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By George P. Brockway, originally published March/April 2000

2000-3-4-why-free-trade-is-not-fair-title

LET ME SAY at once that aside from a few broken windows, I believe the recent World Trade  Organization (WTO) meeting in Seattle, because of the demonstrations it sparked, was as near perfect as could have been expected. Perfection would have been for the WTO to abolish itself and start over, and with luck we may come to that.

Let me say next that I’m not impressed, and never have been, with the argument that it’s wrong to oppose child labor in India (a nation that deplores America’s crass commercialism and lack of spirituality) on the grounds that if the children didn’t work, their parents would starve. Arguments of that kind have been used since the beginning of time to justify every conceivable example of man’s inhumanity to children, to women and even to other men. If it is impossible to make rugs of the highest-that is, most traditional-quality unless the knots are tied by juvenile fingers, it would be no hardship for us to walk on broadloom carpets.

I am not, furthermore, abashed by the debater’s point that if I want to protect several million American jobs, I can do so only by throwing several million (and probably more) workers out of work on the other side of the world. The late Sidney Weintraub, a longtime contributor to this magazine, had the answer to that one. He asked whether any free-trade publicist or professor ever felt obligated to resign in favor of a jobless scribbler or savant half a world away. If not, why not?

I am willing to entertain, for purposes of illustration (since I am showing, not arguing), the exceedingly remote possibility that American environmentalists thought up dolphin-safe tuna nets and turtle-safe shrimp nets to interfere with the ability of Central American fishermen to compete with ours. Whether the new nets impede trade or not, though, they certainly promote diversity of life and so, in the general interest, should be required by any responsible authority.

On the other hand, I submit that it is none of our business where France buys its bananas (especially since we don’t grow them). It is preposterous to the point of idiocy that we should have the right, because France insists on buying bananas from its former colonies, to impose tariffs of 100 per cent on brie and foie gras and other delicacies I happen to like-whose producers, to the best of my knowledge, do not now have, and never have had, anything to do with bananas.

All such nonsense, and much more, was foreseen by Ralph Nader, Senator Ernest F. Hollings (D.-S.C.) and others who testified against Congressional approval of the World Trade Organization (the new, friendlier sounding name of GATT, or the General Agreement on Tariffs and Trade). Brief hearings were hastily held over a few days around Thanksgiving in 1994. Unfortunately, it was agreed that the question would go to the floor on a “fast track” basis, with limited debate and no opportunity for amendment: just a simple vote up or down. The whole thing was a done deal by December 8. It would not be outrageous to suggest that few legislators had a detailed understanding of what the WTO was about, although it sounded good, and most citizens did not know how their senators and representatives had voted, let alone why.

The fast track was not an altogether bum idea, for tariffs are even more subject to logrolling than military appropriations. The trouble was, and is, not that the WTO has a few sloppily drafted passages of the sort that are almost unavoidable in any large piece of legislation. No, the trouble is that the World Trade Organization is not merely foolish, but dangerous.

Unhappily, what’s done is not so easy to undo, especially in an organization that was conceived in secrecy, does most of its business in secret ad hoc committees, and can overturn its secretly arrived-at decisions only by a unanimous vote. (A vote of 148-to-nothing is hard to achieve in the best of conditions, and is practically certain to prove impossible when the “ayes” must include both the plaintiff and the defendant.)

As I said at the outset, the best thing the WTO could have done in Seattle was abolish itself and start over. Somewhere on the desk before me I have suggestions for an alternative approach. My idea was designed to protect the interests of workers and consumers in both developed and underdeveloped nations. It first appeared in this column about 18 years ago.[1]

WE BEGIN with the workers in the developed countries, for the WTO is taking away something they once had-namely, reasonably decent jobs. At the least, they had much better jobs than many millions of them have today in this prosperous millennium. Let me repeat two dicta that I hold self-evident: (1) The citizen’s right to make an honorable contribution to the common wealth is equal to the state’s right to hold him or her to its laws. (2) No full-time work that does not support a life of honor and decency is worth doing except as a favor or a hobby, as training or punishment, or in defense of the realm.

No American official-nor any official of any other nation-is entitled to take these dicta lightly. Bearing them in mind, I say the way to protect is to protect directly and openly.

First, we recognize that a few of our important (not necessarily our largest) industries are threatened in their home market by severe competition from foreign industries. Second, we determine whether that competition is made possible by wages or working conditions that we should consider exploitative or dangerous. Third, we simply and absolutely refuse admittance to commodities produced under such conditions. We don’t fiddle with the tariff on foie gras or anything else; we simply forbid the importation of offending stuff.

