"The Selfish Hegemon Must Offer a New Deal on Trade"

Jagdish Bhagwati in the Financial Times:

The selfish hegemon must offer a New Deal on trade, by Jagdish Bhagwati, Commentary, Financial Times: ...On the back of economic anxiety in the country, many in both political parties (although far more among Democrats) see freer trade now as a costly giveaway to others at the expense of the US. They ask: “What is in it for me?” Only an agenda for institutional change, one that addresses the true causes of the anxiety in the US today, has a chance of returning trade policy to sanity. ...

The US has ... muscled in to its ... trade agreements (nearly all with small, developing nations) conditions unrelated to trade at the expense of their partner nations. Thus a country that is hardly an exemplar on labour rights, where the right to strike has been severely restrained since the Taft-Hartley legislation more than half a century ago, where union membership in the private sector has declined to less than 10 per cent of the labour force, and which has not ratified all the International Labour Organisation’s core conventions, has had the effrontery to impose standards on others... Why?

It is evidently not because it practises what it preaches and demands. Rather, it is because the labour lobbies believe, without any compelling evidence, that American wages have been stagnant because of competition from the developing nations. ... In short, this is what economists call “export protectionism”.

What is doubly offensive about this exercise of political muscle is that it is advanced in the language of altruism: not by saying frankly that it is because “our unions are worried about competition” but by pretending that it is “in your workers’ interests”. ...

Senator Barack Obama does not quite get this. By asking, as part of his agenda for change, that the US should now impose even more draconian labour requirements in future PTAs, and that the North American Free Trade Agreement should be revised to incorporate yet tougher labour requirements, he is making export protectionism, and the reputation of the US as a selfish hegemon, worse...

Change is indeed in order, although along totally different lines. It must reflect a holistic view of the new reality that the US confronts. In particular, the economic anxiety that overwhelms US workers today stems from the increased fragility of their jobs.

First, ... India and China today are growing and exporting rapidly. ... They create tsunamis for specific industries where their exports concentrate.

Second, competition has intensified. ... No chief executive or any of his workers in tradable industries leads a happy life any more as there is always someone, from somewhere, breathing down his neck. ... It leads to volatility of jobs, as you have an advantage today and can lose it tomorrow.

Third, labour-saving technical change continuously threatens assembly-line jobs for the unskilled. The assembly lines continue but increasingly do not have workers on them...

The agenda for institutional change has to address this fragility of jobs, enabling unskilled and skilled workers to face the new uncertainties. ...

Senator Obama promises change but he needs a deeper understanding of the anxiety-causing “new epoch” to define his new agenda shorn of protectionism. John McCain, the Republican presidential candidate, admirably stands for free trade but shows no evidence whatsoever of comprehending that this needs to be situated in an institutional context that requires a serious overhaul. Who will ultimately offer us the right New Deal?

I don't like to see workers who are struggling given false hope. The research on this issue does not support that US wages or jobs would be much affected by insisting upon these types of standards, and barriers to trade of any type hurt the US overall in almost all cases (and hurt developing countries as well). If we focus a lot of time and energy in congress and elsewhere debating this issue, it crowds out effort that could be devoted to legislation promising much, much more to help people worried about or actually experiencing job insecurity. So, continuing with the discussion of Obama's economic policy in the post below this one, I am not in agreement with this aspect of his trade policies.

Comments

[evagrius]

Maybe workers wouldn't be so worried if the execs took pay cuts.

[ken melvin]

As in legend: The economy rides on the back of small tortoises; the workers.

[hari]

First, protectionism is not the way forward to make global trade liberalization function with as little hickups as possible.

Second, the US hegemon introduced the so-called *other trade issues* into the Doha Round which has impaired its final succcessful culmination with adequate transparency and political support from emerging markets.

Third, from what I currently know, US-India are now prepared to bridge their differences on domestic tariff protection for commodity prices based on meeting held recently in Delhi. And since Pres. Lula of Brazil indicated that the Round could be finalized within two months (of restarting), it looks like Doha will finally be completed.

Baghwati is raising not academic trade policy issues but types of political constraints introduced by US hegemon to adversely impact the socalled Doha Development Round - it was focused on LDCs (least developed countries).

[Behind the Curve]

We cannot realistically expect to impose our views on other nations. They have different cultures, and will do things their way. Concentrating on improving things in our own nation is the way to help citizens. Examples would include decoupling health care from employment, so people don't lose their health care when they lose their job. We are way behind the curve here, and private polices tend to be extremely expensive because we spend twice as much as other nations per capita.

[scott]

Um, this refusal to put our "hegemonic" norms into trade agreements is, well, a bit ridiculous.

