Josefina Castillo and Judith Rosenberg : Women and Fair Trade

The Women and Fair Trade festival. Image from the group's website.
Sustaining indigenous traditions:
The Women and Fair Trade Festival

The people want fair markets, not 'free trade.'

By Josefina Castillo and Judith Rosenberg / The Rag Blog / November 10, 2011

The Women and Fair Trade Festival is an annual Austin marketplace, now in its eighth year, that hosts artisan producers from women’s cooperatives from all over the world. Women and their representatives gather in Austin to meet local consumers for commerce, cultural celebration, and exchange. Austin Tan Cerca de la Frontera sponsors the two-day event, November 12-13, 2011, 10 a.m.-6 p.m., at The Old School, 1604 East 11th Street, Austin, Texas.

Saturday, November 12, from 3-5 p.m., the first John Ross Journalism Award will be presented to Melissa del Bosque of the Texas Observer. On Sunday, November 13, from 3-5 pm, the second annual Trans-lingual Poetry Concert features Liliana Valenzuela and other Austin poets influenced by Latina, Middle Eastern, and African cultures.

AUSTIN -- The Women and Fair Trade Festival, established eight years ago by Austin Tan Cerca de la Frontera, is a community gathering where people can buy fair trade products while helping to sustain old indigenous traditions -- and have the opportunity to interact with the direct producers of colorful arts and crafts. This community event celebrates the rich cultural diversity of our society, and presents an alternative to corporate globalization.

Participants include eight cooperatives, formed by women adversely affected by globalization, who come from various developing countries to tell their stories and sell beautiful handmade textiles, toys, pottery, jewelry, clothing, and ethnic weavings.

Through cooperatives, women become central participants in the management of their own products, maintain ancestral knowledge, support sustainable agriculture, and provide much needed funds for community development projects. Fair trade allows women to play central roles in the development of local economies.

This year, ATCFE has named Melissa del Bosque recipient of the John Ross Journalism Award 2011 for her reporting on Mexico and the U.S./Mexico Border in the Texas Observer. The award, to be presented Saturday, November 12, from 3 to 5 p.m, is given in recognition of Melissa's independence, courage, and ability to place events within a deeper context.

Rag Blog editor Thorne Dreyer, Rene Valdez of Red Salmon Arts and Resistencia Bookstore, and noted documentary photographer Alan Pogue will pay tribute to the legacy of the great activist, poet, and author -- and regular contributor to The Rag Blog -- John Ross, who died earlier this year. They will also discuss the importance of independent media and alternate channels for coverage of other countries.

On Sunday, November 13, from 3 to 5 p.m., the second annual Trans-lingual Poetry Concert features Liliana Valenzuela and other Austin poets influenced by Latina, Middle Eastern, and African cultures, who live simultaneously in several cultures and languages. They help us hear and see the world created by trade and colonialism as well as lives and identities that crisscross and re-define borders. Other confirmed poets include Deborah Paredez, Carolina Ebeid, Maganthrie Pillay, Zara Houshmand, Fehintola Mosadomi, and Adesile Okeowo.


The impact of 'free trade'

In Austin Tan Cerca de la Frontera we have seen face-to-face the impact of free trade policies on workers’ lives while organizing border delegations to visit Mexican workers in the maquiladora industry, with its assembly plants located in developing countries, owned by transnational corporations.

We have learned of exploitation not only in terms of salary and working conditions but also in the places where they live. The “colonias” lack the basic infrastructure to allow workers to live in a decent way: they have no paved roads, no sewage systems, and are marked by widespread environmental damage.

Just a few years ago Austin Tan Cerca made a study of where the money goes when you buy a pair of jeans at a department store. The actual producer, the person whose hands created the product, gets less than 1%. Transnational corporations (and their brand name distributors), retail stores, and manufacturing facilities keep 99% of the value. How can anybody believe this is free trade?

In 1999 -- the same year that Austin Tan Cerca de la Frontera took its first steps to establish a relationship of solidarity with Mexican workers -- the World Trade Organization, meeting in Seattle, became a stage for activists and ordinary working people on which to protest against corporate greed. The people in the streets of Seattle were able to feel the power of their solidarity against the giant corporations and government -- and they managed to stop the WTO’s deliberations. All the ministers went home confused and empty-handed.

Austin Tan Cerca de la Frontera wants not only to protest against the rank injustice of the income inequality between the 1% and the 99%, but also to offer and be part of alternative proposals such as the Fair Trade movement. More and more voices have proposed “fair trade” since the 1994 passage of the North American Free Trade Agreement (NAFTA) and through the years in which workers and environmentalists learned in personal terms the emptiness of NAFTA’s promises.

Though the 99% have not yet declared a formal program, and have wisely refrained from listing demands, their yearnings must surely be in harmony with fair trade. If the 99% are willing to cross borders, they must be in sympathy with the maquiladora worker who 10 years ago had an opportunity to look her U.S. CEO in the eye and say, “We’re the ones that create the wealth. You’re the one that reaps the benefit. My children and I still don’t have running water.”

The communities we serve and their diverse cultures are like pearls of a necklace, beautiful and rich, connected by a common thread of hope in their artistic designs. In these challenging economic times we offer a new path, a new way to link a rich cultural heritage with modern alternative ideas and marketing -- which is what a real democracy looks like and which suggests the future that we’d like to see.

[Josefina Castillo is an ex officio member of the board and Dr. Judith Rosenberg is president of Austin Tan Cerca de la Frontera.]

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Ted McLaughlin : The 'Free Market' Myth and the Suicide of Capitalism

Political cartoon by Carol Simpson / Cartoon Work.
The 'free market' myth and the
suicide of the capitalist system

In a capitalist society such as ours the wealth will be redistributed to the richest people unless there are some regulations to prevent that.

By Ted McLaughlin / The Rag Blog / August 23, 2011

We hear a lot today about free trade and free enterprise. Those are today's code words for unregulated capitalism -- the idea that capitalism can work for the benefit of everyone in a society as long as it is not hindered by government regulations. The proponents of this idea say that the more money the capitalists make, the more jobs they will create and the better off everyone in the society will be.

You may recognize this as the Republican "trickle-down" theory.

These modern Republicans may be surprised to learn that their boogeyman, Karl Marx was in favor of "free trade." Look at this quote from Marx:

The free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.

Marx was in favor of free trade, or unregulated capitalism, because he knew that such a system was sowing the seeds of its own destruction. An unregulated capitalism would inevitably result in the death of capitalism (by concentrating too much of the total wealth in the hands of a few people which would kill demand).

The rich and the corporations (today's capitalists) have let their greed for accumulating ever larger pools of money blind them to reality (if they ever understood it in the first place). And that reality is that capitalists do not create jobs. Demand for products and services is what creates jobs. Capitalists simply exploit that demand to make money (and they have to put people to work in order to exploit that demand). But when the demand disappears, so do the jobs.

Now you may be asking yourself at this point: If an unregulated capitalism is suicidal then how has our system survived this long? The answer is regulation. When our system has started to get too out of whack, we have instituted measures to regulate or control the excesses of capitalism -- measures designed to redistribute some of the income and wealth away from the rich and to the others in our society.

I know that the term "redistribution of wealth" has been demonized in this country, but that is ridiculous because wealth is always being redistributed in all societies. In a capitalist society such as ours, the wealth will be redistributed to the richest people unless there are some regulations to prevent that. These regulations will spread the distribution of wealth and income throughout the society. This is healthy, because a more equal distribution of income creates demand as people use that wealth and income to buy goods and services (and this allows capitalists to make money and workers to find jobs).

We have used various means to redistribute the income more fairly in this country. We created a progressive income tax (where the more money a person makes the higher tax rate they pay), we created and protected unions (which provided workers with decent wages and better benefits), we created an array of social service programs (to protect children, the elderly, the poor, and those with disadvantages), and we imposed regulations on the business practices of Wall Street and the corporations. These things helped to keep our capitalist system from getting out of control and choking to death on its own success.

But the Republicans have never accepted that capitalism needs regulating. They still believe that "trickle-down" (or Voodoo) economics will work (in spite of its repeated failures). With the election of Ronald Reagan in 1980, they began to tear down the safeguards that had been installed in our society. They started to eliminate business regulations, strip unions of their power, dismantle social programs, and lower tax rates for the rich. This process was accelerated in the administration of George W. Bush.

The result was predictable. Far too much of the nation's wealth and income became concentrated in the hands of only a few people (about 1% of the population controls 40% of the wealth and income currently). While the income of the rich grew astronomically, the income of
workers was stagnant (and their buying power dropped substantially). This resulted in a drop in demand, which resulted in lay-offs, which killed demand even further, causing more layoffs -- and this spiraled the country down into a serious recession.

And what do the Republicans think the solution to this jobless recession is? They want to cut social programs, cut taxes for the rich, eliminate unions, and eliminate regulations on businesses. In other words they want to do more of the same things that caused this economic mess in the first place. They seem to be incapable of learning from either experience or history.

They claim they are being fiscally responsible. They aren't. What they are really doing is giving our capitalist system enough rope to hang itself -- an economic suicide that could unfortunately also kill our economy (and maybe even our democracy).

[Ted McLaughlin also posts at jobsanger. Read more articles by Ted McLaughlin on The Rag Blog.]

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Colombia and the TLC : Just Who Benefits from 'Free Trade'?

And we're not talking "Tender Loving Care" here. Graffiti image from Parades Que Hablan (Talking Walls).
Colombia and the TLC:
Jobs, deficits, and keeping 'free trade' alive

The organizations that stand to benefit the most from this trade agreement -- U.S. multinational corporations -- have been involved in aiding and abetting [the] bloodshed [against trade unionists].

