Vol. XII, Bulletin No. 6                                                      June  2007

Trade Widens Income Gap: Wall St. Journal

"Unexpected Results: Globalization Has Widened Income Disparity."  That revealing headline appears in an unexpected place: the Wall Street Journal. A May 24 Journal on-line article explains:

"A decade ago, the globalization of commerce promised to be a boon to low-wage workers in developing countries. As wealthy nations shed millions of jobs making apparel, electronics, and other goods, economists predicted that low-skilled workers in Latin America and Asia would benefit because there would be greater demand for their labor -- and better wages.

"But the results often haven't matched the theory. As trade, foreign investment, and technology have spread, the gap between economic haves and have-nots has frequently widened, not only in wealthy countries like the U.S. but also poorer ones like Mexico."

In one of the studies cited by the Journal, economists found that the "income divide deepened after economic liberalization in nine of the 12 [Latin American] countries examined."  And in China income inequality is "growing because of the huge gains being posted by the upper crust."

Among the "profound consequences" of this trend cited by the authors of the Journal article, Bob Davis, John Lyons, and Andrew Batson, are 1) higher migration to "better-off regions domestically or to the U.S. and Europe, where anti-immigrant sentiment is surging" and 2) the victories of populist Presidential candidates in Ecuador, Bolivia, Nicaragua, and Venezuela, as well as the near-victory in Mexico.

Will Democrats Get Snookered on 'Trade'?

While in California during a few days in May, I prayed for lawmakers in Washington.  I prayed for our men and women in Congress because they were -- and still are -- deciding the future of globalization. They, and the media, don't call it that.  They call it "trade," but it is about far, far more than trade. It is about economic and social policies, and ultimately political policies, that affect the whole world.

I just don't have the necessary level of trust that this administration can make wise decisions on globalization, not after its sorry performance on Iraq, Katrina, immigration, taxes, and many other issues, domestic and foreign.  So when I read in the May 11 Los Angeles Times that the House Democrats under House Speaker Nancy Pelosi had negotiated a "deal on trade policy" with the administration, I did not rejoice. I prayed.

In this new Congress, where they have a majority (just barely) thanks to last November's elections, Democrats are eager to show achievements in at least one area. The Republican administration, on its side, is eager to persuade Congress to renew the power that the President has under what's called his "Trade Promotion Authority," once called "fast track," which expires at the end of June. So the two sides, sharing an interest to get something done, have been negotiating quietly, perhaps too quietly, for weeks.

Dawning of a 'New Day' Hailed by Pelosi

The result on May 10 was Pelosi's announcement of a "bipartisan" deal that she said marked "a new day in trade policy." She singled out the administration's concession to incorporate new labor and environmental standards into several trade agreements awaiting Congress' approval. These standards, if enforceable and actually enforced, and if applied to all aspects of the broad trade and investment system -- three big ifs -- may well improve the rights of workers and others abroad. That would be a positive development, but it would not offset the many "trade" rights now granted to multinational corporations, including their ability to make mass transfers of U.S. jobs abroad.

Has Pelosi oversold the deal reached with the U.S. Trade Representative and the Secretary of the Treasury?  I hope I am wrong, but my gut tells me she has. In any case, only the full text of the agreement(s) will tell. So far that text hasn't seen the light of day. Its outlines can be -- and have been -- read in different ways. 

The administration's obvious strategy is to use the deal as precedent for early Congressional approval of Trade Promotion Authority (TPA) with all the power that Congress delegates to the President in no other area. (See "'Trade Promotion' as a Lever of Power.")  It was so controversial under President Clinton that Congress refused his pleas to renew "fast track" after it expired in 1994.  It was still so controversial in 2002 that a Republican House agreed to give George W. Bush fast track (renamed TPA) only by the slim margin of 215-212, and only after a lot of White House arm-twisting lasting until three o'clock one morning that summer. 

The big question now is why this Democratic congress, at this crucial moment, should cede to President Bush a power with such vast implications for globalization. (If you agree, consider joining the campaign Just Say No To Fast Track.

Saving Globalization from Its Cheerleaders

The troubles surrounding globalization are rooted in the continued market-opening policies of globalization's "cheerleaders."  So says Dani Rodrik, professor of economics at the Harvard School of Government, in an op-ed article, "Saving Globalization from its Cheerleaders," published recently in the Financial Times.

Cheerleaders in Washington, London, and elite universities of North America and Europe are the greatest threat to globalization today, greater than the anarchists and protestors who demonstrate outside the meetings of the World Trade Organization and the International Monetary Fund, Rodrik writes.

"Anti-globalizers are marginalized and have little power to affect much," he explains.  "But the cheerleaders...shape the intellectual climate.  If they get their way, these cheerleaders are more likely to put today's globalization at risk than the protestors they loudly condemn for their ignorance of sound economics."

