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Saturday, March 12, 2011

The unraveling of the grand coalition on free trade?

It was probably always a pipe dream to think that any cross-aisle coalition favoring free trade could survive the extraordinary levels of political polarization that currently afflict our government. But I confess to nursing a fond and naive hope that Obama's 2008 posturing on trade was merely political theater. Obama, after all, was an academically inclined guy with a penchant for modest egalitarianism, and it is simply indisputable among the economically literate that our reducing our trade barriers to imports from the developing world would increase the welfare of the world's poorest citizens. True, such imports might lower wages here -- but that's what generous trade adjustment assistance is for. A smart Democrat like Obama could create a grand coalition by reducing tariffs but devoting the revenue from increased economic activity to higher spending on job training, unemployment benefits, and infrastructure investment. Everyone -- business, labor, and the developing world -- wins.

My hopes for such a deal are now being being eroded faster than one can say "Smoot-Hawley." Last month, Congress allowed both the Andean Trade Preferences Act (ATPA) and the 2009 version of Trade Adjustment Assistance to expire. The consequence is that U.S. tariffs on imports from two Andean nations (Colombia and Ecuador) are set to increase, while job training assistance for workers displaced by foreign imports will decline, with severe effects on economically declining areas like Detroit.

The unraveling of the TAA-ATPA deal might be the harbinger of larger political trends that place free trade more generally in jeopardy. Obama's delay on sending the Colombia Free Trade Agreement, over Senator Max Baucus's objections, suggests that, despite his economic literacy, Obama is throwing his lot in with the anti-free trade wing of the Democratic Party in order to placate union supporters. Sadly, the Tea Party members of Congress hate trade with developing nations as much as unions, albeit because of their usual anti-foreign paranoia rather than the unions' simple economic short-sightedness.

Whatever the reasons, I suggest that the foot-dragging on the Columbia Free Trade Agreement is a policy that only an economic Luddite or a right-wing xenophobe could love. It hurts the developing world and destroys the opportunity for bipartisan cooperation.

What is the case against the Colombia Free Trade Agreement? The unions argue that Colombia has not done enough to stop anti-union violence. But they do not offer any argument that high U.S. tariffs against Colombian imports will somehow benefit Colombian unions. Indeed, there is no such argument to be made. To the extent that high U.S. tariffs throw workers in Colombia out of work by shutting down Colombian business that export good to the United States, Colombian unions are hurt, not helped: High unemployment in Colombian lowers demand for labor and, thus, Colombian unions' bargaining power. Preventing cut-flower growers from sending blossoms to the United States will only insure that more unemployed scabs (thrown out of the cut-flower business by our economic paraochialism) will stand ready to replace striking Colombian unionists. Moreover, there is no reason to believe that the Colombian businesses that survive our trade barriers will somehow be more pro-union or less prone to using violence against their workers.

Why punish every producer, even the unionized ones that eschew anti-union violence, for the Colombian government's failure to stop right-wing militias? If American unions care so much about stopping anti-union violence in Colombia, then why do they not advocate a more targeted sanctions policy, barring imports from specific Colombian businesses that do not practice fair labor practices?

One should not blame the unions alone for the demise of free trade: Although the AFL-CIO opposes both the South Korea free trade agreement (despite robust South Korean unions) and the Central American Free Trade Agreement, there are pockets of labor support for some trade deals: The United Auto Workers and United Food and Commercial Workers both supported the South Korea deal.

Every bit as pernicious as union intransigence is right-wing xenophobia about foreign trade. Tea Party folks denounced the South Korea trade deal as a violation of U.S. sovereignty, so it is unlikely that Obama can expect much help from the freshmen Republicans. Moreover, these Tea Party types will predictably oppose the expansion of trade adjustment assistance that is essential for making free trade a distributionally just expansion of American welfare rather than a one-sided benefit for trade winners.

