Who Likes to Rock the FDI Party? Kevin G Likes To Rock the...

We've written about our bud Kevin Gallagher of the Global Development and Environment Institute many times before. After an amazing book out last year with Lyuba Zarsky, he has another one out on foreign direct investment and sustainable development that's getting the book event treatment over at the Carnegie Institute this Thursday in DC. If you're around, it'll be the best FDI party around. Details after the jump...

New NAFTA facts for your brain and heart

The Bush administration is getting restless! The candidates' ongoing campaigning against the NAFTA trade model is putting quite a spotlight on their efforts to expand NAFTA to the union murder capital of the world (Colombia.) Bush's latest counterinformation is here; our latest countercounter is here. Get your facts on! Here's a clip:

CONCLUSION: Can we evaluate the promises on NAFTA? Yes, we can!

An army of think tanks and corporations spends millions every year in an attempt to muddle even the basic facts on NAFTA. We know that under NAFTA, the U.S. trade deficit is up, manufacturing jobs are down, wages are stagnant, Mexican immigration is up, Mexican growth is down, and policy space has been seriously limited. Bush administration officials and pundits can debate whether any of these facts matter, but they cannot make up their own facts, nor serve up irrelevant ones in the hope of distracting policymakers or the public from continuing to demand trade policy change.

Why we should care about manufacturing employment and FTAs

There's been some fretting in the blogosphere about the NAFTA job loss numbers cited by the candidates, and generated by our friends at the Economic Policy Institute (EPI). I won't do a full response to the original American Enterprise Institute comment piece that sparked the musing. Suffice it to say that the Trade Diversion site has it right when they say that "trade affects the composition, not the number, of jobs in an economy." That's right, and tradable sectors like manufacturing lose out when there's a trade deficit. A few additional points, in no particular order:

1. There's things that you can criticize about the EPI methodology. Where people start to sound ridiculous is when they suggest that you wouldn't have more manufacturing jobs with balanced trade. You can debate the numbers, but you can't debate the underlying theory, or the political heart that EPI has after all these years trying to talk about an issue that matters to working people the neoliberal think tanks deny even exists.
2. I mean, seriously. It is amazing the kind of flak you take in this town for just trying to put a number on something that everyone knows is happening. And all over whether input-output tables like the kind you learned in matrix algebra are the best tools to use in looking at the problem! Seriously! That's what the "fuss" is about.
3. We've been running a trade deficit since before the Tokyo Round of the GATT, but it grew bigger after NAFTA and the WTO kicked in. To the extent that these deals offer incentives to offshore U.S. production in tradable sectors above and beyond that already promoted by the high dollar policy, then real people's work was affected.
4. But it's true that if the only thing you care about is reducing the trade deficit, then fights over FTAs are not a first order fight for you. They may be a second order political fight because you know that time spent negotiating and passing FTAs is time not spent fighting the trade deficit, i.e. you may think it's a good indication of absolutely backward political priorities in Washington. And that's right: it seems pretty clear that the 110th Congress will have spent a year working on the Peru FTA, and will have done nothing on the trade deficit. The chief first order reason to oppose FTAs remains that they're atrocious neo-liberal policy that do the wrong things for development, for democracy, and for regulation.
5. Bosses could use the threat of relocation to hold back wages, which because we have a national labor market, contributes to wage stagnation for everyone, not just manufacturing workers.
6. There's a startling lack of sympathy in much of the punditry's discussion of blue collar workers. Think to a time when you had a rough personal year - maybe you got fired, had a relationship fall apart, struggled with sickness. These are years that you will remember for the rest of your life, even as you try to forget them. They carry a deep psychic toll that you may never fully recover from. This is just a fraction of what many people who lose manufacturing jobs go through. Its a real cost to our economy and our democracy and civilization, and a major cost to these people's lives. It perpetuates the injuries of class that make progressive movement building very difficult.
7. Manufacturing is pretty sweet because it - like fast food jobs - doesn't require a lot of advance education. This is good, since most Americans don't have that much education. The thing is, there's simply not that many highly educated workers that the economy needs, with most jobs "of the future" projected to be in hospitality and related services. At a manufacturing plant, you can get on the job training, and have a pretty good shot of making a middle class income and being covered by a union contract. Whether you care about innovation or national security, manufacturing is also pretty important.
8. Some pundits like to say that manufacturing isn't in crisis because manufacturing output is at high levels. But this stat measures that total value of shipments coming from our manufacturing facilities, and doesn't take into account the value of imported parts. U.S. manufacturing value-added, a more appropriate measure, increased 13 percent between 1993 and 2006 – the exact same rate as between 1980 and 1993.
9. I have friends in service sector unions that say that it's important for progressives to talk about making bad service sector jobs into good jobs, just like was done with manufacturing. I don't disagree with that (I'm an SEIU member!), and I don't think that this contradicts any of the things that I've said.
10. If you don't think that manufacturing matters, then you may not care about a small trade deficit. But if you value macroeconomic stability and predictable trade flows (something more important if you've a developing country trying to to figure out the right degree of export orientation), then you should worry about a large trade deficit in the world's largest economy. In fact, you should worry about it a good deal more than the U.S. federal budget deficit, which is about half as large as the trade deficit.
11. If you think that having 2.3 million Americans or 1 in 100 Americans (and one in nine prime age black males) being behind bars is a national tragedy, then you might think it would be a good idea to have more entry level manufacturing jobs in the inner city. In fact, if we had a trade deficit that was the size of the budget deficit, we could (conservatively) create 1 million jobs. Wouldn't that be a good place to put some of those non-violent offenders?

Book Recommendation: Bad Samaritans

I'm pretty sure that I've recommended my prof Ha-Joon Chang's Bad Samaritans' book in the past, based on some advance chapters I had seen. Now that I've read the book fully through, let me double up on that recommendation and say that I think it is the finest and most accessible distillation of his ideas to date, and it's even getting grudging praise from the mainstream press. Thom Hartmann has a much longer review just published, but let me point out a few highlights:

• This is a book about globalization that you could buy for your parents. Ha-Joon is a very witty guy who has appropriated the best of Thomas Friedman's anecdote-heavy style, and turned the conclusions on their head. For instance, in a chapter on whether the poorest countries should adopt neo-liberal trade policy and compete with the big guys, Ha-Joon darkly muses on whether he would win any parenting awards by subjecting his own son to grinding labor market competition.
• The examples skew towards the U.S. and Europe, rather than more recently developed countries in Asia, which I think only makes it more accessible for the non-globe trotting audience here in the U.S. There are some great historical examples from the U.S., Europe and Japan about how the popular press and punditry hundreds of years ago (and even more recently in Japan) tried to discourage them from branching out into different production now thoroughly associated with the countries.
• He doesn't dodge some of the difficult debates in economic development, such as whether democracy is necessary for development, boldly noting that the U.S. was not a democracy in the formal sense until 1965. He also doesn't pander to the anti-corruption line, as he explains that latest neo-liberal trap. Corruption may be wrong, but it's only in certain instances that it retards development.
• Finally, Ha-Joon makes analysis of imperialism a lot less frightening to your middle-of-the-road reader. It's presented in a factual way related to power in the global economy, with all the best in British political economy as opposed to sectarian tradition (the chapter on FDI has a great line from the Keynesian economist Joan Robinson: the only thing worse than being exploited by capital is not being exploited by capital.) He also clearly exposes the parallels between the unequal treaties of the 19th century, and WTO policies today.