By Marion Delgado / The Rag Blog / March 27, 2010

AT LARGE IN COLOMBIA -- On Thursday, February 18, U.S. Senator George LeMieux (R-FL), visited Colombia's President Álvaro Uribe at his ranch. His pilgrimage promoted a proposed Colombian/U.S. Free Trade Agreement (FTA), known locally as the Tratado de Libre Comercio (TLC).

Sen. George

After their rural meeting, LeMieux released a statement in which he said, among other things,

Colombia is a strong ally and partner of the United States. In my meeting with President Uribe, I raised the issue of trade and committed to continue encouraging ratification of the [FTA/TLC]. I again call upon President Obama to send the free trade agreement with Colombia to the United States Congress. Bilateral trade produces clear benefits including jobs in Florida and throughout the United States.

For example, more than 95% of the flowers commercially grown in Colombia come through Miami for distribution throughout the nation. That creates thousands of jobs and opportunities in the United States. Free trade produces prosperity and strengthens democracies in Latin America as well.

He didn’t mention that those “thousands” of jobs and opportunities in the U.S. already exist without the TLC. It’s almost funny; he said that Free Trade produces prosperity; the facts, which Congresspeople never seem to work into their pro-free trade statements, show that just the opposite is true.

Take the original TLC: the North American Free Trade Agreement (NAFTA), between the U.S., Mexico, and Canada.

Prez George

Before leaving office, President George W. Bush of the Bush Crime Family claimed that, "From 1993 to 2007, trade among the NAFTA nations more than tripled, from $297 billion to $930 billion."

Facts

Never one to rely on facts, Bush skipped over the reality that increased trade flow only benefits an economy as long as it doesn't lead to unsustainable deficits. Much of the increased volume of trade under NAFTA was a massive surge in imports into the U.S.

A small pre-NAFTA U.S. trade surplus with Mexico in 1993 reversed into a $91 billion deficit in 2007, while a pre-NAFTA deficit with Canada grew exponentially. NAFTA foreign investor protections, which remove most of the risks otherwise associated with offshore production -- coupled with the high dollar policies of the Clinton administration -- acted as a subsidy for off-shoring U.S. jobs.

The result? A 691% increase in the U.S.' combined trade deficit with Canada and Mexico, from $24 billion in 1993 to $190 billion in 2007. This artificially induced, distorted composition of trade flows -- shaped by specific rules in NAFTA -- puts the entire region at economic risk.

Senator LeMieux was big on job creation. He obviously knows nothing of which he speaks, and as with any politician cares less, he just says what he thinks sounds good. The real facts about job creation under NAFTA tell a different story.

More facts

Trade affects the composition of jobs, not the total number. Three million net U.S. manufacturing jobs have been lost under NAFTA.

The job creation claim is particularly sly, as economists know that total employment numbers and unemployment rates are not typically affected by trade policy, but by central bankers who set interest rates. In fact, they define labor force growth as simply income growth minus productivity growth.

Thus, if income growth were 2 percent and productivity growth were 1 percent, this would imply a labor force growth rate of 1 percent, or roughly 1.4 million jobs -- irrespective of trade flows.

What trade policy affects is the composition of jobs in the economy, in particular tradable sectors like manufacturing. The original claim by NAFTA boosters in 1993 that the pact would lead to 170,000 annual U.S. job gains was premised on the projection that the U.S. would have a growing trade surplus with Mexico. We were supposed to be exporting U.S.-made goods to them.

Ever since NAFTA critics' projection of increased trade deficits proved true, pro-NAFTA analysts have tried to move the discussion away from the pact's damage to U.S. workers and to focus on the combined import-export volume of trade flows' effect on overall U.S. employment rates.

Here are the relevant numbers: U.S. manufacturing employment declined from 16.8 million people in 1993 to 13.9 million people in 2007, a decrease of nearly 3 million manufacturing jobs, nearly 20% of the total. Moreover, today's $190 billion U.S. trade deficit with NAFTA countries -- as a simple accounting matter -- equals manufacturing jobs that could have been here. The Economic Policy Institute estimates that the U.S. could have had over 1 million additional manufacturing jobs had there been trade balance between NAFTA countries alone, or no NAFTA at all.

Sen. George LeMeiux, Republican of Florida. Photo from AP / Politico.

Other Congressional visits

President Uribe also met with a group of U.S. Congressmen on January 9, at a working breakfast at his ranch known as Fertile Farm in Monteria, Cordoba Department, 310km Northeast of Bogota.

Among them was Eliot Engel, a Democrat from New York’s 17th district (Westchester County), chairman of the Western Hemisphere subcommittee of the House.

The meeting marked the start of an offensive by the president to achieve, as soon as possible, ratification of the FTA/TLC by the U.S. Congress.

Uribe's purpose became clear on December 31, 2009, when he asked the U.S. to "recognize the efforts" of Colombia in the fight against drug trafficking and terrorism. A week later, he reiterated to Democratic Reps. Engel; Lynn Woolsey from Marin County, CA; Shelley Berkley, Las Vegas, NV; and Republican Marsha Blackburn from Southwestern Tennessee, (a T-bagger favorite): "I said with all honesty and with all the solidarity that we need rapid adoption of this treaty.”

What the fight against drug trafficking and “terrorism” has to do with Free Trade is beyond me.

Pending congressional approval

The FTA/TLC was signed by Presidents Bush and Uribe on November 22, 2006. When it enters into force, Colombia will immediately eliminate most tariffs on U.S. exports, with all remaining tariffs phased out over defined time periods.

The FTA/TLC also includes important rules on customs administration and trade facilitation, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, and labor and environmental protection.

Labor Protection?

If labor needs protection anywhere, it is here in Colombia. Here is the situation:

Colombia today has some of the worst labor rights violations in the world. Trade unionists are routinely murdered, tortured, and threatened with death: since 1991, over 2200 have been assassinated. Many of these extrajudicial killings have been directly linked to the Colombian Military and the President's own secret police, the Administrative Department for Security or Departamento Administrativo de Seguridad (DAS). Out of so many murders, there have been only 37 convictions. The FTA/TLC will only embolden anti-union attacks here.

The organizations that stand to benefit the most from this trade agreement -- U.S. multinational corporations -- have been involved in aiding and abetting this bloodshed. Cases have been brought against Coca-Cola, Drummond Mining Company, and Occidental Petroleum accusing them of employing paramilitaries that terrorized and killed union organizers.

Forty-three U.S. corporations have been named as having hired paracos to “protect” them from guerrillas and unions. More cases are expected to be made, and fines will be levied. (Not as cheap as the $2000 a head reportedly paid for U.S. Army/mercenary baby killing in Afghanistan, but cheap enough for the Wall Street gang.)

It should be noted that most Colombian workers and their unions are against the proposed FTA/TLC; unlike American investors, workers in Colombia have little to gain by further U.S. investment without real accountability for violence against unions and for multiple other human rights abuses.

U.S. firms will have better access to Colombia's service sector than other World Trade Organization members under the pact's General Agreement on Tariffs and Trade. All service sectors are covered by the FTA/TLC except where Colombia has made specific exceptions.

Colombia's Congress approved the FTA/TLC and a protocol of amendment in 2007. Colombia's Constitutional Court completed its review in July 2008, and concluded that the FTA/TLC conforms to Colombia's Constitution.

Obama’s duplicity

In his January 27 State of the Union Speech, President Barack H. Obama said, “We have to seek new markets aggressively, just as our competitors are… And that is why we will continue to shape a… trade agreement that will open…markets…with key partners like Colombia.”

To flesh out what his boss meant, deputy U.S. Trade Representative Demetrios Marantis expounded on trade policy in a morning-after speech before a gathering sponsored by the Center for Strategic and International Studies.

Key pillars of Obama’s trade policy, Marantis said, will include pursuing the Transpacific Partnership (TPP) -- while also pushing ratification of already-negotiated free trade agreements with South Korea, Panama, and Colombia. The trade agreements were each presented to Congress at least three years ago but have not been acted upon.

One big question is why Obama is pursuing free trade in the first place. As a candidate, Obama argued that the American public had been oversold on the benefits of free trade and specifically came out against the Colombia FTA. What happened?

Mitch

Mitch McConnell (R-KY), the Senate Minority Clown-in-Chief, was quick to jump on the FTA/TLC band wagon the day after BHO’s speech. "Republicans agree with the need to increase trade and with the need to ratify trade agreements with Colombia and other important trading partners that so far have met resistance on the other side of the aisle," he declared.

Mitch was referring to the reluctance of some Democrats to address the FTA/TLC created by their awareness of the thousands of murders of trade unionists since 1991. Many other union members were threatened, tortured, and driven out of their country.

For proponents, the FTA/TLC is tied as much to hemispheric politics as it is to trade. The U.S. and Colombia are strategic partners, having signed a Defense Cooperation Agreement on October 30, 2009, which gives the U.S. access to Colombian bases from which to carry out “counter-drug” surveillance flights. Colombia has proved a bulwark against the two countries’ mutual antagonist, the Bolivarian Revolutionary country of Venezuela.

Some Congressional Democrats have spoken out stridently against the FTA/TLC, criticizing the Colombian government for not doing enough to curb violence against union organizers and members.

Harry

Senate majority leader Harry Reid (D-NV), has argued that “it is a major mistake to set up the Colombia [FTA/TLC] legislation as the proxy for support for Colombia... An FTA is not a foreign-aid package. It is neither a favor for friendly governments, nor a substitute for sensible and sustained foreign-policy engagement in the hemisphere.”

