Keep Labor Standards Out Of Trade Talks

[Dr Dave]

Time to brush up my reputation as a serious proponent of free trade. This is from today's (July 26) New York Times. It's by William B. Gould IV,chairman of the National Labor Relations Board from 1994 to 1998, and the co-author of "International Labor Standards: Globalization, Trade and Public Policy." He is an alternate delegate to the Democratic convention.

July 26, 2004
OP-ED CONTRIBUTOR
What Works in the Rest of the World
By WILLIAM B. GOULD IV

STANFORD, Calif. — Wages declined and unemployment held steady last month. So at this week's convention and for the rest of the campaign, John Kerry is likely to make an issue of Americans' anxiety about jobs - and his promised insistence upon labor standards as part of future trade agreements is an astute political stance.

But from a practical standpoint, it will have almost no effect. The adoption of labor and environmental standards, while symbolically significant, will not slow America's job and income losses, and the prospect for significant international negotiations on such matters is remote.

One problem is that global wage disparities are enormous. No serious person argues that wages, economic benefits and other aspects of employment should be equal or even comparable in the industrialized and developing worlds. That is because such a policy would lead to economic devastation for the developing world, disrupting international trade and enhancing prospects for worldwide conflict.

An international minimum wage, for example, would also require that any trading partner with the United States have some form of acceptable wage. But what would the wage be, and how would it be enforced? If the United States determines such matters for itself, it risks international opprobrium for a unilateralist approach, a claim with which the Bush administration is familiar.

But while international standards for economic matters like wages are not practical, the same cannot be said for so-called core standards that have been adopted by the International Labor Organization, an agency of the United Nations. These standards, intended to promote fair treatment of workers, are not binding. But the president and Congress could include them in future trade agreements - and even insist upon their inclusion in Nafta itself and legislation promoting trade with China.

This approach has its own problems. The first is that even these standards may prove difficult for the developing world to accept. Countries like India, for example, have resisted discussion of such issues at the World Trade Organization.

Second, even if a Kerry administration could negotiate such provisions, most of them would not have any impact on jobs. The one economic item in the core standards - the limited prohibition of child labor - could conceivably have an effect. But impoverished families may then be tempted to turn to even worse options, like child prostitution. One way out of this predicament, of course, would be for the children to go to school - but the schools are badly in need of improvement in most third world countries.

To improve the prospects of workers in the third world, the United States could provide more foreign aid, which could then be spent on education. Yet the United States now ranks dead last among developed nations in percentage of gross domestic product devoted to foreign aid, and the political wherewithal to increase foreign aid is thus far not forthcoming.

In many ways international trade is a domestic issue: trade brings change, and change frequently means painful dislocation that can be assuaged only by social programs. In this context national health insurance makes sense, as does a wage insurance program like the one Bill Bradley advocated in 2000. What laid-off auto and steel workers need is the same as what their outsourced service and professional counterparts need: not a new trade war, but domestic legislation on health benefits and wages. That should be the focus of the trade debate in 2004.

-30-

I couldn't agree more.

[walto]

Right on.

[Al in NYC]

What a bunch of crap. It's OK to protect corporate interests and the severe dislocations that are caused by international flows of capital, but making any moves to protect workers - even just inserting toothless statements of basic principle - may cause dislocations that are too onerus to allow? Ridiculous!

You know, so-called "free" traders spend a lot of time bashing the protectionists for their lack of concern for workers in developing countries. And while I personally think that the protectionists deserve a certain amount of that bashing, the "free" traders are also just as quick to show their own disdain for any concept of worker's rights in any country. Making it immediately clear exactly who and what they want to "free" and whose freedom they don't give a flying f**k about.

[walto]

Who said anything about making no moves to protect workers? It just depends on what you mean by "protect." If you mean "protect from competition" free traders are generally against it. If you mean protect from harm from dislocation, this guy didn't say that, and neither do a number of other people generally classified as free traders. Workers should, however, worry about anti-gov't spending libertarians. Anyhow, as indicated recently on other threads, I personally think a whole lot of workers in the U.S. could be (and maybe should be) unemployed without losing any income at all: what has to happen, though, is that a bunch of monopolists must at last be disengorged of their unearned wealth.

[Dr Dave]

Al, read this part again:

"In this context national health insurance makes sense, as does a wage insurance program like the one Bill Bradley advocated in 2000. What laid-off auto and steel workers need is the same as what their outsourced service and professional counterparts need: not a new trade war, but domestic legislation on health benefits and wages."

Look, I'm a proponent of free trade more or less for mechanical reasons, not political ones. Nations prosper when trade is free. This is not up for debate, it is a fact of life. How nations respond to the pressures of free trade is a political question, and I think Gould's political prescriptions, quoted above, are good ones.

[Al in NYC]

Well, I agree with those prescriptions, as far as they go (as I do with the author's call to increase foreign aid), but perhaps my problem is that I find the whole premise of the article and the issue itself highly questionable.