The field narrows, and advice from Feingold

This just in... Romney to pull out... On trade, Romney started out his campaign by talking about how great offshoring was, only to end up in Michigan talking about fighting for manufacturing jobs. A strange thing, democracy - when it works, it ends up changing the positions of those in power.

Even Huckabee, who as governor of Arkansas signed his state up for the procurement chapters of NAFTA-style deals, channels some of our own Holly Shulman from earlier in the week:

When President Bush agreed with House Democrats on a stimulus package centered on big tax rebates, for example, Mr. Huckabee raised the hackles of supporters of free trade by arguing that the plan in effect subsidized the Chinese manufacturers of imported consumer goods. And he argued that the money would be better spent building roads, bridges and other infrastructure projects at home, irking proponents of limited government.

In the wake of Edwards losing the race, there are now new power centers pushing on Clinton and Obama to fair trade it up. As John Nichols writes:

"Talking about experience and idealism is so much conversation for Wisconsin people," says Feingold, a three-term U.S. senator who serves with Obama and Clinton and who flirted with making a presidential run of his own this year. "We'd like to hear something about what they're going to do. It's amazing to me that this campaign has gotten as far as it has without getting down to specifics. But Wisconsin voters expect more from the candidates than the slogans." Like what?

Feingold says that the two remaining serious contenders for the nomination need to bone up on trade policy -- and its impact of real people in places like Wisconsin.

"I would urge them to be aware of the devastation that has occurred for people in the state over the past twenty years as a result of trade policies that were forced through Congress without any concern for working people in states like Wisconsin," says Feingold, who has since coming to the Senate in 1993 consistently opposed the free-trade agenda of both the Bill Clinton and George W. Bush administrations.

The campaign — especially on the Dem side — could get pretty interesting as the candidates grasp at something — anything — to differentiate between the two. Feingold's suggestion seems pretty savvy to me.

(Disclosure: Global Trade Watch has no preference among the candidates.)

Inefficiency of redistribution

Dean Baker, in his new lecture on trade and inequality, raises an interesting point:

Most of the supporters of the current trade agenda, and especially the more liberal supporters of this agenda, do make a point of advocating redistribution from winners to losers, so that in principle at least everyone can gain from trade. As noted, this redistribution usually takes the form of retraining or readjustment assistance for workers who can demonstrate that they directly lost their jobs due to trade. Although, it has never really appeared as a serious proposition in political debate, in principle it would be possible to tax away enough of the gains from the winners to compensate all the people who lose from trade...

Most forms of trade readjustment assistance are relatively small items in the federal budget. For example, the 2008 appropriation for trade adjustment assistance is less than $200 million, approximately 0.006 percent of the federal budget.

By contrast, suppose that trade had the effect of lowering the wages of the bottom 70 percent of the wage distribution by an average of 2.0 percent, a relatively conservative estimate of the impact of trade on inequality. In this case, the amount of money that would have to redistributed from higher income people to low wage workers would be close to $50 billion annually, or 1.6 percent of the federal budget. This would be a qualitatively larger sum to raise in taxes, which perhaps explains the reason that no politician has championed this effort to date.

There is a second more fundamental point that needs to be addressed in assessing such large redistributions from the standpoint of trade policy. The argument for trade liberalization depends primarily on the claim that it increases economic efficiency. However, any revenue that is raised to pay for compensation from winners to losers will require taxes. These taxes will themselves be distortionary. While it is easy to say that the distortions that result from the taxes necessary to fund a $200 million job retraining program will not create enough distortions to offset the gains from trade liberalization, it is far from obvious that this is true if it’s necessary to raise $50 billion to redistribute to the losers from trade...

New(ish) intelligence on trade

When Congress is in recess, it's always a good time to catch up on some of the academic and think-tank writings on globalization. Hey, it's definitely more interesting than the horse-race among the 2008 candidates for president, now in it's second year.

• Bruce Campbell of the Canadian Centre for Policy Alternatives takes a look at the corporations operating in Canada that pushed for the Canada-U.S. FTA in 1988, which paved the way for NAFTA in 1993. (Here in the U.S., the Canada FTA counted among its supporters: John McCain (and Biden and Dodd), and had among its opponents Duncan Hunter and Bill Richardson (in a rare fair trade vote).) Campbell finds that, despite the promises of these companies at the time, they have actually reduced their number of employees by 20 percent, while increasing revenues by nearly 130 percent. (CEOs have also seen their pay relative to workers more than double since 1988, during which time workers' wages have not budged in inflation adjusted terms.
• Ann Helwege and Melissa Birch from the Global Development and Environment Institute at Tufts University take a look at Latin America under neoliberalism, and find that the claims that poverty has been reduced are highly suspect. Namely, once you exclude Mexico and pre-96 Brazil (and even these are contested), most major economies in Latin America have seen rising or stagnant poverty. Moreover, as they point out, no one should be getting a cookie for modest poverty reduction even where it may have occurred: the lives of folks making $2.01 a day versus those making $1.99 a day are broadly comparable and desperate, even though $2.01 is considered above the poverty line. Moreover, if income is increasing (which it nearly always does), we ought to see poverty decline. The rate of improvement is what matters. In some of these cases where poverty has actually increased (in some cases while income has increased), we have a major problem.
• Josh Bivens at the Economic Policy Institute summarizes some of his recent work looking at claims of benefits from trade from major trade boosters, and finds them sorely wanting. The point made by Josh and in related work is that, if we're going to pursue a trade policy that contributes to massive stagnation of incomes of the majority, the chattering classes should at least expect to see a massive increase in national income. As Josh shows, a high growth figure from trade is questionable. So on both normative and positive analytical grounds, the status quo is pretty unattractive.
• Nancy Birdsall at the Center for Global Development does a fairly comprehensive mainstream literature review for the case that high levels of inequality can actually hinder growth, primarily through creating or interacting with failed markets and institutions.

NAFTA and WTO: job killer, or slave overseer?

Anyone who has spent time in social or political movements knows that language and slogans are often painfully fought out in overcaffeinated and excruciatingly long meetings in poorly lit rooms. When I was active in the sweatshop movement in the late 1990s / pre-9-11 2000s, the topic of discussions was whether our movement was "anti-globalization," "anti-corporate globalization," anti-Global Apartheid, "pro-people's globalization," or all or none of the above.

Immediately after 9-11, there were the long meetings about how and whether we should rhetorically connect the imminent war/invasion to the IMF/World Bank protests supposed to be happening in late September, 2001. And of course there is constant hand-wringing about the terms "free trade" and "fair trade," and what if anything any of these terms mean.

Such convos aren't really my cup of tea. If you like any of these titles, peg 'em on. But in doing the research on our most recent toy report, I got a bit of a labeling bug too, this time around whether we should call NAFTA or WTO a "job-killing" agreement:

The shift of U.S. toy production to China has been a long time in the making. 1972 was the first year that America imported Chinese toys, following President Nixon’s visit to the country.  China was first granted normal trade relations status in 1981, meaning it faced lower tariffs than a communist country would otherwise face. This status was renewed every year through 2001. By 1986, China was actively liberalizing its economy and lobbying for membership in what would become the WTO, and was rapidly expanding its U.S. toy exports. By 1991, China had overtaken Japan as the number one U.S. source of foreign-made toys. Throughout the 1990s, the Clinton administration passed nearly a dozen trade agreements with China,  which continued to edge out other countries for U.S. toy market share. By the end of the decade, China accounted for a majority of toys sold in the United States.  When Congress approved China’s WTO membership in 2000, Chinese-produced toys already accounted for nearly 57 percent of U.S. toy purchases – a figure that has increased to 74 percent (nearly $15 billion) since that time.