Obama may well see the FTA/TLC in strategic terms, but some think Congress is unlikely to follow that lead. One reason is that opponents -- most notably, organized labor -- comprise part of the Democrats’ political base. In addition, polls show that most Americans have turned away from free trade. A 2009 Rasmussen poll found that 73% of Americans believe that free-trade agreements have had a negative effect on their families, while only 14% say they have benefited.

With those kinds of numbers and congressional elections approaching, it is doubtful members of Congress will want to stick their necks out for free trade, at least this year.

Cartoon from Witness for Peace.

Down but not out

Does that mean the FTA/TLC is dead? Hardly. It lingers ready to go to Congress, an Obama bargaining chip to appease Republicans or to trade for their votes on some other crazy Democratic scheme.

Ron

Colombia's Trade Minister, Luis Guillermo Plata, asked the U.S. on March 9 to "be sincere and tell us if the [FTA/TLC] is going to go ahead or not." A response from the White House came the next day when U.S. Trade Representative Ron Kirk, testifying before the Senate Finance Committee, said, “we are hopeful we can come to some resolution with members of Congress over the next several months, if not weeks… so that we can then go back to Colombia with a finite list of what we’d like to see get done.”

Kirk said that passing the agreement with Colombia is a priority of the Obama administration. The U.S. plans to give Colombia a “workable list” of legislative and judicial reforms that the administration would like to see the South American nation execute.

Chuck

Senator Charles “Chuck” Grassley (R-IA), ranking member of the Senate Committee on Finance, whined about the “apparent lack of urgency” in resolving issues surrounding the trade accord. “This delay in implementation hurts U.S. credibility around the world, not just economically but geopolitically as well.” He didn’t elaborate on how that is so, or what credibility he was referring to or what was so urgent about it.

Hillary

U.S. Secretary of State Hillary Clinton, who bypassed Colombia on her recent South American tour, met privately with Uribe in Montevideo, Uruguay, on Monday, Mar. 1, and confirmed Washington's plans to push the FTA/TLC.

Both were there for the inauguration of President Jose Mujica, a co-founder of the Tupamaro guerrillas who spent 15 years in prison, enduring torture at the hands of the brutal, U.S. backed, military dictatorship that ruled Uruguay from 1973-1985.

A midnight vote on an unrelated bill wherein the FTA/TLC is a silent partner may be more likely than open passage. Transparency, honesty, and giving a shit about the lives of the Colombian working class (or any other workers) are never on the Capitalist agenda. It’s always about the false value of Profit.

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Canadian Mayors: Don't Get Mad, Get Even

Canadian mayors pass anti-'Buy American' resolution
June 6, 2009

In response to the 'Buy American' provisions of the U.S. stimulus package, Canada's mayors narrowly passed a resolution Saturday that could potentially block U.S. companies from bidding on city contracts.

The resolution was passed at the Federation of Canadian Municipalities conference in Whistler, B.C., by a vote of 189-175.

The resolution says the federation should support cities that adopt policies that allow them to buy only from companies whose home countries do not impose trade restrictions against Canadian goods.

"Today, Canada's cities and communities joined the federal and provincial governments in a common front to try and stop American protectionism," Jean Perrault, FCM president and mayor of Sherbrooke, Que., said in a statement.

"We stand united in the belief that fair trade and an even playing field are in the best interest of our country, our communities and our citizens."

The resolution wouldn't take effect for four months, giving the Canadian government time to lobby the Obama administration.

"This U.S. protectionist policy is hurting Canadian firms, costing Canadian jobs and damaging Canadian efforts to grow our economy in the midst of a worldwide recession," Perrault said.

Some mayors argued the resolution could make it hard for cities to get the best deal on contracts.

But Susan Fennell, the mayor of Brampton, Ont., stressed the resolution is not protectionism, but a message that Canadian municipalities are concerned across the country.

"It's Canadians saying on behalf of Canadians that the fair and free trade that's been in existence for so many years is the way to remain," she said.

Some Canadian companies have complained they are already being affected by the "Buy American" provision, which gives priority to U.S. iron, steel and other manufactured goods for use in public works and building projects funded with recovery money.

The resolution was initiated by the Ontario community of Halton Hills, where two local companies have lost contracts they previously had in the U.S.

Source / CBC News

Thanks to Deva Wood / The Rag Blog

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Improving on Worker Exploitation : Smart Stitch

Ouch !!! What else can we possibly say?

New Portable Sewing Machine Lets Sweatshop Employees Work On The Go


Source / The Onion

Thanks to Diane Stirling-Stevens / The Rag Blog

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The Severe Price of Globalization and Free Trade

Do you wear Hanes underwear?
By Buck Batard / November 29, 2008

Before you buy another pair of Hanes underwear, perhaps it would be helpful to learn what 11 year old Halima does in one of the factories that makes Hanes underwear. This is the price of globalization. The next time you need to buy underwear, remember this video.

Maybe we men should just follow an old trend from the feminist movement of the 1960s and go underwearless until these factories clean up their act and pay fair wages and eliminate child labor from their factories. It’s time to liberate these children and time to liberate the CEO’s and executives from their jobs at the companies responsible for allowing these types of brutal labor conditions that were largely eliminated in this country one hundred years ago by decent and honorable men who have largely disappeared from American corporate management. They all aim for low cost and will stop at nothing to get it.

And Wal-Mart is likewise responsible since they are likely the largest seller of this product in America and are continually calling on their producers to cut prices. I suppose if it means abusing children to accomplish that goal, the evil people in Bentonville, Arkansas are oblivious to the problem. I'm boycotting both companies. Won’t you join me?

There are many more videos on YouTube revealing child abuse in factories producing products used in this country and I’ll be putting many more of them up in the months ahead. Our wanted for child abuse posters should include CEO’s and executives who have allowed these conditions to exist and we need to plaster them all over the neighborhoods in which these ogres live.

For more information, visit www.nlcnet.org.

Source / Bad Attitudes

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A New Model for Managing International Trade and Development , Part IV

Click here for all the posts in the series.

In Development…
…only one road leads to Rome, Part 4
By Sid Eschenbach / The Rag Blog / November 15, 2008

A Proposal for a New Trade and Development Paradigm

The WTO GATT Doha round of trade talks is dead, marking the failure of the current system to create a regulatory structure seen as fair by the nations of the world. Additionally, major industrial economies are in trouble, major and minor democracies are increasingly politically unstable, inequality is growing globally, poor countries are not sharing the benefits of globalization, workers of nearly all countries find their jobs are insecure and threatened, and the continued surplus of labor will continue to place a downward force on income and prosperity levels.

The simple act of facilitating industrial development and requiring all international traded goods to be made by unionized labor will ... create a transparent, simple and fair system that will move us day by day closer to that goal, not further away.

In fundamental historical and practical dissonance with these truths is the equally true statement that the road to development and prosperity is known. It is the road discussed above in this essay. It is the road that starts in poverty and ends in industrialized prosperity, historically through the process of protectionism, industrialization, and the organization of labor.

The traditional tools, protection of domestic industry and cheap labor, both currently employed successfully by both China and India, are still available. However, we should be able to do the same, but in an organized, global manner, as the use of those tools are not available to others due to many factors, from pressures applied by the international lending and development community to simple corruption. In synthesis, then, let’s review where ‘there’ is before we set out.

A new model must:

• Create national economies that grow at rates higher than that of population, and create new, middle class jobs.
• Guarantee the rights of industrial workers to organize and share in the benefits of higher productivity.
• Not cost any government in creation or operation more than it is worth.
• Be easy and simple to negotiate and implement.
• Be clearly beneficial to the mass of the people in order to increase national socio-political stability.
• Allow for unilateral implementation if desired.
• Encourage poor nations to develop a protected sector of increasing returns and innovation.
• Maintain the existing sectors of increasing returns and innovation in developed nations.
• Help rich and poor nations alike.
• Be simple, fair and internationally uniform.

In my opinion, all of these goals can be met by adopting two very simple guidelines, either unilaterally, regionally, or globally:

One: That all nations be encouraged to produce locally the manufactured items that they import, each to the degree that they are able.
Two: That all manufactured goods traded between nations be made by organized labor.

I’d be surprised if you are not now thinking something like…”that’s it?” "These two points are going to take the place of the 10,000 pages of the GATT and resolve problems that very intelligent and highly trained people have been wrestling with for the past 20 years?" Well, let’s stack it up against our ‘new trade paradigm’ wish list and see what happens.

Will it:

• Create national economies that grow at rates higher than that of population, and create new, middle class jobs?

Yes. By favoring manufacturing over importing, even at the lowest levels of manufacturing this is a win for the local economy. While higher prices may be paid by the consumer, an argument that places price above all other considerations is a policy that would logically bring back child labor or slavery in the name of low prices. As stated above, a development policy is not about cheap prices, but … DEVELOPMENT, and for that there is only one road to Rome.

The ways this might happen are only limited to the imaginations of the parties. The traditional methods of import duties to protect nascent producers should, of course, be available. Beyond that, the international manufacturers could consider other options, such as establishing locally owned and run factories along the lines of the franchised service industry, and receiving long term tax benefits in exchange for long term commitments, etc.

A component of these agreements could be that if the manufacturing was totally national and not being set up to export, local wages could be paid to offset the competitive price advantages of scale enjoyed by massive international players. If the manufacturing system and the good produced was able to find export markets, the original agreement must include the requirement that laborers in export oriented manufacturing facilities must be allowed to organize.

