Economists can demonstrate how, in the aggregate, consumers and industry benefit from free trade. In the process of creative destruction, however, some industries and workers are displaced by the changes wrought by free trade.
The measurement of benefit in the case of Volkswagen continues to reverberate today, after over 25 years. When VW entered the Chinese market, it did so over the objections of its local labour unions and politicians. Part of the objection came because the State of Lower Saxony controlled 20% of the shares, and the government was concerned about the loss of jobs in its domestic sector. The managers of VW saw it differently: by creating a successful and growing subsidiary in China, the reasoning went, the company could increase its generated cash and derive strategic benefits from finding a lower-cost supplier of parts.
There were, however, forces to overcome:
Unions threatened to strike in Germany unless the management agreed not to export their jobs to China.
The ruling SPD (social democrats) suggested that VW was aiding and abetting a repressive regime, and that its ethics were therefore in question. The VW team argued that, by bringing Western practices to the country, they were hastening the process of democracy.
Thus an example of clear consumer and citizen benefit, points to the difficulties of standing up to entrenched interests and prevailing over their narrow concerns.
Corporations and Ethical Practices
The old paradigm (pre-Internet) was that companies could seek the lowest-cost production around the world, and the environment, ethics and labour practices took the hindmost. This practice is now changing, as companies are held to a standard of behaviour regardless where in the world they do business. The cost to the companies -- apart from any legal regulation -- are too great to ignore. The primary costs to companies are a loss of prestige, and therefore market image. In addition, corporations found to engage in dodgy behaviour, such as bribes, must declare that behaviour on their public statements, or face securities laws violations.
Companies which do business with rogue regimes and dictatorships face similar restrictions on their activities today. This can pose significant business and ethical dilemmas. Shell faces a problem in the Nigerian Delta, where it is square with the national government, but local officials and citizens feel that they are being treated poorly. Shell is left to square the circle -- satisfying the central government while lobbying that same government to treat its delta citizens more fairly.
Egregious Failures, Notable Successes
The era of big Trusts is behind us, for the most part. If Microsoft, for example, engages in monopolistic bullying, it will be pursued in courts in one or more regions of the world. If the U.S. Federal Trade Commission refuses to prosecute Microsoft for abusing its Windows franchise, the European Trade Commission can step in. If the Chinese government attempts to quash free internet access with Yahoo's search engine, the American and European governments and courts can step in to press for more freedom.
As we've seen from the above examples, the greatest abuses come from corporate monopoly power or corrupt, megalomaniacal or authoritarian governments. When states allow companies to compete fairly and openly, the chances of notable failures (for the companies and for the local citizenry) are diminished.
Chase, S. (1947). A Generation of Industrial Peace: Thirty Years of Labor Relations at Standard Oil Company. New York: Standard Oil Company.
Chunli, L. a. (2003). The Chinese Automobile Industry and the Strategic Alliances of China, Japan, the U.S.'s Firms. Cambridge: MIT International Motor Vehicle Program.
Dubois, C.P.-D. (2007). Thrombin-initiated platelet activation in vivo is vWF independent during thrombus formation in a laser injury model. Journal of Clinical Investigation, 953-960.
Economist. (2007). 2008 World Almanac. London: Economist.
Faiola, a. a. (2005, November 24). Perils of Investing in N. Korea Become Clear to a Pioneer. Washington Post Foreign Service, p. A23.
Feulner, E.H. (2007). Free Trade by Any Means: How the Global Free Trade Alliance Enhances America's Overall Trading Strategy. Backgrounder: The Heritage Foundation.
Lakschamanan, I. (2003, March 9). Hyundai Losing Money on the Mount Kumgang Resort in North Korea. Boston Globe, p. n.p.
Lansbury, R.K.-H.-S. (2006). Globalization and Employment Relations in the Korean Auto Industry: The Case of the Hyundai Motor Company in Korea, Canada and India. Asia Pacific Business Review, 131-147.
Macavoy, P. a. (1977). Regulation of Passenger Fares and Competition among the Airlines. Washington: American Enterprise Institute.
O'Connor, W. (2001). An Introduction to Airline Economics. Westport: Praeger.
People's Daily. (2004, January 23). China's auto demand to reach 20 million in 2020. People's Daily, p. n.p.
Schifferes, S. (2000, February 15). Trustbusters: A history lesson. BBC News, p. n.p.…