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Monday, December 23, 2013

Ravioli and the Economics of Trade

[Editor's note: This article was originally published in December 1986]

Memories are formed more by discontinuities than continuities in our lives. Because of this, I think, the only Christmas I remember well is a Christmas celebrated away from home, a Christmas spent in Little Italy. It is a Christmas memory whose edges take on more clarity over the passage of time.

December 24, 1955—Christmas Eve Day

My dog Blackie and I look out of a frosted window that separates the cold and crisp Chicago winter morning from the comforting warmth of Grandma’s flat. My parents, brothers, aunts, uncles, and cousins will join us to morrow for a traditional family Christmas celebration, but for now my dog and I are here to keep Grandma company. I don’t mind since Grandma and I are tight—a special closeness that comes more easily when one is the youngest of a horde of grandchildren.

Her wizened face is dark, almost swarthy. She wears spectacles with thin silver rims and all manner of long, old-fashioned dresses and shawls, usually black. Her diminutiveness emphasizes the kindly countenance of her face. Many years of dough-kneading have given her stong muscles, but she is old now and often short of breath.

She speaks with a thick Italian accent and I with a speech impediment that renders my English barely intelligible. Yet, we have no problem communicating; our communication does not necessarily require the spoken word. We work with silent efficiency in packing the last of the ravioli that we will bring to market. As I gather the now-dried ravioli which are spread throughout the flat, I savor the rich and sweet aroma of fresh basil and chiminelli.

It is the chiminelli seeds that give Grandma a competitive edge over the other widows in the neighborhood who are also purveyors of ravioli. The source for the seeds is a relative in Grandma’s grim little home town of Brienza, Italy—the only area in the world with the proper blend of harsh climate and barren soil that allows the ugly chiminelli bush not only to survive but to thrive and prosper as well. The arrival of Grandma’s annual shipment of chiminelli seeds once created quite a stir in the neighborhood when two FBI agents came to question her regarding a possible involvement in drug trafficking. The case was closed when Grandma gave each of the agents a bag of the wonderful tasting pretzel-shaped biscotti that are also distinguished by the anise- tasting seeds.

A chilled wind hits our faces as we pack the last cartons of ravioli on the two decrepit Radio Flyer wagons we use for transport. But Grandma has bundled me up, and I am dressed in galoshes, so except for my face which feels the harsh wind, the rest of me is sweaty and uncomfortably hot.

As we pull our wagons past Laflin Street and Ashland Boulevard, we make it to Halsted Avenue which will lead us to our destination—South Water Market. Tall buildings and narrow alleys cut sharp angles and make deep shadows. The vibrant and festive street life which envelops the area during summer months is absent now. Table-top Christmas trees seen in several sooty windows and cheap dimestore Christmas wreaths hanging on heavily painted gray-green doors fail to convey any Christmas cheer. Perhaps because the neighborhood is unfamiliar or perhaps because of its lifelessness, my dog, in contrast to his usual bounding ways, trails closely behind me. As our expeditionary force of three makes slow and steady progress toward our destination, I fantasize I am Captain Scott heading toward the South Pole.

But when we arrive, our hopes are dashed in much the same way I suspect Captain Scott’s were when he found that the Norwegian interloper, Roald Amundsen, had beaten him. After hunting throughout various warehouses and loading bays, we find an agent who gives us the bad news. Hardly looking up from a newspaper he is reading, a graff man with an inflated sense of self-importance exposes prodigious gaps in his cigar-stained teeth when he tells Grandma, “We ain’t buyin’ anymore raviolese from youse ladies. We’re importin’ ‘em in frozen from Italy. We can get ‘em a lot cheaper dat way.” Grandma’s protestations fall on deaf ears. The man whose jawline had long ago disappeared into one of his chins rises from his chair while making a lifting gesture with both arms and says, “Listen lady, I gotta make a living, too.”

As we leave the building with our still heavily-laden wagons we encounter a bitter wind laced with sleet. We are preoccupied with our disappointment when a bus veers toward us and comes to a screeching halt just by the curb where we stand. The shrill sound of brakes and a fountain of slush sprayed by the huge wheels paralyzes my Grandma and me, but Blackie bolts. I turn and see him rounding a corner at breakneck speed. We desperately follow, but lose sight of him.

Lost! Lost! My dog Blackie is lost.