This not only raises the standard of living nationally, but it requires management to become more efficient in order to compete abroad if that is their goal. The counter-intuitive Fordist reality that, within reason, higher wages always produces higher productivity must be remembered. When all are playing by the same rules, this is a step towards being more competitive, not less, as it is a cost borne uniformly.

Again, any time any manufacturer pays higher wages, they MUST become more efficient in order to survive. If they are currently located in a low wage country and it is precisely the low wage that makes them internationally competitive, they will have to become more efficient to keep their markets ... which means that they will have achieved the state of increasing returns that must be created in order to begin to build a middle class.

Management should be rewarded for efficiency and innovation, not abuse and exploitation. If they are unable to become more efficient, they will simply go out of business… not a bad idea if the success of your business is built upon worker abuse and underpayment.

If a company cannot compete unless it enjoys a labor cost advantage and thus finds that it is no longer able to compete internationally, it can still manufacture for the unregulated domestic market, as it will enjoy the usual labor cost advantages versus the union made imported products it will be competing against there. Smaller, weaker, or not as efficient companies that do not export would not be affected, and they could continue to provide non-union entry level jobs for under-educated or unskilled workers that are unfortunately plentiful in underdeveloped countries.

Both of these latter labor and economic realities are at the heart of nascent industrial states and the establishment of the vital increasing returns sector, the start of the path that we have revealed as the only route that will lead to economic progress and well-being.

For high income nations, the impact is also positive. As a result of the current neo-liberal trade/development model, the industrial sectors of all of the major industrial powers are being hollowed out as manufacturing is being exported and foreign made goods imported… but again, wages are at the heart of this reality.

Most industrialized nations already have unionized labor in their major industrial enterprises… so this will create no new burden for them. What it will do is make the poor nations raise their wages, thereby lowering the natural tendency of business to move to non-union cheap labor countries in order to survive.

The recent and well-documented ‘hollowing out’ of industry in major nations is not a positive harbinger of things to come, as the loss of industrial capacity is always ultimately negative for the same reasons that the gain of industrial capacity is always ultimately positive.

A developed, unionized nation that adopted the union made import and export trade regime would strengthen its own labor force and manufacturing sector at no additional cost to its export trade…while simultaneously reducing the labor cost differential currently enjoyed by underdeveloped and large labor pool countries. The result of this would be to reduce the cost demands placed by the market on all competitive international business to lower prices in order to gain market share, and thus eliminate the need to get into the endless tariff wars or ‘off-shore’ in order to survive. It would thus protect the companies in both poor and rich nations… as both are under attack.

Will it:

• Guarantee the rights of industrial workers to organize and share in the benefits of higher productivity?

Yes. This is the core of the proposition, so obviously the new model would do this. However, it must be noted that organized labor, in exchange for a full partnership with capital, would have to make many concessions too. As examples, the right of management to hire and fire without cause and without undue grievance procedures, and management's ability to demote or promote according to any individual's ability, capacity and achievement would have to be part of a ‘new union’ mentality. The right to organize cannot become a right to control the entire workers' agenda, leaving management, as is the case in many instances today, without the necessary flexibility to meet challenges over time."

Will it:

• Not cost any government in creation or operation more than it is worth?

Yes. Obviously, the only infrastructure would be some sort of very minor bureaucracy whose job it would be to validate the labor bona fides of any company who wanted to import or export. There would clearly be exceptions due to scale and cottage industry type crafts that would be exempt. Compared to the budget of the World Trade Organization ($164 million in 2007), this would be insignificant and should actually represent a significant savings to current national commercial operating overhead.

Will it:

• Be easy and simple to negotiate and implement?

Yes. Nothing could be simpler. If you want to export from your country, you simply need to unionize your workforce and demonstrate that fact to the responsible authorities. If you want to import goods from another country, you simply need to verify that their workforce is unionized. These would be certified by an international organization, and the validity of their bona fides easily established.

This is obviously not aimed at a company of 5 workers that manufactures some particular bit that a particular buyer abroad might need. Rather, it is aimed at large scale manufactures that export and import large quantities of manufactured goods, and through their economies of scale combined with cheap labor, suck the air out of national development.

That’s it. No tariff wars, special import or export restrictions, cronyism, back-room legislative deals, special taxes… nothing. The people who talk about ‘free trade’ and then produced the GATT would be shocked at what free trade actually looks like.

Will it:

• Be clearly beneficial to the mass of the people in order to increase national socio-political stability?

Yes. The current trade and development structure is complex and incomprehensible not just to experts, but most importantly to the man on the street. In country after country, the GATT based trade deals are popularly felt to be done in the interests of the more powerful of the two nations… or is it the poorer… or the richer?

The truth is that it is rare that the man in the street feels its being made in his interests. Where does that resentment go? The feelings of powerlessness, frustration and alienation are major factors that contribute to cultures of violence, crime, substance abuse… and can end with the ultimate loss of governability of entire societies.

Empowering the people is another of those counterintuitive concepts that in fact makes them more governable and less likely to join with the sectors found in all societies that are unproductive and destructive. The politics of a ‘national capitalism’ would be a very heady elixir for any leader to promote, and the real rising standards of living created by a new and growing industrial sector will be easy for all to see.

Will it:

• Allow for unilateral implementation if desired?

Yes. The beauty of the fix is that it doesn’t depend upon general agreement for implementation. Indeed, because all nations control the terms for the entry and exit of goods across national borders, it is something that national leaders as well as political parties can recognize and relate to, and it is this very nationalistic essence that make it’s unilateral implementation simple to effect and effective in implementation. Politically, it will spur ‘buy national’ ‘support and improve workers’ sentiment, never a bad thing for a growing domestic manufacturing economy.

Will it:

• Encourage poor nations to develop a protected sector of increasing returns and innovation?

Yes, and this is essential. As we have seen, the creation and growth of an industrial, increasing returns sector is the fundamental and essential first step to affluence. Any trade and development policy that does not resolve this problem in poor countries as a function of its operation fails the most important test.

Poor countries have the same basic needs as rich, and so there is always a market for manufactured goods. Because the people are poor, the products that they buy will be the cheapest expression of whatever necessary product they need, be it a hammer, a chair, a radio or a car. These cheapest products are generally made by multi-national corporations in the countries that have the lowest wages.

If a poor country adopts the policy that it will manufacture the goods it’s able to manufacture, and will not import products that are not union made, it will exclude the very products whose cost precludes the establishment of a local manufacturing business that would make the same item. When a small manufacturing business is established to sell the needed local product at a price the locals can afford, they will not be subject to the unionization requirement because they are a non-exporting entity, and so will be able to ‘abuse the poverty’ of its own people in order to establish the industry.

This is unfortunate, but is the only way it can be done. It is the way it was done in every single modern industrialized nation, and there is no way around it. The first step isn’t pretty, but without it, there is no second, third or fourth.

Will it:

• Maintain the existing sectors of increasing returns and innovation in developed nations?

Yes. This is also an essential component of any successful trade and development policy, and also one where the WTO GATT model was failing miserably. Organizing labor in the poor nations would move towards an equalization of labor costs that would relieve much of the fundamental labor cost pressures placed upon multi-nationals as they struggle to survive.

It would also slow if not stop the hollowing out of the developed nations manufacturing sectors, a very delicate and sensitive political issue all developed nations are currently struggling with. The recent collapse of the global financial sector shows that there is, other than a few small and specific niche areas (Las Vegas, Lichtenstein, and Monte Carlo come to mind), no other nationally viable ‘new economy’ model based primarily upon service and financial sectors out there that allows large nations to maintain and continue to generate wealth while reducing or eliminating their manufacturing sectors.

As important as it is to raise the standard of living of the poor, it is just as important not to impoverish the relatively rich in the process. Another benefit of the new paradigm would be the general strengthening of the developed countries already unionized industrial labor pool, as any producer who exports would have to unionize.

While this idea of unionizing labor and protecting national markets sends modern economists and free-market theorists into a near epileptic state, we should remind ourselves of a simple historic fact: the greatest, broadest, wealthiest and most enduring economic success in the history of man was created in the U.S. during a period of high unionization of the labor force. At some point, this fact must be dealt with by those who theorize mightily against the beneficial impact of unions upon a society… while they watch the wealth of a nation diminish as the union roles shrink.

Will it:

• Help rich and poor nations alike?

Yes, for all the reasons addressed above.

Will it:

• Be simple, fair and internationally uniform?

Yes. Business is best understood as a tool, and like any tool it is only as ‘good’ or ‘bad’ as the ethics and abilities of its managers. Business will take advantage of any opportunity presented to it because it must… but it doesn’t need them to survive. For that reason, many confuse the use of cheap labor in undeveloped nations by multi-national companies with the assertion of necessity of the same… which is not only unfair, but a big mistake. While it will of course take advantage of any advantage available, it doesn’t require them.

What business does need is clarity. What business does need is a level playing field. To the degree that these two elements can be delivered in a simple and enforceable fashion, more is the virtue. Therefore, if all companies, big and small who import and export must pay more for labor and are excluded from the same markets for the same reasons, there will be no objection that cannot be overcome as long as it is uniform.

Will this policy raise prices generally and globally? Of course. However, as I stated at the beginning of this essay, a trade and development policy that uses unit cost as its paramount goal is a failure by any standard but its own. There are many very expensive countries and entire regions where food, shelter and clothing all cost significantly more than other places… and contrary to those who kneel at the alter of cheap goods, these areas, the expensive areas where the consumer pays more for everything… are the BEST places to live, not the worst.

In terms of generalized higher prices, business used to pay $5 a barrel for oil and the consumer .45 cents a gallon. Today it pays over $100 and the consumer $4… but it doesn’t matter. As long as it is uniform, as long as they all pay roughly the same, the business landscape adapts to the changes, either by passing the increase through to the consumer if successful, or going out of business if not.