Soundness of Cheerleaders' Economic Arguments Questioned

Rodrik sharply challenges the economic soundness of pushing for more and more openness (or free trade)  in the global economy.  The world's markets, he insists, are already "freer from government interference than they have ever been."  For example: 
As a result, "no country's growth prospects are significantly constrained today by the lack of openness of the international economy.  Even if Doha fails, poor countries will have enough access to rich country markets to achieve what countries like China, Vietnam, and India have been able to do."

Just what is the great risk in ever more globalization?  

"It lies in the prospect that national governments' room for maneuver will shrink to such levels that they will be unable to deliver the policies that their electorates want and need in order to buy in to the global economy.

"Globalization's soft underbelly is the imbalance between the national scope of governments and the global nature of markets. A healthy global economic system necessitates a delicate compromise between these two.  Go too much in one direction, and you have protectionism and autarky.  Go too much in the other, and you have an unstable world economy with little social and political support from those it is supposed to help."

Rodrik points to the fact that China, India, and a few other Asian countries have done well recently by largely ignoring the current rule book of the World Trade Organization.  "These countries did not significantly liberalize their import regimes until well after their economics had taken off; they continue to restrict short-term capital flows.  They have used industrial policies -- many of them banned by the WTO -- strategically to restructure their economies and enable them to better take advantage of world markets."

'Breathing Space' Needed before Adopting More Trade Rules

He calls for "breathing space in the global economy" for both rich and poor nations, but for different purposes.
Rodrik's concluding points:  "Globalization rests on delicate social and political pillars.  The first order of business today is to strengthen these pillars, rather than to push market opening further."

His March 27 Financial Times op-ed restates the pointed analyses that Rodrik has often made before, particularly in two books, "Has Globalization Gone Too Far?" published in l997 (see "Globalization's Ills: An Economist's Diagnosis") and "Making Openness Work" published in 1999 (see my review in the Monthly Labor Review of the U.S. Department of Labor).  He also developed his case in a report for the UN Development Program (see "No Template for Globalization: Economist").

Briefly, Rodrik's position is this:  There is no single model of globalization, but elite cheerleaders are trying to impose one.

Cheerleading at the Institute for International Economics

One of those cheerleaders, Gary Hufbauer, senior fellow of the Peterson Institute for International Economics in Washington, wrote in the April 5 Financial Times: "It is no accident that Dani Rodrik has chosen to repeat his anti-globalization views on the eve of congressional deliberations over renewal of trade promotion authority and ratification of free trade agreements with Panama, Peru, Colombia, and South Korea."   Hufbauer is very familiar with Rodrik's views.  It was his organization, the Institute for International Economics, that published Rodrik's "Has Globalization Gone Too Far?" ten years ago, and it is still in print.

In a March 12 Financial Times op-ed which he co-authored, Hufbauer claimed that the inclusion of enforceable ILO core labor standards in the four free trade agreements could reform American labor laws, state and federal.  Unfortunately, that's untrue.  Actually, it is our foreign trade and investment legislation that rewrites American laws covering our domestic practices in fantastic detail, down to where local boards of education can buy their school supplies.

16,000 Times Richer Than You and Me

Income inequality in the United States is bad enough, but wealth inequality is worse. Much worse. In 2005 the median compensation of top corporate CEOs was 145 times more than that of the full-time male worker, and 188 times more than that of the full-time female worker.  But in 2004 the wealthiest Americans possessed an amount of wealth more than 16,000 times greater than that of the average American household.

I culled those facts from "Wealth and Economic Inequality: Who's at the Top of the Economic Ladder," a study by Edward N. Wolff and Aht Zacharias by the Levy Economics Institute of Bard College.

As a part of the Institute project researching how to measure economic well-being, Wolff and Zacharias found that "conventional measures of well-being do not adequately reflect the advantages from asset ownership and neglect the disadvantages from financial liabilities."  Their key findings are that conventional measures reported in the media have significant failings.  Specifically, they:
How Wal-Mart Discounts Worker Rights

I once made this suggestion to a Washington staff member of Human Rights Watch: "Why don't you launch a campaign against U.S. corporations that profit from sweatshops?" Her reply: "We don't do corporations. We do governments."

That position, expressed about 15 years ago, reflected the approach of all human rights groups at the time.  But things have changed.    Human rights organizations as a group now generally believe:
Human Rights Watch (HRW) has gone very far in integrating those beliefs into its program, further, indeed, than any of its rival advocacy groups. And it has made a special contribution by honing in on the most basic of all core worker rights -- the right to organize -- and on how that right is violated in the United States.

During the first 15 years of its life, Human Rights Watch barred worker rights issues from its agenda. Aryeh Neier, its executive director during that period,  "strenuously opposed efforts" to get Human Rights Watch involved in "economic issues as rights," as he explained in his book "Taking Liberties."