For instance, your assertion that "Nations prosper when trade is free. This is not up for debate, it is a fact of life," which may be true as far as it goes. But I am still not at all sold on the fact that free trade as currently conceived, while it may be good for "nations" and particularly for certain favored groups within those nations, is good for PEOPLE as a whole.

I also have always found it galling that the idea of international protections for capital flows, and for the perogatives of corporate "persons," is thought to be a self-evidently hunky-dory notion, but when it comes to protection for those whose labor will be exploited by this capital all we get are some prescriptions for a few domestic "safety net" programs. To me it is equally self-evident that an international "free" trade regime which protects only capital is, in fact, "freeing" only to those already blessed with the capital. It may, in the end, raise living standards in some parts of the world, but it also allows a horrifying amount of exploitation and dislocation with nothing to check it, a huge increase in the amount of surplus product of labor removed from all workers, and the removal of power from those workers in the developed world who are best positioned to effect real change in the inequities of the world capitalist order.

[Dr Dave]

I think the rationale for regulating (not "protecting") capital flows is that money moves a lot faster than people; and these days it moves a whole lot faster. There are other arguements, but that's the main one.

I absolutely agree that workers need help in coping with the effects of free trade; I'm only saying that regulating free trade is not now, never has been, and never will be a solution to that problem.

Why am I so certain of the effects of free trade? Because in the course of events, goods will be made where they cost the least to produce. Anything else leads to calamity. Don't take my word for it--look at how messed up India still is, thanks to decades of trade restrictions. Look how messed up the U.S. sugar business is, thanks to decades of trade restrictions. The only reason those guys are still in business at all is because of heavy investment in lobbying. Talk about a misuse of capital!

[james harrigan]

Originally Posted by Dr Dave

Nations prosper when trade is free. This is not up for debate, it is a fact of life.

take it from someone with a PhD in economics who's entire professional life is devoted to studying international trade: the claim that "Nations prosper when trade is free" is not a fact, and is very much up for debate. I cautiously agree that liberalizing trade is usually if not always a good thing, but blanket pro-free-trade statements are usually based more on ideology, or intro econ reasoning, than on careful analysis.

Part of the problem with this debate is that "free trade" is an ill-defined concept in the real world. That is why I prefer to talk about "trade liberalization", which is specific policy actions that make it cheaper for someone in one country to buy something made in another country. Another problem is that, as a matter of fact, the biggest effect of trade liberalization is usually to redistribute income rather than create it. What I mean is that trade liberalization increases the size of the economic pie, but some people will end up with less on their plate than before while other people get more than all of the total increase in the size of the pie.

[Dr Dave]

Originally Posted by james harrigan

take it from someone with a PhD in economics who's entire professional life is devoted to studying international trade: the claim that "Nations prosper when trade is free" is not a fact, and is very much up for debate. I cautiously agree that liberalizing trade is usually if not always a good thing, but blanket pro-free-trade statements are usually based more on ideology, or intro econ reasoning, than on careful analysis.

Part of the problem with this debate is that "free trade" is an ill-defined concept in the real world. That is why I prefer to talk about "trade liberalization", which is specific policy actions that make it cheaper for someone in one country to buy something made in another country. Another problem is that, as a matter of fact, the biggest effect of trade liberalization is usually to redistribute income rather than create it. What I mean is that trade liberalization increases the size of the economic pie, but some people will end up with less on their plate than before while other people get more than all of the total increase in the size of the pie.

Dr. Harrigan, I must respectfully disagree. You know far better than I do the theoretical underpinnings of free trade. I don't understand how making a fungible good at a lower price does not create income, unless lowering prices is somehow not the same as creating income. Free trade, as you also well know, is not a zero-sum game. C'mon, man, comparative advantage? Adjustments of prices through currency exchange? This is baby stuff for you, isn't it? Also, some people had better end up with more or less on their plate--otherwise what happens to incentives? Am I really so out of line here?

[james harrigan]

Doc, I'm not sure what you're asking. I was just making two points. First, the positive effect of trade on aggregate income is "obvious" theoretically but surprisingly difficult to prove empiricaly, which is why we don't know it as a "fact" in the same way that we know that the winner of the 1989 World Series was the Oakland As.

Secondly, the size of income distribution effects of trade liberalization is huge, in most cases much bigger than the aggregate increase in income. "So what?", you may say, but it matters. Would you feel the same about the following hypothetical policies, all of which raise GDP by $100 billion:

Policy A increases Bill Gates' income by $100 billion, has no effect on anyone else.

Policy B raises the income of the top 5% by $500 billion and reduces income for the other 90 % by $400 billion.

Policy C raises income for the top 90% by $500 billion, while reducing income for the poorest 10% by $400 billion.

Policy D raises everyone's income by exactly the same amount.

you get the idea: income distribution matters for good policy. The standard argument for free trade (which, yes, I could teach in my sleep) ignores income distribution effects.

[Dr Dave]

OK. But income distribution effects are a matter of political policy, not a matter of free trade, no?