I had a conversation with my barber the other day. We were talking about me buying sandals. Topic shifts to the demise of the footwear industry in Marikina, Manila's shoetown up to the 80s. Then Jun (let's call him that) makes a comment: "If only all Filipinos were to patronize Filipino-made, our country would be rich!" He continues: "See how much the imported goods the rich are buying. All that money could have gone to Filipinos instead."
The free trader in me recoils, but remembers - this is probably the view of the common tao (person). Against this common sense analysis, what to say? I can't very well launch into an analysis of the 2x2 Ricardian example of comparative advantage. I couldn't even go into the long run balance of trade. Let's see, how would the quick-witted free trade evangelist handle this?
ME: Jun, it's really good to patronize your countryman's products. But it often happens, say for shoes, that a local product is more expensive than a very similar product imported from, say China. Which one would you buy?
JUN: Of course, if the difference is too big, I need to survive too, right? But if the difference is small enough I'd go for Filipino-made.
ME: But don't you think that, by buying the foreign shoe, you would be forcing the Filipino producer to match the foreigner's price? It might be that by buying Filipino you are spoiling the Filipino. He has to learn to compete.
JUN: But what if he can't compete. These foreigners have lots of capital. They have cornered the market. We consumers have to balance that.
ME: Why not? But I've seen too many greedy producers just lay back and jack up prices whenever government tries imports from freely competing against them. To me it looks so unfair.
JUN: Okay, suppose he enjoys a higher price. Wouldn't that let him expand his business? And employ more people? And pay higher wages? Isn't that good for our country? We won't get all that if we just import the shoe!
ME: Suppose you open a restaurant. You have a poor brother who is a small rice farmer. In the beginning you buy palay from him. Soon he is charging you a higher price than from the market. Actually you realize he's not good at farming. But he's your brother right, so you keep on helping him. You know that he's got a bachelor's degree in commerce. Soon you realize there's a better way: Ask him to sell his farm, and join your business. You enjoy higher profit from getting cheaper rice, he gets to use his bachelor's degree.
JUN: That's possible.
ME: Happens all the time. You don't need to get something from someone just because he's your relative, or friend, or what-not, when there's a better alternative, business-wise. You get higher profit, and you can use that to help your friend or relative, rather than let them do something they're not really good at.
JUN: Sounds good - but does it really work that way for the Philippines and the other countries?
ME: Yes, of course!
What really happened? Well, I thought this conversation up on my walk home. Actually I quietly changed the subject to politics, where abstract thought is not essentially to carry on an animated conversation. So much for spreading the good news of free trade. Oh well. Next time.