Notes on the Atrocities
Like a 100-watt radio station, broadcasting to the dozens...

Thursday, September 25, 2003  

Yesterday I discussed some emerging Democratic rhetoric about protectionism. Generally when I babble about topics I don't understand, it doesn't bother me. But this bit about free trade and labor is something I'd like not only to discuss ignorantly, but actually comprehend. So I started sending out emails and posting comments to various trained professionals. Now I'm starting to get some good stuff back.

First, from the folks over at Economists for Dean, unpronounceable Lerxst offered some cogent analysis. In particular were these observations.

Free trade creates winners and losers. The benefits that go to the winners are very large but spread out throughtout the economy while the costs are highly concentrated in particular areas (e.g. apparel manufacturers in the Southeast).

What we ought to do but never have really done is really offer substantial assistance to workers dislocated by trade. Use high quality research (some of which exists and more of which needs to be done) to target the right kinds of assistance (e.g. training) to these workers. There is a program called Trade Adjustment Assistance that has been poorly run and has offered only a pittance to these workers. It has recently been "reformed" but as Dean often says "we can do better"

Focus on upskilling the workforce. A coleague of mine often talks to unions who grill him on free trade and he always asks them what they expect of their kids...are they sending them to college or are they planning on their kids having the same factory jobs? The answer is of course...they want them to suceed by developing better skills. Of course there is a transition that is painful...but we can't stop progress, we just have to make a commitment as a country to cushion the blow as best we can by providing real opportunities to those hard-hit by trade. When we industrialized there were some who wanted us to return to agrarian life...that wasn't the right answer and going backwards is not the right answer now. We also need to think about how to help encourage the development of higher skill industries.

Another economist, who can identify himself if he wishes, came at the question from the other direction. He's a development economist, and he responded in particular to the demand for stricter labor and environmental controls for our trading partners.

My support of free trade actually comes more from a development perspective: free trade is absolutely essential for the development of the third world. Free trade can benefit all nations, but the problem for a country like the United States is that free trade will cause structural changes that are resisted by Unions and others. Generally, free trade will cause labor intensive light manufacturing jobs to go overseas in rich countries. Also, some of the other labor intensive service jobs like call centers. This is not a pretty process - people lose jobs, have to learn new skills, have trouble adjusting. New jobs will be created in their place but in areas that are not traditionally unionized. So what you get in response is union driven not-so-free trade where lots of industries are protected - mostly the labor intensive ones. This tends to hurt developing countries most because it is through these labor intensive jobs that developing countries stand to gain but are precluded from doing so yet pressures to open up their markets to big conglomerates who put small scale farmers and the like out of business. So what we need is free and fair trade, not just free trade (which is a misnomer anyway in the presence of protections). So I find the anti-free trade logic, especially when wrapped up in concern for the poor countries, totally wrong.

I do have concerns about environmental protections - but this is a very tricky proposition. Quite simply, we have relatively strong environmental laws because we are a rich enough country to afford them. In a country where people are starving and dying from unsanitary conditions and lack of access to health care, clean air is definitely a second-order problem. As a public health issue, worrying about the harmful affects of dirty air does not even register while cholera epidemics are common, for example. This is why the now infamous exporting-dirty-industries logic is both tragic and, in some senses, correct. What I am concerned about is a free-trade induced race to scuttle out protections so that out dirty industries can remain competitive.

I also sent an email to Max Sawicky, but my question was sufficiently garbled that he couldn't answer it. More as that becomes available.

posted by Jeff | 2:12 PM |
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