These facts illustrate a point we try to make regularly on this blog, that many of the industrial impacts in terms of jobs occurred as tariffs were lowered (in the GATT or preference programs for poor countries) prior to NAFTA and the WTO. So when movement folks say that NAFTA is a "job-killing agreement," they:

• are saying in a roundabout way that the U.S. trade deficit continued to increase after NAFTA, and with NAFTA countries in particular. With trade policy that either mandated balanced trade (s/t that is NAFTA and WTO-illegal) or under trade that automatically balanced due to exogenous factors, there would have been jobs in tradable sectors here that aren't here now; or
• NAFTA's (essentially) permanent reductions in tariffs and investor rights incentivized companies that wouldn't have done so otherwise to relocate production overseas, thus reducing jobs in tradable sectors that might have been here otherwise.

When most people say NAFTA is a job-killing agreement, they do NOT mean that the total number of jobs in the US somehow declined (unemployment has been fairly constant, except during the late 1990s thanks not to trade policy but to Alan Greenspan). They are making a point about jobs in TRADABLE sectors (ie. primarily manufacturing), and linking either in a macro sense to the deficit, or in a micro sense in terms of the incentives affecting individual business decisions. Indisputably, there are fewer union jobs and fewer manufacturing jobs than there used to be, and we've been in a trade imbalance scenario, so somehow that has to be explained.

So why do corporations even fight for these trade policies, if they had already offshored so much of their production prior to NAFTA and the WTO? I think the short answer is that it's an unholy alliance between a few exporters (think Caterpillar and agri-business), with a lot of industries that have already offshored production (think toys, apparel) and want to lock in duty-free access for their products coming back into the U.S. market, and with the whole of the multinational corporate lobby (esp. the services and pharmaceutical sector, but also the above) who want some insurance against progressive political change. There's no quicker way to get backdoor, international deregulation at the state, local and national levels of government than pushing these deals.

So perhaps a more apt metaphor for NAFTA rather than "job-killer" is "slave overseer" or "prison guard." The new neoliberal world order begun in the 1970s has prejudiced people both in the U.S. and abroad, and agreements like NAFTA and WTO from the 1990s and today merely serve as an enforcement apparatus to lock in and maintain this state of affairs.

The problem remains that people would probably rather see themselves as dignified workers losing a job rather than as prisoners or slaves. So, I'm taking suggestions - best metaphor wins!

Your secret's out

As Alan Greenspan wrote in yesterday's WSJ:

The surge in competitive, low-priced exports from developing countries, especially those to Europe and the U.S., flattened labor compensation in developed countries, and reduced the rate of inflation expectations throughout the world, including those inflation expectations embedded in global long-term interest rates.

As we will document in a report next week, the U.S. toy and retail industry, after offshoring all their production, consistently used the threat of higher inflation to further lock in their privileges. This is total bunk, of course, since CEOs have mostly pocketed the difference from their overseas labor arbitrage: the average toy and industry retail CEO makes over 19,000 times what their Chinese workers make.

Here's the chain of events: U.S. corporations pushed for less accountability: they got it when Congress yielded its constitutional responsibility to set the terms of U.S. trade policy by passing the Nixon-hatched Fast Track in 1973-74,  and then in later years gutted the funding for consumer regulatory bodies like the CPSC. Corporations pushed for greater ease in offshoring their production to countries with low wages and weak regulation: they got it when successive U.S. administrations and sessions of Congress signed off on a series of harmful trade policies under Fast Track. At the same time, corporations wanted to lock in their offshoring strategy’s profitability and insure against democratic accountability in the future: they got this too when Congress signed off on the expansive investment, trade and safety deregulation rules of agreements such as NAFTA and the WTO which authorize challenges in foreign tribunals of domestic safety policies that could limit imports.

Just in case this expansive strategic sense of Corporate "America" is getting you down, it also shows that our work to frustruate their efforts and advance our own interests can be similarly strategic. They've got a lot of pans on the fire: can we take over one of them? That's the spirit of this next song: Fugazi's "Oh":

number one in acquisitions
now there is no foreign soil
go global like a round thing
go global like a hole
to every money matchmaker
splicing green as fast as you can
let's break it down and start again...

you would never say you were out of time
coming with the fiction all the time
but there's a call coming on the other line
your secret's out

Numerology, lingerie, and a half-hearted post

Dean makes a funny about numerology and David Brooks today:

David Brooks' column is full of nonsense on trade this morning. The point is to propagandize on behalf of current trade policy, which is taking a beating in popular opinion as of late. Brooks includes a wide range of factors which are somehow supposed to imply that the current trade policy is good.

Just to to take a couple of my favorites, Brooks points out from 1991 to 2007 the trade deficit grew to $818 billion from $31 billion. "Yet, .... during that time the U.S. created 28 million jobs and the unemployment rate dipped to 4.6 percent from 6.8 percent."

Let's see, according to my calculator, the sun came up 5,840 times during this period. Therefore, by Brooks logic, trade must facilitate astronomical processes. For those familiar with economic theory, the expected impact of trade would be on wages, not the number of jobs. And most workers have seen very small wage gains over this 16 year period as the bulk of the benefits of productivity growth have gone to highly-paid workers.

Brooks also cites a study by Robert Lawrence and Martin Baily that purports to show that 90 percent of the jobs lost in manufacturing are due to domestic causes. I have no idea what this is supposed to show. A trade deficit of 6 percent of GDP (now closer 5 percent) corresponds to at least 3 million lost manufacturing jobs. Does it make any difference for anything in the world how these lost jobs are divided between the loss of existing jobs or the failure to create new jobs? It certainly doesn't matter for any economic theory with which I am familiar.

Brooks also extols the fact that the people in this country have lots of kids -- that's great if you like global warming, otherwise it doesn't seem like such a great thing. Perhaps the best line is that the United States "benefits from low levels of corruption." This is probably because actions like having a CEO wreck a company, and then get a hundred million dollar severance package, are perfectly legal.

Tasini talks sweatshop lingerie:

When you slip on your Victoria Secret garb, remember this: it comes to you partly due to the wonders of so-called "free trade." And, in particular, that little Victoria Secret garment (I guess "little" is redundant in this context) may even hail from Jordan--which was supposed to be the poster child for how one forges the "right" kind of so-called "free trade" deal. But,  instead, Victoria Secret exposes the exact fallacy of so-called "free trade."

Billy Bragg takes on the corporate power mongers, in another in our series of Top 10 Best Songs About Trade:

Iowa and trade... it's the prices, stupid

The Wall Street Journal has a pretty fair front page story by Greg Hitt and Deborah Solomon this morning talking about the role that trade is playing in the Iowa caucuses. It shows how Clinton, Edwards, Huckabee, Obama and even John McCain are talking about fair trade policies in their appeals to voters. But many of the commentators don't get it:

Iowa's ambivalence is all the more remarkable because the state is on the whole a big winner from global trade. "Iowa, as much as any other state, is on the plus side of the ledger," says James Leach, a 30-year Republican congressman from Iowa who now runs Harvard University's Institute of Politics...