Human Rights Watch Takes The Lead

The turn-around became clear seven years ago with the publication of the HRW report "Unfair Advantage: Workers' Freedom in the United States under International Human Rights Standards."   Contradicting the organization's previous position, the report argued that forming and joining a union is "a natural expression of the human right, indeed the human need, of association in a common purpose where the only alternative offered by an impersonal market is quitting a job."  The report's 210 pages documented how that basic right is "under sustained attack" in the United States.

Now comes a new HRW report on how that basic right is under sustained attack in a specific American corporation, Wal-Mart, the largest retailer and the largest private sector employer in the United States. None of its 1,300,000 U.S. employees is represented by a union.  "That is no accident," HRW points out in "Discounting Rights: Wal-Mart's Violation of U.S. Workers' Right to Freedom of Association."

It is the natural result of Wal-Mart's being able to mobilize every available legal, illegal, and quasi-legal resource to keep its U.S. operations "union free."  Wal-Mart is no friend of unions elsewhere in the world, but it has sometimes recognized them -- in Argentina, Brazil, Mexico, England, and Japan, for example -- mostly by inheriting them in companies it purchased.  And in China it now deals with the government-sponsored "trade unions."

'Union-Free' Fixation Not Limited To Wal-Mart

Wal-Mart, the report notes, "is not alone among U.S. companies in its efforts to combat union formation, [using] the incentives set out in unbalanced U.S. labor laws that tilt the playing field decidedly in favor of anti-union agitation.  It is also not alone in violating weak U.S. labor laws and taking advantage of ineffective labor law enforcement.  But Wal-Mart stands out for the sheer magnitude and aggressiveness of its anti-union apparatus and actions....It pursues its anti-union agenda relentlessly, often from the day a new worker is hired, devoting considerable time and resources at all levels of the company to the anti-union drumbeat."

No wonder, then, that Wal-Mart has had the power to get away with low wages, inadequate heath insurance coverage, unpaid overtime, discrimination against women, firing long-term workers, and other abuses and thereby to rack up record profits year after year.

A key cure recommended by Human Rights Watch: approving the Employee Free Choice Act, which has passed the House in March and is now under consideration in the Senate.

Rating South Africa's 'Economic Freedom'

How free is South Africa's economy?  In Heritage Foundation's 2007 Index of Economic Freedom in the world, it scored as 64.1 percent free, 2.2 percentage points lower than in the 2006.  That dip has stirred enough controversy in South Africa to trouble the leader of the South African New Economics Network, Margaret Legum.  Instead of challenging the accuracy of the rating, however, she raised a fundamental question: "Should we aspire to a high score for 'economic freedom'?"

Reactions to the rating drop prompted her to write an article with that title for the May 18 issue of the e-magazine Post-Autistic Economics Review. "The media has reported this as a real shame, something we need to correct -- an impression confirmed in interviews with economists employed by business," she writes.  "Before you get too depressed about this, the concept of 'economic freedom' needs unpacking."

Her unpacking has lessons for anyone anywhere who salutes the almighty flag of economic freedom.

"Essentially [under Heritage's standards] it means freedom for business -- investors and managers -- to make decisions and create practices without rules.  Freedom means business being allowed to maximize profits for shareholders, without externally imposed restrictions....where business can do what it likes in its own interests, regardless of its effect on the resource base, the health of people around it, the elected authority, or anything else."

Affirmative Action and Minimum Wage Laws Held Against South Africa

Legum identifies two areas that reduce the country's Heritage score: "affirmative action programs (called 'race laws') and legislation for minimum standards for wages and other conditions of work...[adopted] for the sake of economic justice, historic restitution, and societal harmony."

What would happen, she asks, if there were no rules on the number of players in rugby, on the size and weight of boxers, on the size of a tennis court, or what constitutes a "game" in tennis?

"We need rules in sport," she insists, 'to prevent sheer might being automatically right. If are no rules, the biggest, ugliest, most grossly aggressive brute force would take the prize every time.  Fairness is the essence of the attraction of sport.  Why not in the area of the economy?  If there are no rules, the biggest, the most ruthless, the most short-sighted will dominate the arena.  Big Business would be the only powerful show in town."

Legum, educated in economics at Rhodes University and Cambridge, chairs the board of the South African New Economics Foundation (SANE).  She and her late husband, Colin Legum, were banned from South Africa in 1964 for publicly supporting foreign economic sanctions to bring down the apartheid regime.  Now living in Cape Town, she is a major social justice advocate for the people of South Africa, and beyond.  For her world outlook, see "Globalization: How It Works Now and How It Could Work." 

Human Rights for Workers: Bulletin No. XII-06           June  2007           

Robert A. Senser, editor
Copyright 2007
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