Alex Tabarrok on Globalization

This is certainly one of the best, most inspiring, defenses of globalization I have heard.

Although, you really should listen to the talk (it is less than 15 minutes), here are some tidbits and some comments of my own:

“China is the world’s greatest anti-poverty program over the last three decades.”

He quotes from Thomas Jefferson: “He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his candle at mine, receives light without darkening me.” Of course, Jefferson is ignoring the monopolistic profits one can accrue by keeping intellectual property private. Nevertheless, he has a point.

“One apple feeds one man, but an idea can feed the world.”

The more common a disease, the larger a market for treatments for the disease, which creates a greater incentive to develop such treatments. Hence, a larger world market leads to better treatments. Tabarrok sums this up by saying, “Larger markets save lives.” If China and India were as rich as the US today, the market for cancer drugs would be 8 times as large as it is now.

While Tabarrok does a great job explaining the benefits to everyone of the increased supply and demand for ideas (which naturally result from globalization), he neglects three important points, or at least does a poor job discussing them: (1) A larger market for an idea allows a producer to realize larger economies of scale, leading to lower per-unit production costs. (2) A larger market allows for R&D costs to be dispersed more broadly, thereby lowering per-unit costs for the consumer. (3) Larger markets can result in greater competition among producers because there are more of them. This leads to lower prices for consumers worldwide. In addition to the cost savings, these forces lead to a greater supply and demand for ideas, only reinforcing Tabarrok’s central thesis. [To be fair: Tabarrok does sort of address point #2 by saying that a larger market increases the incentive to produce a good, but neglects to mention the detail that the fixed costs could be dispersed more widely and more easily recouped.]

Consider the example of cancer treatments. If the the entire world were as wealthy as the United States is today and we had one world market, then there would be a larger market for cancer drugs. This would lead to larger economies of scale, lowering per-unit variable costs. Perhaps more importantly, per-unit R&D costs would be lower. Finally, a larger world would lead to more producers of drugs, perhaps leading to greater competition and lower prices.

It is a good thing that the West is losing its R&D leadership, as we will no longer need to shoulder such a large percentage of R&D costs.

Interesting, perhaps bold, claim: “We will see an Einstein in Africa in this century.”

And as if Jefferson had not been insightful enough, Tabarrok ends with, “When they light their candles at ours, there’s twice as much light available for everyone. Be optimistic, spread the ideas, spread the light.” Hence, not only do you lose nothing when you share ideas, but if everyone is sharing ideas, then everyone gains.