Free trade and the left: Why Economic Nationalism Won't Work

...As Bhagwati puts it, the positions advanced by authors like Faux and Scott, and to some degree even by the Clinton administration itself, "have weakened the moral agenda . . . by selectively tilting it against the poor nations and shielding the rich nations...

...They want the United States to take the lead with regard to workers' rights and environmental protection...

...In order to avoid this outcome, nationalist liberals argue that trade should be withheld from third world countries like Mexico until labor, environmental, and safety conditions are improved...

...Here, the United States is called upon to insist that poor countries meet stringent standards while it remains by far the country that contributes most to environmental degradation...

...Advocacy of such an approach has not been the principle strategy adopted by the U.S...

...So, too, do consumers who are able to buy goods at lower prices than would prevail in the absence of trade...

...Equally importantly, the hostile liberal reaction to trade means that an opportunity to create a politics directed toward reducing class inequality in this country is being lost...

...The same kind of double standard exists with regard to environmental concerns...

...In the process we will be swamped with low-cost imports produced With inexpensive third world labor working in unhealthy and environmentally destructive conditions...

...the inequalities would be mitigated...

...left...

...THIS RESPONSE is inadequate...

...Whether in poor countries or developed ones, negotiations will result in increased income for workers only if labor becomes increasingly valuable to management because of advances in its productivity— while at the same time workers have available to them competing employment opportunities...

...All advocate the introduction of tariffs and other restrictions on the globalization of economic activity...

...Part of the environmental movement hopes that the poor countries of the world will turn their backs on modernization and in that way the pressure on the globe's ecology will be alleviated...

...The efficiencies associated with globalization would continue...

...The financial crises currently enveloping the fast-growing countries of Asia suggest that the course of economic modernization will not be an easy or uninterrupted one...

...But in this it is hard to avoid recognizing what the Columbia University economist Jagdish Bhagwati characterizes as "intrusionism...

...8o n DISSENT / Spring 1998...

...This is not to say that union organizing is unattractive or undesirable...

...JAY MANDLE is the W. Bradford Wiley Professor of Economics at Colgate University...

...In that regard, the left will have to take into account the interests of consumers as well as workers...

...If there is a downward pressure on wages, they argue, it is relatively small and easily compensated for by the additional wealth...

...With this heightened productive capacity, many poor countries have become exporters of manufactured goods to the lucrative markets of the developed world...

...But if, as seems likely, that hope is unrealistic and economic modernization proceeds, the avoidance of damaging environmental outcomes is going to be very expensive...

...Particularly with regard to wages, but also with regard to environmental, health, and safety issues, the argument is that globalization—understood to be the ability of poor countries to export goods to the developed world and of capitalists to choose freely where to invest—undermines gains that have been achieved in this country...

...But the general pattern is clear...

...Doing that would reduce profit opportunities for businesses there, which in turn would slow the rate DISSENT / Spring 1998 n 79 ARGUMENTS of investment...

...Instead, the left's answer is to punish the underdeveloped world...

...Trade relations with poor countries have become a sensitive issue only because the latter have increased their productive capability, particularly in the manufacture of products using relatively unskilled labor, to a level at which they can compete successfully in metropolitan markets...

...But domestic industries that compete with DISSENT / Spring 1998 • 77 ARGUMENTS imports from poor countries are put under pressure...

...The same general logic applies to health, safety, and environmental standards...

...globalization could represent the greatest challenge to national unity since the Civil War...

...Obviously, if poor nations lacked the capacity to produce goods for export, as has been the case in the past, anxieties concerning their impact on the U.S...

...His position is illustrative of many on the nationalist left...

...workers are put at risk...

...I N ANY case it is hard to see how left protectionism is anything else but an exercise in futility...

...And that requires the economic growth produced by free trade...

...Employment growth would be curtailed, while the decline in the purchase of new buildings and equipment would reduce the rate of labor-productivity growth...

...SCOTT AND FAUX place their protectionist recommendations in a more benign context than Lind...

...market would surely reduce the market demand for products manufactured in the developed world...

...Much of the burden of globalization will, therefore, continue to fall on the developed world...

...Throughout the last two centuries, development has been faced with abrupt and protracted setbacks...

...This is because of the way the benefits and costs of increasing international trade are distributed...