The proposal is not complicated. It does not cover all industries or any other nation (although we would not object if the possibility helps improve conditions in other countries anywhere in the world). It does not dictate where France buys its bananas. It does not require elaborately contentious cost accounting, as do the WTO rules against “dumping.” It turns on straightforward questions of fact. What are the working conditions? Is child labor employed? What are the wage scales? (And don’t try to kid us that the serfs are happy; it’s our happiness that we are protecting.)

The proposal does not interfere with foreigners’ or multinationals’ trade anywhere else in the world. In every respect it is analogous to laws currently in effect that refuse entry to contaminated foods or drugs we consider dangerous (regardless of what anyone else thinks), or automobiles that do not meet our emissions standards, or books that violate our copyright laws, or foreign-made assault rifles. Such laws protect Americans as consumers and citizens. The proposal will protect Americans as workers and as entrepreneurs.

Some will object that it can’t work, because it is impossible to compare foreign wage scales and working conditions with ours. If the comparisons can’t be made, how do the critics of American workers know they are overpaid? The objection misses the point anyhow. The proposal is not trying to change foreigners’ conditions but to protect ours. The WTO tries to run the world in accordance with an archaic economic dogma. The proposal is intended to protect our right to follow our vision of the good life in our own way.

The crucial question is, as the lawyers say, who has the burden of proof? In the present case, we can reasonably ask those seeking access to our markets to prove that their workers are fairly paid and fairly treated by our standards. As the Wall Street Journal might proclaim, we insist on a level playing field for all our home games. American companies and American unions and even committees of American workers would have the right to challenge the proof. No need to make a big fuss over it, any more than a fuss is now made about determining that certain foreign automobiles do not meet our emissions standards, or that certain drugs are legally inadmissible.

There are many who will argue against protecting the American standard of living. Some will be devoted to consumers. Cheap imports, they will say, benefit everyone. If so, how do we repay those who lose their jobs so that the rest of us can be free to choose among low priced commodities? Or don’t we care?

NOW CONSIDER the situation of the underdeveloped countries and peoples of the globe. Today, as in the 18th and 19th centuries, the more developed countries need the less developed countries as sources of raw materials, some of which are not available elsewhere. The multinational corporations also use certain less developed countries as sources of cheap labor and working conditions. The banks of the First World have found the weak nations of the Third World eager borrowers of money at high interest rates. What was imperialism before independence has become neoimperialism.

The social and political domination of imperialism is largely gone, but the economic extraction of neoimperialism grows and festers. The irony is that what is mainly extracted is labor power. This comes about because the goods the multinationals manufacture in the Third World are sold in the First World. Steel produced by Brazilian mills is bought in markets formerly served by Pittsburgh. Plastic frame irons General Electric manufactures in Singapore are sold in American discount stores. American textbooks printed in Hong Kong are studied in British classrooms. California sports shirts stitched together in China are sold in resorts on the Florida Keys.

As a result of all this activity, the Third World has goods to export, but never seems to have enough.  The reason is that the exports to the First World are paid for with imports from the First World. It is at this point that the extraction of labor power shows itself, for many times more labor goes into the exports as into the imports.

The wage differential varies from industry to industry, from country to country, and from time to time, but a rough idea of comparative wage scales can be gathered from the Gross National Product per capita. Today that figure is $2,800 in the Peoples’ Republic of China, $1,350 in Nigeria, and $3,300 in Brazil. In the United States it is about $32,000. On the basis of these figures, we will not be overstating the case if we say that a dollar commands at least five times as much labor in the Third World as it does in the First World.

Thus when the two “worlds” exchange goods, the Third World is the net loser of four-fifths of the labor involved. This four-fifths is extracted and gone forever. The Third World nations will escape from neoimperialism only when they are able to sharply reduce manufacturing things for the First World and increase manufacturing things for trading with one another. For many and obvious reasons, this will not be easy to do. Their situation is only superficially like that, say, of the fledgling United States in the 19th century.

Two differences are crucial. First, although Europe (mainly Britain) invested heavily in the United States, the investments were either in factories for things like sewing thread or pig iron that were largely consumed in the U.S., or for dams, railroads and other infrastructure, which necessarily remained in the U.S. Early on the United States exported agricultural products, but comparatively little else.

Second, the United States was thinly populated, the frontier was open, and the egalitarian tradition was strong; so labor was in great demand, and American wages were the highest in the world (a boast, incidentally, that we can no longer make).

There was, in short, no possibility that Europe might extract American labor power. Any extraction ran the other way. The Third World has been enticed, by faulty economic theory, into producing primarily for export. On such a foundation, they can have little hope of an early escape from neoimperialism.