By many measures, the global economy has been good for the state. Boosted by the ethanol and biofuels craze and surging demand for crops and farm equipment world-wide, Iowa's exports are up 77% over the past four years versus 50% nationally. The state's unemployment rate hovers around 3.7%, below the national 4.6% average...

"It's unfortunate that the Democrats are willing to describe trade as part of the problem," says Robert Reich, President Clinton's labor secretary... "It's pandering to a misconception in the public. The truth is that trade is good for the U.S. but that some people are burdened by it far more than others."

That was your former elected farm state representative and labor secretary, folks - two people that should know about the price of corn, soybeans and labor. While the volume of U.S. corn and soybean exported increased as predicted by NAFTA’s proponents, the prices received by American farmers declined to the lowest levels in recent memory. While American farmers received $12.64 per bushel of soybeans (in inflation-adjusted terms) when the NAFTA predecessor Canada FTA went into place in 1988, that price halved to $6.30 by 2006. In inflation-adjusted dollars, farmers received $4.29 a bushel for corn in 1995, the year the WTO went into effect and a year after NAFTA went into effect. But a decade later in 2005, the bushel price was at a low of $2.06, and only started increasing with the recent ethanol boom  – a development that is threatened with derailment as Brazil and other agricultural exporters plot WTO challenges against U.S. corn ethanol subsidies. 

And average and median wages, as regular readers of Eyes on Trade know, have barely budged from their 1973 levels, despite a doubling of productivity. It's not a question of compensating a few losers. MOST people, who are wage earners, are net losers from our current trade policy. (The unemployment level, mentioned in the article, is pretty irrelevant, since that is driven by interest rates. It's the composition of jobs (i.e. manufacturing v. services) that is affected by trade.) Nobody serious says that trade does not play a major if not the leading role in this. So when Reich derides candidates that "are willing to describe trade as part of the problem," that's about the least they can do in their sometimes tenuous loyalty to reality. In fact, many quoted in the article say this:

• Gene Sperling, adviser to Clinton: "Even those of us who are supportive of the open-market policies of the '90s to take seriously that the large inflow of workers from China and India digesting American jobs is placing downward pressure on wages."
• Leo Hindery, advisor to Edwards: "My sense is that the families of Iowa have now concluded that the modest benefit to them from cheaper goods that flow through Wal-Mart have been overwhelmed by stagnating wages."

Besides these points, there was an odd comment that deserves flagging:

Most economists argue that changing technology is more to blame for the divergence of economic fortunes. Nonetheless, worker concerns are roiling the political landscape. "Everywhere you go you've got this widespread feeling, especially in the labor community, that all of the wage problems of the middle class are due to trade," says Austan Goolsbee, a University of Chicago economist advising Democratic candidate Sen. Barack Obama.

Actually, as a paper for the Federal Reserve Bank of Atlanta (no bastion of labor they) pointed out several years ago, the argument that skill-biased technological change (rather than other factors) is driving rising inequality is a pretty weak one, for among other reasons, because inequality began its rise in the late 1970s-early 1980s, while the workplace computer revolution didn't happen until the 1990s. That's just the most straightforward example; there are many more in the paper.

Oh, and for the record, and we'll be posting this on all election related posts:

Disclosure: Global Trade Watch has no preference among the candidates.

Who says nothing good comes out of the Beltway?

Two groundbreaking new papers looking at our failed trade policy’s negative impact on American wages and inequality have been written by economist Josh Bivens and quietly released by the Economic Policy Institute (EPI). These papers brilliantly summarize half a century of economics research into the topic, and make fascinating projections of future increases in inequality if current trends continue. The papers expose what has been hidden in plain view: our trade policy is putting substantial downward pressure of all U.S. workers, yet policymakers are trying to push more NAFTA-style trade policy to Peru and beyond despite mounting evidence that it is bad for Americans.

Among the important conclusions of the paper, paraphrased by yours truly:

• The most important negative impact of our trade policy is not the displacement of concentrated groups of workers in manufacturing, but rather the holding down of wages of 70 percent of the population – including those workers whose jobs have not been and/or cannot be offshored. This analysis takes into account the impact of savings from cheaper imported products, and is a NET effect.
• The burden from trade policy-induced inequality now outweighs the burden from income taxes for the average American family. Specifically, the costs from current globalization policies for the median family have risen to $2,135 a year, while income tax costs are by comparison only $1,495. So if you’re concerned about high middle class taxes, you should be doubly concerned about our trade policy.
• If current projections by mainstream economists of the number of offshorable service-sector jobs hold over the next 10-20 years, our trade policy could erase almost all of the wage gains made since 1979 for workers without a four-year college degree (70 percent of the workforce). Trade adjustment assistance – now being debated in Congress – would replace less than 0.2% of the potential income loss to domestic workers in this scenario. Yet, this is the only significant policy response to globalization being discussed on Capitol Hill, and it excludes the majority of workers harmed by our trade policy.
• That much of this negative wage impact was already known by the early 1990s (in fact, since the 1940s), when policymakers were debating NAFTA and the WTO. Estimates produced by mainstream economists found that trade could account for 10-40% of the total rise in inequality that occurred in the 1980s and early 1990s. Many who were advocating for more-of-the-same trade policy often pointed out that trade did not account for a majority of the rise in inequality. But as the paper points out, it was still widely considered to be the largest single factor. (The paper notes: “This is true but uncomforting; a significant minority of a very large number is still a large number. To put it another way, if I threw myself into a chasm that was ‘only’ a fifth as deep as the Grand Canyon, I’d still be dead.”) In any case, the impact is shown to be much larger since NAFTA and the WTO went into effect over a decade ago.
• That anytime a pundit or politician invokes the notion that our trade policy is a “win-win” proposal, they are at worst lying or misleading the public, and at best equating the considerable gains going to the top end of the income distribution with a scenario where the gains are widely shared (something that has not happened, and could not happen without massive tax increases on the wealthy and government redistribution of a magnitude that is not being at all discussed by leading presidential candidates of either party).

The main paper from early October can be found here, and a background technical paper from early September can be found here.

Nobelists on trade, globalization

Leonid Hurwicz, Roger Myerson, and Eric Maskin were awarded the Nobel in Economics yesterday for their work in mechanism design theory. Alex Tabarrok at Marginal Revolution has a pretty good explanation of this work, and Maskin told the Times:

Mechanism design, Professor Maskin explained, can be thought of as the “reverse engineering part of economics.” The starting point, he said, is an outcome that is being sought, like a cleaner environment, a more equitable distribution of income or more technical innovation. Then, he added, one works to design a system that aligns private incentives with public goals.

One recent subject of Professor Maskin’s wide-ranging research has been on the value of software patents. He determined that software was a market where innovations tended to be sequential, in that they were built closely on the work of predecessors, and innovators could take many different paths to the same goal. In such markets, he said, patents might serve as a wall that inhibited innovation rather than stimulating progress.

What Maskin is writing about is the textbook theory of the value of free trade. It also complements work in the development economics literature about how "late developers" can adopt the technological advancements of rich countries, thus "leapfrogging" a stage of development. It should be noted that this is something that our current WTO- and NAFTA-enforced intellectual property protectionism regime sharply limits.

