Avoiding Protectionism

The Economist is running a series this week on what the emergence of China, India and other developing countries means for developed countries. This article in the series examines the problems arising from globalization, the potential causes of those problems, and how to avoid a resurgence of protectionism in response:

More pain than gain, The Economist: Rich countries have democratic governments, so continued support for globalisation will depend on how prosperous the average worker feels. Yet workers' share of the cake in rich countries is now the smallest it has been for at least three decades (see chart 5). In many countries average real wages are flat or even falling.

Meanwhile, capitalists have rarely had it so good. In America, Japan and the euro area, profits as a share of GDP are at or near all-time highs (see chart 6). ...

[T]he redistribution of income from labour to capital can be largely explained by the entry of China, India and other emerging economies into world markets. Globalisation has lifted profits relative to wages in several ways. First, offshoring to low-wage countries has reduced firms' costs. Second, employers' ability to shift production, whether or not they take advantage of it, has curbed the bargaining power of workers in rich countries. ... And third, increased immigration has depressed wages in sectors such as catering, farming and construction. ...

Most of the fears about emerging economies focus on jobs being lost to low-cost foreign competitors. But the real threat is to wages, not jobs. ... So long as labour markets are flexible, job losses in manufacturing should eventually be offset by new jobs elsewhere. But trade with emerging economies can have a big impact on both average and relative wages. ...

Thus the usual argument in favour of globalisation—that it will make most workers better off, with only a few low-skilled ones losing out—has not so far been borne out by the facts. Most workers are being squeezed.

If GDP per person is growing fairly briskly, why are most workers missing out on real pay rises? Partly because a bigger share is going to profits, and partly because high earners have pocketed a huge slice of the gains in income, causing inequality to widen. ...

It's all comparative

Traditional trade theory, based on the ideas of David Ricardo, ... argues that economies gain from trade by specialising in products where they have a comparative advantage. Developed economies have lots of skilled workers, whereas emerging economies have lots of low-skilled ones, so according to the theory advanced countries will specialise in capital-intensive products requiring skilled labour and emerging economies in low-tech products. Competition from cheaper imports will reduce the wages of unskilled workers in developed economies, but workers as a whole will be better off.

Yet, ... the average worker does not seem to be enjoying his fair share of the fruits of economic prosperity. Richard Freeman, an economist at Harvard University, points to several reasons why the traditional theory may need modifying.

The first is that the sheer size of the emerging giants' labour forces has shifted the global capital-labour ratio (which determines the relative rewards of capital and workers) massively against workers as a group. .... According to economic theory, this should reduce the relative price of labour and raise the global return to capital—which is exactly what has happened.

Over time, competition should reduce profit margins and distribute benefits back to consumers and workers in the form of lower prices. But downward pressure on wages in rich countries could continue for a long time....

A second reason why the traditional trade model needs modifying has to do with a rise in emerging countries' skill levels. It used to be thought that only rich countries had educated workforces able to produce skill-intensive goods, but poor countries have invested heavily in education in recent years, allowing them to start competing in more sophisticated markets ... (see chart 7). In 1970 America accounted for 30% of all university enrolments worldwide; now its share is down to around 12%. ...

A third flaw in the traditional trade model, says Mr Freeman, is its assumption that rich countries would make high-tech products and developing economies low-tech ones. In fact, rich countries no longer have a monopoly on high-tech capital and know-how. ... As emerging economies start to export high-tech goods and services, this reduces the prices of such products in world markets, and hence the wages of skilled workers in the developed world.

White-collar blues

It is no longer just dirty blue-collar jobs in manufacturing that are being sucked offshore but also white-collar service jobs, which used to be considered safe from foreign competition. Telecoms charges have tumbled... This has made it possible to offshore services that were once non-tradable. ...

The standard retort to such arguments is that outsourcing abroad is too small to matter much. So far fewer than 1m American service-sector jobs have been lost to offshoring. ...[But] Alan Blinder, an economist at Princeton University, believes that most economists are underestimating the disruptive effects of offshoring, and that in future two to three times as many service jobs will be susceptible to offshoring as in manufacturing. This would imply that at least 30% of all jobs might be at risk. ...