Where does this leave free trade? My best guess is that free trade will be hostage to the vagaries of bilateral deals in which pro-trade coalitions are cobbled together from alliances between importers of foreign goods and exporters to foreign markets pried open by trade deals. This does not mean that such deals will never occur. But it does suggest that the deals will mostly bypass the developing world that needs them the most. In particular, free trade unilateralism like the ATPA, where the United States unilaterally opens its markets to struggling developing nations to improve their welfare, is probably a lost cause.

Those on the Left who purport to care about the welfare of the developing world ought to deplore this change in the political climate. In particular, the academic Left ought to muster a bit of political courage to speak truth to union power and denounce trade policies that leave the developing world's economy shackled in poverty. (And please, please, please do not repeat the untrue claim that respectable economists have ever defended U.S. tariff barriers as a boon to the developing world. Even trade contrarians like Joseph Stiglitz argue that the developing world would benefit from the United States' unilaterally lowering of its trade barriers).

As for my fellow conservatives: Shame on all of you who cry for higher tariffs. You claim to distrust the State and yet support statism -- high tariffs, the Wall, ICE brutalities -- whenever its victims happen to be foreigners. This is not libertarianism: It is autarky of the nastiest nationalist variety.

And to those two or three people out there who still care about the international trading system, my condolences.

Posted by Rick Hills on March 12, 2011 at 11:33 AM | Permalink


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I agree with much of the post, but question the basis for this sharp contrast:

"Sadly, the Tea Party members of Congress hate trade with developing nations as much as unions, albeit because of their usual anti-foreign paranoia rather than the unions' simple economic short-sightedness."

Here in heartland Ohio, the anti-trade sentiment on the left is as xenophobic as anything you'll find from a tea party, Pat Buchanan, or anyone. That's from unions, non-union workers, and from Democratic elected officials.

Last fall, several of our Democratic candidates ran TV ads that would've gotten national condemnation if a right-winger ran them. Lee Fisher ran U.S. Senate ads that splashed a Chinese flag and showed Chinese faces working at a factory, condemning his opponent's free trade support. Then-Congressman Zach Space's campaign combined attacks on free trade and on immigration, essentially linking the two as "sending our jobs to those people" and "bringing those people here to take our jobs." His ads had footage of Mexicans scrambling at the border, but his did not draw the flak that others' did.

So if we're going to be honest about calling out liberals for abandoning free trade when they should know better, we should also call them out when they traffic in xenophobia, too. The evidence belies any attempt to allocate the xenophobia to just the right, and to water down the left's anti-trade stance as a "simple economic" issue.

Posted by: ohio free trader | Mar 15, 2011 4:15:07 PM

The "progress" of globalization:

Free trade WILL BE good for US workers.

Free trade COULD BE good for US workers.

Free trade will be good for SOME US workers.

Who cares about US workers, the guys on Wall Street are really getting rich, and college professors still have tenure.

Posted by: save_the_rustbelt | Mar 14, 2011 3:39:23 PM

First, the following from Meghnad Desai by way of an animating assumption to my comments or, rather, (largely) the comments of others on topics broached in this post:

“Capitalism is not a kind or a benevolent system. It is the most effective mode of production discovered so far in wealth creation [despite its endemic ‘cycles, with their manias, crashes, and panics’]. It has no overarching objective, since it works through the profit-seeking efforts of millions of capitalists. It generates economic growth, prosperity, and employment as side-effects. It also causes much misery and destruction in its tendency towards incessant change. But over the last two hundred years, it has achieved the largest gain in well-being in all previous millennia. For one thing, many more people are alive now than in 1800 (around six times as many), and they live longer on average—between ten to twenty years longer—than they did then. [….] If length of life can be taken as a crude measure of potential well-being, a billion people living, say, forty years on average in 1800 compared to six billion people living sixty year today speaks volumes for the success of capitalism. In 1800, perhaps two thirds of that billion were poor; today, at most a quarter of the six billion are poor. Yet the reduction of poverty is neither automatic, nor to be taken for granted.

