Vol. IX, Bulletin No.3                                                      March  4, 2004 

Faith in U.S. Trade Model Ebbing

So are you for free trade or against free trade?

Stop. Don’t answer stupid questions. This one is stupid because it simplistically assumes that trade issues fit snugly into an either/or mold. They do not.

A little-noticed new poll by the University of Maryland’s Program on International Policy Alternatives (PIPA) clarifies the real issues and reveals the real division of American opinion. Instead of asking people a simplistic question, the PIPA poll sought their views on the “growth of international trade,” and gave them not two choices but three.

One was: “I do not support the growth of international trade because I think the cost will inevitably outweigh the benefits.” Only 18% of respondents took this truly “anti-free trade” position.  The other two options both began with “I support the growth of international trade,” but then branched off into two different positions.

Only about 20% approved of  “the way the U.S. is going about expanding international trade.”  Most, 53%,  while also supporting the growth of trade “in principle,” were “not satisfied with the way the U.S. government is dealing with the effects of trade on American jobs, the poor in other countries, and the environment.”

Thumbs Down on U.S. Trade Policies, Not on Trade

The bottom line, then, judging from this nation-wide survey completed in early January, is that most Americans favor expanding trade but do not like the U.S. government’s actual trade policies.  One important reason, according to 77% of respondents to this poll, is that U.S. officials pay “too little” attention to the concerns of working Americans. An overwhelming 93% think that countries that are part of trade agreements should be required to maintain minimum standards for working conditions and for environmental protection. 

Public opinion alone, of course, doesn’t determine public policy on trade, any more than it does on gun control or agricultural subsidies. And majority opinion, whether measured at the 53% level or even up to 93%, does not necessarily lead to good public policy.  That's so especially when prevailing policies, such as on trade, have the strong and long-held support of well respected experts in the field.  After all, in the past half century, college teachers on up to Presidents, liberal or conservative, Republican or Democrat, have almost all held the general idea of free trade as a basic belief, and they have put their authority behind the way it has been implemented globally under the leadership of the United States government.

But something startling is happening among economists, the profession most responsible for devising the conceptual and institutional structure of globalized trade. Several of its leading figures are voicing opposition to key elements of the trade model that the United States is vigorously exporting.

Business Lobbyists and the WTO

No wonder Nobel Laureate Robert M. Solow calls him "our most powerful and persuasive advocate of free trade." Economist Jagdish Bhagwati has published 300 articles and 45 books dealing with trade. I have read only a small portion of this highly prolific output, but enough to know this:
Take a major criticism that Bhagwati makes in his latest book, In Defense of Globalization, just published by Oxford University Press. In this book, as elsewhere, Bhagwati defends multinational corporations for doing good rather than harm -- but with a crucial exception: "interest-driven  lobbying"  that has resulted in the adoption of some damaging global rules.  He cites, as "a prime example," the multifaceted U.S. pressure that led to the World Trade Organization's agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS, for short). 

Collecting Royalties for Pharmaceutical and Software Companies

"Pharmaceutical and software companies," he says, "muscled their way into the WTO and turned it into a royalty-collection agency simply because the WTO can apply trade sanctions [to violators of its rules]."  Unlike the legitimate trade responsibilities given the WTO at its founding in 1994, TRIPS was like introducing "cancer cells into a healthy body."  He blames lobbies of the two industries for policies that "distorted and deformed an important multilateral institution, turning it from its trade mission and rationale."

In his new book Bhagwati renews his attack on the unfettered flow of capital around the world. Capital market liberalization, he writes, "amounts to a rush, gung-ho capitalism." he writes.  And, as in earlier writings, he blames "the energetic lobbying of Wall Street firms" and the "Wall Street/[U.S.] Treasury complex" for foisting this policy on the International Monetary Fund and on the WTO.

Bhagwati cites other examples of "where corporate lobbying has produced harm" for trade policy, but he is particular biting in his attack on two provisions: capital market liberalization and the protection of patents, copyrights, and other intellectual property. That's no small criticism.  Inserting those two policies into trade agreements at every level -- bilateral, regional, and multilateral -- has been a major U.S. goal, one widely achieved, and still being pursued in the proposed Free Trade Agreement of the Americas.

