Cutting the Cost of 'Free Trade'

...Third, negotiators must not become fixated on the traditional measures for dealing with trade conflicts: raising and lowering tariffs and quotas...

...Even in Japan, where a relatively free and strong trade union movement functions in a democratic society, auto makers pay their employees far less than the standard in the U.S...

...One company, for instance, now pays newcomers $6.00 an hour including fringes, compared with $19.60 an hour paid to senior employees...

...As an American, I may want to protect textile workers in this country, yet I ought also to be concerned with the welfare of textile workers in Hong Kong, not to mention the consumers in both countries...

...Instead, common interests should be immediately identified...

...insurance salesmen from proffering their services within its borders...

...Keynesians and Chica-goites can sup at the common table of international comparative advantage.'' An American Economic Review survey of economists found that only 3 per cent of those surveyed disagreed with the statement: "Tariffs and import quotas reduce general economic welfare...

...For instance, one country might be willing to reduce a tariff on a given product if the other will raise its minimum wage...

...Though 70 per cent of the people affected subsequently found other jobs, about one-half of them had to swallow pay cuts of at least 5 per cent...

...To begin with, the theory of comparative advantage on which the case for f ree trade depends is at best an explanation of how things would work in a hypothetical world where all governments forbear from meddling in economic affairs...

...Committee members would bargain with the knowledge that failure to reach a settlement would produce damaging unilateral actions...

...Consequently, even in the ideal world where free trade gets a passing grade on the criterion of efficiency, it fails on that of equity...

...The group would propose and debate all sorts of trade-offs in formulating the most mutually beneficial policy...

...Asymmetries are inevitable in actual settlements and some groups will lose more than others...

...The Steelworkers, endeavoring through advertisements and political pressure to prevent the importing of steel slabs from Great Britain, charged that this would put 3,000 Americans on unemployment...

...Unions therefore blame foreign trade not only for a loss of jobs but also for an erosion of wage levels and a concomitant weakening of organized labor's bargaining power...

...elites retain consensus...

...rivals...

...They speak for a large constituency...

...Thus the United Auto Workers argued in 1983 that a revision of the Voluntary Restraint Agreement with Japan, permitting its manufacturers to raise the number of vehicles exported to the U.S...

...The Reagan Administration and the economics profession have responded largely by lecturing labor on the beauties of free Irade and the theory of comparative advantage...

...But I think a rational process could be developed for moving toward a solution in our less-than-per-fect universe...

...it is also intended to convince one's constituency that the eventual settlement is the best that could be secured...

...It may take time and skill, but good professional negotiators will be able to find a way at least to partially satisfy their respective objectives...

...During the 1981-82recession, for example, many American companies introduced new equipment that enabled them to meet postrecession demand without rehiring laid-off employees, much less taking on new ones...

...Corresponding rituals would no doubt have to be an element of the sort of international trade negotiations I am talking about...

...And they have to be committed to selling the agreed upon policy to their own country...

...The reason is simple: People in countries with more dollars would have more than their fair share of votes...

...What has angered American unions most is that the disappearance of these jobs is not caused by superior productivity abroad—indeed, American workers are generally the more productive...

...Suppose, however, one were to take a giant step into the realm of the coun-terfactual and assume that governments are ready to abandon what they see as their national interest out of deference to an abstract notion...

...Recognizing the ultimate importance of technological change, they have been focusing their fire on the loss of American jobs to foreign competition...

...In South Korea, Taiwan and the Philippines, the government actively intervenes to keep wages down through legislative measures and anti-union practices...

...The two factors, according to a 1985 estimate, resulted in over 2 million households experiencing j ob loss at some point in the course of the previous three years...

...But this is not the economist's best of all possible worlds—it is the real one, where pie-in-the-sky visions of free trade must give way to the need to share earthly bread...

...A second consequence has been a steady climb in the level of "acceptable" unemployment...

...If some American workers ended up losing their j obs because of changes in import levels, besides having to be shown that their loss is outweighed by gains to other sectors of the economy, they would have to be given something tangible in compensation—perhaps retraining or special unemployment benefits...

...American firms have been reacting to this situation by attempting to somewhat equalize their position...

...Some, moreover, have proven themselves masters of hypocrisy...

...So would domestic quid pro quos to mitigate the negative effects of a trade agreement...

...As one social scientist has observed: "The desirability of free trade is one of the few policy issues on which U.S...

...Finally, inre-turn for one country lifting quotas, another might cease its union busting efforts, athird might receivesome needed technology, a fourth might agree to reduce prices, a fifth to install new safety equipment, a sixth to terminate restrictions on imports of related products...

...In the international case, the exchange rate among currencies is the same for all countries, suggesting the tying of quota levels to these rates...

...Second, negotiators should not start out from precast positions that are bound to prevent any agreement...

...Nevertheless, dismissing this dogma is not a reason for penance...

...Businessmen, bureaucrats and academics share it...

...Such wage cutting has been taking place mainly at the expense of younger members of the labor force: Many companies, in their union negotiations, have agreed to raises for senior employees while insisting upon a markedly lower pay scale for newly hired workers...

...There are many choices between these two extremes, though, and it should be apparent that only by examining the gamut can societies living in the same world arrive at policies that best serve the common interests of everyone affected by their particular actions...