Moreover, says Mr Blinder, education offers no protection. Highly skilled accountants, radiologists or computer programmers now have to compete with electronically delivered competition from abroad, whereas humble taxi drivers, janitors and crane operators remain safe from offshoring. This may help to explain why the real median wage of American graduates has fallen by 6% since 2000, a bigger decline than in average wages...

Ride on, Ricardo

None of this makes a case for protectionism. Offshoring, like trade, is beneficial to developed economies as a whole. ... China and India cannot have a comparative advantage in everything; they will export some things and import others. ... Emerging economies still have relatively little capital, so they are unlikely to become significant capital-intensive exporters until their capital-to-labour ratio catches up. That will take time. Developed economies will retain their comparative advantage in knowledge-intensive activities because they have relatively more skilled labour, but that advantage will be eroded more quickly in future.

The developed economies as a whole will still benefit hugely from trade with emerging economies. Increased competition and greater economies of scale will boost the growth in productivity and output. Consumers will enjoy lower prices and a greater variety of products, and shareholders will enjoy higher returns on capital. Although workers will continue to see their pay squeezed, they can still gain as consumers or as shareholders...

In recent years the stagnation of real wages in America has been masked by surging house prices, which make families feel better off. If the housing market stumbles and the growth in pay remains feeble, there will be increased calls for the introduction of import barriers... But in a globalised economy, such measures would be worse than useless. Firms would simply move their head offices to friendlier countries. ...

Heading off the political backlash

...[G]lobalisation is benefiting America's economy... But in practice the average family has not seen such a gain because much of it has gone to those at the top or into profits. This explains the lack of support for globalisation from ordinary people. Unless a solution is found to sluggish real wages and rising inequality, there is a serious risk of a protectionist backlash. Rather than block change, governments need to ease the pain it inflicts in various ways: with a temporary social safety-net for those who lose their jobs; better education to equip workers for tomorrow's jobs; and more flexible labour markets to encourage the creation of new jobs.

More controversially, governments may need to redistribute the benefits of globalisation more fairly through the tax and benefits system. Studies suggest that countries with more generous social welfare policies are less likely to support protectionism. ... In a riskier labour market, there may be a stronger case for health care to be financed by the state rather than by firms. ...

It is often argued that generous social-insurance and redistribution policies are inconsistent with globalisation because in an open world governments cannot raise taxes and spending in isolation. But if real wages continue to stagnate and no compensation is forthcoming, political support for globalisation may fade and the vast gains from the biggest economic stimulus in world history will be lost.

Comments

[Steve Waldman]

Mark, I love your blog, but this Economist article is truly awful.

I've written an extensive and I hope informative takedown, Would "Cash, please" amount to protectionism?

Here's the core point:

The traditional case for free trade is simply not compatable with a regime in which some countries persistly provide, and others persistently accept, credit in exchange for real goods and services.

This seems quite obvious to me. But I've yet to read an economist addressing it head on. Any takers?

[georgist]

A significant weakness of the Economist article is that it only addresses "workers" and "capitalists". What's most likely is that the gains from free trade are going to landowners. The best way of "sharing the gains of globalization" is to tap ground rent for public revenue instead of levying burdensome taxes on labor or capital income.

[calmo]

Ok, I missed the bit about

how to avoid a resurgence of protectionism in response

but otherwise this strikes me as a very clear-headed view. [No Lazear BS about compensation rising with productivity for instance.]
Let me dismantle some of the closing remarks.

But if real wages continue to stagnate and no compensation is forthcoming, political support for globalisation may fade and the vast gains from the biggest economic stimulus in world history will be lost.

