Home > Uncategorized > The continuing phony debate on “free trade”

The continuing phony debate on “free trade”

from Dean Baker

The national debate on free trade is one where honesty has no place. The purpose of our trade agreements, which were not free trade, was to reduce the pay of manufacturing workers, and non-college educated workers more generally, to the benefit of more highly educated workers and corporations. This was the predicted (by standard economics) and actual result.

We made our manufacturing workers compete with low-paid workers in China and elsewhere in the developing world. This led to a massive loss of manufacturing jobs as the trade deficit exploded. The hit to workers in manufacturing was so large that the historic wage premium in the industry has largely disappeared.

While the massive upward redistribution of income from our trade deals was sold on the principle of “free trade,” it has nothing to do with actual free trade. Our trade deals did almost nothing to make it easier for foreign-trained professionals, like doctors and dentists, to work in the United States. As a result, our doctors and dentists earn roughly twice as much as their counterparts in other wealthy countries.

For some reason (please guess) this fact literally never enters in discussions of free trade. It seems that the advocates of free trade can’t get access to data on doctors’ pay. Just for beginners, if our doctors got paid the same amount as their counterparts in Germany or Canada, it would save us around $100 billion a year (about $700 per household). While that might seem like big money, our “free traders” can’t be bothered with it. They only want to save money by lowering the wages of autoworkers.

The other item that never enters into discussions of free trade is patent and copyright monopolies. These forms of protections raise the price of items like prescription drugs, medical equipment, and vaccines by many thousand percent above their free market price. In other words, they are equivalent to tariffs of many thousand percent. While “free trade” economists go nuts over tariffs of 10 or 20 percent on shoes and steel, they somehow can’t be bothered to pay attention to government-granted patent monopolies that raise the price of prescription drugs by 2000 percent.

And, guess what, these monopolies redistribute an enormous amount of money from the rest of us to folks like the Moderna billionaires.  This really is not subtle. The overwhelming majority of “free trade” economists don’t give a flying f**k about free trade. They are interested in policies that redistribute income upward.

Let’s stop with the stupid games. We are not having arguments of free trade. We are having arguments over policies that are designed to redistribute even more income from the bulk of the population to those at the top.

  1. January 13, 2022 at 6:39 pm

    Yes, exceptional accuracy like Dean Baker’s is required;

    “We made our manufacturing workers compete with low-paid workers in China and elsewhere in the developing world….

    “Let’s stop with the stupid games. We are not having arguments of free trade. We are having arguments over policies that are designed to redistribute even more income from the bulk of the population to those at the top.”

    And some if this game is more sinister;

    Use of terrorist military and police forces to drive people north into the US where they are stigmatized as illegals further depresses the wage structure from the inside.

    US taxpayers are bilked to give welfare to giant inefficient corporate farms. This makes corporatist agriculture immune from free trade profit or loss. Latino farmers cannot compete with corporatism supported by US state central planners. Rural Latinos are forced to migrate to cities and the raciest north for the benefit of of few rich people at the top.

  2. Edward Ross
    January 13, 2022 at 11:44 pm

    I agree with all of the above and wrote a response and lost it in trying to post so will try later Ted

  3. January 17, 2022 at 6:38 am

    Our individual-centric society won’t allow doctors to make half of what they make in other rich countries like Germany or Canada. For that to happen, education would have to be largely paid for by the state; our system of medical malpractice would have to reduce liability – and consequent insurance premiums – would have to be covered at least partly by the state; etc.

    • Meta Capitalism
      January 17, 2022 at 10:41 am

      Our individual-centric society won’t allow doctors to make half of what they make in other rich countries like Germany or Canada. For that to happen, education would have to be largely paid for by the state; our system of medical malpractice would have to reduce liability – and consequent insurance premiums – would have to be covered at least partly by the state; etc. ~ Scott’s on spot wholistic thinking

      I find Dean’s understanding of the problem overly simplistic when he says,

      Just for beginners, if our doctors got paid the same amount as their counterparts in Germany or Canada, it would save us around $100 billion a year (about $700 per household).