Providentially they can be helped if we help ourselves. That is to say, they may be nudged into trading among themselves if we reduce our labor-extracting trade with them. It is in our interest to protect ourselves from such trade because it hurts our fellow citizens. The citizens of a nation have, in the grand old phrase, certain rights, privileges and immunities that are denied to foreigners. If we who are citizens are not distinguished in this way from outsiders, of what meaning is citizenship to us? And if national citizenship is without meaning, of what meaning is the nation?

2000-3-4-say-no-to-the-wtoPerhaps we don’t want a nation. Perhaps we reserve our loyalty for those who are very near and very dear to us. Perhaps, as D.H. Lawrence put it in Aaron’s Rod, we “love-whoosh for humanity.” But if we have a nation, then the well-being of our fellow citizens has to be vital to us. We can’t demand respect for our own well-being unless we, at the same time, to the same extent, and for the same reasons, respect theirs.

In contrast, the theory of free trade is concerned only with commerce. Like classical economics, it has no respect for persons, except possibly as consumers. It sees no need for government beyond minimal police protection. As was demonstrated in Seattle, the World Trade Organization is not prepared even to consider questions concerning human rights, labor rights, the environment, or the use of natural resources. Even after the financial debacle of Southeast Asia, no attempt will be made to rationalize the surge and countersurge of money around the globe. In a free trade world, politics stops at the cash register.

Before we pursue policies that deny citizens the right to make a particular contribution to the common wealth, we have a duty to guarantee that they have an actual opportunity to make a contribution in another way. This duty is not satisfied by colorful references to sunset industries or to hoped- for results from research and development that somebody may be undertaking at some unspecified time. This duty is not satisfied by vague programs, even if well-funded (and they seldom are), to retrain people for new jobs that do not yet exist. This duty can be satisfied only with alternatives that are specific, real, and at least equivalent.

And time is of the essence. Since such alternatives are exceedingly unlikely-at least no one has bothered to name one-we have a duty to protect our fellow citizens by regulating our participation in foreign trade, even if it means forgoing an extra sports shirt or a better sports car.

By exploiting their cheap labor to produce things for export to the developed nations, the developing nations condemn themselves to a neocolonial status. By encouraging this sort of exploitation, the developed nations condemn themselves to the stagnation and decline that has been the fate of all imperialisms the world has yet seen.

The New Leader

[1] Ed:  the author isn’t here to ask which article he refers to but this seems correct.

By George P. Brockway, originally published November 4, 1996

1996-11-4 Deceptively Simple Economics Title

I WANT TO tell you about a new book you probably will not quickly hear about elsewhere. It is not the sort of book most newspapers or magazines notice, because it is a serious work on economics and full of unfamiliar ideas. Nor is it the sort of book professional economics journals review, because it is not narrowly technical and the author is not a professional economist.

The title is Leakage: The Bleeding of the American Economy (368 pp., $39.95). The author is Treval C. Powers. The publisher is Benchmark Press.

Leakage is an extraordinary achievement- a careful, probing, empirical analysis of the American macro-economy and, a fortiori, any free-market economy in the modem world. It is relevant for economic theory and turns a strong light on many dark and murky notions that are today taught in the colleges. It is also relevant for policy and hence for politics.

Powers’ argument is deceptively obvious. What he calls the Composite Producer, or the producing economy considered as a whole, pays people money for the use of their labor and their capital and their land to produce goods and services; there is, ultimately, no other source for money income. The Composite Consumer, or all the people considered as a whole, uses the money (wages, rent, interest, profit) to buy what has been produced; there is no other way the economy can recoup the costs of the goods and services that have been produced.

So far, one might think this is merely another form of Say’s law that production creates its own demand, or of its contemporary version, the supply-side delusion. But the conclusions of Say and Powers are almost diametrically contrary to each other. Say wrote: “It is the aim of good government to stimulate production and of bad government to encourage consumption.” In contrast, Powers writes: “Receipt of income from the nation [i.e., the producing economy] entails a responsibility for the spending of that income. Failure to spend income for goods and services must be seen as a transgression against the weakest and most vulnerable families of the nation.”

Powers notes that the Composite Consumer doesn’t spend all of its income, with the result that the Producer increases prices and reduces expenditures for labor and capital use. Production necessarily drops below the optimum. A freefall, however, does not ensue, because the Composite Producer is continually introducing efficiencies in production processes and creating new products.