It is not merely that the compensation is not forthcoming to wage earners but that the work they do does not increase their human capacity. [Does this sound like MSFT's claim to being an aid to your personal development? A mighty failure IMO.] Now, I don't think every job should be improv theatre, but I demand a wider view of this activity than merely how many widgets the employee stacked on the shelves. Within the context of production, fewer people are required to use their noodle and as a society (remember that?) we pay dearly for those de-noodled --left behind. [Does this sound like an antiquated Marxian analysis (alienation)? I am no marxist.]
There is no support for globalization among domestic workers, so skip the fade. Similarly there is no vast gain for the Wal-Mart employee from the biggest stimulus in world history...[shades of cosmic hyperbole or what? Did the Economist have a good night in the sack or what? We are not talking fiscal stimulus here are we?] When it comes to support, gains, etc we (noodled) need to ask who supports, who gains...before we are lost in that biggest whateveritwas.

[save_the_rustbelt]

"...Thus the usual argument in favour of globalisation—that it will make most workers better off, with only a few low-skilled ones losing out—has not so far been borne out by the facts. Most workers are being squeezed...."

And what we will do about this?

Nothing! Except may be some training for jobs that don't exist.

How ironic that so many liberal economists have championed what amounts to trickle up economics.

[reason]

So the economist now sees the situation as so dire that it stoops to recommending redistribution as a political expedient. (Better than protectionism).

It seems to me that the winners from globalisation have two alternative medium term strategies:
1. support redistribution to keep the masses happy;
2. where the government is corrupt, buying the government to keep the masses down might be cheaper.

Take your pick what is happening in the USA at the moment.

Steve Waldman - I agree in principle, but I would like to see a more detailed proposal including a plan for introducing it. But isn't this problem more general than that? Isn't it the same problem that the Federal Reserve faces in knowing what to do about asset bubbles? It seems to me that in certain circumstances, the function of money as a medium of exchange comes into conflict with the function of money as a store of value. I'm not a gold bug, but don't the Austrian's have a point about excessive liquidity creation leading to poor investment control, at least in the current environment? (Although I think in fact institutional factors play a big role as well, especially hedge funds, private capital funds and hostile leveraged takeovers).

I am starting to kick around ideas in the back of my mind about going back to needing a genuine international central bank and international currency. We cannot rely on big country authorities to be responsible enough to leave the world financial system in their hands.

[georgist]

reason:

Excessive credit and so-called "asset" bubbles are only a problem because our financial system is heavily focused on lending against real estate for speculative purposes, rather than financing actual capital formation. Even a limited shift to ground-rent taxation would be enough to significantly mitigate the distortionary and wasteful consequences of land speculation. See this article by Fred Foldvary on the "Geo-Austrian" theory of the business cycle.

[Steve Waldman]

Reason - Not for the first time here, we are very much in agreement. "It seems to me that in certain circumstances, the function of money as a medium of exchange comes into conflict with the function of money as a store of value." Yes. That's precisely the way I think about the problem as well. I'm not a gold bug, or Austrian, or whatever either, but I think they do have some strong points. And I think you are right to focus on "where to go from here" proposals, rather than just carping about the problems.

Note that since the advent of paper money, cash has never been a useful store of value. Claims on future money - originally through banks, now via index funds, mutual funds, CDs, stocks, bonds etc. - are stores of value, while simple cash is a transient means of exchange. I think part of the answer, not requiring great new implausible institutions, is to store value in terms of claims on future goods and services directly, rather than claims on future money. If I want to save for retirement, what if I could prepay for good housing, meals, car-rental, etc? Then I don't care about how CPI is calculated, don't care what the stock market does, don't care about changes in prices at all. Any other sort of investment is speculation. I want a pure hedge. Obviously, there are huge problems with this sort of proposal: We don't know how people will get around in 30 years, and you wanna pay for car rental? And what about credit/counterparty risk? These are hard questions, but there are suggestions for where to go in existing futures markets -- management of credit risk via set collateral requirements and frequent mark-to-market, buying the far future by continuously "rolling-forward" the near future. These are still imperfect solutions, and there's no way to hedge the risk of a bad retirement, if, say modern society collapses. But these strategies, currently applied to commodities, financial products, and indices work fairly well so long as changes are fairly continuous. It's an engineering problem, rather than a theoretical problem, to apply some of these solutions to storing value in terms of goods and services people actually intend to purchase, instead of easily manipulable financial claims, or claims on irrelevant commodities like gold.