Free Trade Agreements Are Really 'Protectionism' in Disguise

In his view those free trade agreements really promote "protectionism." He explains why at length in his earlier book, Free Trade Today, published in four editions by Princeton University Press. It is wrong, he insists, to call them free trade agreements, as they almost always are, since by their nature they discriminate against countries that are not part of the agreement.  Bhagwati approves only of agreements reached under the "multilateral" umbrella of the World Trade Organization, in place of the "messy maze" of trade policy created by the proliferation of other trade pacts.

The highlights above do not cover all the ways that this free-trader disagrees with U.S. trade policy. At times U.S trade negotiators must wonder: with such friends of free trade, who needs enemies?

Towards a Globalization That Is Fair

Joseph E. Stiglitz,  2001 Nobel Laureate in Economics, puts it bluntly: the United States has mismanaged the global economy. In a talk last November at the Carnegie Council of Ethics in International Affairs, he described the roots of that mismanagement.

"At the end of the Cold War," he said, "the United States as the sole superpower had an opportunity and a responsibility to reshape the global economic order, to try to create an international economic order based on principles like social justice....But we lacked a vision.

"The financial and commercial sector in the United States did have a vision. They might not believe in government having an active role, except when it advanced their interest. The active role they pushed for was to gain market access....As a result we got some very unbalanced trade agreements."

Outlining the Social Dimension of Global Economy

A new report, "A Fair Globalization: Creating Opportunities for All," issued last month by the World Commission on the Social Dimension of Globalization, develops the case for putting a better balance in the global economy.  In an article published Feb. 24 in the Financial Times, Stiglitz, one of the commission's 26 members, pointed out that the report differs from conventional wisdom on globalization in arguing:
"In many cases," he wrote, "globalization has been managed in a way that has eroded the state's ability to provide macroeconomic stability and social protection. Tax competition for businesses has weakened the tax base and put more of the burden of taxation on workers.  Competition for investment has eroded the will of the state to protect the environment from pollution and workers from exploitation....The economic and financial volatility -- and hence insecurity -- associated with globalization is the result of an agenda driven by interests and ideology."

The 168-page report, with 56 proposals and recommendations, will be discussed at the March meeting of the Governing Body of the International Labor Organization.  John J. Sweeney, president of the AFL-CIO, and Zwelinzima Vavi, general secretary of the Congress South African Trade Unions, served on the commission, as did Francois Perigot, president of the International Organization of Employers, and Ann McLaughlin Korologos, former U.S. secretary of labor, now vice chairman of the Rand Corporation.

U.S. on Slippery Slope, Economist Says

If present U.S. trade and investment trends continue, "the United States will be a Third World country in 20 years."  That is the pessimistic prediction of Paul Craig Roberts, an economist who has abandoned the free-trade theory that he once propounded as a Wall Street Journal editor and applied as a senior U.S. government policymaker.

Roberts first revealed his views publicly in a New York Times op-ed article ("Second Thoughts about Free Trade") Jan. 6, discussed them further at a Brooking Institution briefing in Washington Jan. 7, and then provided more insights in a Feb. 26 Washington Post article ("Economist's Challenge Puzzles Free-Trade Believers") by Paul Blustein. Roberts' central theme is that U.S. trade policy is based on a disastrous delusion.

'What Is Happening To Us Is Not Free Trade'

"See, we live in a delusion," he told a Brookings panel. "We think everything that's happening is the workings of free trade.  We all know free trade is good for us. We've all learned this. And we live in the delusion that what is going on is free trade. It is not free trade."

Roberts does not argue against the basic free trade theory embraced by most economists -- the principle of "comparative advantage" expounded in 1817 the British economist David Ricardo. The theory is just irrelevant, he insists; it doesn't apply now, two centuries later, in a vastly different world.  Why not?  Mainly because: 
"The way it's working today," he explained to the Post's Blustein, "firms close facilities here, remove them to China, produce there, and send the products back here. This is not the Ricardian case for free trade."  Moreover, now labor effectively moves across borders as well, with Indian radiologists examining U.S. X-rays, for example, and Chinese software engineers writing codes.

As a result, "the case for free trade -- that it benefits all countries -- collapses," Roberts insists.  And the further result, Roberts said in his Brookings briefing, is a massive redistribution of income and wealth to China and India, where multinationals make higher profits because of the low cost of labor.

