The benefits of free markets
FREE TRADE GIVES CONSUMERS THE
Globalization is the spread of human cooperation across the globe. If not hindered by government restraints, this cooperation spreads naturally and without much attention to political boundaries. Geographic and cultural differences, along with differences in currencies and other social institutions, sometimes slow the spread of cross-border economic cooperation. But the single largest obstacle to the spread of human cooperation across political borders is politics—in particular, the difficult-to-resist pressure on each government to protect local producers from the competition of external producers.
of labour and production across different industries around the world is the phenomenon of globalization. Suppose, for example, that shirts can be made in one of two ways. The first is by hand. It costs a shirt maker using this method—regardless of how many shirts he produces—$250 to produce each shirt. Working full-time producing shirts by hand, the shirt-maker can produce 10 shirts each month. The second way to produce shirts is in a highly mechanized factory. If the factory runs at a peak capacity of a million shirts monthly, each shirt costs $5 to make. But because building and equipping the factory requires a huge initial investment, operating the factory at less-than-full capacity causes the cost of each shirt to rise. The reason for this increase is that producing fewer shirts denies the shirt-maker the opportunity to spread the investment cost over maximum output. The smaller the factory’s output, the higher the cost of each shirt. Which method of production would a shirtmaker use? The answer depends on the size of his market. If a shirtmaker expected to serve a market of millions of people, he would use the factory method. But if he expected to serve a market of only a few dozen potential customers, he would produce shirts by hand. If each shirt-maker had access only to small markets,...