Maskin has also written recently on inequality and globalization:

Supporters of the anti-globalization movement argue that “globalization has dramatically increased inequality between and within nations” (Mazur, 2000), and in particular that it has marginalized the poor in developing countries and left behind the poorest countries. Meanwhile, more moderate mainstream politicians argue that the poor must invest in education to take advantage of globalization (Clinton, 2000). Such views are difficult to reconcile with a standard Heckscher-Ohlin trade model with two countries, two goods, and two factors (skilled and unskilled labor, or alternatively capital and labor) [which predicts that] inequality will rise in the rich country and fall in the poor country...

There are, however, at least two empirical problems with the Heckscher-Ohlin story. First, it predicts that bilateral trade will be greatest when factor endowments are most different, ceteris paribus (Vanek, 1968). There is little trade between advanced countries such as the U.S. and very poor countries such as Chad. A second problem with the Heckscher-Ohlin model is that evidence from examination of specific developing countries following trade liberalization and from cross-country studies does not suggest that trade liberalization generally reduces inequality in poor countries and in fact frequently suggests that trade liberalization can increase inequality...

We propose a model of production by workers of different skill-levels (Kremer and Maskin, 1997) that is consistent with 1) the small scale of trade between countries with very different factor endowments and 2) the possibility that globalization may increase inequality in both rich and poor countries.

Their model shows that it's possible that the least-skilled masses in poor countries will be totally marginalized under globalization, and that inequality can thus rise in both rich and poor countries. Maskin and co-author Michael Kremer conclude, "if people measure their status relative to others in their own society, then they will perceive inequality increasing. This analysis corresponds to the view of many anti-globalization protestors that globalization benefits elites in both rich and poor countries."

Enclave Economy v. Straw Men

My friend Kevin Gallagher of Boston University has a new book out from MIT Press with Lyuba Zarsky called "The Enclave Economy: Foreign Investment and Sustainable Development in Mexico's Silicon Valley."

Unlike a lot of the Friedman-ite platitudes about eating sushi with a Bengali venture capitalist while talking on a cell phone, Kevin and Lyuba actually bothered to go to Mexico and talk to businesspeople and others to learn about the impact that NAFTA has had on Mexico's peoples and policies. Their major case study is Mexico's IT industry, and how it stacks up against its counterparts in Asia and elsewhere.

The picture they paint is not pretty. Under Mexico's pre-NAFTA import substitution regime, the country was able to produce a wide variety of electronics, and at one point nearly 95% of the value-added content of television production. In the 1970s, the government laid out a comprehensive policy to build a domestic computer industry, including by limiting foreign ownership and requiring that firms source nationally and locally. Deemed "an extraordinary success," the program began to unravel and domestic firms began to disappear. First when NAFTA facilitate the massive move-in of multinational companies with less long-term investment in the region, but instead only a temporary commitment to take advantage of low wages. And second when the multinationals traded out Mexico's less than $3-an-hour wages with China's less-than-$1-an-hour wages when that country acceded to the WTO in 2001 and also decided to let footloose capital set up shop without committing to China either.

Why did this happen? Kevin and Lyuba find plenty of blame to go around, but a major culprit is flawed trade deals like NAFTA, which "constrict the scope for developing countries to undertake targeted industrial policies":

Rules on intellectual property rights, for example, make it difficult to develop comprehensive innovation policies. Investment rules outlaw the ability of developing countries to leverage concessions from foreign firms such as content requirements for local suppliers or support for local training. Investment rules also allow private foreign firms to sue national governments when new and un-anticipated (by the investing firms) social and environmental  cut into profits under the argument that such regulations are "tantamount to expropriation." Moreover, the macroeconomic policies need to support contemporary trade agreements - high interest rates and tight fiscal policies - also make it more difficult for governments to design effective policy and offer credit to domestic firms.

Kevin and Lyuba have a summary piece of their book over at IRC.

Contrast this with some other stuff floating around DC recently.

Trade on the Trail, Part Cinco

This week was a big one for trade on the trail.

"Clinton Pledges to Revisit Trade Deals" says the Financial Times:

"I think it is time that we assess trade agreements every five years to make sure they’re meeting their goals or to make adjustments if they are not,” she said in a speech in Cedar Rapids, Iowa, which stages the first caucus vote in the presidential nomination process next January. “And we should start by doing that with Nafta.”

"We have to change our economic course just as we have to change course in Iraq and change course when it comes to healthcare,” she said.

In addition to the five-year trade reviews, Mrs Clinton said she would appoint a federal trade enforcement officer who would monitor compliance with trade agreements.

She also pledged to expand the trade assistance adjustment programme, which retrains manufacturing workers who lose their jobs when employers relocate to other countries.

She would extend the TAA to redundant service sector workers, whose jobs have mostly been “offshored” to India, and to workers whose employers have relocated to countries that have no trade agreements with the US, such as China.

Women's Wear Daily does a good job of laying out all of the candidates' positions. Here are some highlights:

Fred Thompson: "I was one of the strictest advocates of imposing restrictions on the Chinese for their behavior of exporting dangerous materials to countries and tying some of our trade policies to what they did in that regard...They still have not done enough...but in terms of turning our backs on free trade, that's not the direction to go."

Rudy Giulliani: "We can't say that because these agreements weren't perfect, because they have problems, we're going to turn our backs on free trade...We're a country that depends on exports and we're also an entrepreneurial country."

Hillary Clinton: "The Bush administration has filed roughly the same number of enforcement actions under our trade agreements that were filed during one year of the Clinton administration...That is unacceptable. When I'm president, we're going to start enforcing them again and we're not going to enter into them unless we think they're going to be good for American workers."

Barack Obama: "We wholly agree with the labor movement that labor and environmental provisions have to be included in the core of labor agreements. Business has said historically that it couldn't be done until now," the [Obama] aide said, referring to an agreement Democratic leaders reached with the Bush administration to include stronger labor and environmental provisions in four pending trade agreements.

Mitt Romney: "has pressed Congress to act immediately on two pending trade deals with Colombia and Peru, a campaign spokesman said."

(Disclosure: Global Trade Watch has no preference among the candidates.)

Mattel haltingly tries to self-correct, as WTO-nourished outsourcing mania continues

The Times had this interesting story this morning, again raising questions of exactly where the buck stops for consumer protection in the global economy, and whether corporations can meaningfully self-correct in this rotten system they helped build:

Mattel makes its best-known toys, like Barbie dolls, in its own 12 factories. But even as it has increased the share of toys it makes itself to about half, it still relies on roughly 30 to 40 vendors to make the other half. Mattel now realizes it was not watching those companies closely enough, executives here said.

Mattel vetted the contractors, but it did not fully understand the extent to which some had in turn subcontracted to other companies — which in turn had subcontracted to even more. Mattel required its vendors to list subcontractors, so Mattel could visit them, but Mattel is investigating whether that procedure has been followed. A number of companies whose factories Mattel had never visited may have had a hand in making the toys that were shipped around the world...

Mattel executives in Hong Kong are trying to figure out how many subcontractors became part of its lineup...

“There aren’t many companies that own their own factories,” Mr. Eckert said in an interview in his office, “and there aren’t many companies that manufacture outside of China.”

Mattel closed its last American factory, originally part of the Fisher-Price division, in 2002. The bulk of its products have long been made in Asia.

Indeed, as this graph I put together below shows, since the worst boy band ever helped pass China PNTR, China (with all the accompanying safety/transparency problems common to authoritarian states) is rapidly overtaking all other countries (especially North American and Western European countries) in U.S. toy imports.