[Emmanuel]

Calmo, I sympathize with your being emotionally scarred by Lazear, who you keep mentioning. Maybe all his "economic imperialism" has gotten to you ;-)

Rust asks, "And what will we do about this?"

Pat Buchanan suggests his program in "State of Emergency: The Third World Invasion and Conquest of America" -

(1) Wall off the US-Mexico border;
(2) Back away from trade agreements;
(3) Protect manufacturing.

You can probably guess the rest of Buchanan's agenda: screw Mexico, screw China, and screw India. America is for Americans, etc. Damn, I'm beginning to recycle RNC claptrap circa 1992. We all know what happened to those folks. Surely there's a better way.

Otherwise, roll on Pat Buchanan 2008 [And the crowd roars, "Pat! Pat! Pat!"]

[save_the_rustbelt]

Buchanan is a good conversation starter but nothing he wants will happen.

The feds will make a half-hearted show at securing the border but the U.C. Chamber of Commerce has ordered more illegals and the Bush administration will provide those warm bodies.

The deterioration of the middle class is gradual enough that (short of a rebellion) it will continue over a generation or two. Sort of like putting a frog in cold water and gradually bringing it to a boil.

The only possible change to that scenario would be if the next recession is so severe as to create a massive political upheaval. Stay tuned.

Down the road we will have a different world and my grandchildren can deal with it.

[jamzo]

"...[G]lobalisation is benefiting America's economy... But in practice the average family has not seen such a gain because much of it has gone to those at the top or into profits."

taking the economist at their word

why defend an economic practices that benefits so few
and hurts so many others?

could it be that it is the way in which "globalization "is being accomplished that produces such a result

if so

maybe we should discuss alternative paths to globalization

or maybe rename the current international "globalization" effort to something else like "maximizing corporate profits" a phenomenon where
"political interests ally with corporate interests to rewrite international trade policies to favor profits at the expense of wages"

or is it that "free trade" can only be done the way it is being done

[John Konop]

Steve,

We are falling behind to China with the Technology business. We have lost car business,steel...... We now import more than we export in agriculture. And the labor force is illegal immigrants in agriculture.I am not an economist, but please help me understand what are we going to export ? Hey stocks go up as companies lay-off American workers to get overseas slave labor to do the work . Why would anyone think this business model would make wages go up for American workers ?

Why would a company pay employees more if they get an unlimited supply of cheap slave labor ?

The Buffet idea is interesting , but it does not go near the supply and demand problem with slave labor vs. western workers.

I find it interesting how economist take human behavior out of the formula. And they wonder gee.. this is not they way it looks in my model.

http://www.manufacturingnews.com/news/06/0905/art1.html

[Lord]

Developed economies will retain their comparative advantage in knowledge-intensive activities because they have relatively more skilled labour, but that advantage will be eroded more quickly in future.

Very quickly indeed. Even when pay has equalized between developing and developed countries, lower costs of living in developing countries will still favor these industries moving to developing countries.

The highly profitable businesses have a bullseye on their back. It is only a matter of time before foreign businesses will undercut them, or if they are lucky, buy them out.

I wouldn't worry about the middle class turning against globalization. They are largely apolitical or focused on cultural and social issues. Only if the top 2-5% turn against the top 1% will we see any change in policy.

[Movie Guy]

Another laughable Pro-globalization-at-all-costs (PGAAC) economic church services post.

Where is all this boogyman passed-into-law protectionism that you are breaking sweat over? What are your specific personal fears?

Turn on the bedroom lights. PGAAC reality is sending a different message.

I would be discussing the IMF meetings instead of promoting trash from The Economist. But then that would be acknowledging ongoing factually-based reality instead of fear mongering fantasies so wildly embraced by some.

PGAAC is hanging in there quite well.

If you want to talk about the possible legislation from the Congress that may be considered once Hank Paulson gives them an update, do it. Otherwise, you appear to be playing Halloween a bit early.