Tears mingle with the sleet on my face as we venture further into an unknown neighborhood. Grandma pleads with me to abandon the search, but I don’t give up until she bodily drags me off. Even though I know down deep that Blackie must be hopelessly lost, I fight, scream, and cry. It is only when I see the look on Grandma’s face that I realize we too are lost. My attention turns away from dog-saving to people-saving.

As dusk settles upon us the cold turns colder and the sleet turns icier. Like Captain Scott and his men and the ill-fated trip back to base camp, our movement is painfully slow and misdirected as we trudge in circles over previously covered ground. Several children seemingly oblivious to the cold, throw snowballs at each other in a dangerously boisterous way. Grandma is too proud to ask anyone for directions. When I, risking the ridicule that usually accompanies my speech, do ask and get us back on track I feel for the first time in my life the exuberance that comes when one sheds the weakness of youth and assumes responsibility and control. I fantasize that my decision to ask a stranger for directions is one of life-saving importance and is an heroic act that is witnessed, cheered, and applauded by many.

It is not long before we see the familiar spires of Our Lady of Pompeii Church. As we enter the sturdy old church where my parents were married and my oldest brother was baptized, the redolence of incense and burning candles invades our senses. The church feels peopled and full. Sisters of Mercy, in their glory, bustle up and down marble aisles, arranging altar cloths and poinsettia plants. The warmth of the church comforts us. Grandma prays for economic survival; I pray for Blackie’s survival. Before we leave, Grandma fumbles in her purse and gives me a few coins to leave in the poor box.

A block from home, we give the unsold and now-surplus ravioli to Miss Amberg, the beloved director of Madonna Center, the settlement house where my parents first met. As we pull our now-empty wagons over that last block, our slow and spiritless walk conveys Grandma’s woe at failing in the marketplace, my woe at losing a dog. In contrast to the quick movements down the steps when we loaded the wagons, Grandma now negotiates the steps with resigned fatigue as she brings both of her high-laced shoes together on each level before proceeding to the next step.

At the doorway, a scratching sound from within the flat is heard. Blackie! He jumps andslobbers on me when we open the door. A note is on the kitchen table.

Dear Ma,

When we came to bring you your Christmas present, we found Blackie yapping to get inside. The Christmas present in the back room is from all of us. See you tomorrow.

Your loving children

In the back room, rests a state-of-the-art swivel model mahogany RCA Victor black and white 21-inch television set wrapped in a large red bow.

Later that evening while watching the original Christmas episode of “The Honeymooners” on the new RCA set, I stuff pretzel-shaped biscotti in my mouth and wash it all down with cream soda. Blackie snuggles near me beside a clanging radiator.

Grandma looks outside. She hears carolers below the window from Madonna Center singing songs of Christmas celebration, celebrating her and her ravioli. She smiles a distant smile, but her eyes do not reflect contentment; they reflect apprehension. With that special sense of knowing that children sometimes feel but do not fully understand, I see a troubled woman, a woman oblivious to the joyful presence of Blackie, the RCA, the biscotti, the cream soda, and the carolers’ songs.

She has no real monetary worries to speak of. Her children are all financially well-off and will gladly provide for her. But she is a fiercely independent woman. It is an independence that she may have been born with but more likely developed in the hard and brutal struggle it takes to leave one’s native land, one’s relatives, and one’s traditions in order to emigrate to a new and strange land.

It was an emigration that allowed her to take her only possessions—her children and her values: respecting others and taking pride in one’s work. She would use these values in a free land not merely to survive but to help her and her family live a fuller and more spirited life. They were strong values that she imbued in her children and her children’s children.

But now she looked out the window with apprehension. A heartless process in this free land, a process she did not understand, had taken away her sole means of independence and dealt her a cruel blow. She failed in the marketplace and with a fierce sense of pride, this was something she could not accept.

The Solution?

The solution to my grandmother’s difficulty would be simple today: Form a strong political action committee and lobby for a stiff tariff on Italian ravioli. If such a course of action seems improbable, consider the fact that the National Pasta Association (NPA) recently convinced the White House to slap a stiff retaliatory tariff of 40 per cent on European pasta without egg and 25 per cent tariff on pasta with egg. The retaliation was aimed at the European Economic Community (EEC) for a tariff it had imposed not on U.S. pasta but on U.S. citrus products. Evidently, the EEC was convinced by the European citrus industry that it needed protection.