Studying a run of the Statistical Abstract of the United States, Powers finds that in the American economy, in good years and bad, the annual cost of producing and maintaining capital goods and services is a quasi-constant, never varying much from 20 per cent of the total cost of production. This quasi-constant and several others, Powers observes, will require further analysis (one of Leakages virtues is that it opens avenues for further research), for substantial reform of the economy is likely to depend on their interrelationships and on the internal organization of at least some of them.

Given present circumstances, it seems evident that aggregate investment will not be increased without increasing aggregate consumption. Thus, the supply side cry of both classical and neo classical economics; that we must curtail consumption in order to save, and that we must save in order to invest, is hopelessly wrongheaded.

Flying in the face of ascetic moralizers since the beginning of time, Powers shows that saving, or non-consuming, not only fails to boost production but actually lessens it. He writes, “When the demand for consumer goods and services is reduced, so also is the demand for capital expenditures. They are not independent variables.”

Saving-both personal saving and undistributed corporate profits-is the main example of what Powers calls “alpha leakage.” A certain amount of alpha leakage, mainly cash balances for routine transactions or as bank reserves, is unavoidable and fairly constant. Ordinary savings by some people for retirement, education and emergencies do not upset the economy, because they are roughly balanced by other people spending previous savings for the same purposes.

The rest is a consequence of maldistribution of income, whereby some people receive more money as wages or capital income from the production of goods and services than they know how to spend on them. So long as domestic (not foreign) goods and services are involved, sumptuous or extravagant expenditures are not economic leakage, but of course they may be deplored on other grounds.

In this connection, Powers makes another observation that flies in the face of conventional wisdom: Because government does not save, but spends its entire income on goods and services, taxation “cannot be a source of leakage and reduction of output.” Aggregate demand (and hence production) is increased by taxation of income that would otherwise have leaked from the economy, whereas taxation of personal or corporate income that would have been spent on goods and services has no effect on aggregate demand, though it certainly affects individual demand.

There is another type of leakage-Powers calls it “rho leakage”-that consists of money lost or denied the economy by constrictive policies of the banking system (in recent decades the Federal Reserve’s misconceived specialty), by bank failures and business bankruptcies, and by stock market crashes. (I’d add bull markets as well as bear markets; see Taking Stock of the Stock Markets,”NL, July 11, 1988.) Rho leakage is much more volatile than alpha leakage.

ANALYZING published government statistics, Powers is able to estimate what the American rate of growth might have been if there had been no leakage, what it actually was at any point since 1900, and over five year periods dating back to the end of the Civil War. You will note that Powers is concerned with the rate of growth, as befits a dynamic economy, whereas conventional economics is generally satisfied with statistics of absolute growth. Because the rate of growth is at issue, Powers gives us a whiff of elementary calculus. At this point some may want to follow the advice of the famous footnote in The General Theory where Keynes writes, “Those who (rightly) dislike algebra [and calculus] will lose little by omitting [this] section of this chapter.” In any event, Powers performs the necessary operations for us and gives the results in 48 useful tables and 32 clear, elegant graphs available nowhere else and alone worth more than the cost of the book. In this space it is possible to suggest only a few of his conclusions:

  • “Virtually every transient feature of economic behavior is a consequence of decisions and actions of persons in control of public economic policy.”
  • “Irregularities of performance are related to maldistribution of income.”
  • “Because they believe that the progress of the GNP over a period of several years reveals the growth capacity of the nation, economists generally underestimate the actual capacity.”
  • “Monetary restraint had no remedial effect on inflation; on the contrary, it always raised the price level.”
  • “Growth never required a relative increase of investment.”
  • “There is no connection between employment and monetary stability”
  • Deficit spending without appropriate taxation is “a way of transferring income from the general population to the wealthiest minority of it.”

The book’s final chapter is an analysis of inflation similar to that of the late Sidney Weintraub, a frequent contributor to these pages. Despite intense union activity during most of this century, the wage share of business income has not substantially changed. The reason is that struck corporations seldom give raises unless they can also raise prices. It is noticeable that the general price level increases most in years of heavy strike activity. Powers’ solution, that strikes be forbidden except for a share of dividends, is probably unconstitutional.

I must confess that Leakage has a special fascination for me because its author took up economics after retiring from an internationally recognized career as a research chemist, while I took up economics as I approached retirement from a background in literature and philosophy and a career as an executive of a small independent corporation largely concerned with the liberal arts. Despite our widely disparate backgrounds and habits of thought, we reached essentially identical positions on point after point. That these positions are, more often than not, identical to those previously taken by Keynes (whose background and habits of thought were certainly different from either of ours) is, at least for me, an additional reason for taking this original book very seriously indeed.

Leakage will prove valuable to anyone actively concerned with economics, politics or recent American history. Highly recommended, as you may have gathered.

The New Leader

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