So should we have no support for labor rights in our trading partners? Promote sweat shops? Also, according to the logic above, we should just get rid of any restrictions on bribery by US citizens in other countries, if their norms don't outlaw it.

I would suspect that most of our trade deals in the past two centuries have done much to help the maintain the power of whichever regime is in place when we make the agreements. We aren't doing the people of those countries any favors necessarily. Nor have we necessarily helped ourselves in the long run for that matter wrt Saudi Arabia, most other Middle East countries, Latin America, AND our own labor standards.

Finally, perhaps research exists which denies that improving labor and living standards in emerging economies helps our own labor situation at home, but it would seem to fly in the face of common sense. And morality.

[hari]

Look - labour and its living wage and other issues are not a fundamental part of or intrinsic to international trade policy framework - WHY? They're what are called *other trade issues* which rightly belong in the house of ILO - ie. International Labour Organization - in Geneva.

Just like *weather* and *intellectual property* (also) belong to their respective agreed institutions under UN.

It's like discussing *non-proliferation* under WTO mandate!
Bush & Co have maligned the norms of multilateral institutions and their function for reasons only Republican Democracy (must) understand....

[Richard]

While I favor trade liberaliztion in general, I also see the political point. The political point is to hold hostage large corporate interests and market fundamentalists who believe they can get trade liberalization without providing universal health care and a better safety net. By making it costly or impossible for trade liberalization to occur, labor forces concessions on these issues that they would not otherwise obtain.

[me]

Jagdish Bhagwati is an idiot. I have been hearing him extoll the virtues of how great America is because an Indian has been doing my job for 7 years. We were told of all the new opportunities this would create for us. B**ls**t.

All he ever talks about is more training and more education. but he NEVER gets around to saying in what.

[Per Kurowski]

We need to look at other possible explanations than trade

Jagdish Bhagwati complains that “the labour lobbies believe, without any compelling evidences, that the American wages have been stagnant because of competition from the developing countries”. But, even if he is right, since he offers no other alternative explanation for the widening gap between the returns to capitals and the returns to labour in the economy, he is actually helping to keep the focus on trade as being the culprit.

Bhagwati would serve his worthy cause better by pointing out the effects of other developments that have run in parallel to the growth of global trade. How much of the capital-labour gap could be explained by the following?

1. The discrimination implicit in risk based pricing that has allowed the financial sector to charge some groups with extremely high interest, based on some quite dubious logical reasons. Borrowers that cannot pay the high interests should not have received the loans to begin with, at least not at those high rates, and those who can serve the loans have de-facto evidenced they merited lower rates.

2. The growing tendency to use intellectual property rights of all sort and kinds to create unregulated monopolies that capture rents.

3. The increased regressiveness of taxes that results from the tendency of turning away from taxing income to taxing consumption.

Net out the effect of those three factors and you might not have anything left to blame trade with.

[piglet]

"barriers to trade of any type hurt the US overall in almost all cases (and hurt developing countries as well)"

Thanks for insulting our intelligence, Professor Thoma.

[piglet]

"Just like *weather* and *intellectual property* (also) belong to their respective agreed institutions under UN."

hari, either you are deliberately misleading or you have absolutely no clue what you are talking about. Never heard of TRIPS? Never wondered why there is an "Agreement on Trade-Related Aspects of Intellectual Property Rights", administered by the WTO? Oh, I see, the issues of trade and property rights have absolutely no connection whatsoever.

The truth is of course that WTO has been the primary vehicle for forcing corporate IP rights on the developing world. IP has always been a fundamental, intrinsic part of trade policy and you are an idiot.

[hari]

piglet - we faught TRIPS but couldn't stop US lobby under Rubinomics. The end result is that WTO structure has become destabalized and, in my view, after Doha there will be a lot of rethinking about WTO going forward and in its terms of reference. I prefer the old GATT terms of reference ....

[piglet]

"we faught TRIPS"

I don't know who you mean by "we". If you are saying you oppose TRIPS, fine, we agree on something. But why on earth did you make a factual statement that was completely wrong, when you must have known better?

[Real Person from the Real World]

I am with Richard and "me" above. Labor needs some leverage to be able to force corporations to decouple health care from employment and "Jagdish Bhagwati is" a BIASED "idiot." The Indians run their own IT over *there* like sweat shops. Nothing matters, except getting rich on someone else's labor (including their own poorer compatriots) or with *rents* of one sort or another.

[Icarus]

Real Person and "Me",

You guys are morons...and stop blaming others. IT shops are not 'sweat shops' in India (Real Person...have you even been to India?).

The job that the Indian has been doing the past 7 years, Me, is not "your's". You lost it because the services you provided were uncompetitive on the market. And, while it's easy (and lazy) to sit and complain and point fingers, the rational thing should have been to improve your own skill set, and move toward a job which you could compete in. You probably didn't and hence are bitter.

