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The clash between capitalism and communism is over, and the winners have set about making the world a safe and efficient place for business. The reality is plain enough. Nike is making its famously expensive athletic shoes in Indonesia, where its women workers labor long hours for a meager $38 a month. Wal–Mart, K–Mart and Sears, the great American retail icons, are having their shirts made in Bangladesh by culturally passive Islamic women toiling 60 hours a week and making less than $30 a month. The companies sell the shirts in the United States at U.S. prices. The labor cost per shirt is roughly four cents. They assert the need to lower costs in order to remain competitive, but their main competitors are all there in Bangladesh as well, enjoying the same windfall of cheap labor.
At the same time, the major industrialized economies are experiencing an alarming, lingering recession. Trade unions in the United States and Europe protest massive job cuts and the lowering of living standards. Japanese workers face the end of the one certainty that motivated their untiring devotion to sacrifice for the national interest--the lifetime employment system. It is no longer in Sony’s or NEC’s interest to employ expensive Japanese workers when Thai and Malaysian workers will do the same job for much less. The lengthy debate over the North American Free Trade Agreement (NAFTA) exposed similar stories of U.S. companies shifting production to Mexico, making use of highly productive workers kept cheap by the labor policies of a government more interested in keeping investors happy than in ensuring a decent wage for its citizens.
These examples illustrate how a global economy has allowed multinational companies to escape developed countries’ hard–won labor standards. Today these companies choose between workers in developing countries that compete against each other to depress wages to attract foreign investment. The free trade philosophy for creating a prosperous global economy is in practice denying workers their share of the fruits of wealth creation. First World components are assembled by Third World workers who often have no choice but to work under any conditions offered them. Multinational companies have turned back the clock, transferring production to countries with labor conditions that resemble those in the early period of America’s own industrialization.
‘TRICKLE DOWN’ TRADE
The U.S. lacks a responsible or comprehensive global trade policy and has effectively delegated the policymaking to multinational companies, which have fiercely resisted any efforts to regulate worker rights globally. They successfully blunted attempts to include meaningful labor standards in NAFTA and prevented the inclusion of any "social clause" in the General Agreement on Tariffs and Trade (GATT) and the European Community Charter. Their resistance is easy to understand. What is more difficult to comprehend is the lack of real political debate over the long–run implications of America’s current trade policies, which seem to assume that the global trading system will somehow on its own create expanding markets and advance larger U.S. interests. The defining principle of U.S. trade policy today echoes that famous General Motors maxim: what’s good for U.S. based multinationals is good for America.
The debate in the United States over "free trade" has ignored the need for trade to be fair to workers interests. For all of candidate Bill Clinton’s criticism of President Bush’s plans for a NAFTA without worker protection, he ultimately championed a treaty with largely symbolic side agreements on labor and the environment. "Protectionist" epitaphs are hurled at any American union that decries how its members are losing jobs as U.S. companies search for cheap labor around the globe. No one is fooled that the unions are doing much more than protecting their interests, and their position is derided for that reason. At the same time, however, the free–trade position of the multinationals is passed off as representing not merely their own interests but America’s as well. Their many trade lawyers and economists are earning substantial fees peddling a global version of free–trade, "trickle down" economics.
A more accurate description of the position of the multinational corporations is that regulation is good only if it protects their interests and bad if it eats into their profits. If they truly believe in lifting global regulation to leave trade free, they have been moving in exactly the opposite direction. The Dunkel draft of GATT is encyclopedic and the final version of NAFTA exceeded 2,000 pages. There was never any pretense that these agreements were intended to remove regulations. They were efforts to remove tariffs and to agree on a comprehensive set of regulations governing global trade that are designed primarily to protect property rights. In these negotiations, the business community fought for and won a complex series of regulations that protected their property interests and set the rules for the global economy. That there was not a word about the fundamental rights of workers in the thousands of pages of rules reflects the priorities of those doing the negotiating, rather than any principled opposition to trade regulation.
The usual response to such criticism is that global trade law is not an appropriate forum for social legislation. For example, the current debate over the pending Harkin–Brown bill, which would ban from U.S. markets any product made with child labor, has brought forth assurances from the free–traders that, while they naturally abhor the use of child labor, it violates the purity of trade law to link it with social legislation. Trade is trade, business is business, and social legislation must stand on its own. Never mind that it is precisely the indigent conditions of developing countries in a global economy that allows many multinational companies to escape U.S. labor laws and to reduce the costs of an integral part of production.
The position of the multinationals fundamentally ignores the recent history of linking social legislation to the trading system--to great social and economic benefit. There are numerous examples, but the most compelling comparison is with the New Deal legislation. As President Roosevelt declared in a message to Congress on the 1937 Fair Labor Standards Act, the first nationally applicable law setting minimum labor standards and outlawing child labor: "Goods produced under conditions which do not meet a rudimentary standard of decency should be regarded as contraband and ought not to be allowed to pollute the channels of interstate commerce."
Roosevelt was making the moral argument, which back then seemed sufficient, but the practical key to his vision comes in the final clause. The only recourse available to combat the growing problem of states engaging in cutthroat competition, leaving their citizens and workers without adequate living standards, was to use the power of Congress to regulate interstate commerce. The premise was that when one state was willing to undercut other states, not only did this affect other states’ ability to maintain higher standards, but it also resulted in a downward bidding spiral that depressed purchasing power. National legislation was required to set a floor below which no state could descend in competing for jobs and investment. The federal labor laws enacted under the New Deal not only improved wages and working conditions but also increased purchasing power and contributed to the postwar economic boom. Workers became consumers and fueled the engine of unparalleled economic growth, saving the large manufacturing firms from ruination largely of their own creation.
