Making Trade Work for Workers
To the surprise of many observers, trade and its impact on American workers emerged as a central issue in this year’s Democratic primaries. The apparent Democratic presidential nominee, Senator John Kerry, would do well to carry this focus over into the general election, because when it comes to the challenges that the global economy presents to American workers, the Bush administration just doesn’t get it.
In the last 42 months alone, the economy has hemorrhaged 2.8 million manufacturing jobs. That’s a job loss almost equivalent to losing an Intel Corporation every month. It pushes U.S. manufacturing job levels down to where they were in July 1950, when overall employment was only about one-third of what it is today. While not all these job losses are attributable to outsourcing of work overseas, trade is a very significant contributing factor in eroding employment in the American manufacturing sector.
And it’s not just manufacturing jobs that are going abroad anymore. Newspapers of late have been full of stories about service-sector jobs moving overseas, from radiologist positions to computer programming jobs.
Last month, the chairman of the White House Council of Economic Advisers, N. Gregory Mankiw, responded to this growing flow by explaining that shipping service jobs to low-cost countries is the “latest manifestation of the gains from trade that economists have talked about.” Mankiw went on to observe that jobs going offshore simply reflect market forces ferreting out which countries can deliver labor most efficiently.
The administration has engaged in considerable bobbing and weaving to explain the remarks, following a hail of criticism from both Democrats and Republicans. Still, Mankiw’s comments seemed to capture the essence of the administration’s trade policy: an incredible callousness toward American workers buffeted by the global economy, alongside a profound failure to grasp the forces shaping today’s job migrations.
The good news is that Mankiw understands a central dynamic that shaped 19th-century trade. After all, if Guatemala grows coffee and Kansas grows wheat, aren’t we all better off? And if a country invests in education or a firm organizes work more efficiently or entrepreneurs rush a better product to market, everyone can reap the rewards.
But while chasing low wages is hardly a new phenomenon among American firms, recent technological and economic changes greatly magnify the impact of international trade on workers. Rising productivity in many third world countries, plummeting costs for transporting goods and new advances in communication all make it much easier for firms to relocate their operations abroad to take advantage of lower wages. And it’s not always a win-win proposition for workers — at home or abroad.
While wage setting is a complex process, there are times when wages are set more by the strong arm of the state than by the invisible hand of the market. When a country attracts investment by jailing union leaders or ignoring safety on the job, the net result isn’t some natural form of comparative advantage but what amounts to a “repression bonus.”
The example of China, rapidly becoming the factory to the world, underscores the problem. While China’s remarkable economic growth is a very positive development, the basis on which China is fueling its export binge raises deep concerns both for workers in China and the United States. In 2002, for example, 140,000 Chinese workers died in work-related accidents, according to China’s State Administration of Work Safety, which likely undercounts the accident rate significantly.
“In China’s emerging capitalist culture,” The New York Times reported, “high rates of injury and death are tolerated as the price of economic progress.” Independent unions are nowhere to be found to exert some pressure for a safer workplace or better wages, and if workers try to form one, it is considered a political crime.
The real danger here is that China exports not just its products but a severe downward pressure on wages and working conditions elsewhere. According to Automotive News, General Motors and Ford are demanding that “suppliers must match a ‘world price’ that is increasingly set in China, or they must build factories in China.”
Even in the best of circumstances, we would be seeing some jobs move overseas as a result of our increasingly globalized economy. A certain degree of dislocation for American workers is inevitable. We need bold domestic policies to facilitate the transition to new productive jobs for those who are whipsawed by the forces of global change. Wage insurance — federal guarantees to bridge the gap when a newer, lower-paid job is all that can be found, as proposed by former labor secretary Robert Reich and others — would represent an important start. Also needed are substantial increases in job-training funds and other adjustment assistance.
But we also need new trade policies that reflect the realities of global labor markets in the 21st century. The issue isn’t free trade or protectionism but trading agreements that seek to encourage democratic values and economic growth by protecting worker rights. It’s about making sure that workers abroad are lifted up rather than beaten down by their jobs, and preventing American workers from being placed in the impossible position of having to compete with workers overseas who lack the most basic rights. Such new policies could yield a more broadly shared prosperity rather than a race to the bottom.
Harley Shaiken is the chairman of the Center for Latin American Studies at the University of California at Berkeley and specializes in labor and the global economy.