Adam Smith was not wrong, however, in saying that the new system of natural liberty imposed the cost of inequality while delivering a universal betterment of living standards. More people have been brought out of poverty in the last two hundred years, especially since 1945, than ever before in history. The very idea that poverty could be eliminated could not have occurred in any precapitalist stage. Capitalism provides the means for eliminating poverty, but these means were not directed immediately, or evenly, in the course of its development.”

China provides compelling contemporary evidence that capitalism can make enormous strides in addressing the question of poverty, but here again it has been purchased at the price of troubling forms (regional, income, and otherwise) of strong inequality. The creation and persistence of new forms of “relative” poverty and inequality, the system’s “manias, crashes, and panics,” and the ecological and environmental problems we face today, are among the more prominent reasons we have to endeavor, with Marx, to look beyond (in an Hegelian dialectical sense) this system (although Marx had very little to say about socialism and communism, his analytical prowess being devoted to capitalism). With Meghnad Desai we thus might ask:

“Is it possible to have a society that is not merely self-organizing, but consciously so? A society fully self-conscious of its own workings, and able to direct them, where individuals are not alienated from their work, or from themselves, but fully participate in their self-emancipation, and realize the full potential of the species-being that they are—in other words, Socialism beyond Capitalism?”[1]

Second, some basic economic facts by way of accounting for the effects of economic globalization on labor (organized and not) and labor’s response, such as it is:

“At the end of the twentieth century, for the first time since the early 1930s, it became legitimate to promote unemployment to enhance productivity, to reduce the workforce to increase shareholder and executive salaries and to risk health, safety and environmental dangers through a short-term maximization return policy.” Economic and political policies in the name of globalization and “free trade” have often assumed as their primary form and consequence labor control and wealth and income concentration:

“Two developments have been particularly noticeable: the reduction in protection and welfare through dismantling of labour laws and enterprise practices which provided some protection against arbitrary hiring and firing, and the increasing employment of socially disadvantaged workers. [….] The existing structure of unions was thus confronted from the early 1980s onward with a situation with which neither most of leadership nor the members had any experience.”[2]

Globally speaking, labor is in a structurally disadvantaged position when it comes to negotiating the terms and conditions of economic globalization, if only because “more than 80 per cent of the world’s labour force has no DIRECT linkage with the global political economy.”[3] The globalization of investment, trade and finance has not been met to any great degree by a corresponding “globalization of labor,” a fact that accounts in part, perhaps, for contradictory or divergent views among that organized labor which does exist and is frequently and myopically but understandably, focused on its own survival.

What is more and relatedly, capitalist democracy creates the kinds of constraints that encourage unions to focus on their short-term material interests (much like shareholders constrain corporations by way of economically harmful growth rates and expectations of unrealistic returns on their investments). In a capitalist democracy, as Joshua Cohen and Joel Rogers explained some time ago,

“the satisfaction of the interests of capitalists is a necessary condition for the satisfaction of all other interests in the system,” which means “the welfare of workers remains structurally secondary to the welfare of capitalists,” a fact we conveniently forget in times of economic abundance and low unemployment but is resurrected in the wake of the cycles, crashes, and panics endemic to capitalism. The decisions of capitalists are directly responsible for the well-being of workers, and thus we see the “interests of capitalists appear as general interests of the society as a whole, [with] the interests of everyone else appear as merely particular, or ‘special.’” As for the articulation of those interests inextricably tied to basic human and political rights:

“In a capitalist democracy the exercise of political rights is constrained in two important ways. In the first place, the political rights granted to all citizens, workers among others, are formal or procedural, and not substantive. That is, they do not take into account in their own form and application the inequalities in the distribution of resources, characteristic of capitalism, which decisively affect the exercise of political rights and importantly limit their power of expression. [….] Capitalist democracy also tends to direct the exercise of political rights toward the satisfaction of certain interests. The structuring of political demand, or what we call the ‘demand constraint,’ is crucial to the process of consent. [….] [C]apitalist democracy is in some measure capable of satisfying the interests encouraged by capitalist democracy itself, namely, interests in short-term material gain.”