Meanwhile, the NPA is lobbying to protect its tariff. Corby Kummer in The Atlantic Monthly states:

As soon as the tariff went into effect, it (NPA) mailed promotional literature (accompanied by packages of domestic pasta) to congressmen telling them to remember that American pasta must be protected. Before the tariff was imposed, the NPA predicted that, unchecked, italian pasta could claim a 20 percent market share by 1988 or 1989—something extremely unlikely, given that it had only a 4.5 percent market share at the time. (The Atlantic Monthly, July, 1986, p. 41.)

Although the pasta tariff and most other restrictions on trade are intended to protect domestic industries, as with most well-intended governmental policies, the ultimate impact is quite different. The reason for this is straightforward: Tariffs and other restrictive policies reduce the overall benefits to be derived from trade. A corollary to this is that protected industries in the long-ran generally fare poorly when they are not fully subjected to the harsh realities of a competitive environment.

Almost all economists agree that free trade is better than protectionism. What is it that is so unmistakably good about free trade that has done the impossible—namely, get economists to agree with each other?

We can be very analytical about it and show the net benefits of trade by describing the theory of comparative advantage. Adam Smith was far too interesting a writer to get bogged down with such analytics; David Ricardo, however, had no such compunction. Ricardo rigorously showed that two nations will benefit from trade even when one of the nations is absolutely more efficient in the production of all goods.

We need not be so analytical. Actually the benefits of free trade are simple to understand within the context of a free enterprise system. Our economic system is based on greed. Of course, this is not as bad as it sounds. Thankfully, almost everyone is a profit-maximizing individual and competition among many profit-maximizers assures that prices are kept low and that goods and services are being produced that people demand.

How does free trade enter into this? Free trade simply allows more profit-maximizing producers to get in on the action and helps insure that the competitive process functions more efficiently. Looking at a concrete example, consider the impact of the 1980 automobile import quotas. Is it so surprising that U.S. automobile prices increased 50 per cent from 1980 to 1985 when overall consumer prices increased at half that rate or that automobile profits increased over 80 per cent to $10 billion over that time period? Such a result is not surprising. It is a typical short-run outcome of protectionist policies.

Why Erect Barriers?

If the case is so open and shut in favor of free trade, why do we erect barriers? The answer to this question, I believe, is that vocal private interest groups stand to gain much in the short-run by pushing for self-serving laws. Unfortunately, the political strength of a vocal minority is often more politically potent than that of a more disinterested majority. Case in point: As a result of steel quotas, the share of steel imports is projected to drop from 30 per cent to 18 percent of the U.S. market. Presumably, some domestic jobs in the steel industry will be saved in the short-run. But how many jobs will be lost in countless other industries as a result of having to pay higher prices for steel? The steel industry recognizes the short-ran private gains accruing to it because of restrictive trade policies; the costs of such policies are spread too thinly and across too many industries to ferment much opposition. The fact that the costs of trade regulations far outweigh the benefits, however, should be clear. As F. Kenneth Iverson writes in The Wall Street Journal:

The cost to consumers is staggering. The trigger price mechanism under President Carter cost consumers an estimated $1 billion per year for more than three years and saved, temporarily, some 12,000 steelworking jobs. That’s more than $80,000 per year per job, quite a bit more than the jobs paid.

But the delay in modernization and the cost to consumers are only two parts of the picture. The greatest hazard is the destruction protectionism causes to U.S. manufacturers for whom steel is a significant part of their costs. Because the American steel industry is sheltered, world prices on some steel items are $100 to $200 a ton lower than in the U.S. This enables foreign manufacturers or Ameri can companies that move abroad to undersell domestic manufacturers. Automotive parts, oil rigs, farm implements, appliances, railroad parts and numerous other products are examples of domestic products suffering under this handicap. In 1979 the imports of these downstream steel products were estimated at five million tons. In 1985 they reached an estimated 15 million tons.

One steel analyst has projected that the increased imports of such products will cause a decrease in the domestic steel market of more than 1% a year. As this occurs, our steel industry will have to shrink even further. How ironic that protectionism will accomplish the very thing it is supposed to prevent. (The Wall Street Journal, August 21, 1986, p. 22.)

Adam Smith understood all this as long ago as 1776:

Each nation has been made to look with an invidious eye upon the prosperity of all the       nations with which it trades, and to consider their gain as its own loss . . . .