In any event, rising and falling prices are existential features of the modern capitalist world, and it is impossible to argue that a general rise in labor costs will not simply be integrated as any other price change would be.

Conclusion

The WTO GATT model of trade and development has failed, and in the shadow of this failure President-Elect Obama is struggling to find a way to prime the pump and restart the machinery that generated well-being… but so far there is no sign that either he or his economic advisors recognize the immutability of developmental history.

The traditional Keynesian policy of spending money created by fiat cannot begin to do the job of wealth creation that only middle class workers of industry can do, and for that reason Obama must address an entirely new industrial trade and labor policy... or fail. Keynesian spending can only hope to prime an economic pump… but that implies that there in fact IS a pump to prime, and that that pump is properly identified, nurtured and protected. If there is no economic pump to prime, then vehicles such as infrastructure spending or tax rebates will simply be good money after bad.

Free trade has created a world in which the citizens in both rich and poor countries see their jobs become less secure, their options going forward shrink, and the inequality of income expand. With those results, it should be no surprise that it failed.

No system can deliver what it is not designed to deliver, and the WTO GATT model failed to bring rising standards of living to the majority of the people on the planet quite simply because, in spite of the grandiose claims of its proponents, creating global well-being was not it’s goal.

Not unlike virtually any kind of undirected but well-represented legislation, what it became was the formalization of ten thousand deals made for ten thousand problems… trade-offs between your agriculture and mine, between my manufacturers and yours, tax breaks for one and quotas for another.

It was not designed to answer any questions about well-being, political stability, or social dignity and pride. Indeed, its goal was quite simply the opposite; to provide statutory protection for historical privileges, to provide a forum for the influential and powerful to attempt to maintain the status quo. As such, it was born of a concept of trade as commercial war, not as a vehicle to generate societal well-being. That became just an occasional and coincidental byproduct.

It evolved out of a time that saw growth as a zero sum game… the idea that ‘your gain is my loss’ … and as we’ve seen, in the modern industrial world, this is simply not the case. Repeatedly, the creation of new products through innovation has provided massive growth in sectors that compete with no existing technology and cause no ones loss.

For all of these reasons, the path that the recently developed nations have taken is different. They continued the historic practice of protecting their own markets and nascent industries, but at the same time let the multi-nationals into their countries on a cheap labor export only basis…. and as Malaysia, Singapore, Taiwan, Korea, and more recently China and India are proving, this is a much more successful plan than the neo-liberal ideas as represented by the ‘Washington Consensus’.

It would be a very simple project to expand this idea to the rest of the world, but in order for that to happen the ‘free-trade’ tide must be rolled back both ideologically and practically, a task greatly if tragically aided by its spectacular recent failures. If this strategy, the creation and protection of national industries feeding off the cutting edge technologies and finance of the multi-nationals could be combined with a progressive Fordist labor policy, the results would, in my opinion, be hugely beneficial to all three parties to this socio-economic-political problem: the people, the nations, and the businesses.

The past 200 years, and particularly the past 50, give us many regional examples of a simple principle: that we can, in fact, all live well at the same time. There is no fundamental political or economic rule which requires an oppressor and an oppressed, a rich and a poor. WE CAN ALL LIVE WELL SIMULTANEOUSLY. Therefore, a new trade and development model must be designed to deliver just that: well-being to all... and that is the great challenge of this new presidency.

The simple act of facilitating industrial development and requiring all international traded goods to be made by unionized labor will, in my opinion, create a transparent, simple and fair system that will move us day by day closer to that goal, not further away.

Sidney Eschenbach, 60, lives and works in Guatemala, Central America. His thoughts regarding developmental economics and trade are based on decades of development work in Latin America at various levels, community and corporate.

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A New Model for Managing International Trade and Development , Part III

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In Development…
…only one road leads to Rome, Part 3
By Sid Eschenbach / The Rag Blog / November 14, 2008

To Rome… or to Ruin?

As a result of the application of their influence and power, the ‘structural adjustment programs’ pursued by the IMF, World Bank and other international agencies reflected corporate, not national agendas. In fact, the entire neo-liberal ‘free-trade’ approach represents a policy that will produce exactly the opposite results from those desired by the national entities.

The forced opening of fragile and underdeveloped manufacturing sectors to the onslaught of ‘free-trade’ international industrial giants pits David against Goliath, but this time David has no slingshot, and the outcome cannot be in doubt. In the name of lower prices, consumerism and market efficiency, developing nations are reduced to dependent colonies, exporting raw materials and importing finished goods, a policy that we have seen is a dead end policy, a policy of decreasing returns rather than increasing returns.

This is even true when manufacturing facilities are located in a low-labor cost nation, because the nation does not control nor own the factories… and as they can be and are moved on a moments notice, the nation can never develop any real leverage regarding wage productivity gains for the workers, or national ownership and participation.

That being the case, they represent a road that doesn’t lead to Rome, but to ruin. Therefore, a new trade and development paradigm must be developed to challenge the policies and practices of international policy makers as represented by the ‘Washington Consensus’; a new model that, as a product of its use, creates new and widespread national economic sectors of increasing returns, the condition that builds prosperous societies without creating a new, massive, or unwieldy regulatory framework to manage it. However, before we move to a new trade theory, one more element of economic well-being must be reviewed, and that is innovation.

Labor and Innovation

As I wrote at the start of this essay, “…it has been repeatedly shown that there is only one proven road to economic well-being, and that road starts with industrialization and ends higher worker productivity and innovation.” I have discussed the reasons that the road to prosperity of necessity passes through industrialization and higher worker productivity… but what about innovation? What role does that play?

Innovation is generally thought of as phenomena separate from both industrialization and productivity, driven by good education and free capital markets… but actually it is productivity’s little brother and industrialization’s child. The same obligations of management that drive the ‘efficiency wage hypothesis’ described above, the desire to cut costs and increase profits, is also the driving force behind innovation. Therefore, just as the search to lower costs is the driving component behind increased worker productivity as wages rise, the need to increase sales is the driving force behind increased innovation.

Innovative features on existing products, or wholly new products themselves, can do nothing but separate your product from the competition, thereby increasing total sales and profits. None of these things happen by chance or by magic, but rather they must and always do happen in a competitive, industrial, organized labor environment.

The issue isn’t which company will innovate and separate itself, but the simple truth that one or some of them must and will. Because of that central fact of the capitalist environment, we should be able to design a new manufacturing and labor oriented development paradigm that factors in the goals, motivations, rights and abilities of the new player, the global, stateless international corporations, and integrates their abilities and needs with those of the states and the people.

Ideas for a new Trade and Development Policy

Before I get into details of what a new international trading and development regime should look like, it might be best to restate the goals first, because as we have seen, it was the replacement of the original national goals with international business goals that has brought us to this point. Therefore, these are the fundamental elements of what I believe any decent trade and development policy should deliver to each of the three parties involved: the people, the governments, and the businesses:

1. For the people, higher wages and wider employment.
2. For the government, greater tax revenues and greater political and social stability.
3. For business, a fair, level and universal platform on which to compete, whether globally or nationally.

The People

Taking them one at a time, we have seen that wages can only be raised when productivity is raised... and that can only happen in an industrialized society as a byproduct of higher worker productivity. Beyond that, and because most industrial companies are not run by the likes of Henry Ford, we must recognize that the economic benefits of increased worker productivity are usually not passed on to labor willingly, but held as increased profits by management.

That being the historical truth, we must then accept that organized labor is not an option but a requirement in any future development paradigm. As pointed out earlier, historical periods when there was a balance of the countervailing forces of capital and labor were the most prosperous periods, so we must accept as fact that the benefits that organized labor brings to society more than offset whatever problems they present. So, from the people’s point of view, the new model must:

• Create national economies that grow at rates higher than that of population, and create new, middle class jobs.
• Guarantee the rights of industrial workers to organize and share in the benefits of higher productivity.

The Government

Second, from the governmental point of view, a new trade and development policy cannot demand the creation of costly new bureaucracies. It cannot be based upon ten-thousand page international ‘trade’ deals that take longer to negotiate than the time it takes for new technical or financial conditions to overtake them and render them useless.

Bi- or tri-lateral treaties between willing nations, of course, cannot and should not be excluded, but they should not be the general trade model. The new model should be able to be implemented unilaterally. Most importantly, it should be a model that does not represent a race to the bottom and present national leaders with a set of equally unpopular choices, destabilizing fragile governments and encouraging abuse and corruption. On the contrary, it should be a policy that can be easily explained to any population, and readily seen as in the national interest while not at the national expense. Furthermore, it must be politically viable in any setting, as it must help all nations on their road to prosperity, rich and poor.

Therefore, a new policy must:

• Not cost any government in creation or operation more than it is worth
• Be easy and simple to negotiate and implement
• Be clearly beneficial to the mass of the people in order to increase national socio-political stability
• Allow for unilateral implementation if desired
• Encourage poor nations to develop a protected sector of increasing returns and innovation
• Maintain the existing sectors of increasing returns and innovation in developed nations
• Help rich and poor nations alike.

Business

Lastly, it must be fair from the businesses point of view. It must not create or foster an adversarial ‘friend/enemy’, ‘us/them’, ‘national polity/international business’ division and discord. While the interests of the stateless global business may be historically new to the scene, they’re certainly not inherently detrimental, nor are they leaving any time soon. Therefore, they must be seen as a component of the solution, not the creator of the problem.