[calmo]

Interesting numbers My Lord. I wonder if they are not more skewed than that (eg. the top 0.1% vs the 1%) and how volatile are they in the event of a sharp downturn? 400 families in the US is a figure bandied about but I'd want to look at an international picture.
Unfortunately my knowledge of middle class led revolutions is mighty thin. Is there a field called social engineering? Those sensitive aliens demonstrating in broad daylight make me think there might be. [And those subjects of social engineering are glued to Fox et al soaking up something completely different.]
On a less radical note, as profit margins are squeezed transportation costs to the US market start to overpower the labor costs and Mexican factories begin to have an advantage over Asian plants on items like dish-washers.

[Steve Waldman]

John,

Though I think that Chinese workers are seeing much of their productivity skimmed off the top (to the benefit of their employers, their government, and Western consumers), I don't think "slave labor" is an accurate characterization. But, for the sake of argument, suppose that here in the US everyone gets a high minimum wage, and everywhere else, workers are literally paid nothing. I mean, they don't even eat out there. The United States would still have it in its power to choose balanced trade over continually escalating debt. There are lots of potential approaches, but since I suggested and you asked about Buffet's idea, let's talk through that one.

Imagine a one product world, in which widgets can be purchased for $100 from US, producers or for $1 "over there" with slave labor. No foreigners would by US widgets. Since by Buffet's suggestion, ever dollar of imports must be matched by a dollar of exports, it would simply be illegal to import widgets into the US. There would be no trade. From the US worker's perspective, problem solved. Has the US lost some benefit from "free trade"? That depends on how you think about it. Trade, under these circumstances, is not efficient for the foreigners. Since widgets are the world's only tradable, they send 100 widgets to the US in order to gain funds sufficient to purchase one back. From an broad welfare perspective, this is a zero-sum game. US consumers gain only what foreign consumers lose. From a US-centric perspective, taking the foreigners up on the deal seems like a free lunch. But a free lunch, is by definition outside the realm of economics. The question of why foreign producers would offer to effectively give away their widgets can't be solved by rigorous analysis. It's a complex question of strategy and politics and motives. And it's a perfectly reasonable choice to not take a deal that looks to good to be true, especially when you can see some downsides. After all, taking the deal looks like either us screwing them, or else their getting something subtle we might not want to give. There is no clear case that it is mutually beneficial, utility maximizing trade, and there should be no clear endorsement of it by economists.

The real world is not so stark. There still are lots of things Americans produce that non-Americans want to buy. But the logic is the same. Outside some small margin for smoothing mismatches in the timing of purchases, when foreign citizens provide more goods and services than they receive, or can reasonably expect to receive, in return, something besides simple mutually beneficial trade is going on. Under Buffet's proposal, we'd buy precisely as much as we sell, and with the help of a market, we'd do so in a way that maximizes the gains from trade without the government picking winners. But we wouldn't go beyond trade, into realms of debt, assymetrical production, mercantilism, and geostrategic economic rivalry. That's where we are today, and we should leave.

The rest of the world can produce as cheaply as it wants. We should produce as well and cheaply as we can. If we should let our enjoyment of other people's produce be constrained by their enjoyment of ours, it will be in both parties interest to discover and specialize in our comparative advantages. But the receiver of a free lunch has no comparative advantage, except to eat, and to submit to whoever they require to provide the next meal.

[reason]

Steve,
your tale is correct, but of course you didn't mention the distributional effects. And the distributional effects are why this is a big deal. (Just clarifying, I hope).

[Steve Waldman]

Reason, no disagreement at all. There are lots of reasons why the present state of affairs is harmful to the countries accepting subsidized goods on readily available credit. The distributional effects are one of the big ones. While cheap goods are an equal-opportunity windfall, secondary effects -- such as unequal access to increased returns to capital and faltering bargaining power for wage-earners -- have left the dynamic a wash for the typical worker in absolute terms, and much worse than that in relative terms. Pareto might be happy enough (so far), but if you think that inequality has negative externalities, the distributional effects are a big bad.