This comes on the same day as a report about rising Chinese wages, which American companies have tried to suppress.

Will you scrap NAFTA or fix it? Answers courtesy of the AFL-CIO Democratic presidential candidate debate

Trade is coming up again and again and will be a crucial issue in the 2008 election.

From last night's AFL-CIO Democratic presidential debate:

What do you think of the answers? Post away!

Drinking, Dieting, Industrial Policy

As I recently noted, Ha-Joon Chang is coming out with a book very soon in the US - "Bad Samaritan: Rich Nations, Poor Policies and the threat to the developing world." The book has spawned a sharp debate over at the Financial Times over the desirability of active trade and industrial policies.

After having studied industrial policies myself, I remember being surprised to hear a presenter at the American Enterprise Institute say that "the arguments for industrial policy don't hold up to closer scrutiny." Granted, any argument for or against industrial policy has to be sensitive to local conditions (landlocked Chad is unlikely to build a successful shipbuilding industry, as Martin Wolf notes), so I didn't quite understand what the presenter was referring to... was the statement meant to discredit the boom years of Latin America in the 1960s, Korea in the 1970s, China in the 1990s? It couldn't have been to celebrate the experience of Latin America or Africa for the last quarter century - during which time practically no industrial policies were practiced (except in Chile, as I talk about here.), right?

So I have still been waiting for further clarification from orthodox economists about what is meant by this pooh-poohing of the lessons of history. Here are the arguments, summarized from the FT debate, with the quick and dirty response taken from Ha-Joon:

• Orthodoxy: Dude, industrial policy is so 19th century. Sanity: Latin America, Asian, and Scandinavian development did not happen in the 19th century, dude.
• Orthodoxy: Korea didn't use industrial policy (that's why it grew before the late 1970s), except when it did (that's why it didn't grow in the late 1970s, early 1980s). Sanity: That is so 1980s of you. Korea used industrial policy before, during, and after the period in question, and it grew the whole time, except when it didn't, and that was due to a little something called a world recession.
• Orthodoxy: Free trade is the best! But if you practice free trade and you don't grow, blame it on on some other policy. Sanity: Where are we, Middle Earth?

The whole debate is worth a read, and it is not as idiotic in tone as I have made it seem. But the days when orthodox economists could shove facts under the rug for 20 years is gone, and you can tell it's causing some growing pains. To part, here are some choice Hajoonisms:

• I feel like a man being accused of promoting a copious consumption of vodka when all I have done is to recommend moderate amount of red wine as a part of balanced diet.
• It may be possible to dismiss the US as an "exception", but if there are another two dozen countries that have to be dismissed as "exceptions", then the theory has simply too many holes (the exercise reminds me of the pre-Copernican practice of drawing "epi-circles" in order to square evidence with geo-centrism).
• I think it is wrong to dismiss one’s opponent’s theory by labelling them with negative words (‘nineteenth-century’). How would Alan feel if I described him and his colleagues as "defenders of free-trade theory that was so strongly advocated by American slave-owners and opium-trafficking British imperialists"?
• I am a man whose book recommending the Mediterranean diet has been reviewed by a well-known anti-fat dietician, who unintentionally misrepresented me as praising beneficial qualities of all fats, when I had only praised olive oil. This was bad enough, but then a few other anti-fat dieticians read the review, go into a Pavlovian reaction on seeing the word, "fat", and accuse me of promoting excessive consumption of all fats, brandishing American obesity figures and Scottish heart-attack statistics. I regretfully have come to conclusion that I was absolutely right to say what I said at the end of chapter three in the book – "Trade is simply too important for economic development to be left to free trade economists".

Ivory Tower Meets The Campaign Stump

Once, many of the issues we talk about on this blog were discussed mostly among Rust Belt labor unions or in street demonstrations. But tough questions are increasingly being asked in a variety of places, from the ivory tower to the campaign stump... and in both instances, the focus is on a change in the rules of globalization, rather than perpetuating the stale debate about whether "yes" or whether "no" on globalization. Witness Harvard's Dani Rodrik's new paper, articulating what he says is now the "new orthodoxy" on trade:

We can talk of a new conventional wisdom that has begun to emerge within multilateral institutions and among Northern academics. This new orthodoxy emphasizes that reaping the benefits of trade and financial globalization requires better domestic institutions, essentially improved safety nets in rich countries and improved governance in the poor countries.

Rodrik goes on to push this new orthodoxy further, articulating what he calls his "policy space" approach, allowing countries to negotiate around opting-in and opting-out more easily of international rules and schemes as their development and domestic needs merit. Citing the controversy around NAFTA's investor-state mechanism and the WTO's challenge of Europe's precautionary approach in consumer affairs, Rodrik poses the following challenge to the orthodoxy:

Globalization is a hot button issue in the advanced countries not just because it hits some people in their pocket book; it is controversial because it raises difficult questions about whether its outcomes are “right” or “fair.” That is why addressing the globalization backlash purely through compensation and income transfers is likely to fall short. Globalization also needs new rules that are more consistent with prevailing conceptions of procedural fairness.

And this focus on a change of rules hit the political arena today, with a major policy speech by former Sen. John Edwards (D-N.C.).  See here. Among the important points, that thus far are only being articulated by Edwards among the top candidates:

• For years now, Washington has been passing trade deal after trade deal that works great for multinational corporations, but not for working Americans. For example, NAFTA and the WTO provide unique rights for foreign companies whose profits are allegedly hurt by environmental and health regulations. These foreign companies have used them to demand compensation for laws against toxins, mad cow disease, and gambling - they have even sued the Canadian postal service for being a monopoly. Domestic companies would get laughed out of court if they tried this, but foreign investors can assert these special rights in secretive panels that operate outside our system of laws.

• The trade policies of President Bush have devastated towns and communities all across America. But let's be clear about something - this isn't just his doing. For far too long, presidents from both parties have entered into trade agreements, agreements like NAFTA, promising that they would create millions of new jobs and enrich communities. Instead, too many of these agreements have cost us jobs and devastated many of our towns.

• NAFTA was written by insiders in all three countries, and it served their interests - not the interests of regular workers. It included unprecedented rights for corporate investors, but no labor or environmental protections in its core text. And over the past 15 years, we have seen growing income inequality in the U.S., Mexico and Canada.

• Today, our trade agreements are negotiated behind closed doors. The multinationals get their say, but when one goes to Congress it gets an up or down vote - no amendments are allowed. No wonder that corporations get unique protections, while workers don't benefit. That's wrong.

So, our movement has made real progress when things like Chapter 11, Fast Track and the precautionary principle are even being discussed by politicians and academics in the context of trade policy debates. And hopefully Edwards' raising of these issues will put pressure on the other candidates to follow suit. In the meantime, you can help turn the nice words into action by clicking here.

New Piece on Peru FTA's Threat to Social Security

Alternet has published a piece by Lori Wallach and yours truly on the Peru FTA's threat to Social Security entitled "Why Democrats May End Up on the Wrong Side of the Social Security Privatization War." Here's a sneak preview:

"Congress rejected Social Security privatization in 2005 and should reject it again in 2007 -- whether it's for Americans, Peruvians or Canadians. The promise of a secure retirement shouldn't stop at America's borders."