One of the major problems with the current WTO model of globally negotiated deals is that the very essence of them is to legislate and protect particular national or corporate advantages … which is why they are not only immensely complex and large documents, but indeed why the model itself has finally failed with the end of the Doha round.

Instead of a model whose intent is to legislate and protect inequalities, the new model must be a system that does not create opportunities that can be exploited by any of the three parties; not by governments, not by businesses, and not by the people. Specifically, it must aim to build a uniform floor under labor costs, the greatest single variable cost advantage and the dominant driver of all ‘off-shoring’, particularly in developed and prosperous countries.

It must be a system that tends and trends towards equality as a function of its operation, and that makes it impossible for any company to take a labor cost advantage over another by abusing the poverty of a particular region that for any reason it has access to. There will always be disparities in labor costs. However, the effort should be to lift the poor into the middle and consuming class, not exploit the situation and maintain a state of desperate poor.

The huge labor surplus that exists in the world today provides the fuel for this race to the bottom. This creates a situation where for competitive reasons many companies must meet the lowest labor price available at any given time in order to ensure their own survival. To prevent this, a floor must be built under these labor costs that over time will trend towards parity, not more and greater inequality.

If the rise in labor costs is shared by all producers, there is no competitive advantage to any. Therefore, a new trade and development policy must, to the degree possible, tend and trend to equalize labor costs internationally so that companies are no longer required to shop for the poorest and most desperate workers in order to maintain the viability of their business.

For all of the reasons above, from the international businesses point of view, a new development and trade paradigm must be only one thing

• Simple, fair and internationally uniform

Sidney Eschenbach, 60, lives and works in Guatemala, Central America. His thoughts regarding developmental economics and trade are based on decades of development work in Latin America at various levels, community and corporate.

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A New Model for Managing International Trade and Development , Part II

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In Development…
…only one road leads to Rome, Part 2
By Sid Eschenbach / The Rag Blog / November 13, 2008

History: How did the rich nations get rich?

This is the single most important question that any national leader or policy maker should ask him or herself, because the answer solves their development conundrum: what are the elements of a system which brings economic wellbeing to the greatest number of people? Machiavelli told us that nation states always act in what they perceive to be their own best interests. Unfortunately, those are not as easy to discern as they once were.

In his pre-industrial day, both domestic and international trade consisted almost entirely of the exchange of simple agricultural and mining goods traded between national parties. As such, with the exception of imported rarities like spices, anything one region could produce; another could produce just as well.

As there was no great difference between their production costs… all labor was equivalently cheap, and so the only way to protect ones markets was through tariffs that protected domestic agricultural products. As a result, there were no rich and poor nations… they were all, outside of very few wealthy commercial or dynastic lineages, equivalently poor, agrarian based nations.

What happened, then, between Machiavelli’s day and our own that has produced the enormous differences in wellbeing between nations. How exactly did we get to where we are, a planet populated by some very rich and many very poor nations? The answer, quite simply, is that the rich nations industrialized while the poor nations didn’t. While this answer seems too simple to be true, it is both simple and true, and I will use an early example to flesh out the theoretical economic argument that follows.

History’s first deliberate large-scale industrial policy was based upon an observation that the boy who would become King Henry VII made as a child living with his aunt in Burgundy, France. There he observed great affluence in an area that produced woolen textiles… despite the fact that the area produced neither the wool nor the materials needed to process it. Instead, this affluence was a result of importing both the raw materials, wool and aluminum silicate (Fullers Earth) from England, and manufacturing the finished products in Burgundy.

Later, when he became king (1485) of an impoverished England, he resolved to convert England from a raw materials exporter to a finished goods exporter… and set out to create the policies that would produce that outcome. Among other things, he taxed wool exports while he subsidized small woolen goods manufacturers, encouraging through tax policy the creation of local industry. Simultaneously, he devised a policy that attracted craftsmen and entrepreneurs from abroad, particularly Holland and Italy.

The combined effect of this was to increase English domestic production… and as production rose, so did the export duties, until English producers were able to process all of the wool produced in England. Later, under Elizabeth I, the crown placed a total embargo on the export of raw wool, thereby ensuring the survival and strength of the English textile industry… and as a result of these policies the Elizabethan Tudors are considered by historians to be the originators of the English industrialized state and the founders of English affluence and economic power.

Contrast this policy to what we practice today. By the logic of modern ‘free-trade’ policies, Henry should never have protected his own people, and the more efficient French should have been allowed, through their already established manufacturing base, to export duty free to England. Fortunately for both England and France, this did not happen. Seeing the English success, this policy of protecting and building an industrial base spread to other regions and became national policy for many of the early European states over the following two centuries.

Its use was so dominant that the German economist Friedrich List recognized in 1841 that there was a natural evolution in development: when starting up the economic ladder, the state had to protect its industries and restrict raw material exports. Later, when the domestic industries could service the needs of the nation, the same barriers to trade that had allowed them to prosper behind import/export restrictions began to restrict their potential growth into other nations as their industrial capacity grew stronger.

As an anonymous Italian traveler to Holland put it slightly earlier (1786), “Tariffs are as useful for introducing the arts (manufacturing) in a country, as they are damaging once these are established.”… and it hasn’t been said any better since. Without belaboring the point by going into endless historical example, it nevertheless bears repeating: all industrialized nations, even those poorly run, are relatively richer and have higher standards of living than all non-industrialized nations.

From that reality and from that historical record we can adopt with confidence a fundamental law of development: ‘development and general well-being cannot occur without industrialization’ an economic reality that the current trade/development paradigm completely ignores.

Economists today explain that the theoretical reason this is true is due to phenomena they call increasing returns and diminishing returns. These two concepts describe the economic differences between agricultural, fishing or mining income on the one hand, and industrial or technologically based income on the other hand.

The first is a zero-sum game and a creator of finite wealth, while the second is a non-zero sum creator of infinite wealth. The reason this is true, that one can produce infinite wealth while the other only finite wealth, revolves around the phenomena that are at the heart of the creation of affluence — the potential for worker productivity and innovation available to each sector.

A barber or a house painter, once they learn their trades, can only paint so many houses or cut so many heads of hair in one day… and that’s it. There is no way to significantly increase their productivity.

Likewise, an acre of ground can only produce so much wheat or corn. Yes, yields increase as the painter gets faster, but the limits to both are quickly reached. Indeed, after the production limits have been reached, these become examples of businesses of diminishing returns because any dollar invested in them after they reach their peaks yields proportionally less income rather than more.

One of the defining features of industry, however, is that of increasing returns. As any car manufacturer, computer screen producer or a production-line worker knows, once the system is in place to manufacture any widget, the savings generated through scale, repetition and mechanization create an endless vehicle for increased productivity, and every additional widget produced costs less than the one before it.

While the barber is stuck at one head every half hour, the production line worker goes from one car per day to 100 cars per day. It is this increasing return and increased productivity that creates rising standards of living within the labor force … and this is exactly how rich nations got rich; they industrialized. Through that process of increasing returns and increasing productivity they created the wealthy societies that they enjoy today.

As a result, and again not coincidentally, there is not now nor has there ever been an industrialized nation that is not wealthy. There are industrialized nations that are richer than other industrialized nations, and there are a few nations that are not industrialized that are wealthy, but those are limited to the anomalous economic realities of the oil producing nations… and indeed that is only due to the industrialization of their production base, allowing them to enjoy increasing returns like any other industrial enterprise.

The Role of Labor in National Development

And industrialized labor… how does that fit in? Again, it is interesting and instructive to turn to the historical record, and then to the economic theory… but as a preface, a restatement of the obvious. The engine of development, manufacturing, requires two things: inside the factory, quality labor, and outside the factory, buyers. But where do they come from?

To put it another way, if the economic gains generated by the increasing returns of manufacturing are not shared broadly, the poverty of the region, like the tariffs for developed manufacturing areas (above), becomes a brake to growth, not an aid to it. Production requires education and consumption, so if workers are not sharing in the economic gains generated by their labor in the manufacturing sector, there will be no growth because there will be no increased capability nor demand.

A historic fact not widely known is that prior to the massive industrialization brought on by the Second World War, the United States, like all other nations, did not have a large middle class, a fact which raised the question of how the U.S. got from the Gilded Age, the period characterized by a small middle class and great inequalities in income, the period that ended with the Great Depression (again, a non-coincidental event), to the post WWII middle class society of today.

The answer to that question lies in the phenomena of something that economists now call ‘Fordism’, named after Henry Ford. Among the many myths surrounding Ford, perhaps the greatest is that he paid his workers a substantial premium above the minimum wage ($5.00 vs. $2.34 p/day) in the belief that those who worked in his factories should be able to afford his products.

The real reason he gave them a raise is because he recognized that he could make far more cars and money if his workers were efficient and highly productive. Worker turnover being a major problem for his business, he reasoned that if he paid his workers more than others, he would attract the best workers and keep them longer.

This wasn’t an altruistic policy, but a strictly selfish one. It was to manufacturing what Adam Smiths famous line about why the barber cuts your hair was to cottage labor: barbers cut hair not because they want to keep you well-shorn and neat, but because they need the income. Ford, likewise, paid his workers more because it was in his best interests. That it was also in the best interests of the workers was essentially a highly beneficial byproduct of Fords search for higher and higher productivity.

Economists now define ‘Fordism’ in slightly broader terms; as a system where wages increase in step with the productivity increases of the leading industrial sector. There are various theories as to why it Fordism works… which take us to unions, higher labor costs and the role they play within national developmental policy.