...Without an effort at correcting the skewed distribution of gains and losses, trade with poor countries helps the advantaged and harms the disadvantaged...

...In all likelihood the left's program of tariffs and sanctions would delay, not accelerate, the improvement of working conditions in the third world...

...Almost certainly, for example, this is true of its attempt to encourage union organization as a means of raising wage rates in poor countries...

...And though the DISSENT / Spring 1998 left dislikes being described as protectionist, that nevertheless is the term that best characterizes its position on these issues...

...But with the United States dragging its feet in international negotiations over environmental emissions, and providing very little financial assistance to efforts to overcome environmental destruction, economic growth becomes the only means by which poor countries can obtain the resources necessary to address these critical problems...

...In this regard, Alan Tonelson writes that "most of the industries that paid decent wages to American workers without worldclass skills and education—such as apparel, textiles and steel—have been decimated by foreign competition and the inadequate response of United States trade policy" So the demand for poorly skilled workers tends to decline...

...With that fall in demand comes a corresponding tendency for wages to fall...

...What this suggests is that left protectionism is perverse to its own goal of raising workers' wages in poor countries...

...In sum, the left's policies would be more likely to raise unemployment and reduce productivity growth than to enhance the conditions in which wages would rise...

...If output per worker is not growing, businesses will find it unprofitable to raise wages without cutting back on employment...

...Without therefore denying the importance or severity of the dramatic events unfolding in Asia today, the fact remains that these countries have in place the fundamental requisites of development: managerial access to the stock of technical knowledge essential for successful participation in the international economy and a sufficiently welleducated and trained labor force able to produce goods of high enough quality to be marketable in the developed world...

...But the solution to the problem is not to resist the economic growth of the third world or to pretend that it does not exist...

...the result is an increase in global productive efficiency...

...He writes that "as a general rule . . . free trade should be encouraged between high-wage countries but trade between high and low-wage countries should be regulated in order to prevent mobile transnational corporations from using the poverty of available workers in the latter to drive down wage and benefit levels in the former...

...Producers of commodities using highly skilled labor benefit as export markets open...

...But it is hard to believe that consumers of electronic equipment or automobiles are unaware that tariffs on imports from Asia will have an impact on their standard of living...

...Adrian Wood estimates that those same goods, if produced in the developed countries, would cost three times as much as imports...

...markets to countries like China"—where unions do not have the right to organize—that lack effective standards concerning health, safety, and child-labor laws...

...rINALLY, BY making a fetish out of trade, the left loses an opportunity to substantiate their claim that they stand for the well-being of the whole country and not just for a special interest...

...Bhagwati also suggests it is unclear how the United States could take the lead against sweatshops and for the rights of migrant workers, when the former are "rampant in our garment manufacture" while the latter "are often subject to abject abuse here...

...labor market would be nonexistent...

...Liberals are right to emphasize that globalization creates important problems for a rich country like the United States...

...If the left is ever to be taken seriously, it must clearly stake out its intention to lead on behalf of the whole society, not just its own constituency...

...The imposition of such a tariff, writes Lind, would discourage U.S...

...For the impact of trade is to raise income and wellbeing by permitting a wider array of goods to be made available at lower prices than would otherwise prevail...

...No realistic level of union organization is likely to offset the resistance of profit-seeking businesses to increasing wages when ei: ther of these two is absent...

...In their hostility to trade, the members of Congress who aligned themselves with Representative Richard Gephardt in opposition to the White House were in accord with prominent liberal analysts such as Michael Lind, Jeff Faux, Robert Scott, Robert Kuttner, and Thea Lee...

...But it misses its chance when it becomes protectionist...

...Shutting off access to the U.S...

...The left can and should defend the wealth-enhancing qualities of trade and at the same time argue for greater equality in the distribution of its benefits...

...And, as exporters, they have been able to fuel their own growth...

...The goal of this strategy is to relax the pressure on unskilled labor in the United States...

...This is the context in which to understand Tonelson's warning that "precisely because its effects are distributed in such a wildly uneven, frequently shifting manner, globalization raises serious questions about America's future as a cohesive successful society—about American nationhood itself...

...An essential element of ARGUMENTS their success—their comparative advantage— is that their wage rates are far below those in the metropolitan countries...

