Galbraith on Trade

I had kind of thought that now that I've left the Prospect I should reposition to the center by writing more about how the trade-skepticism and talk about the need for labor and environmental standards may make for good politics but doesn't really make sense on the merits. But, then, bam, here's James Galbraith making just that argument in TAP, so I guess it's not a good repositioning device any more. But it's still true!

This links up nicely with this discussion of different approaches to trade from Will Marshall and Ed Gresser. Galbraith and I are adhering to what Marshall and Gresser call the "social democrat" position -- namely an open economy with a strong welfare state -- as against "populist" trade skepticism and the DLC's "progressive modernizers" approach which as best I can from their description is focused on . . . doing what big business wants and then hoping for the best.

Comments

But what's your policy preference if - as much of history and scholarship on American political institutions suggests - 'a strong welfare state' is not an option?

Posted by otto | May 10, 2007 10:59 AM

A weak welfare state?

Posted by David Weman | May 10, 2007 11:01 AM

And here's Alesina et al.'s rather good piece on the limits on the US welfare state if you need a taste of the literature on this point.

http://post.economics.harvard.edu/hier/2001papers/HIER1933.pdf

Posted by otto | May 10, 2007 11:01 AM

Well, if MY's alternative position is free-trade-even-if-we-don't-get-more-welfare-state, he'll be part of the DLC coalition.

Posted by otto | May 10, 2007 11:03 AM

I think of the three, the social democrat option is the only one who deserves to be called left wing. It's depressing to see economic nationalism dressed up as progressivism.

Posted by David Weman | May 10, 2007 11:05 AM

Economic nationalists are not frequently the kind of people who are defeatists, and celebrates their defeatism. A very harmful and irresponsible attitude.

Posted by David Weman | May 10, 2007 11:11 AM

Since Matthew hasn't said anything about tactics, Otto, I don't see what the basis of your objection is. All he said is that the goal should be to get both things. Do you agree or do you disagree? And even tactically, are you really going to stake your position on the idea that the welfare state is unachievable? Do you hold that opinion when the topic isn't about trade? If you do, what's the point of being a liberal in the first place? Why shouldn't we all just forget about politics and watch Entertainment Tonight like everybody else?

Posted by JP | May 10, 2007 11:17 AM

Of course, you could point out that children working 18 hours a day for pennies, or destroying the enviroment for generations, are evils in and of themselves even though they don't necessarily show up in economic data. And you could point out that libertrarians' refusal to ever judge anything by any criteria other than raw economic data ensures that they will arrive at positions that help out corporations and contribute to hideous labor pratices.

But then, of course, you'd be a self-righteous, bleeding heart liberal, right? Because any mention of social justice just reveals you to be "towing the Joe Kuttner line", and that might be uncomfortable at parties with Meghan McCardle and Will Wilkersen.

Even you and Ezra Kline, who are generally regarded as bright new liberl voices, have been so cowed by the anti-liberal drumbeat that you've abandoned any commitment to social justice or simple political morality.

Posted by Freddie | May 10, 2007 11:17 AM

JP

I'm in favour of welfare-plus-trade, but I have very considerable doubts that welfare-plus-trade is going an achievable option, given the more or less permanent forces against a 'strong welfare state' in the US. There are lots of reasons to be a liberal in the US - with effort, you can get Clinton 42 instead of Bush 43, and that's a big difference - but I don't see how liberals can expect to get a 'strong welfare state'.

Posted by otto | May 10, 2007 11:23 AM

Freddie's comment cracks me up. By implication, he's saying Jamie Galbraith has been "cowed by the anti-liberal drumbeat". Or does he think he's a libertarian, because what's that non sequitor doing there otherwise?

Posted by David Weman | May 10, 2007 11:25 AM

The negative effects of free trade aren't that huge, and one doesn't necessarily a strong welfare state to mitigate them.

Posted by David Weman | May 10, 2007 11:32 AM

By implication, he's saying Jamie Galbraith has been "cowed by the anti-liberal drumbeat".

Did they stopped teaching reading comprehension, or something? I suppose it must be nice to just attribute whatever meaning you want to someone else's comments, but I didn't say that. At all.

Posted by Freddie | May 10, 2007 11:33 AM

Thanks Otto, that's reasonable.

Personally, I think those concerns can be addressed by expanding trade incrementally and extracting concessions on the welfare state as you go.