The concept that Henry Ford put into practice in his factories, paying higher wages and getting higher productivity, is known in labor economic theory as the ‘efficiency wage hypothesis’. Unfortunately, while recognizing the empirical validity of the phenomena, economists are not clear on why exactly it works… that is, why does paying workers more always result in higher productivity? The reason for this confusion, in my opinion, is that they are looking under the wrong rock to find the answer.

It lies not under the ‘how workers might respond to higher wages’ rock, but rather the ‘how management does respond to higher costs’ rock. The traditional analysis advances the following principal worker response factors as probable reasons for the existence of the phenomena:

• higher pay yields lower shirking (the worker values the job more with higher pay, and works harder to minimize the chance of losing it);
• minimized turnover yields a better trained and thus more productive workforce;
• higher pay yields higher morale which makes for more productive workers, and in extreme cases,
• higher pay yields a better fed worker who is able to work harder and thus be more productive.

While any and all of these reasons could certainly impact the worker in the manners suggested, the far more probable reason that higher labor costs always produces higher productivity is because of the management. The simple reason is that the fundamental role of management is to increase profit, and it can do that in two ways: increase sales, or lower costs.

When labor becomes a higher percentage of production costs, management will of necessity focus all their talents on the creation of ‘labor saving’ devices in order to reduce those costs. In manufacturing, lowering labor costs while maintaining production levels means lower unit costs … which is the very definition of increased productivity.

Put simply, Henry Ford’s higher wages may have indeed motivated the workers to work harder, shirk less, etc. However, as both the modern production line and Ford’s memoirs attest, his number one goal was to constantly work on creating systems that cut the labor cost of manufacturing … due to its high cost!

In manufacturing, then, the result of higher labor costs (although obviously not infinitely) can be nothing other than higher productivity… and that’s why unions are important. Contrary to the conclusion that common sense might produce, low wages do not create high productivity… but low productivity.

Unfortunately, as most managers are not as hard working as was Henry Ford, they would prefer to pay their workers less and not work as hard on finding labor saving devices as he did. However, as I hope I have shown, without increased productivity there can be no upwards spiral, and under a high wage scenario capitalist management itself will guarantee that that will happen.

Unions and organized labor simply remove the ‘lazy management/surplus labor’ option from management, thereby creating within the industrialized state the essential wage/productivity spiral that leads to the creation of a middle class. It is a historical fact that the periods of fastest growth in real wages have been periods of what J.K. Galbraith called periods of the “balance of countervailing powers”, that is, when industrial power and labor power were generally equal, and the result was highly efficient ‘Fordist’ wage regimes, periods characterized by rising wages, rising productivity and thus a broad and rising stand of living.

Fordism provides us with a blueprint of how to create prosperity: first, pay your workers enough that you create a middle class whose consumption would sustain the industry; and second, pay your workers enough to make them want the job and to push management into creating a more productive workforce. It is doing the impossible, lifting oneself up by ones own bootstraps. Without providing the industrial and labor conditions for ‘increasing returns’, no economy really advances at a rate any greater than its own population growth.

The Evolution of Well-being: a Review

As I mentioned earlier, none of this is new, as Friedrich List theorized essentially what I have summarized below almost 200 years ago. However, in the event that what I’m trying to explain still isn’t clear, let me condense the previous pages into their salient few points without their respective accompanying arguments:

1. For a nation to enjoy broadly shared well-being, it must be industrialized.


1. Therefore, for an undeveloped nation to prosper, a developed industrial sector must be created.
2. In order for that industry to grow, it must be protected when small and inefficient from larger, more efficient producers.
3. If it is not protected, it will not survive the competition from those who have come before it somewhere else, and as a result…
4. Industry will not develop, and broad national well-being will NEVER be achieved.


2. In exchange for the protection of national tax or tariff policies, the protected industry must allow workers to organize and bargain collectively. This will…


1. insure that the industry, as it develops, will be as productive as possible;
2. start the essential wage/productivity spiral that will broaden prosperity;
3. prepare for the day when the industry is big and productive enough to survive without national protection.

If the above is true, is there anything about modern free-market capitalism that would lead one to believe that a by-product of its use would be broad, global development and well-being? Is there anything inherent in the functioning of ‘free trade’ that would create the conditions necessary to build broad-based prosperity, remembering that there is only one road to Rome?

The answers to those questions, of course, are no. Be they the older examples of England, Germany, Italy, and France, the newer examples of the United States and Russia, to the recent rise of the ‘Asian Tigers’, China and India… all nations have used this route to development: protect, industrialize, export… because there is no other.

How then, if it’s so obvious, did the currently dominant development model take control of the development narrative? Simply because the goals of the global multi-nationals are not congruent with those of the nations states.

As noted earlier, nations and businesses act in their own best interests, and it is not in the interests of international business to create a series of local and national producers of the products that they themselves make elsewhere. The fact that without this industrialization the country will develop much more slowly if at all is not their problem. This doesn’t make them evil or malicious, but rather just one more entity acting as it would be expected to act… in their own best interests.

Sidney Eschenbach, 60, lives and works in Guatemala, Central America. His thoughts regarding developmental economics and trade are based on decades of development work in Latin America at various levels, community and corporate.

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A New Model for Managing International Trade and Development , Part I

This is the first part of a four-part series describing a new approach to the conundrum of manufacturing outsourcing. Sid Eschenbach is The Rag Blog's newest contributor. We welcome his participation in our growing effort. And we hope you, the readers of TRB, enjoy this proposal for changing the way globalization is taking place.

Richard Jehn / The Rag Blog

Click here for all the posts in the series.

In Development…
…only one road leads to Rome
By Sid Eschenbach / The Rag Blog / November 12, 2008

Introduction

The challenges facing President-Elect Barack Obama could not be clearer: in the U.S., he must reverse the hemorrhaging of high quality jobs and declining real wages, and set a course to restore real economic and wage growth. In particular, Obama’s policies must create real growth… that is, growth not founded on financial card shuffling or fiat spending, but on that growth of old founded upon simple work and production. Not on excess borrowing by American consumers, but earnings from jobs and investments in other than service and financial sector businesses.

The U.S., like most other nations, is finally going to be forced, once again, to make money, like that old Smith-Barney ad stated, the old fashioned way... by earning it… but industrial production is at its lowest level since 1942 as a percentage of the economy.

Over the past 40 years, the historic trade relationships between nations have been fundamentally changed by the introduction of massive, stateless global corporations into the traditional national trade and development equations. Because their interests are not necessarily congruent with those of any nation, the established development paradigm of protect, industrialize, consolidate and export has become distorted by their arguments and interests. I hope to show over the course of this paper that in spite of the self-serving arguments advanced by the global corporations, there is still only one road to generalized prosperity, and that is the traditional road.

It is the road that starts with protected national industrialization and ends with higher worker pay and the creation of a productive and entrepreneurial middle class, features that managed correctly then become self-perpetuating features of the national economy. However, without these precursor states of protection, industrialization and labor gains, the economic benefits generated by innovation and productivity will never be realized, and an otherwise achievable state of generalized and global economic well-being will be impossible to attain. I will further argue that the use of this paradigm does not, in fact, hurt the valid interests of the corporate trade entities, but will rather serve to spur their own prosperity.

However, to achieve this end, we will need to find a remedy to the problem that is at the heart of what currently drives manufacturing to migrate ‘off-shore’, the problem of global surplus labor and the natural and unavoidable exploitation of that resource by international businesses. This is not something that they do because they are inherently evil or abusive by nature, but rather something that they are obliged to do simply in order to survive within the capitalist system.

Fixing this labor problem and strengthening the traditional model of national development will allow us to return to a modified model of what has brought prosperity in the past, but with the added virtue of benefitting from the tremendous creative capacity of the new player in the arena, the international businesses.

The first indication that the above is likely true, that prosperity and well-being in large nations can only be created and sustained through industrialization, is the recognition of the fact that before the Industrial Revolution, no people, no nation and no empire on the planet achieved an economic level where the majority of their people were living above subsistence level.

Not the Greeks, not the Romans, not the Chinese or the Sumerians or the Aztecs or the Incas. Not in London, Rome, Angkor Wat, Baghdad, Cairo or Cuzco… no civilization anywhere achieved states of well-being remotely comparable to what has been achieved by hundreds of millions of people in the past two centuries since the industrial age swept out of England and changed the world. As we will see, it’s not a coincidence.

That being the case, Obama’s economic challenges, while bigger in scale than others, are the same as those faced by most national leaders on the planet… to improve the well-being of his or her people in real, sustainable ways. Amazingly, this is proving difficult to do, in spite of ample historical evidence as to what must be done. This paper will argue that there is one and only one road for any nation or region to successfully develop and achieve a sustainable economic state of comfortable well-being for its people, and that road that stands independent of national identity, cultural values or geographic peculiarity.

Over the last two centuries of competing economic theories, political and cultural policies and in a wide variety of geographic settings, it has been repeatedly shown that there is only one route to economic well-being, one that starts with industrialization and ends with organization of labor, higher worker productivity and innovation. Without them, you’re dead. With them, you are a success and your people are comfortable.

The idea, advanced by corporate interests intent on moving manufacturing to low-wage environments, that a large nation can generate and sustain prosperity through the economic activities of the service or finance sectors alone has finally collapsed, and the demise of this ideologically flawed model is as important to the worlds economic evolution as was the fall of the Berlin Wall in politics. However, unless this economic collapse is understood for what it is, the systemic failure of modern international corporate laissez faire economic ideology, and unless that recognition spurs a complete rethink and redesign of the past 50 years of economic development theory, there is absolutely no hope that that the new American president can, using Keynesian mechanics, rebuild within the United States and the rest of the world a system that by its nature generates and sustains prosperity.

