Monday, April 28, 2008

Trade Tirade

A close friend asked me my opinion about yesterday's Times editorial on trade. I started writing what follows as an e-mail, but after a few paragraphs, I decided to share it with the class:

From the Times editorial: "While trade can hurt some workers, most economists believe it plays a modest role compared with other forces in the economy, including advances in technology, the decline of trade unions and mushrooming executive pay."

Advances in technology are in fact a separate issue, but the death of the unions and skyrocketing CEO salaries are both moving parts of the trade issue. The union-busting that began in the Reagan era set the stage for the big trade agreements of the 90's, and executive (and shareholder) greed fueled the aggressive corporate lobbying for trade. To try and present these as separate, unrelated phenomena is disingenuous.

Quote: "Consider the four million manufacturing jobs lost over the last decade. That number is daunting — and the human pain behind it very real. But in most years the United States generates more jobs than it loses."

The jobs being generated are at McDonald's, CVS, Walmart, and so on, and these service sector jobs are the ones that people displaced by trade often must take. They usually pay less than $10/hr, and unionized manufacturing jobs paid much more.

The Times recently did a piece about the large number people without a college education who were able to join the middle-class in the post-war years because of unionized manufacturing jobs (click here to read the article). $20/hr, or it's inflation-adjusted equivalent, appears to be the historical entry point into the middle-class. This is now a virtual impossibility armed only with a high school diploma, and is due in large measure the the decline in the domestic manufacturing sector that began in the late 70's, and spun out of control after NAFTA. In the early years of the Bush administration labor secretary Elaine Chao tried in earnest to address this massive loss of manufacturing jobs. Her proposal: reclassify service sector jobs as manufacturing jobs.

The Times editorial then offers some very suspicious numbers from academics and think tanks, claiming that the impact of trade on the massive wage inequalities which began in the late seventies are somehow not the product of lost manufacturing jobs which paid more than $20/hr and were then replaced on a large scale by service sectors jobs that pay less than $10/hr. Trade, the experts claim, can only account for 7% or less of the total drop in income of the high school educated worker.

All agree that the wages and jobs had to have gone somewhere, though, and the experts cast about for answers to the vexing mystery: Lawrence Katz at Harvard says that demand for educated workers is rising but there aren't enough of them to fill the jobs. Hello? It seems that he hasn't talked to any recent college grads, who would surely beg to differ. And this explanation also skirts the issue of what happened to the afore-mentioned middle-class wages that were once available to the high-school educated worker.

Another culprit suggested by the editorial: rising executive salaries. Hello? The money they're keeping comes from the same pot that used to be paid to domestic labor. Massive profits, executive pay packages, and inflated share prices are directly related to the shrinking production costs associated with sending jobs overseas, where people work for low wages and receive no benefits (not to mention the savings associated with lax environmental rules and lack of workplace safety regulations). This is why the corporate sector pursues trade so fervently in Washington.

Another piece from yesterday's Times Magazine points out how working people have fared in terms of income under Republican presidents. You can guess what effect Republican economic policies have had on income distribution and wages (but let's not forget that NAFTA was Bill Clinton's baby). In the piece, treasury secretary Henry Paulson offers a much simpler explanation of lost jobs and dropping wages. Paulson claims that fiscal policy and trade agreements are not the cause, but that the widening income gap “is simply an economic reality, and it is neither fair nor useful to blame any political party.”

The Times editorial would tell us, as would Paulson, Bush, and all the supply-siders on the right, that we should not believe our eyes in terms of the overwhelming evidence of the effects of NAFTA and similar trade agreements. Thousands of factories have locked their doors and moved overseas. The people who used to work in these factories have mostly moved on to jobs that pay much less, or to long-term unemployment. As Noam Chomsky is fond of pointing out, you have to be very highly educated in order to not see these types of facts.