I realize that Clinton didn't do a great job of this on NAFTA, but the political zeitgeist was different back then. There's no reason we can't do it better in the future.

On the welfare state, I understand that American liberals operate under much more difficult circumstances than liberals in other countries, but I don't think the cause is hopeless either. In other words, we can hope to do more than just play pure defense.

Posted by JP | May 10, 2007 11:43 AM

I'm being kind of incendiary here (though not compared to our friend Freddie), so I should say I think people more "fair trade" leaning than me can still have a commitment to social justice or simple political morality.

Posted by David Weman | May 10, 2007 11:49 AM

You've proven my point. When expressing concern for labor or enviromental standards is considered incendiary, how far have the goal posts been moved? MY's blog doesn't exist in a vaccuum. It's part of a public political dialogue that has been so thoroughly cleansed of genuine liberal thought that even someone who is considered a dependably liberal pundit has to genuflect to libertarianism and economic "realism".

Posted by Freddie | May 10, 2007 12:00 PM

Freddie, I think Weman was probably referring to part where you accused Matthew (and logically, Galbraith, since Matthew's explicitly adopted the same position as Galbraith) of abandoning any commitment to justice or morality. But you knew that.

Posted by JP | May 10, 2007 12:09 PM

About the Otto-JP Strong welfare state possible thing.

It's a very fair question on Otto's part. There is an entire class of writers, economists that spend 100% percent of their energy arguing for more open trade policy and when confronted about the 'losers' of trade they just deflect the question with vague references government relief and how government spending and an open economy are not reverse correlated
MY is way ahead of the curve by actually saying "strong welfare state" but it’s still a problem.

It's not hypothetical. Pelosi, Reid can pass new expanded trade bills with, or without expanded social protections. (Which would strongly influence the likely of such a bill becoming law). Their actions change depending on the answer to this question

Posted by ChrisB | May 10, 2007 12:18 PM

I'm not sure I understand why it's such a good idea to open our markets to countries where it is still legal to use DDT and other chemicals long ago banned in the United States, or to engage in draconian labor practices? With free trade we've essentially created one market for consumption, but still have many many different markets for production. How is this situation going to be addressed with more welfare?

Posted by Rob Mac | May 10, 2007 12:37 PM

Which countries are you referring to, Rob Mac?

Posted by JP | May 10, 2007 12:52 PM

As Galbraith argues, even if you're happy with screwing over workers in poor countries, moreprotectionism can't really do much for imdustrial workers. If you can't strengthen unions and increase the safety net, you can't help workers. Period.

Posted by David Weman | May 10, 2007 1:09 PM

“It's depressing to see economic nationalism dressed up as progressivism.”

I so agree with this comment that I want to have its babies.

Economic populism is ugly. Much of the criticism of trade comes from people who are almost completely ignorant of either the economics of it, or of the historical record regarding it (with regard to how the record validates the neoliberal economics view of trade). These people are focused on their narrow self-interests in condemning their own economic displacement while they shed crocodile tears—paternalist crocodile tears, no less—over various concerns about foreign workers.

There are policies which will mitigate the displacement, which will mitigate quality/health concerns related to imported goods, which will encourage developing countries to enforce more humane standards for their workers and to protect their environments—but the principal anti-trade response is protectionism. The latter isn't progressive, it's nationalist and conservative in that it prefers the economic status-quo at the expense of those who are the most disadvantaged (and almost always of color).

On the other hand, free-trade with strong and independent regulatory agencies, progressive foreign policies, domestic safety nets (like a real welfare state)...that is a true progressive position. It rejects the status-quo of the have and have-nots, is compassionate and helpful to the most-disadvantaged, looks to creating a more prosperous future for the entire world (not just the developed north and west), and uses that prosperity as a way to leverage other progresssive causes.

Posted by Keith M Ellis | May 10, 2007 1:12 PM

The problem from the first has been free trade without the welfare state. The Clinton people got half the package. There's a real possibility that the other part of the package will never happen, and the European welfare states remain under attack. (Likewise the Japanese social agreement which gave security to most Japanese).

One model of free trade gives you a wage race to the bottom which will only stop when global full employment has been reached. Along with this will be pressure on all governments to lower taxes and weaken the welfare state. This is exactly what many free traders want. Free traders who want something different should convince people that something different (and better) is possible.

