrus industry with all the trimmings. Orange orchards would be planted near the Illinois border where the weather is warmest. There would be a Wisconsin Citrus Growers Association taking out ads to tell the citizens of Wisconsin about the health advantages of genuine Wisconsin orange juice. There’d be a number of orange-juice bottling plants opening up too.

The price of an orange in Wisconsin would still be a tad expensive, maybe $2. It would take some serious capital investment in greenhouses and heating systems to overcome the Wisconsin climate’s disadvantages as a place to grow oranges, and the price would have to cover those costs. But it could be done. Oranges would be a bit of a luxury. Most people wouldn’t eat them as regularly as they do now.

It might even be worthwhile to truck in oranges from Canada. It’s a short haul. True, it’s colder in Canada. Not much. But a little colder. So the greenhouse and heating costs might be a little higher. But suppose Canada had lower wages than Wisconsin. Even after the higher heating costs, let’s say a Canadian orange grower could sell an orange for $1.50 and still make a profit. There’d be rejoicing in the supermarket aisles of Green Bay. Brunch-goers in Madison would be toasting each other with fresh-squeezed OJ.

Standing in a Green Bay supermarket and weighing the virtues of a premium Wisconsin orange and an imported Canadian one would be pretty easy. Canadian oranges would flood in. Some Wisconsin growers would start losing money—trying to meet the Canadian competition at only $1.50 might be just too hard. They’d start lobbying the legislature to ban Canadian oranges. After all, they’d explain, Wisconsin is a better place to grow oranges than Canada. It’s warmer. It would be foolish to let in Canadian oranges simply because Canadians have lower wages. That’s an artificial advantage.

I doubt lovers of orange juice and Hunan beef with orange sauce and screwdrivers (the drink, not the hardware item) would be interested in the exact reason that Canadian oranges were helping to make the food and drink they love more affordable. And they’d be right. It wouldn’t matter if Canadian oranges were cheaper because Canadian orange growers were able to pay their workers less, or if Canadian soil happened to have a good mix of nutrients for citrus-growing, or if the Canadian natural-gas companies received subsidies that keep heating costs artificially low. The only thing that would matter is that oranges cost less. Citizens would have more money left over for other things. They’d also have a lot more oranges to enjoy, now that the prices were lower. The citizens of Wisconsin would have a higher standard of living.

The Wisconsin Citrus Growers Association would argue that all those cheap Canadian oranges were going to cause some unemployment in the Wisconsin orange orchards. That would cause some hardship for a while. But someone would be sure to notice that if the Canadians used some of their land to grow oranges for Wisconsin, then some of those Wisconsin orchards would be freed up to use for something else. They could be planted with grass for dairy cows to munch on. The dairy industry could expand. There would be more jobs in that industry. Without Canadian oranges, it would be worth giving up some cheese to have oranges. But if you could get oranges from Canada, it would make more sense to use that land for dairy farming.

So what’s the best use of the land in Wisconsin? Is it better for dairy farming or better for oranges? It seems obvious to us in the real world we live in that the “best” use of Wisconsin’s land is dairy farming. In the real world, that’s true because transportation costs from Florida are low enough to make Wisconsin orange orchards an absurdity. But if for some reason Florida oranges weren’t available, then the best use of Wisconsin land might no longer be dairy farming. And if cheese suddenly gets cheaper to make somewhere else, someday it might be better to turn those dairy farms into the next best alternative, whatever that might turn out to be given the nature of the land and the skills of the people of Wisconsin.

 

High-Tech Jobs to India

I’ve been thinking about cheese and oranges because a lot of people are worried about America losing high-tech jobs to India. We think of America as the “best” place to do programming in the same way we think of Wisconsin as the best place to make cheese and Florida as the best place to grow oranges. Programming jobs “belong” here. The worriers argue that the lower wages of Indian programmers are an artificial advantage, not a “natural” one.

Keeping those jobs here if Indians can do them more cheaply makes no more sense than keeping those orchards going in Wisconsin in a world where Canadian oranges are available. It’s particularly costly when Florida oranges can move cheaply. So too with programming jobs. If Indians are capable programmers and their wages are low, then we give up a lot to artificially keep the jobs here via some sort of protectionism or barrier to outsourcing.

Yes, says the skeptic, but it’s a bad trade—low prices for lost jobs. But that’s not the real tradeoff. The number of jobs isn’t fixed. The number of high-tech jobs that involve information isn’t fixed either. Letting India do some of those jobs for American firms more cheaply than they can be done here frees up the resources to do new things we can’t imagine and that will create the new job opportunities. And some of those opportunities will be in high-tech firms that are able to expand because they’ve saved resources leveraging Indian labor.


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May 2004

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