[John Konop]

Steve,

The problem with Warren Buffet plan is big business will find ways around the the deal. As in the Siapan deal , read for yourself.
http://www.stanforddaily.com/article/2000/3/3/abadSpeaksAboutSiapanSweatShops

Also it would not promote free-market competition and deal with the slave labor issue. Adam smith did talk about justice. From Adam Smith "Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man or order of men".

http://www.blupete.com/Literature/Biographies/Philosophy/Smith.htm

At the end of the day most large companies are driven by cost savings to meet ROI. The easiest target is labor cost. Yet this is not only a race to the bottom for American workers and small business, but it is creating a world of increase between rich and poor.This is not good formula for peace.

http://www.latimes.com/news/printedition/opinion/la-oe-juhasz26jun26,1,6094064.story?coll=la-news-comment&ctrack=1&cset=true

Why not deal with the problem, and just set and enforce labor standards in trade deals.Labor is part of the formula in business. If I follow your logic we should have no standards at all and why even test meat for "mad cow", as long as trade is in balance.

[reason]

John Konop,
1. factor rewards are affected by trade, but probably not by that much. The real issue I believe is the one Steve highlights, a disfunctional international financial system that allows major imbalances to continue unimpeded for a long time. A falling US Dollar should be increasing demand for labour in the US but that is not happening. In fact the US imports MUCH more than it exports. We cannot expect labour standards to be the same between countries or do you actually want the price of labour in the US to fall to equal that in China?
2. I don't see what "mad cow" has to do with it. Product safety standards are surely independent of trade. Shouldn't they be?

[ninjaplease]

"I don't see what "mad cow" has to do with it. Product safety standards are surely independent of trade."

hahahahahahhaha;hahahhaha

[reason]

ninja --- what is so funny there.

There is an argument about how products are produced being an issue in WTO, but product safety standards really are independent of trade. That is is a product is provably unsafe it can be removed from sale. It is just the rules have to be the same regardless of country of origin.

The issue lies here that some countries think that the manner of production ensures safety. I doubt it (just as I am actually sceptical that NCJS is spread through infected meat - no direct evidence).

[reason]

john,
on second thoughts you are correct. If Europe decided that the USA was not protecting workers rights sufficiently and refused to trade with it, it would probably improve things.-)

[John Konop]

ninja,

reason made my point, "on second thoughts you are correct. If Europe decided that the USA was not protecting workers rights sufficiently and refused to trade with it, it would probably improve things.-)"

The logic being we would not trade with someone giving us products that do not meet saftey standards?Why would we trade with someone that uses child and slave labor? Why would trade with someone that is not using enviormental standards ? The logic is do we raise the bar or lower it?

[ninjaplease]

example:

Explain to me the mechanism for protection against unsafe products currently being imported. All I can think of is an information campaign put out by consumer advocacy groups.

I bought kitchen knives from amazon. I assumed they would be made of food-grade materials. They began rusting after 3 months. Rust is not something you want in food, especially when the compounds they use are unknown. But the price was cheap--I learned a lesson, never buy another set without knowing if it is a decent stainless grade.

Libertarians suggest caveat emptor, but when the body count gets high enough, I'm sure even they will come around. I wish a food allergy on all the children of libertarians. Nothing changes your opinion like first hand bad experiences.

[Ninjaplease]

Companies that are incorporated within our borders face nasty tort lawsuits.

what happens when they're not incorporated here? who gets sued? How does a dangerous product get off the market when its imported from a foreign multi-national? Union carbide was a shining example of corporate responsibility in Bophal. Why were they able to dole out only $50 per family affected?

[John Konop]

ninja,

WTO’s Sanitary and Phytosanitary (SPS) Agreement sets out the basic rules by which governments may formulate and apply standards designed to protect human and plant life, provided they are scientifically based and are not discriminatory.5 Under this agreement, setting international guidelines and standards on animal and animal products is delegated to the World Organization for Animal Health (Office International Des Epizooties -

http://www.globalization101.org/index.php?file=news1&id=11

[calmo]

Des Epiwhaties?
Epizooties forchrisake.
Just when John has nearly persuaded me that we are in good (delegated) [even if they are delegated Internationally] hands...
You eat spinach John?
Only home grown?
Me too.

