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FREE TRADE AND THAT GIANT SUCKING SOUND

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An op-ed in the New York Times on Jan. 16 titled "What to Expect When You’re Free Trading", by University of Rochester economist Steven Landsburg, is the reason economics is called the dismal science.  There are few things that are more repugnant, intellectually and morally, than a person with secure employment in a well-paying job (with health benefits and a pension plan) nonchalantly dismissing the anxieties of workers who become unemployed, or who are under the threat of becoming unemployed, due to the effects of globalization (which is the polite phrase for global corporate extortion).  Because Mr. Landsburg could not quantify his theories, he decided to use a series of absurd analogies to buttress his unsupportable conclusions.  The excesses of unregulated market forces often have been allowed to create chaos in our domestic economy (e.g., the many Savings and Loan institution scandals of the 1980's and 1990's, the many corporation accounting scandals of the past decade, and the current sub-prime Mortgage debacle), and defenders of the faith also are content to let unregulated market forces wreak havoc with our international trade.  Mr. Landsburg thinks that we do not owe any type of compensation to employees or businesses who are adversely affected by unfair trade competition because he asserts: "I doubt there’s a human being on earth who hasn’t benefited from the opportunity to trade freely with his neighbors."  Mr. Landsburg knowingly neglects to mention that there are also few human beings on earth who have not suffered some negative consequences from trading freely with their neighbors.  Economists are fond of saying that market forces are neither good nor evil, but it is more accurate to say that market forces are both good and evil, and there is no natural order of things in this universe that requires people to observe passively while market forces devastate civil society.

"Free trade" has evolved as a model that unleashes capitalism from the restraints of governments and unions, but enlists governments as agents to help deprive workers of their rights to organize and resist unfair treatment by their employers.  The trade policies of the United States are based on killing the goose that lays the golden egg.  Free trade sounds like a good idea, and when the trading partners are nations in a relatively equal status, free trade can be mutually beneficial.  Free trade is even more likely to be mutually beneficial when workers in the trading nations have strong legal protections for the rights of workers in general and strong legal protections for the right of employees to form unions in particular.  Although many Canadians chafe at the enormous influence our economy exerts on the Canadian economy, a generally symbiotic trading relationship exists between the United States and our closest and largest trading partner (Canada).  However, our trade agreements with underdeveloped countries are not about free trade.  When the rubber meets the road, the primary motivation behind these trade agreements is to allow businesses to move jobs to countries in which they can pay subsistence wages and then ship their products back to the U.S. without incurring any encumbrance of tariffs.  Our trade agreements with underdeveloped nations often include postscripts to protect workers' rights and the environment, but these provisions are never enforced, and it was never intended that these provisions would be enforced.  With very few exceptions, the provisions of these free trade agreements are beneficial to corporations and foreign investors at the expense of most workers in the United States and at the expense of investment in business operations in the United States.

To paraphrase a quote usually attributed to Benjamin Disraeli, there are lies, there are damned lies and then there are statistics.  Even if it were possible (which it isn't), no government agency attempts to track the number of jobs lost and the number of jobs created as a result of deregulating trade.  However, although analysis of trade policies is not a matter of faith, it is obvious that the lessons people learn are determined by the perspective from which the results are analyzed.  Various agencies and organizations (such as the U.S. Department of Commerce, the U.S. Department of Anti-Labor and the National Association of Manufacturers) often make claims about the large numbers of jobs related to imports and exports, and these same groups often make extravagant predictions about future job growth that will be generated by expanding liberalized trade agreements to other countries.  Due to the many factors that affect economic growth and decline, it is impossible to determine with any precision the number of jobs created or lost due to specific trade policies, but there are some facts which contradict the promises made by advocates of unfettered trade.  For example, since 1994, the U.S. Department of Anti-Labor has certified more than two millions lost jobs due to unfair trade competition as a condition for job retraining under Trade Adjustment Assistance programs, and the Trade Adjustment Assistance programs only protect a small fraction of the workers adversely affected by unfair trade competition.  

Mr. Landsburg triumphantly informs us: "All economists know that when American jobs are outsourced, Americans as a group are net winners. What we lose through lower wages is more than offset by what we gain through lower prices."  However, it can be demonstrated that Mr. Landsburg's empty-headed rhetoric is false, and he knows it is false because many economists disagree with the shoddy scholarship presented by laissez-faire apologists such as Mr. Landsburg.  In addition to the massive loss of manufacturing jobs since 1994 (the advent of NAFTA) and 1995 (when the World Trading Organization was formed and the General Agreement on Tariffs and Trade was established), globalization has caused our trade deficit to mushroom (which has caused significant devaluation of our currency), wage growth has been stagnant despite a significant increase in corporation profits, wage inequality has increased dramatically, and the U.S. Department of Anti-Labor has reported a significant increase in the number of "Unfair Labor Practice" complaints filed by workers alleging that employers have tried to discourage union organizing by threatening (illegally) to close plants and/or lay-off employees by moving production to foreign countries.