That it was the spirit of monopoly which originally both invented and propagated this doctrine, cannot be doubted; and they who first taught it were by no means such fools as they who believed it. In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest, that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is, in this respect, directly opposite to that of the great body of the people. As it is the interest of the freemen of a corporation to hinder the rest of the inhabitants from employing any workmen but themselves, so it is the interest of the merchants and manufacturers of every country to secure to themselves the monopoly of the home mar ket. Hence in Great Britain, and in most other European countries, the extraordinary duties upon almost all goods imported by alien merchants. Hence the high duties and prohibitions upon all those foreign manufacturers which can come into competition with our own. (The Wealth of Nations, Modern Library Edition, 1937, pp. 460-61.)

In commenting on the discovery of America, Adam Smith also states:

It is not by the importation of gold and silver, that the discovery of America has enriched Europe. . . . By opening a new and inexhaustible market to all the commodities of Europe, it gave occasion to new divisions of labour and improvements of art, which, in the narrow circle of the ancient Commerce, could never have taken place for want of a market to take off the greater part of their produce. The productive powers of labour were improved, and its produce increased in all the different countries of Europe, and together with it the real revenue and wealth of the inhabitants. (Ibid, pp. 415-16.)

Nor should it be supposed that restrictive trade policies provide long-ran benefits to the protected industries. Notice that the benefits allured to in the above examples were couched in terms of “short-run” benefits. Without the unbridled powers of competition present to give correct signals to an enterprise, protected industries will soon become dead industries.

After years of protection, the steel industry is ailing, and there are no immediate signs of turnaround. Indeed, the current question is whether a viable steel industry will exist in the U.S. ten years from now. Even in the case of the pasta tariff, the volume of pasta imports into the U.S. is as high as it was before the imposition of the tariff.

The fact that restrictive trade policies offer no long-run protection to beleaguered industries is even more obvious in a world of multinational enterprise. An interesting case-in-point is offered by Marc Levinson, a senior editor at Dun’s Business Month who writes:

International Salt Company, based in Clark Summit, Pennsylvania, charged last year that dumped Canadian rock salt endangered the welfare of U.S. salt companies and of some 1,600 American workers. A Commerce Department investigation found that the salt was indeed being sold in the United States at less than its Canadian price. Low profits for U.S. salt producers in 1983, when dumping was alleged to have occurred, seemed to make International Salt’s case even stronger.

But there was a twist to this otherwise mundane matter. The “U.S. company” claiming injury, international Salt, is owned by a company based in Holland. The villain alleged to be doing most of the dumping was none other than Morton Salt Company of Chicago, the largest producer of rock salt in the United States as well as a major importer. Was Morton dumping Canadian salt to injure itself?. Should America’s dumping laws protect a foreign firm against imports by a U.S. firm? These questions remain unresolved: In January, the ITC ruled that the domestic salt industry’s problems in 1983 were due to a warm winter, not to dumping. (“Down in the Import Dumps,” Across the Board, April, 1983, p. 57.)

The automobile, steel, salt, pasta, and all other industries do not need protection from free trade. Neither did my grandmother.

March 18, 1956—St. Joseph’s Day

I withdraw a spoonful—no more, no less—of ricotta filling and almost simultaneously place the filling onto a rolled sheet of dough. Grandma rolls another sheet of dough out of her newest capital investment, a deluxe Rolletti pasta-making machine. She ritualistically places the smooth and elastic sheet of dough onto the sheet containing twenty dollops of ricotta filling.

The final step is the most satisfying and certainly my favorite part. A newly purchased ravioli cutter allows me to cut and seal the ravioli pockets at the same time. The satisfaction of seeing the clean serrated edges left by the cutter is not unlike the sense of satisfaction one feels when correctly tying a complex knot.

The efficiency in ravioli production brought about by the recently acquired capital equipment ($14.78), allows Grandma to make 500 ravioli in the same amount of time it took to make 100 ravioli several months ago. More over, she charges a lower price to compete with the frozen Italian product and still makes it all worthwhile.

Grandma may not even have to worry about the inferior Italian product much longer. It turns out that the frozen patties have a tendency to break apart in the cooking process, leaving a large quantity of naked ricotta balls and trails of pasta remnants floating in a pot of boiling water. Even those ravioli that survive the cooking process are mushy—not the requisite al dente.

She smiles at me while I take the tray full of ravioli to the bedroom to dry. I suddenly realize the sense of pride and satisfaction one must feel when ingenuity and hard work bring success in the marketplace.

Grandma beat the market, and that smile on her face told me she knew it.

  • James L. Doti, Ph.D., has served as Chapman University's president since 1991. He earned his bachelor's degree in economics from the University of Illinios, Chicago where he was an Edmund James Scholar.