This “demand constraint” canalizes the articulation of the interests of working people into the exclusive pursuit of economic advantage, in part owing to the ubiquitous conditions of “material uncertainty” for all but the wealthy classes: “There is a characteristic economic rationality to the actions of workers encouraged by capitalism. In the face of material uncertainties arising from continual dependence on the labor market under conditions of the private control of investment, it makes sense for workers to struggle to increase their wages.”[4]

Such structural constraints and conditions, therefore, provide incentives for unions to myopically focus on their material self-interests in a manner that was shaped during the period and places of nationally based Fordism which, in the northern hemisphere at least, flourished alongside consensus about the value of the various welfare state regimes (‘corporatist,’ ‘social democratic’ and ‘liberal’). Nonetheless, we’ve been on globally post-Fordist economic terrain since the late 1970s and thus debates surrounding “labor internationalism” persist and have intensified within organized labor, one reason we find, as Rick says, “pockets of labor support for some trade deals.”

Dimitris Stevis correctly argues that

“broader union politics and international collaboration do not require that unions abandon their domestic arenas. Contesting national politics is not inherently bad nor shortsighted. Rather, it is bad when it is used for nativist reasons and shortsighted when international factors are not taken into account. National power is an integral component of international politics. Unions, therefore, can coordinate with other to help control their national environments…as part of an overall strategy of regulating capital. Such a strategy, of course, would also require cross-border collaboration. In short, an effective international union politics must be as multi-faceted as that of states and capital but not, necessarily, their mirror image. The important criterion is not whether unions behave like states and capital, but, rather, the degree to which they manage to be proactive and embed their choices and practices within more inclusive social priorities.”[5]

Third, I was happy to see the point made by Rob in his last paragraph. As Pranab Bardhan has noted in the case of Africa, for example,

“Much of the persistence or even deterioration of poverty in Africa may have little to do with globalization and more to do with unstable or failed political regimes, wars, and civil conflicts, which afflicted several of those countries; if anything, such instability only reduced their extent of globalization, as it scared off many foreign investors and traders.”

In light of the general decline of unionism and the recent attacks on public sector unions in this country, Bardhan reminds us that it

“is not a coincidence that countries that have a better record in building institutions of conflict management and coordination have coped better with the dislocations brought about by international trade: the major example is the case of Scandinavian countries, where in spite of a strong tradition of organized labor movement and worker solidarity over many decades of the past century, the unions there in general have been in favor of an open economy.”

As “free trade” is part and parcel of economic globalization, Bardhan helps set the parameters for any discussion of same:

“…[M]any of the international organizations that define the rules of [the international regime of trade and investment] are accountable more to the corporate and financial community of rich countries than to the poor, and that the decision-making processes in these organizations [presumably he’s referring to at minimum to the WTO, the IMF, and the World Bank] need to be much more transparent and responsive to the people whose lives their decisions crucially effect. At the same time it should be pointed out that the protesters in rich countries often speak in the name of the world’s poor but support policies that sometimes might actually harm them.”[6]

Finally, I quote from the sensible conclusion of Bardhan’s article, which reiterates Rob’s comment:

“In general, while globalization in the sense of opening the economy to trade and long-term capital flows can constrain some policy options and wipe out some existing jobs and entrepreneurial opportunities for the poor and for small enterprises, in the medium to long run it need not make the poor much worse off if appropriate domestic policies and institutions are in place and if appropriate coordination among the involved parties can be organized. If the institutional prerequisites can be managed, globalization opens the door for some new opportunities even for the poor. [….] In many countries, poverty alleviation in the form of expansion of credit and marketing facilities, land reform, public works programs for the unemployed, or provision of education and health need not be blocked by the forces of globalization. This, of course, requires a restructuring of existing budget priorities and a better and more accountable political and administrative framework, but the obstacles to these are often largely domestic (particularly in countries where there are some coherent governance structures in place). In other words, for these countries globalization is often not the main cause of their problems, contrary to the claims of critics of globalization—just a globalization is often not the main solution to these problems, contrary to the claims of some gung-ho free traders.

