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August 12, 2008

The Punditocracy: Speaking for the Wretched of the Earth

For those of us who get dizzy listening to the circular logic of the paragons of Punditocracy (especially of the capital P variety), Roger Bybee's (Fairness and Accuracy in Reporting) excellent historical round-up of Fareed Zakaria's noxious views on trade and globalization issues offers a welcome breath of cold, clean facts  after some pretty serious doses of post-Doha death vertigo from the 'powers that be'...

Fareed Zakaria, now the highly influential editor of Newsweek International, author of The Post-American World, and host of Fareed Zakaria GPS, constructed a landmark of unintended irony when he regally pronounced that “the downtrodden beg to differ” with protesters of corporate globalization (Foreign Affairs, 12/13/99).

Those who demonstrated against the World Trade Organization at the famous “battle of Seattle” in 1999, he asserted, were displaying the hubris of the “rich and privileged,” who were delivering “a familiar plea for the downtrodden of the world” by challenging the WTO’s promotion of sweatshops and environmental degradation in the impoverished Third World.

In other words, Zakaria denounced the arrogance of those who presume to advocate for the world’s poor—while appointing himself, the son of a prominent Indian attorney and politician, as the poor’s spokesperson. “There’s just one problem: The downtrodden beg to differ,” Zakaria declared.

In his eyes, the Third World’s poor eagerly welcome Western investment on any terms as a vast improvement over their current misery. Microscopic wages, long hours and heartless management in sweatshops, along with befouled air and water, might seem horrific to wealthy Westerners, but are gratefully welcomed by the desperate people of nations like Mexico, China and India. “In fact, if the demonstrators’ demands were met, the effect would be to crush the hopes of much poorer Third World workers,” he declared (12/13/99)...

On globalization, Zakaria zealously denounces opponents of corporate-determined trade agreements as seeking to impose utopian rules for the global economy that are widely rejected, especially by the most wretched of the earth....

Zakaria’s “anti-democratic” and “minority” accusations invert reality in...critical ways....

A recent multinational Chicago Council/ WorldPublicOpinion.org poll (released 4/25/07) found majorities in most poor nations insisting that globalization be accompanied by global standards to prevent a “race to the bottom.”

“Strong majorities in developing nations around the world support requiring signatories of trade agreements to meet minimum labor and environmental standards,” the survey concluded, citing data from China, India, Thailand, the Philippines, Argentina and Mexico. “Nine in 10 Americans also support such protections for workers and the environment.”

Elites in Third World nations, in contrast, staunchly opposed such standards, the study noted:

The leaders of less developed nations have generally opposed including language mandating minimum standards for working conditions and environmental protections in trade deals, arguing that such rules are protectionist and would undermine their ability to compete in major markets such as Europe and the United States.

“It has often been assumed that when leaders of developing countries argue against including labor or environmental standards in trade agreements, they represent the wishes of their people,” added Steven Kull, director of WorldPublic Opinion.org. “However, it appears that these publics would like to see the international community put pressure on their governments to raise their standards.”

These findings directly contradict Zakaria’s simplistic worldview that the free-trade agenda of America’s political and business elite reflects overwhelming public sentiment in both poorer nations and the U.S.

And, closer to home (and to the other salient topic of the day - the upcoming November polls - about which Zakaria is busy confusing the American electorate daily), Bybee reminds us of the ultimate price yet to be paid by those candidates who forget that the people actually know what's going on...

While elites across the globe support unregulated globalization, majorities in both the U.S. and poorer nations essentially seek to restructure globalization so that it benefits everyone—as signified by the flipping of 37 congressional seats in the 2006 mid-term elections from “free trade” advocates to supporters of “fair trade” (Global Trade Watch, 12/13/06)."

Gotta love it when the real elites try to carve their niches by claiming to speak for the poorest of the poor. Frantz Fanon must be spinning in his grave!