'Tremendous Dislocations' Are Predicted for World

"There will be tremendous dislocations," he predicted, "just as there was in the transformation out of feudalism to capitalism."  Asked for a time frame for this scenario, Roberts answered that "the United States will be a Third World country in 20 years."

Roberts is keenly aware that most economists disagree with him. They "are just programmed," he told Blustein. "For them, free trade is a religious experience. They just 'know' it's good."

(Senator Charles Schumer, co-author of the Times op-ed piece, and Thomas J. Donohue, president and CEO of the U.S. Chamber of Commerce, also participated in the Brookings briefing. The transcript, though unedited, merits careful reading. Don't miss Donohue's comments.)

The Costs of Wal-Mart's Low Prices

Tax money subsidizes Wal-Mart low prices, a new report, "Everyday Low Wages: The Hidden Price We All Pay for Wal-Mart," points out. It estimates that, because of  the company's substandard wages and benefits, a typical Wal-Mart store costs federal taxpayers $420,750 a year for public social services such as housing subsidies, children's health insurance, energy assistance, and reduced or free lunches, as well as for federal tax credits for its low-paid employees. A recent PBS news program, Now with Bill Moyers, reported that some Wal-Mart personnel offices, recognizing that many employees cannot afford the company's health plan, actually encourage them to seek charitable and public assistance.

"Wal-Mart is in the driver's seat in the global race to the bottom, suppressing wage levels, workplace protections, and labor laws," says George Miller of California, ranking Democratic member of the House Education and Workforce Committee, whose Democratic staff prepared the report.

Conflicts of Interest, Public and Private

Now we have "off-shoring" joining "sweatshops" as a term crisp enough to capture headlines and public concern. Great. Expressive language is necessary to promote change, but it is no quick fix for the problems facing working men and women in the United States and abroad.

Snappy language does not overcome the bureaucratic inertia, the calcified thinking, and the structured "protectionism" -- the public and private institutions protecting the self interests of the elite --  that resist change. Nor does it overcome another kind of resistance: the personal conflicts of interest within each one of us. These conflicts exist even though seldom confessed.  Let me try to explain.

I have ethical convictions that workers everywhere should have a decent wage and decent working conditions. I am strongly opposed to child labor, discrimination against women, and other labor abuses, no matter where they occur. But I am also:
Conflicts of interest like those also plague organizations: for example, unions and churches that, while dedicated to human rights, invest their pension funds in corporate stocks that pay the highest return, no matter whether that stock is Wal-Mart's.

If the past couple of months are a guide, the Presidential campaign will stimulate thinking on what the United States government should do about a wide range of issues affecting the United States and the world.  Hopefully, it will also stimulate thinking about what you and I should do and about what our organizations should do.

Email: 'I Am Not That Impressed'

Anita Chan, research fellow at the Research School of Pacific and Asian Studies at the Australian National University, co-editor of The China Journal, and author of "China's Workers Under Assault" (M.E. Sharpe), sent the following email from Canberra:

I have been clicking back and forth on the links that your February issue provides in several articles. Very useful. Thanks for continuing to put out Human Rights for Workers. 

 In "Business Norms on UN's Agenda," I clicked the link to read the text for the "Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights.Well, I am not that impressed. Yet another document that is not even as good as the ILO conventions. This kind of thing is useful in a way, just to provide a bit more pressure, but nothing of real substance. What do you think?

I also read the report of the ILO team monitoring how the garment industry is implementing the labor standards terms of the 1999 U.S.-Cambodian trade agreement.  It isn't that impressive either. Wages and working hours, the two most important things, are constantly being violated even though there are 12 monitors for 200 factories.

Here's what I think. True, the Norms and the U.S. Cambodian trade agreement are both imperfect, far from what they should be, ideally. But both are impressive, each in its own way.  Thanks to the U.S.-Cambodian trade agreement, more than 100,000 Cambodian workers now have their own trade unions, for example. Would that workers in Cambodia's neighboring countries, such as China and Vietnam, were so fortunate. And the proposed set of Norms? If  not shot down at the UN Commission for Human Rights meeting in Geneva this month, it will constitute another step toward making sure that corporate social responsibility is more than a buzzword.

Human Rights for Workers: Bulletin No. IX-3     March 4, 2004
Robert A. Senser, editor
Copyright 2004
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