Article: The High Cost of Free Trade's Supposedly Low Prices

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On Page 52 of Gene Sperling's new book, he says progressives who criticize corporate-written free trade deals "too often discount or dismiss the progressive impact of low-cost imports." He goes on to say that high prices for goods are regressive, much like a sales tax, because they hit everyone the same regardless of income. He then basically argues that for the middle class, the low prices we get on imports from cheap foreign labor mostly outweigh the negatives of the free trade policies (sans labor/enviro/human rights provisions) that permit corporations to exploit the cheap labor and sell out American jobs in the first place.

This is not a dishonest argument - and it seems to make sense. But it is just an argument - and it is NOT a fact. Going with the theme of my other posts to this discussion, I think this is a good example, again, of an economic assumption the establishment and society has accepted as a cold hard fact - when in truth, it is anything but.

As Robert Greenwald highlights in his new movie "Wal-Mart: The High Cost of Low Price" - there are all sorts of hidden costs in those great low-prices that we venerate as the rationale for corporate-written free trade policy. For instance, as I note in my upcoming book, the best way to see that those low prices aren't all that they seem is to look at whether wages under free trade policies are actually outstripping those supposedly "low" prices. As Gene's colleagues at the Center for American Progress pointed out in 2004, wages are, in fact, not keeping up with inflation. And that trend has continued into 2005. In other words, the supposed gains from "low" prices are outstripped by the losses this trade policy incurs to workers' wages.

To get a real-world idea of what that really means, look at this interesting 2003 report that found a single parent with two children employed full-time at a local Wal-Mart "does not earn enough money to supply the family's basic needs by shopping at that same Wal-Mart." Put another way, the low prices Wal-Mart is able to provide on goods under free trade policies are not enough to offset the low wages workers are now making under these free trade policies.

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How is that possible? Two distinct reasons. First and foremost, a trade policy devoid of serious labor protections is one that allows corporations to freely play off other countries' lack of worker rights against American workers in a race to the bottom. Specifically, companies can threaten to simply leave and head to cheap labor markets unless they get wage concessions from American workers - and they can do this under our free trade policies with no concern that a government policy might make that decision less attractive. Without that government policy (ie. stronger labor protections in trade deals), American workers workers simply don't have the leverage to demand better wages/benefits. This phenomenon was captured well by the New York Times in 1999, when the paper noted that years after the passage of NAFTA, "Wage increases are being held down, especially in manufacturing, by a persistent fear among workers about losing their jobs despite the strong economy."

The second reason is that in many instances, corporate-written "free" trade deals are not really free, and thus don't actually bring down prices. As economist Mark Weisbrot has pointed out, tariffs - a tax on imported goods that can be used to demand/enforce labor/enviro/human rights policies - "rarely increase the price of a good by more than 20 or 25 percent." That's no small amount, to be sure. But all the other restrictive tenets in our current "free" trade pacts can mean a far higher cost.

For instance, according to Weisbrot, patent protected prices "can be ten or twenty times the competitive price" for goods. A good example of this comes from prescription drugs - they are more expensive in America than almost anywhere else in the world, thanks to policies in "free" trade agreements that bar Americans from buying these drugs at the world market price. And this is only one example. As Weisbrot correctly notes, these corporate-written restrictions are really what our current "free" trade policy is all about: expanding a "lucrative form of protectionism across international borders."

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So to conclude - the point of all of this is not to make Gene or anyone else defend the Clinton administration record (As I previously said, "many economic indicators - both macro and micro - improved during the 1990s, and the Clinton administration - and people like Gene Sperling - should be credited for being a part of that"). My point is to try to shake progressives out of our trance that says we must look at economic policy through the same lens that filters out certain truths, and tempts us to accept other questionable assertions (ie. free trade's low prices are a panacea) as concrete fact. That's not doing the right's bidding for anyone, as Gene unfortunately claimed. That's actually challenging our own ways of thinking in a constructive discussion - and, after all, if you can't do that on a blog named for a cafe, where else can you do it?

Sources:
Robert Greenwald's "Wal-Mart: The High Cost of Low Price":
http://www.walmartmovie.com/
2004 CAP report on how wages are not keeping up with inflation:
http://www.americanprogress.org/site/pp.asp?c=bijrj8ovf&b=124737
2005 Washington Post report on how wages are not keeping up with inflation:
http://www.washingtonpost.com/wp-dyn/articles/a6010-2005apr20.html
2003 report finds Wal-Mart employee can't survive on Wal-Mart wages even when shopping at Wal-Mart:
http://www.corpwatch.org/article.php?id=7048
Economist Mark Weisbrot's discussion of prices under "free" trade:
http://www.commondreams.org/views01/0419-05.htm