Real Person...same thing. You whine about IT companies, as if they've stopped you from success. Get a life. Stop complaining, and take ownership of your own current state. If you can't get paid more than $20/hour, it's because your skills are useless, and not because of India.

And, if your skills are useless, it's because you allowed them to atrophy. YOU are responsible. No one else.

[wjd123]

Look - labour and its living wage and other issues are not a fundamental part of or intrinsic to international trade policy framework - WHY? They're what are called *other trade issues* which rightly belong in the house of ILO - ie. International Labour Organization - in Geneva.--Hari

Hari,

If rules and regulations can't be enforced they have no function. If they could be enforced they could work wonders.

Let's say that the ILO managed to find a way of enforcing rules and regulations. And let's stipulate that these rules and regulations would grow out of negotiations among those engaged in diverse industries that engaged in free trade: garment makers negotiate their rules, steel workers theirs and auto makers theirs.

Since the rules and regulations would be the same for everyone, corporations shouldn't object. Everyone would operate under the same rules so there would be no effect on competition, but there would be an effect on improving the conditions of people who work for companies engaged in trade.

The first time the ILO brought down the hammer on some wayward supplier, countries that depend on cheap labor for their development and have plenty of it would start complaining that by making the cost of production more level in this way, the ILO is discriminating against them.

For instance, China would find that the international enforcement of labor laws would find Mexico's' workers operating under the same rules and regulations as theirs. And of course if China didn't want to cooperate with the ILO the international would keep them from exporting freely. Teamsters, and longshoremen would refuse to load, ship, or unload their products. In other words if a company wants to participate in free trade it would have to follow international law enforced by the ILO and not the nations involved.

Those workers engaged in free trade would make more and spend more. This would add to the growth of the local economy. It would be a beautiful world where free trade did away with sweatshops companies engaged in trade, because they couldn't compete by abusing labor, labor would negotiate its own rules and regulations, and the international, ILO, would enforce them.

The WTO which is just a conduit to a normless world of trade would be superfluous, as the normless world it supports is taken over by an organization that allows workers a say in the terms of their employment, and enforces the conditions that diverse industries engaged in trade must follow. States that wanted to engage in free trade would have to find a comparative advantage other than cheap labor.

I'm sure that states would find other race-to-the-bottom ways to compete, but in time the ILO could use its hammer to enforce standards to keep this from happening. States engaged in free trade would soon find that comparative advantage would come down to location and and the natural resources that nature provided.

All that is needed is a ILO that can enforce the norms that workers set for themselves. This would make the world much more democratic especially if managers were included in the ILO, and of course, if workers can get over their nationalism.

This would make the ILO "the fundmental" part of free trade.

[BJ Feng]

I've just come back from a trip to China and there's good news for Americans. I think the period of wage and price adjustment is more than half over. Food prices in China, and the price of many things are no longer cheap compared to America. I was shocked to find that watermelon, oranges, and a lot of other foodstuffs were as expensive or more expensive than in the US. Higher end clothing was also more expensive, though you could still get deals at "swap meets", but price differentials are no longer what they were in the past.

We knew that prices and wages would somewhat have to align, and that this process would be painful for us here in the United States, though ultimately beneficial (the richer the Chinese get, the more stuff they can buy from us). I believe we're past the halfway mark.

[BJ Feng]

Workers already have a say in the terms of their employment, you seem to think that workers are being forced into these "sweatshops" but that's not the case. They go work for these "sweatshops" because the $5 a day they can make is substantially more than they can earn on the farm or left to their own devices. The labor is also easier.

In some areas where labor is in demand thanks to migration away from the countryside and into large cities, headhunters fight to hire workers as they step off of the trains. Of course, most would rather be paid more money than inherit the complex regulations that protect the Longshoremen and Teamsters from actually working. I know that some Longshoremen jobs are redundant in that three men are given a task that requires two men so that one is deliberately set aside as a reserve. That person doesn't have to work that day, he can just sit around. Such protections should be regarded as luxuries for workers, not something standard or expected.

[kthomas]

"Of course, most would rather be paid more money than inherit the complex regulations that protect the Longshoremen and Teamsters from actually working."

BJ, you know I love ya, but you are exposing yourself to s erious smackdown here.

[anne]

"Of course, most would rather be paid more money than inherit the complex regulations that protect the Longshoremen and Teamsters from actually working. I know that some Longshoremen jobs are redundant in that three men are given a task that requires two men so that one is deliberately set aside as a reserve. That person doesn't have to work that day, he can just sit around."

This is just lying, as usual. Always lie, always try to hurt other people by lying.