This was the reaction of William McNary, a leading Social Security activist, after finding out that some Democrats are supporting a Bush NAFTA expansion for Peru that would give Citibank, a major Democratic donor, the right to sue the country if it reverses its failed Social Security privatization.

Fair trade activists already knew that an important part of the push to cover the planet in trade deals is to give foreign investors new "rights," including the right to sue governments for compensation when public interest regulations wind up hurting their bottom line.

But the latest Bush trade proposal goes even further. Buried in the Peru pact's hundreds of pages are provisions that could empower foreign investors involved in Peru's privatized Social Security system to demand compensation from the Peruvian government (in U.N. and World Bank tribunals) if the privatization were reversed.

To read the rest, please visit Alternet.

TAA Politrix

Trade Adjustment Assistance (TAA), also known as burial insurance, is a targeted federal program for trade-displaced workers: hardly anyone that needs it gets it, hardly anyone that is certified as eligible for it ends up receiving it. Wage insurance, one aspect of a retooled TAA package under consideration, is even sadder, as Thea Lee of the AFL-CIO put it in March testimony to Congress:

Wage insurance does not help workers get good jobs. On the contrary, the most frequently invoked rationale for wage insurance is that it promotes “rapid reemployment” by encouraging workers to look for, consider, and accept lower-paying jobs they would not otherwise take.[1] Getting workers to take bad jobs does not fit within any good jobs strategy we would propose.

In fact, getting workers to take bad jobs is not a worthy objective at all. Our national focus cannot be rapid reemployment to the exclusion of job quality, because this would argue for the elimination of all assistance for displaced workers. It is undoubtedly true that eliminating all assistance for displaced workers would result in more higher-skilled workers finding reemployment more quickly at Wal-Mart and McDonald’s, but this would hardly be a desirable outcome for higher-skilled workers, for the lower-skilled workers they displace, or for the economy as a whole.

Across the political spectrum, over at the National Review, TAA and its associated problems are seen in little better light:

Why does a worker who loses his job to foreign competition have any greater claim on public support than a worker who loses his job to domestic competition? Or, for that matter, a worker who loses his job as a result of technological change in his industry? Or the declining popularity of his product? Sen. Olympia Snowe (R., Maine) argues that we have an obligation to help the worker who loses his job to imports because free trade is a “policy choice.” But this is no answer at all. Allowing domestic competition is a “policy choice” too... An additional problem is that much of the extra money spent will go to federal job-training programs, which may not truly constitute “help” since they rarely have any positive effects on trainees.

So why are we even talking about this crummy program? Well, from today's Inside U.S. Trade:

Ways and Means Committee staff are discussing bringing the Peru and Panama free trade agreements, as well as legislation to reauthorize and expand the Trade Adjustment Assistance (TAA) program, to the House floor to be voted on at or near the same time in the fall, sources said... In the absence of fast track trade negotiating authority, TAA could be used as leverage for action on one or more free trade agreements, sources said. A private-sector source said discussions of this possibility are underway in both the House and Senate. He said that consideration of TAA alongside the FTAs would likely make votes in support of trade pacts easier for many Democrats.

Oh, so that's why we are having this discussion: to facilitate further NAFTA expansions. This is not the first time a TAA-for-FTA deal-making gambit but has been attempted. But as we documented in a report from a few years ago, nearly every member who has made these kinds of deals in the past has been left out in the cold, including over TAA. And as the folks over at Inclusion have been making clear for a while, progressives should be working for universal programs for the unemployed/displaced, rather than trying to do stupid and ineffectual burial insurance programs for targeted groups of workers that are going to have a very hard time accessing even the meager help available from a government that doesn't want to give it to them in any case.

Ha-Joon Chang: Let Kids be Kids, and Love Alexander Hamilton

My old prof' Ha-Joon Chang has a book coming out soon called "The Bad Samaritans," and it promises - like his other works - to be a hoot.

He has some advance teasing of the book in Prospect Magazine and in the London Independent:

I have a six-year-old son. His name is Jin-Gyu. He lives off me, yet he is quite capable of making a living. After all, millions of children of his age already have jobs in poor countries.

Jin-Gyu needs to be exposed to competition if he is to become a more productive person. Thinking about it, the more competition he is exposed to and the sooner this is done, the better it is for his future development. I should make him quit school and get a job.

I can hear you say I must be mad. Myopic. Cruel. If I drive Jin-Gyu into the labour market now, you point out, he may become a savvy shoeshine boy or a prosperous street hawker, but he will never become a brain surgeon or a nuclear physicist. You argue that, even from a purely materialistic viewpoint, I would be wiser to invest in his education and share the returns later than gloat over the money I save by not sending him to school.

Yet this absurd line of argument is in essence how free-trade economists justify rapid, large-scale trade liberalisation in developing countries. They claim that developing country producers need to be exposed to maximum competition, so that they have maximum incentive to raise productivity. The earlier the exposure, the argument goes, the better it is for economic development.

Check out the Independent to see how the story ends...

Scheve and Slaughter move the trade debate forward

There's been some buzz about the recent piece by Kenneth Scheve and Matthew Slaughter in Foreign Affairs. Slaughter in particular served on Bush's Council of Economic Advisors, making his opinion particularly noteworthy. Among the highlights of their piece, which are major concessions to the fair trade side of the aisle:

• "Less than four percent of workers were in educational groups that enjoyed increases in mean real money earnings from 2000 to 2005; mean real money earnings rose for workers with doctorates and professional graduate degrees and fell for all others. In contrast to in earlier decades, today it is not just those at the bottom of the skill ladder who are hurting. Even college graduates and workers with nonprofessional master's degrees saw their mean real money earnings decline. By some measures, inequality in the United States is greater today than at any time since the 1920s."
• "The two most commonly proposed responses -- more investment in education and more trade adjustment assistance for dislocated workers -- are nowhere near adequate. Significant payoffs from educational investment will take decades to be realized, and trade adjustment assistance is too small and too narrowly targeted on specific industries to have much effect."

Mark and Dean have already gone through some of the few shortcomings of the piece at Huffington Post, worth a special read because of their recent work dissecting the productivity numbers (hint: even on productivity, the U.S. neoliberal economy is underperforming previous economic policy models). And we've already talked about how bogus the $500 billion trade benefit number is, which seems to serve as Scheve and Slaughter's primary evidence for maintaining much of the trade status quo.

But there are some other points worth making. Scheve/Slaughter want to save the current trade model, and they propose to do so by a massive boost and overhaul of the way we use the tax system to distribute income. It's true that there would probably be less anxiety about trade if we had European-style income redistribution mechanisms (i.e. strong unions, strong wage and labor market policies, socialized medicine, etc. - not that they're proposing these measures, they're talking about cutting taxes, which is a subject for a whole other post.) Not only that, but we'd probably be more competitive in international markets too.

But the real purpose of current trade policy is not necessarily to put downward pressure on U.S. wages, although that is a very important effect of trade that very much dominates the debate. The real purpose of current trade policy, in the words of the Bush administration's John Veroneau at a Washington think tank, is to serve as a "deregulatory tool," i.e. to compel the destruction of democratically-agreed policies and to chill the enactment of progressive policies in the future. So while progressives are thinking about what our big legislative fight is next week, corporations long ago started thinking about how they could put provisions in trade deals that could help them counter policies that a John Edwards administration - or an Evo Morales administration - might enact if progressives were ever able to catapult them into office.