      Scott on the other hand is in my view is more insightful in that he actually compares apples to apples rather than the caricature of the problem that Dean paints. We need to address the totality of the problem or we run the very real risk of just creating another fractured and fissured marketplace where wages can be driven down while the owners of capital (i.e., hospitals, office buildings rented to doctors, etc., medical device industry, educational institutions and the high cost of obtaining medical degree, etc.), essentially doing to doctors what we have already done to software engineers and nurses etc. When doctors in Germany or Canada can obtain their medical degrees for a fraction of the cost of what their peers in the U.S. can obtain the same degree. The first step in any problem is identifying the actual nature of the problem and in this case doctor’s salaries are not the primary driver of medical cost in the United States. Simplistic solutions are not the answer. They make for blog fodder but not real solutions.

      In an earlier era, Marriott, Time Warner, Bank of America, Walmart, and Hershey, as well as other large employers that produced well-known products and services, would likely have directly employed the workers in the above vignettes. Not so now. As major companies have consciously invested in building brands and devoted customers as the cornerstone of their business strategy, they have also shed their role as the direct employer of the people responsible for providing those products and services.

      In all of the above cases, the jobs shifted away to be done by separate employers pay low wages; provide limited or often no health care, pension, or other benefits; and offer tenuous job security. Moreover, workers in each case received pay or faced workplace conditions that violated one or more workplace laws. Tudor Ureche, a Moldovan student working in the Hershey packing facility, sent an email to the State Department seeking “help [from] the miserable situation in which I’ve found myself cought [sic],” which included lifting 50–60-pound boxes in a refrigerated facility on the night shift. Pius Awuah, a resident of Lowell, Massachusetts, put his life savings into a Coverall franchise contract that in many respects was simply paying to be an employee (who was then compensated in violation of minimum wages and overtime standards). And Everardo Carrillo and coworkers at a facility operated by Schneider Logistics were paid in violation of the Fair Labor Standards Act and then fired for stepping forward to complain about those working conditions.

      The cases are not exceptional, but rather indicative of practices found in the varied industries depicted above as well as in a growing number of other sectors and occupations. Yet these working conditions are not an inevitable result of the nature of those jobs or of amorphous forces like globalization. They result from a fundamental restructuring of employment in many parts of the economy.

      The vignettes reveal a transformation in how business organizes work in ways that are invisible to most of us as consumers. We walk into a Marriott and assume that the people who greet us at the front desk or who clean our rooms each day are employees of that venerable brand (as their uniforms imply). We greet the technicians sent to our home to fix our cable, not even questioning whether they work for the media company to whom we pay our bills. In short, we assume that the companies who invest millions of dollars to convince us of the benefits of buying products under their retail nameplate or to purchase the unique services they offer also undertake the operations needed to produce them—including acting as the employer of all the interconnected people who make their businesses possible.

      Those assumptions are increasingly wrong. In the late 1980s and early 1990s, many companies, facing increasingly restive capital markets, shed activities deemed peripheral to their core business models: out went janitors, security guards, payroll administrators, and information technology specialists. But then came activities many of us would assume were more central to these well-known businesses: the front desk staff at hotel check-in; the drivers for the package delivery companies who come to our homes or offices; the tower workers who help assure uninterrupted cell phone service promoted in the commercials (and for which we pay a premium). Even the lawyers who handle our business transactions and the consultants who work for well-known accounting companies may now have an arm’s-length relationship with those by whom we think they are employed.

      By shedding direct employment, lead business enterprises select from among multiple providers of those activities and services formerly done inside the organization, thereby substantially reducing costs and dispatching the many responsibilities connected to being the employer of record. Information and communication technologies have enabled this hidden transformation of work, since they allow lead companies to promulgate and enforce product and quality standards key to their business strategies, thereby maintaining the carefully created reputation of their goods and services and reaping price premiums from their loyal customer base.

