‘Conflict Minerals’ and the Dodd Frank Act – New Working Paper

Seemingly everyone knows about ‘conflict minerals’. They are probably in our phones and laptops—even some of our jewelry is made out of them. Almost everyone wants to make ‘conflict minerals’ a thing of the past. Despite having little to do with Wall Street financial reform, Section 1502 of the Dodd-Frank Act implemented a reporting requirement on all publicly traded companies in the US. Modeled after the “Kimberly Process”, the international regulation on ‘blood diamonds’, the Dodd-Frank Act requires companies to report annually on audits investigating the presence of ‘conflict minerals’ in their supply chain.

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Elysium, Seafood, and the “Zero-Sum Fallacy”

The above is a fun video explaining some of the technical problems of last summer’s sci-fi flick Elysium. For example, why is Matt Damon’s job to work in a factory with other humans constructing robots so advanced and sophisticated they could (should) render human labor (of the sort of Matt Damon’s anyway) obsolete? One of the other, so called, problems with the movie is discussed in more detail as it is more interesting and admittedly not rhetorical: income inequality.

In the film’s universe, wealth isn’t created, it is simply captured by greedy people as it, quite literally, falls from the sky. The garbage-dump world of Matt Damon is one where the rich get richer and the poor get poorer. Like science fiction, this notion is fantasy, but less charming. If capitalism made the rich richer and the poor poorer, by now, there would be a handful of multi trillionaire Dukes while the rest of us reverted to digging coal with our bare hands and living in cardboard houses. In fact, since the advent of capitalism EVERYONE has become better off. This economic system lifted almost a billion people out of poverty in less than two centuries. Which is the most extraordinary economic feat in human history.

Not everyone gets equally wealthy, though. In a healthy free-market economy, some people do become very rich, but not by making everyone else poor. Steve Jobs did not become wealthy by nefariously taking money from all of us. Quite the opposite, he became rich by creating products that people want. And because computers make the world more efficient, Steve Jobs made the world more productive and more affluent. Steve Jobs was a billionaire and the world became wealthier with him.

This is the basic “zero-sum fallacy” dogma touted by almost anyone who managed to stomach economics 101 in college. But is this “fact” as set in stone as the folks at Econ Pop want you to believe? This is the question Marc Bellemare and co-authors asked when writing a recent paper on the international trade of seafood:

Does international trade make all parties better off? That question has preoccupied economists since well before David Ricardo published his Principles of Political Economy and Taxation in 1817, which outlined a theory of comparative advantage still taught to economics students the world over. According to that theory, trade leaves no country worse off if countries choose to specialize in producing and exporting the goods for which they have the lowest opportunity cost out of all the goods they can produce. In other words, trade is not a zero-sum game, and in most cases trade makes both countries better off.

Although the theory of comparative advantage concludes that trade leaves no country worse off in the aggregate, international trade can generate winners and losers within a given country. It is perhaps for this reason that many people question the theory of comparative advantage and believe that international trade makes certain countries worse off. That belief is especially prevalent when the trade being discussed is that between developing and developed countries, or when the goods being traded are food commodities. Opinions are even stronger when the subject is food exports from developing to developed countries, prompting arguments in favor of food sovereignty.

Food sovereignty advocates argue that food security – adequate nutrition for individuals, no matter the provenance of the food commodities consumed – is not enough. Rather, one of their goals is a greater role for local foods, which necessarily means a smaller role for the international trade of food.

But does the international trade of food really threaten food security? The answer appears to “No,” according to my most recent paper, coauthored with Frank Asche, Cathy Roheim, Marty Smith, and Sigbjørn Tveteras, and which was accepted last week for publication in World Development.