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Wednesday, February 25, 2004

Flirtin’ With Disaster (Part I)

A couple weeks back, another blogger made a post saying that he was annoyed with Republican politicians backing away from comments about offshoring and outsourcing by a White House advisor that made perfect sense to him.

The fact that said advisor’s comments were political poison was so obvious I felt like I’d be insulting the guy’s intelligence if I pointed it out. (Although it’s even worse for them politically than at first glance, for reasons I’ll explain some other time.)

Instead, I posted the thought that I believed a free-trade regime of the sort he and the advisor were advocating was going to lead to disaster. This person was deeply offended by my suggesting this and was told me that I didn’t understand basic economics. (He backed away from some of it later, wondering why he got so upset.)

But I still felt like I should explain myself more fully, and I intended to, except that my busy life sort of got in the way. So here goes…

Capital and labor are both assets, albeit of a different type. Ceteris paribus, the mobility of an asset tends to increase its value.

In a closed, isolated economic system, labor and capital are equally mobile, which is to say neither is particularly mobile. When an economy is opened, both capital and labor become more mobile – but it’s clear to me that capital becomes more mobile than labor. It has, over the centuries, become easier to transport money across state and national boundaries and even oceans than working people, due to a number of factors – immigration restrictions, language and sociocultural barriers, and the expense incurred in transferring people . As technology has improved, transaction costs – that mostly relate to the movement of capital - have dropped.

As it stands, capital can be moved anywhere in the world in a matter of minutes. Labor, while more mobile than was once the case, cannot be moved anywhere in the world in a matter of minutes. The owner of capital therefore has access to assets around the world, an access by and large denied to those who are selling their labor. The scales are obviously tipped toward capital and against labor, relative to our traditional notions of an employee/employer relationship. Now in the case of some advanced societies, the line between capital and labor is obviously blurred a bit. But this shift in bargaining power (in addition to economies of scale) still affects them as the system is skewed towards the large capital holder over the small capital holder, especially if it’s the case that the small capital holder is using income earned from labor to acquire said capital.

This progression has been going on for over a century, but this disparity in mobility is growing exponentially. As labor loses bargaining power, wealth and purchasing power tend to accumulate to those who already hold wealth, while those who have only their labor, even skilled labor, to sell will see comparatively less and less purchasing power. (Wealth, strictly speaking, is not a zero-sum game, but purchasing power, especially in the short run, is purely relative.)

The worker’s costs of living will continue to be set in his or her immediate area, but what he or she can earn will be set to the level of the cheapest labor employers can find, anywhere in the world. Would prices go down to match falling wages in this situation? Some markets (housing in particular) are less responsive to quick changes in the overall market picture than others. Eventually prices would fall to match wages and drops in demand for nearly all goods, but only after widespread dislocation, mass bankruptcy, and probably, social upheaval. The result is not so much exploitation in the Marxist sense as it a systemic bias towards accumulation of wealth in the hands of fewer and fewer entities, who have less obligation to nations, workers, or to anything save the further accumulation of money. (And this is before one considers the ways in which the wealthy are able to game the markets.)

Some of those competing workers, by the way, are in countries whose governments have policies to hold down wages, discourage workers from organizing, and turn a blind eye to slave labor, who serve, unwittingly, as a wage sink for the rest of the world. (Which, incidentally, is why I take any argument about unfairly keeping the Third World down with skepticism about globalization made by a free-trade fundamentalist with a grain – nay, a whole shaker - of salt.) Other nations are consequently placed under pressure to curtail any worker protections they have enacted, to shred any social safety they might have, to remove any environmental regulations that inhibit the bottom line of transnational concerns, and so forth. I don’t believe the results will be better for anyone, anywhere, except maybe for the transnational corporations for whom the dice have been loaded.

And while were at it, two more issue that bug me about trade treaties that don’t come up often in the press :

A. The main beneficiaries of the sort of trade agreements being proposed and enacted are transnational corporations. They are the ones writing the rules by which nations are to trade.
Rules protecting labor rights or environmental health are considered “trade barriers” that need to be done away with. But rules protecting, for instance, intellectual property rights are not, even though in many cases they are potentially every bit the trade barrier labor or environmental protections are. They are in fact a routine part of trade agreements and questioned by few. I’m not saying that intellectual property isn’t worth protecting – I am merely suggesting what it says about the priorities of “free trade,” if the rights of workers are considered an anachronism and the rights of Disney or Pfizer are not.

B. Except when it benefits them, national sovereignty is an inconvenient obstacle. The World Trade Organization, for instance, has semi-secret courts, to rule on trade disputes, that in theory at least have the power to override national laws deemed hostile to the flow of international trade. (I understand that it’s unlikely that the U.S or the European Union would have their laws scuttled in such a way – that only makes the arrangement less fair to third-world countries with less bargaining power.) This would be even better for the transnationals than seeking out “tax havens” or “regulatory havens” like the Cayman Islands, since large countries or trading blocs might some day decide to make life for tax exiles (whether corporate or individual) more difficult.


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