...No scheme for negotiations, of course, can pretend to be a mathematical formula for success...

...Not verylong ago, the economic pundits defined full employment as a 3 per cent "frictional" unemployment rate...

...The fact that no nation has practiced free trade at any time in the recent past is conveniently ignored by its enthusiasts...

...The committees would be appointed by national governments and drawn from aggrieved interest groups...

...Rather, it is having to pay dramatically less for labor that enables foreign countries to undersell U.S...

...Regardless of whether negotiations are comprehensive or industry-specific, conducted by governments or by special interest committees, it would be helpful to follow the advice tendered by Roger Fischer and William Ury, leaders of the Harvard Negotiating Project, in their book Getting to Yes...

...Finally, negotiators should home in on objective indices and try to peg a settlement to them...

...They are not alone: Garment, steel, shoe, textile, and similar workers worry about the impact of foreign competition on their livelihoods as well...

...At the same time, any attempt to allay workers' fears in one country will likely exacerbate them in another...

...Each side must put itself in the other's shoes...

...Negotiations by international committees whose scope is confined to specific industries should not preclude trade talks among nations on a comprehensive basis...

...And, pace Adam Smith, there is no reason to think the international market will automatically convert the sum of selfish interests into the common good...

...In the United States we have long recognized this necessity in collective bargaining by adhering to the ritual of hard and fast deadlines...

...That is not to imply I am about to offer an answer to the essential question raised here, nor do I have any illusions a completely satisfactory one is there for the searching...

...There is good cause to be skeptical of the untested idea that, if governments are kept from interfering in international economic life, each country's commercial activities will somehow be determined by the comparative advantages it naturally enjoys, resulting in enhanced world-wide efficiency and a percolation of prosperity through all levels of society...

...A committee comprising representatives of management, labor, the public, and government from all the automobile producing nations could be formed, say, under the jurisdiction of the International Labor Organization (which already has industrial committees organized for different purposes...

...only theoreticians think in such ideal terms...

...When stymied they should force themselves to come up with fresh approaches...

...Perfect answers rarely emerge from the bargaining of fallible humans...

...Labor leaders are understandably distressed by these trends...

...In addition, inexpensively produced foreign goods have been eating away the domestic market and contracting American sales abroad...

...What he neglected to mention was that his government dominates the labor movement, strongly influences wage rates, and offers special financial packages to attract foreign investors...

...Then, 1 submit, the economic state of affairs resulting from the unhindered movements of international dollars—or letting them "vote," if you will—would still be fundamentally inequitable...

...Fierce bargaining against a deadline is only partly meant to wring concessions from others at the table...

...In fact, the two modes are complementary, for resolving the conflicts in one industry often requires give-and-take among different industries...

...In the case of international trade negotiations, this means not allowing nationalistic sentiments to get mixed up with issues of competition and j obs...

...Each fears the other may cos t him his j ob...

...But in the international arena, no comparable mechanism exists for moderating the workings of the free market...

...A domestic example is the cost of living clause: Labor and management may feel the effects of inflation differently, yet they can agree on what the rate is and when the clause becomes operative...

...from 1.68 million to 2 million, would cost American workers 200,000 jobs...

...To stem the flow of foreign goods to these shores, labor leaders—often in cooperation with management—have been seeking government protection in the form of increased tariffs, quotas on imports, and related legislation such as the Textile and Apparel Trade Enforcement Act...

...all want things to buy...

...When American telephone workers lost their jobs because of AT&T's decision to assemble telephones in Singapore for sale in the U.S., the Prime Minister of Singapore appeared before Congress to deliver a learned disquisition on the virtues of free trade...

...What I am suggesting is the establishment of international industrial committees—modeled on those set up domestically by countries that have industrial policies—to negotiate the settlement of trade conflicts...

...All countries have things to sell...

...Take the automobile industry...

...Their concern is hardly irrational...

...Here in the United States a large segment of the labor force faces a two-fold threat...

...And the Amalgamated Clothing and Textile Workers Union, in a recent complaint about the "flood of imports," quoted DepartAlbert A. Blum, anew Contributor to this magazine, is a professor ofmanagement at New Mexico State University...

...Particularly for those in manufacturing, there is a constant danger of being made redundant by technological advances...

...across the Pacific, his American counterpart tends to finishing a Ford...

...In short, the majority of theoreticians, not merely Right-wing ideologues, believe that those who urge policies contrary to the principle of free trade should beat their breasts and say, "Mea Culpa...

...Today, 6-7 per cent unemployment is increasingly said to be unavoidable...

...Ultimately, I think it may be fairly said, the issues of free trade and the theory of comparative advantage come down to what Matthew Arnold described as a "struggle between two worlds, one dead, the other powerless to be born...

...South Korea complains about our restrictions on its textile manufactures, but it does not hesitate to keep U.S...

...Fischer and Ury urge, first, that the problem at hand be separated from the people affected...

...The failure of job opportunities to keep pace with the growing labor force soon caused them to raise the figure to 4-5 per cent...

...ment of Labor figures that 100,000jobs were lost in the textile and apparel industries between 1984-85...

...Within individual nations, governments typically step in to rectify the injustices arising from gross disparities in economic throw-weight—ideally, in response to democratic preferences...

...Neither protectionist nor free trade slogans should be parroted...