ADAM SMITH

A free market is a market without economic intervention and regulation by government except to regulate against force or fraud. Adam Smith (1723-1790) is one of the most famous economists. He was Scottish philosopher who believed in the free market system. Adam Smith spoke for democracy with his idea that self-interest, practiced by all classes of people, works to the benefit of society as a whole. Each person ought to be free to pursue their ambitions, and such freedom will benefit everyone with new markets, better products, and opportunities for greater wealth all around. Smith felt that the government should not interfere with the economy. Instead, he believed that the role of government should be to provide essential services such as defense, fire-fighting, and police protection, protect contracts under the law, grant patents and copyrights as incentives for invention, and provide public works such as roads that would benefit everyone.

"Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man or order of men." - Adam Smith

U.S MANUFACTURERS ARE LEAVING CHINA BEHIND

I read an article by Neil Reynolds in the Globe and Mail Report on Business that I found very interesting, it is related to employment and unemployment. Most people think that US and North American manufacturers are steadily moving all their factories and jobs from the US to China because labour costs are much cheaper in China. This has been true in the past and people in the USA have been steadily losing their well-paying manufacturing jobs. This contributes to unemployment. Some people find jobs to replace the ones they lost, but these are often in lesser paying service industries. What is interesting, is that reversal is now happening, and manufacturers are moving factories and jobs back to the USA from China! In fact, it is explained that the US have exported more goods and services in March of 2011 than ever in history. The author thinks this is significant and is part of a major process that will improve the economy by providing more manufacturing jobs in the USA.


The article points out that rising inflation costs in China have the effect of increasing manufacturing costs in China and making the pricing volatile. In the meantime, the US has become much more productive. This means that even is a person costs more, they are also capable of creating even more output at the same time. There have been tremendous gains in productivity in the US these past decades and manufacturers have noticed. 


In addition, the value of the US dollar has been declining; this makes US labour much less expensive relative to other currencies. So while the wages have been increasing in China, as unemployment starts to get very low, the Chinese have not been able to keep pace in productivity. It is now becoming cheaper to manufacture in the US because productivity is high.

The article looks at companies such as Caterpillar, who will build the next manufacturing plant in Texas instead of China. This means that not only will unemployment in Texas (as an example) be reduced, the quality of jobs related to manufacturing are much higher wage, and more rewarding than working at McDonalds.


I can only hope that what is happening in the US in the manufacturing business will also happen in Canada, since the economies are so closely related.