[John Konop]

calmo,

That was funny !!! The point is we try to regulate saftey why not child and slave labor in trade deals ? Do you think we should bring back the slave trade here to compete with the third world? Oh, I forgot we are doing it with are visa program and illegal immigrants.

Read for yourself,

Traffickers lure poverty-stricken females with false promises of high-paying jobs as house cleaners, housemaids, nannies, cooks, and models. Some pimps or traffickers promise assurances of marriage or get-rich-quick schemes for their families and home villages. Many times, drugs are forcefully induced to facilitate kidnapping. The traffickers typically charge females $7,500 in illicit border-crossing fees. The traffickers or human smugglers, also called "coyotes," slip the victims across borders and then smuggle them by vans to brothel "safe houses." They, however, are anything but "safe." By the time the females realize they have been duped, it is too late for them to escape. Once inside the U.S., the entrapped women and girls are forced into prostitution, pornography, and other forms of sexual exploitation under the most distressing conditions.

http://www.renewamerica.us/columns/kralis/060731

The popularity of the "free" market following the fall of Communism and a rise in anti-union sentiment, coupled with government programs (like NAFTA and GATT) designed to encourage free trade, have hastened the globalization process. Large corporations are now free to seek out low-wage havens: impoverished countries where corporations benefit from oppressive dictatorial regimes that actively suppress workers' freedoms of speech and association. Even in North America, where the North American Free Trade Agreement is supposed to enforce a minimum stardard for workers' rights, corporations concentrate in maquiladoras, "free trade zones" that were created by NAFTA, where the workers' rights provisions of the Agreement simply do not apply

http://www.feminist.org/other/sweatshops/sweatfaq.html

[calmo]

My goodness you're a gusher, John. And a leaper too [Who among us can stage the transition from spinach (even organic spinach, people) to the slimy (that could be the connection people) skin trade?]
And possibly a candidate, yes?
Radio show host?
Well, don't be shy --what's the dial and the platform?

[John Konop]

calmo,

You are funny !!!

You would be an interesting guest. The show is called controlcongress and it will be on 920 AM(webcast www.920wgka.com) in Atlanta starting the first Saturday in Oct. between 2 and 3 PM. This is a political news and talk show. This is not my full time job, only doing to open conversation about the issues of the day.

You should E- mail(john@johnkonop.com) I will get you on the show. I am sure you have an interesting background.

[reason]

John Konop,
first in case you didn't get I was being ironic. What would happen if Europe were to pull a stunt like that is a full scale trade war with America, rightly in my view, complaining that domestic labour regulation is their business. After all America is (well almost is-) a democracy. But a country having a right to determine what is sold within their borders is another thing. I don't think that Columbia should be able to sue the US before the WTO to allow their cocaine in.

Don't get me wrong I'm not against negotiated minimum standards of behaviour. But it is a separate issue from the balance of trade. I see the current system as broken because a significant part domestic stimulus flows out the balance of trade, so it is hard for countries to maintain full employment and solvency.

[John Konop]

reason,

You say "I don't think that Columbia should be able to sue the US before the WTO to allow their cocaine in".

The problem is the current trade deals do work that way. They can and are sueing over a State's right to have sweatshop rules, gambling..... This is why I have said economist want to argue trade without knowing the details of the deal.I support FREE TRADE , I just want a good deal for everyone.

Read for yourself,

CAFTA -- unlike the WTO agreement -- has no "public morals" exception to traded goods and services that would specifically allow any of the 50 states to regulate the online gaming industry. Experts at Georgetown University examined a letter exchanged between the Costa Rican and U.S. governments, concluding it is questionable whether the letter would be legally binding in a dispute, and that it is therefore exceptionally weak. The letter states there is nothing in CAFTA that would prevent regulation of gambling. "The letter provoked a lot of mirth" among the legal scholars, Riggs said. "It is clear that Costa Rica realized it had a winning hand, and it agreed with the United States only to a point."

http://www.pokerpulse.com/legal/viewtopic.php?t=50

[John Konop]

reason,

More food for thought.