      The new organization of the workplace also undermines the mechanisms that once led to the workforce sharing part of the value created by their large corporate employers. By shedding employment to other parties, lead companies change a wage-setting problem into a contracting decision. The result is stagnation of real wages for many of the jobs formerly done inside.

      Laws originally intended to ensure basic labor standards and to protect workers from health and safety risks now enable these changes by focusing regulatory attention on the wrong parties. Core federal and state laws that regulate employment, often dating back to the first half of the twentieth century, often assume simple and direct employee/employer relationships. They make presumptions about responsibility and liability similar to those we make as customers, presumptions that ignore the transformation that has occurred under the hood of many business enterprises. Traditional approaches to enforcing those laws similarly ignore the myriad new relationships that lie below the surface of the workplace. As a result, the laws crafted to safeguard basic standards, to reduce health and safety risks, and to cushion displacement from injury or economic downturn often fail to do so.

      In essence, private strategies and public policies allow major companies to simultaneously profit from the core activities that create value in the eyes of customers and the capital markets and shed the actual production of goods and services. In so doing, they have their cake and eat it too. (The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done to Improve It by David Weil)

  4. Ken Zimmerman
    February 4, 2022 at 10:52 am

    Free trade has become a surprisingly complex issue. Especially as it is a major part of Reaganomics. In this analysis piece Thom Hartmann explains this complexity.

    “Time for Democrats to Wake Up on Free Trade or Pay in 2024.

    If Democrats continue to ignore the American working class’ increasing hatred of neoliberal policies — particularly so-called “free trade” — they’ll get buried by it in the next elections
    Thom Hartmann Nov 9, 2021

    As I detailed last week, the neoliberal era that the Reagan presidency ushered in and has held until the past few years is disintegrating. The idea that the “invisible hand of the free market,” putting profits over people, and turning America over to our billionaires and corporate monopolies will solve all our problems is now largely seen as a disaster.

    Neoliberal tax-cuts-for-the-rich policies have driven America into massive debt, widespread poverty and unprecedented inequality; neoliberal “free trade” policies have shipped 60,000 factories and tens of millions of American jobs overseas; and neoliberal “privatization” of everything from our military to electric utilities to the Medicare Advantage Scam are widely seen by voters as boondoggles that only benefit the corporate class.

    Of these three pillars of neoliberalism that are all now in trouble, however, “free trade” is the most explosive. And, thanks to Donald Trump’s openly attacking that system and revealing its failures, the GOP is figuring that out.

    If the Democratic Party doesn’t get with the program, it’s a virtual certainty the White House will go to the Republican candidate in 2024.

    By way of example, consider how Josh Hawley, one of the most serious of the 2024 GOP frontrunners, is carefully laying the groundwork for his candidacy. He totally gets this. He’s keeping Trump close but not too close (see: “Glen Youngkin’s strategy”); has published what’s actually a thoughtful (albeit partisan) book about how Big Tech is invading our privacy just to make a buck; and is all-in on rightwing lies about Critical Race Theory, masks, and Covid immunizations. But his real punch — the thing that could win Hawley a national election with particularly heavy support in the South and Rustbelt Midwest — is his rejection of so-called “free trade.”

    A few weeks ago, Hawley published an op-ed in The New York Times about how it’s time to end the neoliberal “free trade” policy that has gutted the American working class in the 40 years since Reagan began this madness.

    In that, Hawley is echoing the rhetoric that helped Trump win much of the Midwest in 2016. And Trump, for his part, was just echoing criticisms of “free trade” that have been the bread-and-butter of progressive Democrats like Bernie Sanders, Mark Pocan and Sherrod Brown for three decades.

    Hawley opens his op-ed with a obligatory swipe at Biden, but then turns, mid-sentence, to the real meat of his article.

    “[T]he problems have been brewing for decades,” Hawley acknowledges without mentioning that they began with Reagan renegotiating the General Agreement on Tariffs and Trade (GATT) to set up the WTO, and then starting the negotiations for NAFTA that were concluded by his VP, George HW Bush.