...Such a coalition would call for progressive social policies, to be financed by the affluent beneficiaries of trade, to protect the well-being of the poor and working poor...

...American jobs will be lost, wages bid down, and environmental and safety standards undermined...

...That means that total production will be greater than in the absence of trade...

...With capital ever more mobile, the left is convinced that it will flee the United States and relocate where wages, safety, and environmental standards are lower...

...Despite current difficulties, poverty-reducing growth, over the long run, remains both feasible and likely...

...Robert E. Scott advocates imposing global quotas on imports such as automotive and electronic products and denying to Japan and all export-oriented developing countries most-favored trading status in the United States...

...That should provide fertile soil for a politics that realistically addresses the interests of the disadvantaged...

...But rising wages occur in a context in which increased labor productivity is joined with increasing employment opportunities...

...And if labor's alternatives are narrow and limited, such businesses will not find it necessary to bid up wage rates in order to attract a needed labor supply...

...American liberalism's and the left's reaction to the increase in imports from poor countries has been to turn self-protectively inward...

...The refusal of congressional Democrats to grant the Clinton administration fast-track authority in negotiating trade agreements made the nature of this response dramatically clear...

...Attention would be directed to education, public-sector employment, and income transfers...

...As if to illustrate the point, Faux, in the same paragraph in which he calls for trade sanctions against China in response to that country's labor standards, briefly alludes to the fact that the United States has not yet signed the agreement on that subject proposed by the International Labor Organization...

...Trade with poor countries has tended to deepen the already profound class fissures in this society...

...Savaging trade is no way to do either...

...But the fact is that unions, too, operate in a labor market, and it is entirely unrealistic to expect that labor-management negotiations will over the long run be able to escape its constraints...

...In principle the damage done to limitedskill workers could be ameliorated...

...Protection will be imposed only if standards are not met...

...Thus Michael Lind advocates what he calls a "social tariff," equal to the difference between the wages in the United States and those of the third world trading partner...

...Finally, Jeff Faux argues that "Democrats should stand for denying access to U.S...

...It is very noticeable that liberal trade theorists who advocate tariffs never spell out what the costs of those tariffs will be...

...It is hard to see how the underdeveloped world could move more vigorously in this direction in straitened economic circumstances than in buoyant ones...

...HIS RESPONSE is a disaster both internationally and domestically...

...But economic development has never proceeded evenly...

...What underlies the new nationalist tinge to American liberalism is the conviction that in economic relations with poor countries, U.S...

...In the meantime, they can buy from abroad commodities of which they are relatively inefficient producers...

...A political coalition could emerge that would seek to protect the benefits produced by trade with poor countries but that would also acknowledge that it is not fair to impose the costs exclusively on poorly educated workers...

...Even if the liberal agenda with regard to trade were implemented it would not achieve its international objectives...

...It is true that deplorable conditions prevail in the manufacturing and assembly sectors and in urban areas of the developing world...

...The standard response by economists to the concern that trade with poor countries drives down wage rates in the developed world has been to emphasize that, overall, trade benefits all participating nations, allowing them to expand their output in the products they manufacture relatively efficiently...

...Because of that, industries such as textiles and footwear, where the use of numerous relatively unskilled workers remains essential in production, have far lower costs of production in countries like China or Indonesia than could be possible in the developed world...

...Globalization provides a moment when it can be argued that we need not choose between fairness and well-being...

...Thus it is that a liberal nationalist like Lind has no problem with trade among already developed nations, but balks at trade with poor countries...

...It does and will continue to exist, and so long as it does it will create problems for those in the United States who lack access to education and highpaying jobs...

...It should be the left's role to identify those interests, while at the same time speaking in the national interest...

...There is a legitimate debate among economists concerning the magnitudes involved...

...businesses from investing in poor countries...

...The impact of trade with poor countries tends to produce, therefore, diametrically opposite effects, depending upon the position of individuals and groups in the social structure...

...New technologies are urgently required if the consequences of economic development are to be made consistent with environmental sustainability...

...It is true that with free trade, unskilled workers in the United States are put at risk...

...That is, the developing countries are asked to adopt labor, environmental, or safety standards equal to or in excess of those adhered to by the developed countries...