Without overstating the case, this is a moment not unlike that faced by John Locke when he wrote his ‘Two Treatises of Government.’ In it, he first refutes the basis of the then-existing seventeenth-century political order (primogeniture), and then goes on to develop the arguments for an entirely new political system. First, however, he asked all the hard questions, the answers to which demanded a rethink of the political realities of the day… and it is just this type of analysis that is called for at this current time of economic crisis. The king is dead; long live the king.

The situation as it stands today

The current development mantra is the internationalized version of the U.S. domestic ‘trickle-down’ theory first popularized by Ronald Reagan. Its ‘developmental’ premise is that what is good for the top is also good for the bottom; that unrestricted and unregulated corporate ‘free-trade’, the unrestricted manufacture and exchange of goods, will by its nature lead all who participate in it to a developed economic state.

The adoption of this ‘strategy’ is, in historical terms, very recent, and is driven by the particular agenda of the new kid at the party… the powerful and essentially stateless multi-national corporations who, not surprisingly, have their own needs before them. That is because while trade agreements are signed between nations, they are in fact driven by particular business interests that may or may not be congruent with the national interests, and as such, are not necessarily made in their national interests.

Furthermore, the silent partners to these agreements, the multi-national corporate structures, do not share equitably in the true burden¹ of the educational, legal, social and environmental services provided for the workers of the multi-nationals… but paid for by the nation-states. Thus, the so-called ‘free-trade’ agreements signed between nation states have invisible co-signatories, the corporate multi-nationals that will be the major beneficiaries of them.

Instead of seeing the outcome as a win/lose or a win/win contract between the national parties involved, the outcomes should more truly be considered to be shared between three parties… the two nations involved… and the corporate parties who will most likely be the real beneficiaries. It is the very nature of this new tripartite relationship that has dramatically changed the historic shape of national development and trade policy.

For many, the new and powerful groups of international corporations are the villains of the piece, a group whose interests are not national and whose goals are distinct from the historical processes used by nations to develop. To the degree that they are the authors and the proponents of the current ‘free-market’ development model, they are indeed the villains. However, in my opinion this is more coincidental than by design, as they simply grew, like nations and individuals, to act in their own best interests… something that should surprise no one.

The challenge is to design a trade and development strategy that joins the goals and the success of the multi-nationals to the goals and the success of the national interests they work between… a situation that we don’t currently enjoy.

Exactly what is different about modern international trade? Surely there has always been trade, and empires from the Venetians to the Dutch were built upon it. The answer is simple: the dominant power of statelessness corporate players. From the time of the Peloponnesians, through the Venetians to the Dutch and the English, all trading was done by national entities that, while acting privately, generally reflected national interests… a fact that is no longer the case.

There are now many companies that while headquartered in a particular nation, actually do the bulk of their business, have the bulk of their workforce and earn the bulk of their profits in other nations than their ‘own’. When they make decisions, then, whose interests do they represent… their own, or the nation where their headquarters is located, their manufacturing done, or their sales consummated?

It is due to the opaque answer to this question that the historical trade and development paradigm has been altered, and that reason is simply because, as stated above, national trade agreements are not any more necessarily in the best interests of the nation where either the manufacturing or the selling takes place, but in the best interests of the manufacturer or the seller… and that may be completely different than any of the nations involved.

As international trade and development policy currently exists, it is harder, not easier, for a nation to implement the policies that will actually lead to the goal line — an industrialized, unionized economic state where innovation and productivity are the engines of well-being. Why? Because as things stand now, international capital can shop production facilities between national sites that are reduced to underbidding; giving more generous tax holidays, forgiving labor and environmental regulations, even paying the potential investor to invest in their country.

This happens because of one simple, commanding and unavoidable reality; the world has a huge surplus of cheap labor. Therefore, under the ‘any job is better than no job’ scenario, for the citizens of most countries these policies constitute nothing less than a game of economic ‘limbo’… how low can you go? For labor, it is quite simply a race to the bottom.

For the corporate entities, it is also a race to the bottom, but their ‘bottom’ is the bottom line. This is the simple result of the inevitable capitalist struggle, their fight for survival among their peers, and their actions represent only what they must do to survive. Therefore, the country that offers the best combination of low labor costs and efficiency, all else being equal, will receive the production facility… which is why it is a race to the bottom.

The international negotiating record is rife with tax holidays, environmental sacrifices, payoffs to national leaders, labor exceptions, etc, tools and gifts employed by both the country and the company to get a ‘better’ deal. It is most often then not on what is best for the country or the people, but upon the argument that anything is better than nothing, even if workers rights, environmental protections and decent pay are sacrificed to get the ‘deal’.

Due to economies of scale and low costs of transportation, it is far better from the corporate and strictly economic point of view to manufacture any product in a low wage - low controls - low obligations environment and sell in the high cost environment. Due to worldwide surpluses of both labor and capital, and in combination with the information technology revolution, this ‘flat’ world phenomena can be expected to continue unhindered unless international trade and development policies change through national legislative actions.

While no one can foretell the future, if the past is any example, what this probably means is a continued decline in the manufacturing sectors in the national economies in the developed world, and very moderate increases in income for the undeveloped and developing world… a situation that is not beneficial for either … and is in fact politically untenable for both.

Because of this recent addition of the multi-nationals to the mix and their advancement of a ‘trade is development’ paradigm, a rethink of the entire situation is past due. The development argument advanced by corporate interests in support of their ‘free-trade’ and ‘out-sourcing’ policies is the following: that the consumer benefits through lower prices and that efficient capitalism (measured by cheap prices) is not only good, but historically inevitable (which, given the policy, becomes a self-fulfilling theory).

It also embodies the argument that trade and consumerism will create development and well-being automatically as a bi-product of the same. However, are there any facts to support this assertion? I would say no.

There is no doubt that the well-being of humanity as a whole has indeed improved, but this is unremarkable in itself: exclusive of short-term variations, human quality of life has always improved over time. The Sumerians lived better than early Homo sapiens, Rome better than Sumeria, etc. Therefore, general or specific cases of improved well-being cannot be used as a particularly compelling argument for the ‘free-trade as development’ model.

Indeed, the fact is that the only national economies that actually have graduated from ‘un’ or ‘under’ developed to developed status did so using the traditional methods of protecting national markets and industries while strengthening them in order to then export and prosper. The examples of the successful use of this historical model would be the Asian tigers, China, and to a lesser degree India. On the other side of the coin, we have all of Africa and South America who were forced to accept the neo-liberal model… and are still struggling to achieve both economic and political well-being.

A Step in the Right Direction

In my opinion the current model of international trade can actually be described in the following equation: abundant international capital + excess international labor + super efficient global communication and transportation systems = development.

It represents the neo-liberal argument that a ‘goods’ based system, the manufacture and trading of goods, will lift the standard of living of everyone. As stated above, the only examples of nations that have in the past 30 years achieved the levels of well-being enjoyed by the previously ‘developed’ world did so by creating a hybrid model, one that utilizes the proven methodology of the past while joining it to the creative and financial power of the international corporate trading and manufacturing entities.

First, they rejected the neo-liberal policies promoted by the IMF, World Bank and what is know as the Washington Consensus and, bucking strong opposition, went traditional: they protected their industry, protected their markets, and kept control over their own national priorities. However, that added a twist to that historical model by taking advantage of the multi-nationals, offering their countries as bases for export manufacturing and thereby gaining the benefits of their technological and financial capacity.

Compared to the regions that did not adopt this ‘amalgamated’ strategy and simply swallowed the neo-liberal philosophy and practices, those many countries that simply opened their borders to the ‘cheap’ consumer articles produced elsewhere, the difference is dramatic. This is not to say that over the past 40 years there has not been uniform and rising global prosperity even in the ‘free-trade’ countries. However, the difference between a star of the neo-liberal world, Chile, and one of the many stars of the modern ‘amalgamated’ world, South Korea, for example, is dramatic. It is not an argument that open-border trade is bad, but rather that real development is better.

And we should not be surprised that even just trade makes things better. After all, man is nothing if not creative and intelligent. Things have been getting better for the past 10,000 years, so we certainly would not expect to go backwards. However, using a ‘things are better’ argument against a ‘things could be much better yet’ argument makes no sense. I am not against trade, but I am against the proposition that trade is the best vehicle for development.

What then, is the best program? Have the Asian economies created a viable new model that combines the best of the past and the best of the modern? What should be at the heart of development? In contrast to the neo-liberal argument that cheap consumer prices are the standard by which success is measured, I believe that they should not the central part but one of the least relevant parts of a successful national development policy.

While price will always drive consumption and consumers behavior, the consumer can only consume if he/she has money to buy… and that must be earned. The question is, from where? How does one produce with one’s labor something that has enough value to purchase the goods produced elsewhere?

The truth is that ‘free’ trade, in the absence of global industrialization and collective bargaining is, as I said above, nothing less than a race to the bottom for the many, all for the benefit of a relative few international parties. When two nations sign a ‘free-trade’ agreement, the businesses that can move do move… from the high-wage nation to the low wage nation, as there is no longer a penalty to export back into that high wage market. Therefore, when that company ‘off-shores’ its manufacturing, the high wage laborers lose, the low wage laborers lose, and the company gains. This is no solution for the peoples of either country.

Note

1 In August, the U.S. Government Accountability Office reported that two-thirds of U.S. corporations paid no income taxes between 1998 and 2005.

Sidney Eschenbach, 60, lives and works in Guatemala, Central America. His thoughts regarding developmental economics and trade are based on decades of development work in Latin America at various levels, community and corporate.

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