Trading With the Enemy
A new season of trade politics is under way among Washington insiders, with an astonishing twist: America's major multinational corporations are love-bombing labor and environmentalists. Leading business interests, it turns out, are not opposed to incorporating labor and environmental rights into new trade agreements after all. "These are important issues that cannot be ignored," the Business Roundtable announced, in a report speaking for about 200 of the best and biggest corporate logos, from General Motors to General Electric. The Emergency Committee for American Trade and the National Association of Manufacturers have been shopping a list of various labor-enviro measures they might support in upcoming trade negotiations. The Economic Strategy Institute, a think tank financed by steel, aviation, semiconductors, autos and other manufacturers, went much further. ESI published a scholarly study that argues labor-rights enforcement will actually generate greater economic efficiency in the global system and healthier development for poor countries.
This abrupt friendliness toward reform from its most stalwart industrial opponents represents meaningful progress for the popular forces that made their anticorporate coalition visible in Seattle. Alas, it is not the millennial consensus the corporates wish to depict. "The only whiff of sincerity," said Daniel Seligman of the Sierra Club, "is they sincerely want fast track legislation with minimum cost to their bottom lines." Lori Wallach, director of Global Trade Watch, described the business offensive as "a splash of green and blue paint" intended to get out of the political stalemate threatening further trade liberalization. "They've hit the political reality," she said. "It's slaying them."
The business motives clearly involve tactical politics, not some sort of ideological conversion, but we may at least pause to savor the new music. A year ago, all right-thinking experts discounted and ridiculed the new social movement as self-indulgent and destructive. "Luddite whackos," in the Wall Street Journal's memorable phrase. Economists and free-trade cheerleaders in the media condescendingly lectured the activists on how impossible it would be to incorporate "social" values into international agreements without wrecking the global economy. Besides, they scolded, don't you know such measures do the gravest harm to the struggling poor of the world? Now that global corporations are shifting to a more sympathetic line, one awaits a similar revisionism among their media camp followers. Or will the pundit class turn its fire on Boeing, Microsoft and others for caving to the Seattle rabble? More likely, the opinion-makers will blame the bleeding-heart agitators for again mucking up progress.
The important point is that, tactical insincerity aside, many US multinationals are implicitly retreating from an untenable intellectual position, as some business reps privately confirm. A central question raised by labor and others is, How can the trading system invoke penalties like tariffs to protect intellectual property rights or capital investors but insist this device would be illegitimate for labor rights and other human concerns? "There's no answer to that on intellectual grounds," one business-friendly thinker confided. "Businesspeople realize the debate has shifted, but they're trying to figure out how they can still preserve their position."
The intellectual concession is expressed most directly in the ESI's report Labor Standards in the Global Trading System, by Peter Morici, a neoclassical economist from the University of Maryland and former economics director at the US International Trade Commission. Arguing that poor labor conditions hamper long-term growth even though they may appear to have short-term advantages, Morici wrote that exploited labor in developing economies, including child labor and discrimination against women, "may be expected to reduce wages for less skilled workers in [their] domestic markets, increase exports and place downward pressure on the wages for competing workers in foreign economies." When freedom of association, the right to organize and other labor rights aren't protected, the annual savings in labor costs average more than $6,000 per worker, Morici estimated. These practices may attract low-end investments to a country's export zones but won't have much positive effect on economywide development, he wrote. "Lax enforcement of workers' rights encourages prolonged reliance on less-skilled, labor-intensive activities and does little to encourage economy-wide capital formation, the development of more advanced industries and long-term growth," Morici reported.
This analysis is a pretty good fit with what AFL-CIO president John Sweeney has been saying when he promotes "fairness" and new rules for the global system, though Morici is deriving his conclusions from standard economic theory as well as the accumulated evidence. The ability of some countries to gain advantage against foreign competitors by exploiting their workforces ultimately distorts the allocation of investment capital for everyone in the system and thus is inefficient, he explained. Thus, he said, the economic logic for enforcing labor rights through trade rules is identical to the World Trade Organization's justification for invoking penalties against, say, a government subsidizing its auto industry to gain illegitimate advantage over others. In both cases the consequences distort trade, for the same theoretical reasons.