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Go Trade Global

Basically all complains against of WTO because the developed countries try to make all import and export to developing countries tariff free. With subsidies and advance technology, developed countries can sell their food to those developing countries at a low price. With WTO proposed tariff free import policy and without government subsides, farmers in the developing countries are forced to sell their crops dirt cheap to remain competitive, further degrading their already poor living standards.

Shared Growth

It is important, though, to think through both U.S. and foreign impacts on any proposal to improve trade policy, and choose the best overall option. The below illustrates this with regard to the tax aspects of trade.

The wrong and right way to address offshoring

There is no doubt that current U.S. policies discourage corporations from locating jobs in the United States. Ideally, responses to that problem will consider the interests of both U.S. and foreign workers, looking for a win-win. Further, effective policies must not be based on political one-liners that ignore economic realities. We have to insist on the best answer.

The U.S. and developing world effects of trade are governed by three general factors: 1) labor costs including working conditions; 2) other costs, including transportation and environmental or community protection costs; and 3) taxes. In general, a corporation starts with a dollar of sales revenue and seeks to minimize the costs of earning that dollar, subject to ethical constraints that vary depending on the personality of the corporation. Most reputable U.S. based corporations will seek to maintain the same environmental and working conditions standards everywhere they operate, but they vary in the degree to which they seek to push those standards on to their suppliers. U.S. corporations thus tend to see an equation that balances labor, tax, and transportation costs, including costs of inputs from unrelated suppliers that may or may not be ethical.

Current U.S. tax policy pushes U.S. corporations to locate operations abroad. Even if the local tax rate is not particularly low, multinationals are driven to reinvest their low tax earnings into any country except the U.S., because they suffer a hit of up to 35% if they bring the cash here. This has driven a demand for foreign workers that has driven up wages in countries like China, India, Costa Rica, and so on, and has already raised Ireland and Singapore from poverty to wealth. At the same time, it has depressed the demand for U.S. labor, lowering wages here.

U.S. workers, being on the short end of this, are naturally displeased with U.S. tax policy, but that displeasure is only partially legitimate. There is a large group of low productivity, labor intensive operations that would not be able to turn a profit at U.S. labor rates under any tax scenario. Increasing the U.S. tax on those operations would just hurt the workers in the developing nations by reducing demand for their services without providing any benefit to U.S. workers. For high productivity operations, increasing U.S. tax on foreign operations would help to undercut their emerging middle classes by reducing the willingness of U.S. multinationals to boost local wages. But the impact on U.S. wage rates would be limited. European and Asian based competitors would still be able to earn the same after tax profits as before, and it would be tough for U.S. companies to compete by putting operations back in the U.S. That approach would thus tend to hurt the foreign middle class without doing much to help the U.S. middle class, and it could even hurt us because we would have fewer foreign consumers able to buy U.S. exports. That is the wrong solution.

On the other hand, cutting taxes on U.S. operations would maximize demand for U.S. labor and thus maximize the bargaining power of U.S. workers, while still allowing developing nations to maintain favorable employment environments as well. Where the current policy tends to take a given job that would pay $20 in the U.S. and move it to a place where it pays $3, resulting in a net loss of $17 to the global labor pool, eliminating U.S. tax would keep that $20 job here plus allow the foreign worker to earn $10 providing goods or services to that U.S. consumer with $20 in his pocket. Instead of a $3 global labor pool, you would have a $30 pool. Further, the foreign workers in labor intensive operations would maintain their current market power.

It is a simple matter to switch to that ideal policy in a manner that actually decreases the wealth and economic power of multinationals and that improves the fairness of the overall U.S. tax system. It involves giving corporations a deduction for paying out their cash to shareholders, and offsetting the lost revenue by getting rid of special capital gain rates that mostly benefit the wealthy, and raising the real effective rate of tax on persons earning over $500,000 a year up to 37.6%, including state and foreign taxes The mechanism is explained at http://www.sharedeconomicgrowth.org. That would good for American labor and good for the world.

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