Although labor unions have sometimes been their own worst enemies by allowing corrupt practices to undermine their operations, and although a decreasing percentage of jobs in the United States are represented by labor unions, unions in the Twentieth Century provided standards that not only increased wages and other employee benefits for union members but also provided standards that many non-union businesses adopted to a large extent to avoid the formation of unions.  Bad trade policies are not the only reason for the sad decline in the number of manufacturing jobs in the United States, but it is not a coincidence that stagnant wages and a decline in employee benefits have occurred simultaneously with a decline in the United States in the percentage of workers who are represented by unions.  In today's global economy, it is relatively easy for large numbers of manufacturers to move production from the United States to countries that promote sweatshop economies, and many of the employers who remain in the United States are able to depress wages, reduce employee benefits  and discourage organization of unions by threatening to move their business operations elsewhere.  In 1992, the Wall Street Journal reported the results of a survey showing that one-fourth of almost 500 American corporate executives polled admitted that they were "very likely" or "somewhat likely" to use NAFTA as a bargaining chip to hold down wages.  Research studies conducted during the periods 1993-1995 and 1998-1999 by Kate Bronfenbrenner, Director of Labor Education Research at Cornell University, revealed that more than half of the employers evaluated made threats to close all or part of their plants during union-organizing drives, and such threats often included references to moving business operations to another country.

No objective person would dispute that  expanding trade creates many jobs related to imports and exports.  Even bad trade agreements have generated many jobs in the United States, but proponents of these trade agreements minimize the substantial  job losses which have been caused by and/or worsened by these same trade agreements.  Even many proponents of unrestricted trade acknowledge a net loss of manufacturing jobs in the Unitied States due to such trade policies, but they simultaneously argue that these trade policies create more jobs in the service sector of the economy.  The mantra of those who support our suicidal trade policies is that U.S. workers who are displaced by any trade imbalance will be retrained for good jobs created by the increase in trading activity, especially in the so-called service sector of the economy.  The Economic Policy Institute includes several economists and other researchers whose analyses of labor statistics show that massive outsourcing of jobs has damaged more than manufacturing in the United States, and increasingly has involved white-collar jobs, including many high-tech jobs held by highly educated workers in the service sector of the economy.  The Economic Policy Institute also has published studies showing that most workers in the United States, who lose their jobs due to outsourcing of jobs to other countries, become employed in subsequent jobs which pay lower wages and have worse benefits than existed for the previous employment.
 
In addition to the loss of earnings and reductions in savings and loss of health benefits and loss of pensions caused by the loss of jobs of workers displaced by unfair trade competition, reduced wages reduce the amount of social security benefits to which workers will become entitled when they reach retirement age.  The hemorrhage of jobs to underdeveloped countries such as China, India and Mexico also has a multiplier effect due to the collateral damage done to the businesses that had furnished supplies and services to the businesses that move their operations to foreign countries and due to the damage done to businesses that had sold consumer goods and services to the employees of the businesses that close shop in the United States.  The Federal Government, the States, and local governments also are affected adversely by the reduction in tax revenues caused by the outsourcing of jobs and businesses to other countries.  For communities that host well-compensated manufacturing jobs, there is a a much stronger tax foundation, to fund schools and other municipal services, than exists for those communities that host large predatory retailers (which pay poverty-level wages to the majority of their employees).  Not only are those jobs outsourced to other countries not coming back, but those taxes are not coming back either, and this situation is exacerbated by our corrupt Federal tax structure, which helps to subsidize the outsourcing of jobs to other countries.


With regard to workers displaced by the market forces unleashed by our poorly-constructed trade agreements, President Bush had this message in a radio address last year: "I know many Americans feel uneasy about new competition and worry that trade will cost jobs.  So the Federal government is providing substantial funding for trade adjustment assistance that helps Americans make the transition from one job to the next.  We are working to improve Federal job-training programs.  And we are providing strong support for America's community colleges, where people of any age can go to learn new skills for a better, high-paying career."  Actually, the President's budget requests reductions in appropriations for worker training programs and education programs.  The President  consistently has sought to underfund and limit the availability of worker retraining programs that help offset the job losses attributed to our trade agreements (such as NAFTA and CAFTA) and the job losses exacerbated by other disastrous trade policies (such as granting "most favored nation" status to China).

