Born-Again Rubinomics (Page 4)

Another debatable tenet in Rubin's thinking is the familiar mantra that more education will save us in the long run--that is, improving Americans' skills and knowledge will offset the low-wage competition. Rubin's tone is sympathetic to workers, but some acolytes pushing this logic sound like they are "blaming the victim." US educational attainment levels, after all, rose robustly during the last generation with no effect on job losses or wage stagnation. "I actually think education is key," Rubin insists. "I'm granting I think your point is right--the cost gap," the cheaper labor abroad, which may pull down US wages for another generation. But to some extent, he says, "the cost gap will, over time actually, probably get partially solved by their increasing wages [in China and India], hopefully with as little as possible our wages coming down.... The more productive we are, the better we can compete with them."

There's one large and looming problem with that logic: The number of "losers" whose jobs are outsourced to foreign labor markets is getting much larger than the establishment had envisioned, and the job losses are creeping up the income ladder to undermine people in well-educated, highly paid occupations. In a startling Foreign Affairs essay, Alan Blinder warned that "tens of millions" of job losses are ahead from outsourcing, not for the already decimated blue-collar workers in manufacturing but for accountants, software designers and other high-status professions. These are people who presumably did the "right thing" by getting advanced educations. How, I ask Blinder, does educational improvement help them, since they are already well educated? "I wish I knew the answer to that," Blinder replies. "On balance, more education is better than less education, but it's not a panacea." He talks vaguely of changing the style of American schooling.

Blinder's ominous forecast for high-skilled jobs is another belated recognition by establishment authorities that they were wrong, since the process of moving engineering work to Asia, where they could hire cheaper engineers, started two decades ago. Free-trade advocates like Blinder are complacent about the loss of manufacturing jobs, comparing it to the technological changes that wiped out agricultural employment a century ago. "It's pretty inevitable," he says. They seem more worried now that white-collar jobs are being wiped out. But they think it would be a big mistake to interfere. "It's like global warming," he explains. "If there is severe global warming, you may have to change the preparations for bad weather." But Blinder's "global warming" metaphor actually expresses the viewpoint of the other side. Like global warming, the trading system is not an act of nature. It is a set of man-made rules--protecting capital and ignoring labor. Finance and industry persuaded government to adopt these terms. But they can be altered, just as government can order industry to reform itself to curb the dangers of global warming. That difference--deference to the status quo versus a vision for reform--is the nut of the argument between the two sides.

When I asked Rubin to consider labor's critique and its argument for global labor standards, I was pleasantly surprised that he did not brush off the question. Instead, we had an engaging back and forth.

Without global rights for workers to organize and some version of a minimum wage pegged to each country's economic conditions, the "race to the bottom" is sure to continue, I suggest. When workers start mobilizing for higher wages, multinationals counter by moving production to the next available cheap labor market. Middle-class wages fall at the top, but the bottom does not rise as rapidly as it should. "But it's a complicated question," Rubin responds. Improving the distribution of incomes in poorer countries "is in everybody's interest," he agrees. "On the other hand, I've had exposure to people who make that argument, and I think they make it as a way to prevent trade liberalization.... The one hope some of these countries have to take people out of abject poverty is that their labor-cost advantage will result in a shift of production to their countries.... Would you say the people of Sri Lanka have to stay in abject poverty to keep that from happening?"

Labor rights, I counter, do not prevent the very poorest countries from developing on the advantage of their cheap labor, but reform would require all developing countries to operate so that wage levels can rise proportionate to the economy's rising productivity and profit, however that is measured. "Something like that ought to be an objective of the global system," Rubin agrees. But he says he has never seen a convincing model of how this might work. He remains skeptical. He admits it is disturbing that economic advances in some countries "still have had very little effect on the poverty rate, and middle-income people haven't done all that well either. So the political economic elites had all this economic benefit, and they were indifferent to poverty, to the poor."

The global system, I point out, protects capital by imposing dense rules on how a developing nation must treat investment capital, banking, patents and intellectual property rights. If a poor country doesn't accept the rules for capital, it doesn't get to play in the global system. Yet when organized labor seeks basic rights for working people around the world to organize unions and bargain collectively, they are denounced as "protectionist" and denied any recognition. Is that fair? "Well, I guess it's true," Rubin says hesitantly. "You can say, Why distinguish between those [rules for capital] and labor conditions?" Perhaps it is justified, he says, because labor and especially environmental rights are "a bit further removed" from trade. "I think it's the right objective," Rubin says. "But I still think it's a very complicated question whether you put labor conditions in an agreement. I would not hold back from going ahead on a trade agreement because another country refused to accept labor standards."

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