All this, of course, does not absolve the responsibility of international organizations and entities in helping the poor of the world, by working toward a reduction of rich-country protection on goods produced by the poor, by energetic anti-trust action to challenge the monopoly power of international (producing and trading) companies based in rich countries, by facilitating international partnerships in research and development of products (for example, drugs, vaccines, crops) suitable for the poor, and by organizing more substantial (and more effectively governed) financial and technology transfers and international adjustment assistance for displaced workers, and help in (legal and technical) capacity-building for poor countries in international negotiations and quality certification organizations.”[7]

Lastly, while Rick mentions the prospect of lower domestic wages that some regional and bi-lateral “free trade” agreements might bring (and have brought), we should also cite the possible elimination of jobs in U.S. manufacturing, one result of such agreements in the past, although increases in Foreign Direct Investment (FDI) probably have had little impact on employment, that is, if we grant that “there is no reason to believe those funds would have been invested in US manufacturing capacity given slumping profit rates and other more profitable opportunities inside as well as outside the country. That is the nature of capitalist accumulation and competition.”[8]

[1] Meghnad Desai, Marx’s Revenge: The Resurgence of Capitalism and the Death of Statist Socialism (London: Verso, 2002): 313-314.

[2] Jeffrey Harrod and Robert O’Brien, eds., Global Unions? Theory and Strategy of Organized Labour in the Global Political Economy (New York: Routledge, 2002).

[3] Ibid.

[4] Joshua Cohen and Joel Rogers, On Democracy: Toward a Transformation of American Society (New York: Penguin Books, 1983).

[5] Dimitris Stevis, “Unions, Capitals and States” in Harrod and O’Brien, eds. (2002) [see n. 2 above].

[6] From his essay, “Globalization and the Limits to Poverty Alleviation,” in Pranab Bardhan, Samuel Bowles and Michael Wallerstein, eds., Globalization and Egalitarian Redistribution (New York: Russell Sage Foundation/Princeton, NJ: Princeton University Press, 2006).

[7] Ibid.

[8] Kim Moody, US Labor in Trouble and Transition: The Failure of Reform from Above and the Promise of Revival from Below (London: Verso, 2007): 19.

Posted by: Patrick S. O'Donnell | Mar 13, 2011 4:08:28 AM

Dear Rick,

Many in the WTO had feared that the financial crisis would unleash huge amounts of protectionism world-wide; the evidence we now have is that it didn't happen. Basically, WTO Members stayed within the rules, even if they bent them a bit or cheated on the edges in some cases. This was a big test for the WTO and the system won, by and large. Rules, backed up by dispute settlement and the possibility of sanctions, too, really helped to check what might have been a beggar-thy-neighbor protectionist spiral. This is an illustration of why the WTO is and will remain important, whether or not the Doha Round goes through.

I'm not against leveraging bilateral free trade deals for human rights (your Columbia example). In a recent book political scientist Emilie Hafner-Burton persuasively argues that such trade deals are one of the most effective ways we can influence countries' human rights performance. I've noticed a shift within at least some American unions away from opposing free trade in order to protect jobs at home to an interest in using free trade to better protect workers abroad. This suggests that there might be a new kind of grand coalition on free trade that is possible.

Much of the trade between developing and developed countries already occurs at very low applied rates of tariff, or tariff free (due to various preferences schemes, FTAs and so on). Of course, one can and should do still better. But many of the obstacles that create problems for developing country producers (especially small producers in poor very underdeveloped countries) in gaining meaningful access to developed country markets, and fully participating in the global economy, are not really being addressed, even by the free traders. They include: corruption; the cost and accessibility of trade financing; inadequate ability to manage exchange rate and commodity price volatility; transportation and other infrastructure problems.

Posted by: Rob Howse | Mar 12, 2011 3:43:34 PM

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