NEW WORLD CONSUMERS
Setting aside the morality of multinational companies using impoverished workers who are unable within their political systems to fight for better conditions, it also makes no economic sense to continue to treat labor standards as irrelevant to trade policy. When they reduce their expensive U.S., European or Japanese work forces, the multinationals displace workers who until recent years were dynamic consumers with steadily rising purchasing power. Their replacement workers in Bangladesh, Indonesia and Mexico are often earning subsistence wages. While this new class of worker would also like to buy televisions and VCRs, their primary needs are food and shelter. The effect is to diminish one consumer class without building up an equivalent class. In Keynesian terms, supply is exceeding demand, which inevitably leads to surplus, recession and more. The global economy suffers not from a shortage of productive capacity but from a lack of broad–based consumer purchasing power, especially in developing countries.
Compounding this problem is the fact that the global economy has helped dissipate individual governments’ efforts to use fiscal and monetary tools to achieve economic growth. National measures to increase aggregate demand often merely increase consumption, while the investment, production and employment benefits occur in other countries. These international "leakages" substantially weaken domestic economic policies. Stimulus in one country, if other economies remain stagnant, simply increases imports and immigration into the expanding economy.
In the future, achieving real economic growth in the United States will require policies to attain coordinated growth in the global economy. The key to promoting global growth is to create expanding broad–based consumer demand in developing countries. For this to happen, however, new international trade and investment policies must make it possible for agricultural and industrial workers to receive a rising share of the benefits of increased productivity and economic expansion.
It is thus in the interest of all countries to cooperate to reduce the obstacles to real growth in developing countries. Part of this strategy must be global agreement on binding trade and investment rules to protect fundamental worker rights and minimum international labor standards. This idea is not a new or radical policy departure. GATT’s 1947 preamble contains an important message that subsequent generations of free traders have forgotten: "Relations among countries in the field of trade and economic endeavor should be conducted with a view to raising standards of living and ensuring full employment." What has been lacking in recent decades is the collective political will to make the protection of basic worker rights an essential part of the regulatory system that encourages global economic growth. The time has come to recognize internationally what the Great Depression forced America to realize nationally: actively advancing worker living standards is critical to boosting their overall purchasing power and to achieving sustainable real growth. This is true for developed and developing countries alike.
TOWARD GLOBAL STANDARDS
Today policies are needed to begin a global New Deal. Progress toward globally applicable worker rights and labor standards should be the cornerstone of a forward looking trade policy that does more than maximize short–run profits. It should provide the basis for first creating and then sustaining a global consumer class, encourage true efficiencies in production and stop the destructive downward bidding spiral of the labor conditions and wages of workers throughout the world. If uniformly enforced, no single company or country could gain a competitive advantage and be rewarded in the global market for engaging in exploitive labor practices, removing the argument that such practices are necessary for companies to remain competitive.
Using existing models from other forms of globally applicable legislation, beginning in the mid–1980s Congress passed a series of laws that directly linked unilateral trade benefits with respect for worker rights. Five laws were ultimately enacted requiring compliance with "internationally recognized worker rights." The most effective has been the Generalized System of Preferences Act (GSP), which grants developing countries duty–free status on many exports to the United States conditioned on compliance with a five–factor worker rights standard. Using standards developed by the International Labour Organisation (ILO), based on conventions agreed to by most of the world’s countries, the GSP standard was designed to have universal application. Most of the rights are absolute, meaning that they are not dependent upon a country’s relative economic condition. Thus, to be eligible, all countries must respect the rights to associate and bargain collectively, the two most important worker rights that allow independent trade unions to form and to negotiate for whatever share of the economic pie is available. In addition, countries cannot use forced or compulsory labor or child labor and must provide reasonable conditions for worker health and safety. A final requirement is that there must be a national mechanism for establishing a generally applicable minimum wage law, which necessarily should take into account a country’s level of economic development. There are several possible formulas for evaluating whether the minimum wage level is adequate, including tying wage increases to productivity gains.
The GSP law has created a forum for challenging systemic violations of worker rights as a means for any country to seek competitive advantage in international trade. It allows interested parties to petition the U.S. Trade Representative to deny countries that violate worker rights duty–free access to the U.S. market. But the law contains unacceptably vague language that has allowed successive presidents to undermine its enforcement. The GSP law must be reauthorized by September 1994. An important step toward a more enlightened global trade policy would be for the Clinton administration to strengthen the worker rights provisions of the GSP law and to extend this linkage to other U.S. trade laws and the GATT.
There is much more that the United States could do if it takes the lead in adding respect for workers to the agenda of global trade policy. The opportunity to use NAFTA to create a regional model for enforceable labor standards was largely missed. Ultimately, however, a global solution is required. While the ILO is currently the only international body responsible for globally monitoring worker rights, it has no enforcement power. Further, its tripartite charter between employers, governments and worker groups substantially reduces its ability directly to confront governments and employers.
In order properly to link worker rights with global trade, organizations dedicated to protecting worker rights need to have a voice in GATT, where global trading rules are made and enforced. GATT needs a substantive social clause that, much like the GSP standard, would either be directly enforceable or allow individual countries to take retaliatory action against noncomplying countries. Previous efforts to include such a clause have not made it to a working–group phase for discussion. The issue of a social clause has simply not been viewed as a priority by GATT’s business–minded negotiators, including those from the United States.
Trade is not an end in itself. It is time to give life to the GATT preamble and harness trade for the purpose that free–traders claim--to strengthen the world economy by enhancing the purchasing power of workers and allowing them to have access to the goods they make. There is no need to wait for trade’s benefits to "trickle down" to workers living in poverty if minimum standards can help ensure them reasonable living conditions. The United States should use its influence in the world market to make acceptance of a GATT social clause a top priority, for the good of its own workers, for workers in other countries, and as the basis for sustainable and fairly distributed global economic growth.