Dorgan Op/Ed: How Free Trade Hurts
Byron Dorgan (D - Comb Over) has an op/ed in today’s Washington Post (along with incoming Democrat Senator Sherrod Brown) blasting free trade and corporate outsourcing.
Pat Cleary at the National Association of Manufacturers blog responds to some of Dorgan’s points:
# Trade agreements don’t cause the trade deficit. Over 90% of the manufacturing trade deficit is with countries with which we have no trade agreement;
# Some 90% of what US manufacturers make overseas stays overseas. It doesn’t get shipped back to the US;
# The biggest reason manufacturers locate a plant is to be near the customer. Developing areas of the world are booming for that reason—they are customers;
# We don’t compete on the basis of wages in this country, never have. To put it differently, we’ve competed against low-wage countries forever and won, because we are the best, most competitive manufacturers in the world. That’s still true. If wages were the driver, as our trade expert Frank Vargo likes to say, Haiti would be an international economic powerhouse. Think about it.
All good points, but Greg Mankiw zeroes in on the part of the column that most caught my attention. This excerpt, specifically:
At the turn of the 20th century, child labor was common; working conditions were often abysmal; there were no enforced workplace health, safety or environmental requirements; no unemployment insurance; and no workers’ compensation. Workers were attacked and killed for the sole reason that they wanted to form a union; there was no 40-hour week, minimum wage, job security, overtime pay or virtually any other limit on the exploitation of employees.
America was split dramatically between the haves and have-nots. It was a harsh work world for many: nasty, brutish and, too often, short.
Worker activism, new laws and court decisions changed all that during the past century. As they did, a middle class grew and thrived. By mid-century, it became the engine that drove an ever-expanding economy in which benefits were shared by tens of millions of Americans. The American Dream of a secure, well-paid job with benefits, a nice house and a high-quality public education seemed within reach of everyone who worked hard and played by the rules.
That is what’s at stake when we talk about trade policy: America’s middle class and the American Dream.
Mankiw responds:
There is no doubt that most Americans have seen dramatic improvements in living standards and workplace norms over the past century. But should we really give most of the credit to “worker activism, new laws and court decisions?” I don’t think so.
I would give most credit to economic growth, which in turn is driven by technological progress, a market system, and a culture of entrepreneurship. As the economy grows, the demand for labor grows, and workers achieve better wages and working conditions.
Economic studies of unions, for example, find that unionized workers earn about 10 to 20 percent more by virtue of collective bargaining. By contrast, real wages and income per person over the past century have increased several hundred percent, thanks to advances in productivity.
If Mankiw is right (and he is, of course) than this paragraph from Dorgan’s column is not only wrong, it’s absurd:
The new mobility of capital and technology, coupled with the revolution in information technology, makes production of goods possible throughout much of the world. But much of the world at the beginning of the 21st century looks a lot like the United States did 100 years ago: Workers are grossly underpaid, exploited and abused, and they have virtually no rights. Many, including children, work 10, 12, 14 hours a day, six or seven days a week, for only a few dollars a day.
The result has been a global race to the bottom as corporations troll the world for the cheapest labor, the fewest health, safety and environmental regulations, and the governments most unfriendly to labor rights. U.S. trade agreements paved the way for this race: While rejecting protections for workers or the environment, they protected investors and corporate interests.
Protectionists like Dorgan often like to complain that other nations don’t buy as many American-made goods as we buy of their goods. Dorgan would have you believe that this happens because those other nations want to take advantage of Americans. That’s not true. Other nations (like China, for instance) don’t buy as many American-made goods because their citizens aren’t as wealthy as ours thus cannot afford to buy as much. It’s just simple math. Wages here in America are much higher than they are in places like China, so we Americans can buy more Chinese goods than the Chinese can buy American goods.
Saying this might make Dorgan’s head explode, but really the only way to get nations like China to start buying more American goods is to buy the goods they’re selling us and encourage our companies to do business with their companies. That economic activity will create more jobs in the country we’re dealing, something that will in turn create higher wages for its workers and thus more demand for goods. Including American goods.
It’s all very simple, yet Byron Dorgan and others would have us believe that the best way to fix the trade deficit is to cut off trade with these nations so that their economies remain stagnant and their workers remain impoverished.
Which is a foolish way to think, to my mind.
Dino
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