It is that model that Scheve and Slaughter are out to save through the creation of income redistribution mechanisms that the elites can control from above, rather than waiting for discontent to bubble up into a democratic upheaval from below (that could demand not only a bigger share of the economic pie, but a bigger role in deciding what kind of pie we're going to be serving and how it's going to be baked.)

How to bury a lede; How to ignore alternatives to neoliberalism

You can read through 90 percent of today's New York Times piece on Argentina without having discovered the most important piece of news. When it finally comes:

Mr. Kirchner has recently acknowledged the crisis but also says there is “no reason for drama.” He portrays the energy shortages as merely a temporary bottleneck that is a consequence of the success of his economic policies.

“Thanks to having grown 50 percent over the past four and a half years, we have a strong need for this product,” he said this week. “Sometimes growth brings us problems,” he added, but “an Argentina that grows, with jobs and consumption” is preferable to the depressed economy he inherited when he took office.

The rest of the piece, which is about fairly typical election year woes in Latin America, makes it seem like Argentina is some kind of basket case of a country. Au contraire, Argentina since 2002 is one of history's biggest economic success stories as a result of their casting aside IMF, World Bank and WTO-style advice. Reading the piece, which is one of the longest and most in depth pieces on Argentina I remember seeing in the Times for some time, this fact barely comes through, and when it does, there is no context, and it is presented merely as the claim of an outgoing president.

This piece is an illustration of why the "there is no alternative" argument to neoliberalism is bogus. There are plenty of alternatives, but lack of adequate coverage often buries them. This radio silence in turn shapes the TINA perceptions among some readers.

Steelworker forum shows sharp differences on trade

Yesterday and today's Steelworker forum gave the Democratic candidates for president a chance to pronounce themselves on trade. Here are their statements, from strongest to weakest. Without clicking on the links, see if you can match the gender pronoun-less position with the candidate!

1. "[The candidate] criticized, but not by name, other candidates who have either voted for or supported foreign trade agreements such as NAFTA, or who have proposed "fixing" those trade agreements to stem the loss of millions of American manufacturing jobs. "You can't fix NAFTA... You have to repeal it and start over." Any candidate not willing to take that position should not be taken seriously."

2. "[The candidate] told the crowd that a priority for [the candidate's] administration would be to reform trade agreement like NAFTA. "The last thing we need are more trade agreements like NAFTA."

3. "[The candidate] avoided discussion of the North American Free Trade Agreement, which [the candidate's spouse], former President [Wile E. Coyote], backed and which unions blame for the loss of jobs. [The candidate] promised to make sure trade agreement provisions are kept to ensure fair trade... Unlike fellow Democratic candidates... who spoke to the conference Thursday and took questions from the floor, [the candidate] left without participating in a question-and-answer session planned by the union.

In other candidate news, Wonkette had a pretty funny write up of the Clinton machine and trade over here, Mitt Romney continues to dodge any meaningful discussion of anything including trade, and frequently rumored candidate Wes Clark puts himself on the really wrong side of history by not only covertly endorsing NAFTA expansion to Panama, but actually writing a column about it.

Answers: a) Rep. Dennis Kucinich (D-Ohio); b) Former Sen. John Edwards (D-N.C.); c) Sen. Hillary Clinton (D-N.Y.).

Left wearing nothing but socks

As we warned over two years ago before and after the CAFTA vote, you simply can't trust the executive branch deal-for-vote promises on trade policy - over 90 percent over the last two decades have been broken.

Shocking, but some members didn't listen to lil' ol' us. The latest broken promise comes from Alabama on CAFTA, and it's shaking up the GOP base in the "Sock Capital of the World" there in a big way:

[Rep. Robert Aderholt (R-Ala.)] two years ago was convinced, at the last minute, to vote for the Central American Free Trade Agreement based on assurances from the Bush administration that it would negotiate a change to phase out the [sock] tariffs from CAFTA countries over 10 years rather than immediately. That deal, which requires the approval of the affected countries, has not been signed.

"The longer we wait, the worse off we are and the harder it is going to be for them to bring into enforcement what they promised," said Charles Cole of Alabama Footwear Inc. in Fort Payne. Cole was in Washington last week on behalf of the domestic sock industry, a key to the economy of northeast Alabama.

About 4,300 people, down from 7,500 in 2005, work in the industry in Alabama.

Cole said imports from Honduras alone are up 50 percent and domestic production has dropped 20 percent since CAFTA took effect, and jobs are being lost.

"We just feel like it's time," Cole said. "They, again, told us they were committed to taking action as was warranted, but we feel like right now taking some action would be better than words."

As Andrew Wolf and I documented last year (PDF), thousands of U.S. sock and apparel jobs have been lost thanks to CAFTA, which has barely been in effect for a full year. In addition to the thousands in Aderholt's district, CAFTA job loss has hit the districts of CAFTA-supporting Reps. Terry Everett (R-Ala.), Mike Rogers (R-Ala.), Ed Whitfield (R-Ky.), Ron Lewis (R-Ky.), John Tanner (D-Tenn.), and Harold Rogers (R-Ky.). And CAFTA opponents Reps. Heath Shuler (D-N.C.) and John Barrow (D-Ga.) made the CAFTA job loss in their districts a major issue in their slams on their corporate opponents last year.

Hamilton Reading for a Happy Fourth!

Happy Fourth of July! We won't be posting for a few days, but thought we would send you off with a classic of American historical literature, Alexander Hamilton's Report on Manufactures (check the bottom).

Reading Hamilton, the author of many of the Federalist Papers that made the case for the U.S. Constitution, you will find a lot of what developing countries and scholars now say when they talk about "kicking away the ladder"... while not very much in common with the latter-day Hamilton Project. (As Kevin Phillips explains here, naming a nominally Democrat-aligned think-tank after the guy who helped give birth to what would become the Republican Party is about as strange as naming a "free trade"-promoting think-tank after the father of American infant industry policy. Robert Kuttner also has a piece worth reading here.)

Here's an excerpt from Hamilton's third report to Congress, which lays out his arguments for the desired economic-industrial basis of American freedom:

From these circumstances, collectively, two important inferences are to be drawn: one, that there is always a higher probability of a favorable balance of trade, in regard to countries in which manufactures, founded on the basis of a thriving agriculture, flourish, than in regard to those which are confined wholly, or almost wholly, to agriculture; the other (which is also a consequence of the first), that countries of the former description are likely to possess more pecuniary wealth, or money, than those of the latter.

Facts appear to correspond with this conclusion. The importations of manufactured supplies seem invariably to drain the merely agricultural people of their wealth. Let the situation of the manufacturing countries of be compared, in this particular, with that of countries which only cultivate, and the disparity will be striking. Other causes, it is true, help to account for this disparity between some of them; and among these causes, the relative state of agriculture; but between others of them, the most prominent circumstance of dissimilitude arises from the comparative state of manufactures. In corrobation of the same idea, it ought not to escape remark, that the West India Islands, the soils of which are the most fertile, and the nation which, in the greatest degree, supplies the rest of the world with the precious metals, exchange to a loss with almost every other country.

As far as experience at home may guide, it will lead to the same conclusion. Previous to the Revolution, the quantity of coin possessed by the colonies which now compose the United States appeared to be inadequate to their circulation; and their debt to Great Britain was progressive. Since the Revolution, the States in which manufactures have most increased have recovered fastest from the injuries of the late war, and abound most in pecuniary resources.