Mr. Landsburg scoffs at protectionists, and he views job training for displaced employees as more protectionism.  However, the idea that job training programs exist as a form of employee racketeering is ridiculous.  We provide job training for employees displaced by unfair trade competition for the same reason we provide education for our children.  A community provides education for its children so these children can acquire skills that they can use to become employed in a variety of jobs when they become adults, and then this will enable our young adults to provide for their needs and the needs of their families.  When this cycle of education is healthy, the community remains healthy.  If a large percentage of workers are unemployed and also unemployable due to inadequate job skills, that creates a breeding ground for crime and other unhealthy social forces which are very costly in terms of human capital and tax dollars.  Under Mr. Landburg's short-sighted model, communities in the United States should scrap their education systems because they can get all of the cheap products they need from other countries, and all of their uneducated children can pound sand down a rathole.  

Of course, even the best worker retraining programs do not compensate for the net loss of hundreds of thousands of good manufacturing jobs, and for those workers who are retrained, the accurate suspicion is that the jobs that will be available are often low-paying jobs (without health insurance) at mega-retailers and fast-food restaurants.  Wal-Mart's television ads claim that having a Wal-Mart in your area is like receiving a wage increase of $2,500 per year due to low prices available to consumers.  But having a Wal-Mart in your area also results in an actual wage decline because Wal-Mart epitomizes our government's indirect subsidy of sweatshop imports at the cost of jobs in the United States.  This subsidy occurs because manufacturers in underdeveloped nations can produce low-cost goods by paying subsistence wages to workers without providing healthcare and other benefits that are usually provided by manufacturers in the United States, workers in underdeveloped nations are usually prevented (by law or by circumstances) from forming unions that otherwise might better their wages and other employment conditions, workers in underdeveloped nations usually do not receive social security coverage or any similar pension protection, and manufacturers in underdeveloped nations are usually unencumbered by any effective environmental regulations.  Under our current trade policies, domestic manufacturers must compete in a global economy that allows foreign manufacturers (who are already at a competitive advantage due to the factors outlined in the previous sentence) free access to our lucrative market at the same time that domestic manufacturers gain access to consumers in underdeveloped nations who are not paid enough even to afford the cheap goods produced in their own sweatshop economies.

By buying cheap imports in mass quantities, Wal-Mart also is able to sell products at prices which significantly undercut small businesses competing in the same retail market, which causes additional lost jobs and depressed wages in these retail markets.  The resulting economic model is that (1) Wal-Mart buys cheap imports from China, (2) then Wal-Mart sells these low-quality products to the workers in the United States who lose their jobs to workers in China and to workers in the United States who lose their jobs to competition from Wal-Mart, and (3) then Wal-Mart hires some of these displaced employees at poverty-level wages (with no meaningful employee benefits) that barely enable Wal-Mart employees to purchase the cheap products at Wal-Mart.  The so-called pay raise received by Wal-Mart customers is negated to compensate Wal-Mart customers for depressing their wages due to the unfair competition that exists in this global business model, and part of the remainder of the wages received by Wal-Mart customers must be spent to provide assistance to many hard-working Wal-Mart employees who qualify for necessary government assistance such as Medicaid and Food Stamps because of their low wages, frequent lack of full-time employment and a sham masquerading as a health plan.

As an affluent country, we have a responsibility to help reduce the high levels of poverty in underdeveloped countries, but we will never be successful in this endeavor if we destroy our own economy.  Approximately 25 percent of jobs in the United States pay wages that for a family of four are considered to be below poverty level.  Our political leaders should pursue policies to improve the living standards of workers in underdeveloped nations,  but middle-class workers and poverty-class workers in the United States should not have to shoulder the entire burden for these policies.  The market consisting of consumers in the United States is a lucrative market, and tariffs are the price foreign manufacturers pay for access to that market.  Mutually beneficial free trade is the only rational basis for the elimination of tariffs.  The corporations who operate in underdeveloped countries have an obligation to pay wages at a level that is high enough to enable the workers in those countries to purchase the goods manufactured in those countries, and we have no obligation to sell our consumer market cheaply to benefit those corporations that do not uphold their obligations.

 

I am retired after working 33 years as a Claims Representative for the Social Security Administration, and I am a card-carrying member of the ACLU.

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ONe of the best descriptive articles on "Free... by Bill Ehleben on Wednesday, Feb 13, 2008 at 1:46:38 PM
Great article! its nice to read the truth about tr... by Gary Denson on Wednesday, Feb 13, 2008 at 5:59:14 PM