More disputes are brewing, and elected officials across the United States and in other nations are hopping mad. Currently under challenge at the trade tribunals are a wide range of issues related to national, state and municipal sovereignty, such as jury awards and laws protecting water quality and human rights.

The North American Free Trade Agreement and the World Trade Organization, which began functioning in 1994 and 1995, respectively, established a system of three- member tribunals to resolve disputes over government measures that act, directly or indirectly, as trade barriers.

Governments that lose such rulings must amend domestic legislation or face heavy fines.

``Although there are benefits to getting more open markets, the unanswered -- and, until recently, unexamined -- question is whether Americans are willing to pay the high price of trading away our legislative power,'' said Robert Stumberg, a law professor at Georgetown University in Washington, D.C.

State purchasing. Two U.S. federal courts have ruled that Massachusetts' ban on state contracts with firms doing business with Burma's military dictatorship is an unconstitutional intrusion on the federal government's foreign-policy powers. Massachusetts announced last week that it will appeal the rulings -- in which the judges cited a complaint filed in the WTO by the European Union and Japan -- to the Supreme Court, where it is expected to become a major test of federalism.

-- Jury awards. In October, Loewen Group, a large Canadian funeral corporation, filed a NAFTA lawsuit against the U.S. government, seeking $750 million in damages because of what it claimed was unfair treatment by a local jury in a Mississippi state court. In that case, Loewen had been convicted of fraudulently trying to corner the regional funeral market and was fined $500 million -- but instead of appealing the case through the U.S. legal system, Loewen settled out of court and made an end run to NAFTA.

-- MTBE. The Vancouver-based Methanex Corp. filed a $970 million NAFTA lawsuit last month against California's plan to ban MTBE, the gasoline additive that is blamed for polluting the state's groundwater. A similar lawsuit filed last year by a U.S. company forced Canada to overturn its ban on a similar additive.

http://www.sfgate.com/cgi-bin/article.cgi?f=/chronicle/archive/1999/07/24/MN30628.DTL&type=printable

[reason]

That is the problem with these bi-lateral or regional deals. They are not carefully negotiated as multi-lateral deals. Own goal I'm afraid.

[John Konop]

reason,

You are right,"They are not carefully negotiated as multi-lateral deals". My question is how can an economist do a valid study on a macro level on trade , without factoring how the deal was put together? The problem with trade, if you dare say anything against the deal you are called an isolationist.

[Movie Guy]

John Konop | Sep 21, 2006 5:24:36 AM

John,

That's a good article quote.

We were headed for the same type of problems with the Doha Round of WTO negotiations. Particularly in the area of public services in the USA.

These types of issues, though, were ignored by the econ PGAAC puppies. Apparently their keyboards were broken when any mention of these subjects was raised.

Pro-globalization-at-all-costs (PGAAC) is more like a religion than an exercise in analyzing proposed or current U.S. trade policy. The absence of any meaningful discussions of the details (and we certainly have a cadre of economists who don't want to discuss the real details) of the Doha Round. Just the normal crying and whining.

Reminds me of listening to the presidents of Iran and Venezuela this week. Those who bought into their UN speeches and remarks thereafter are people we should keep an eye on. Same story for PGAAC sermon preachers.

[John Konop]

Movie guy,

great post ! You should E-mail me , you would also make a great guest on the show.

[reason]

Bloody Hell!

For those of you who read German - I find this hard to believe!

http://www.spiegel.de/wirtschaft/0,1518,438372,00.html

[Johnny Upbeat]

I can only hope that the pace of deteriorating wages in America will increase at the same time that real estate values collapse. If this happens, and I believe that it will, America will have little use for Mexicans and they will return home. America will then move toward a significant degree of protectionism. America will have little choice as the electorate will grow restless. It should be remembered that globalism was *sold* to the American public by American multi-national corporations via American politicians. Today it is enabled by America (via the military) and can be called off by America at a moments notice.

[Jimbo]

Sorry, I don't believe in your free-trade utopia anymore.

And get out of the Republican Party. If you don't get out, we the silent moral majority will not vote, and you will get Hillary. You'd be in a real pickle then.