    As the Heritage Foundation proudly proclaimed in 1993 after President Bill Clinton signed the agreement Reagan and Bush had negotiated: “The North American Free Trade Agreement: Ronald Reagan’s Vision Realized.”

    “Now,” Hawley writes in the next sentence, turning his back on The Gipper, “we must change course. We can rebuild what made this nation great in the first place by making things in America again.” Of course, Hawley is right. Alexander Hamilton created America’s trade policies in 1791 with his “Report on Manufactures” that established his “American Plan,” and they built us into the most powerful and wealthy nation on earth over the next 190 years.”

    Reagan, taking advice from Milton Friedman and his neoliberal Mont Pelerin buddies, decided it would be better for the GOP if they could destroy American labor unions (that funded Democratic politicians) by shipping manufacturing jobs to countries where people were paid $1 an hour and there were few environmental regulations.

    And it worked: Reagan’s embrace of neoliberal trade, labor, and tax policies gutted the American working class and destroyed most of this country’s union movement. But now the chickens have come home to roost, as Hawley points out in his Times op-ed.

    “Whether it be personal protective equipment, pharmaceutical drugs or semiconductors,” he writes, “the coronavirus pandemic has exposed a hard truth: The United States — the strongest country in the world — cannot produce an adequate supply of the critical goods it needs.” And the most painful part of this is that Hawley is right.

    We can’t even build a missile, jet plane or aircraft carrier without parts from China and other countries that may, at some point, decide it’s in their national interest to withhold those items from us.

    Hawley’s embrace of Hamilton’s “American Plan” and rejection of the Reagan/Bush/Clinton neoliberal “free trade” policy is particularly grating for progressives, who’ve opposed that ideology since Clinton first embraced it in 1992.

    And economist Ha-Joon Chang closes out with this story,

    Once upon a time, the leading car maker of a developing country exported its first passenger cars to the US. Up to that day, the little company had only made shoddy products – poor copies of quality items made by richer countries. The car was nothing too sophisticated – just a cheap subcompact (one could have called it ‘four wheels and an ashtray’). But it was a big moment for the country and its exporters felt proud.

    Unfortunately, the product failed. Most thought the little car looked lousy and savvy buyers were reluctant to spend serious money on a family car that came from a place where only second-rate products were made. The car had to be withdrawn from the US market. This disaster led to a major debate among the country’s citizens.

    Many argued that the company should have stuck to its original business of making simple textile machinery. After all, the country’s biggest export item was silk. If the company could not make good cars after 25 years of trying, there was no future for it. The government had given the car maker every opportunity to succeed. It had ensured high profits for it at home through high tariffs and draconian controls on foreign investment in the car industry. Fewer than ten years ago, it even gave public money to save the company from imminent bankruptcy. So, the critics argued, foreign cars should now be let in freely and foreign car makers, who had been kicked out 20 years before, allowed to set up shop again.

    Others disagreed. They argued that no country had got anywhere without developing ‘serious’ industries like automobile production. They just needed more time to make cars that appealed to everyone.

    The year was 1958 and the country was, in fact, Japan. The company was Toyota, and the car was called the Toyopet. Toyota started out as a manufacturer of textile machinery (Toyoda Automatic Loom) and moved into car production in 1933. The Japanese government kicked out General Motors and Ford in 1939 and bailed out Toyota with money from the central bank (Bank of Japan) in 1949. Today, Japanese cars are considered as ‘natural’ as Scottish salmon or French wine, but fewer than 50 years ago, most people, including many Japanese, thought the Japanese car industry simply should not exist. (Bad Samaritans, The Myth of Free Trade and the Secret History of Capitalism. Ha-Joon Chang)

    [Side note: the USSR also manufactured automobiles in the 1950s but never exported any outside Warsaw Pact countries. But the USSR made no attempt to make its cars attractive, efficient, or safe. The USSR never wanted a domestic automobile manufacturing sector. It was irrelevant for the USSR.]

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