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Monday, January 3, 2011

The reverse super market ploy

New Zealand is getting great prices for her logs.  Great News.  We have a very successful lumber industry based, for the most part on Pinus radiata, the Monterey pine.  All the forests are planted and as soon as they are logged, new trees are planted in their place.  Most of the forests are pruned and this is done three times early in their   17 to 25 year rotation cycle.  This produces clear wood with good structural properties.  By the way, in case you aren't familiar with the Super market ploy, it goes like this.

A super market chain builds a super market in your town.  Prices are great backed up by the huge buying power of the chain and her deep pockets.  Main street can't compete.  After a year or two, businesses selling the same products as the super market close down.  A department store opens up and more of main street goes under.  As soon as main street folds their tents, the price rises back to around the national average.  So what is the reverse Super Market Ploy.

A large country with a command economy and huge foreign currency reserves gives great prices for a raw material, in this case logs.  Little country which was the first to broker a free trade agreement with large country is delighted with the price her raw logs are getting.  The price of logs to the mills of the little country go up to the price the big country is paying (remember the free trade agreement).  Mills of the small country go out of business*.  Any guesses where the prices of logs will go when the milling industry of the little country has been destroyed.

*Three mills went out of business in New Zealand just in the three weeks leading up to Christmas 2010

There is nothing new about any of this.  In former times, force was used.  Think about all of the colonizing countries of Europe.  A good and very recent example is Britain in India.  Remember Gandi's campaigns.  Britain wouldn't let the Indians make their own salt so Gandi led a march to the sea to make salt. They wouldn't let India make their own cloth from their own cotton so Gandi wove cloth at home.  Britain wanted India to stay as a third world supplier of raw materials and for Britain to get all the profits from value added activities.

Now however, economics is used but the aim is the same.  Namely to turn other countries into third world suppliers of raw materials.  There are ways to fight this sort of economic take over.  Recently the USA successfully brought a case to the WTO concerning cheap tires from China flooding her market.  She succeeded with  some sort of argument which had to do with the effect on the American Tire industry.  It took America considerable time and effort but she was successful.  Such things might depend on the particular agreement that you have with a specific large country.  Of course this example is of product dumping rather than of the Reverse Super Market Ploy but the principle is the same.  You can fight at least some of the effects of a free trade agreement if you are willing to go the hard yards.  You also need considerable "smarts".  The ins and outs of finding a way to avoid economic colonization when you have a free trade agreement with a large country are far too complicated for me to understand.

  It is a complex problem involving not selling off your means of production, Generating you own capital rather than borrowing money, either as a nation or as individuals, living more modestly, not buying on credit not contracting big purchases off shore, not sending your industry offshore and so forth.  At the very bottom of the problem is human greed.  

I hope our politicians show the same cleverness and ingenuity as our inventors.  We'll see.   

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