The winners will presumably be anyone who controls liquid capital (not tied up in vulnerable industries) plus holders of certain limited kinds of jobs, plus new people favorably situated to take advantage of low-wage populations. Ripples of wage raises will go through the global labor force, but rather than continued steady progress anywhere, progress will move from country to country. Jobs are already moving away from Mexico to lower-wage countries.

In part the overpaid US labor force is losing and underpaid third world labor force is winning -- that's the rationale here -- but mostly it's labor against capital.

Posted by John Emerson | May 10, 2007 1:27 PM

"One model of free trade gives you a wage race to the bottom which will only stop when global full employment has been reached."

That's just not true, John. Free trade obviously has negative aspects, but it can't literally cause a race to the bottom, and it's not the primary or even secondary driver of inequality.

Posted by David Weman | May 10, 2007 1:44 PM

Unless we are all here waiting for revolution of the proletariat that was supposed to inevitably follow free trade (and been waiting since the early 19th century) can we quit pretending international capitalism is a force for progression and anyone who objects to slave labor is a simple racist? It's nauseating.

Posted by Ed Marshall | May 10, 2007 2:00 PM

"In part the overpaid US labor force is losing and underpaid third world labor force is winning"

The funny thing is that trade populists abroad use the opposite argument in poor countries.

We also look rather foolish pushing for labor standards while stuff made in Northern Marianas gets stamped "Made in USA." Women who work there and often forced by their bosses into sexual slavery and prostitution say that labor conditions are worse than in China.

As for environmental standards, China, India and the former USSR engaged in large-scale import substitution that harmed their environments more than most countries. Just about all of the top 10 most polluted cities in the world are in India and China. The Soviet Union was the world's biggest polluter. As countries develop, yes, there is an increase at first in pollution, but this goes down as more efficient technologies are used. Pollution, after all, is a waste product and waste is a sign of inefficiency. Not allowing access to the US market is a good way of ensuring that countries stay at an equilibrium of high poverty and high pollution. (Ironically, now American cars can't enter the Chinese market because the Chinese fuel efficiency standards are too high for the likes of GM and Ford.) (The US's high level of pollution comes from the fact that we drive tons of cars, not production.)

Posted by Reality Man | May 10, 2007 2:01 PM

Keith M. Ellis said:

On the other hand, free-trade with strong and independent regulatory agencies, progressive foreign policies, domestic safety nets (like a real welfare state)...that is a true progressive position.

Hmm. Sounds great. But where exactly are these strong and independent regulatory agencies? Are are any of them likely to every act trans-nationally? And how does this vison square with the WTO and NAFTA concecpt that regulatory concerns with regard to imports are protectionist and therefore not legitimate?

Perhaps Keith is taking a "mend it, don't end it" position on free trade, which is reasonable, of course. But his vision does not resemble any free trade framework I am familiar with.

JP asks:

Which countries are you referring to, Rob Mac?

Take your pick. But let's say, for example, the watermelons in my local grocery store from Honduras. On the one hand, I'd love to have early watermelons from Honduras. But I do not want to buy produce grown in a country that (for example) allows the use of pesticides banned in the US. Most consumers are not so picky, however, and few would even notice the country of origin.

Posted by Rob Mac | May 10, 2007 2:01 PM

"Unless we are all here waiting for revolution of the proletariat that was supposed to inevitably follow free trade (and been waiting since the early 19th century) can we quit pretending international capitalism is a force for progression and anyone who objects to slave labor is a simple racist? It's nauseating."

Do you even know people who live in poor countries?

Posted by Reality Man | May 10, 2007 2:02 PM

Was that a joke? My sarcasm meter is apparently broken today

Posted by Ed Marshall | May 10, 2007 2:06 PM

"Race to the bottom" should be "equalization of global wages". From the American point of view it looks like a race to the bottom.

I just don't believe the people who claim that free trade and immigration have had only a trivial effect on American wages, or only have affected a few people. Economists can prove whatever they want. They've been misrepresenting the effects of the minimum wage and of environment protection for decades.

Something that suck in my mind was a priec explaining that Mexican progress had stalled because employers were moving to Thailand, etc.

As of right now, American free trade will proceed under non-social-democratic auspices. I have no confidence that that will change even with a change of party. I think that we can also expect to see continued assaults on the European welfare states.

Posted by John Emerson | May 10, 2007 2:19 PM

Trade has certainly had an effect on American worker wages, but free trade has had a much smaller effect. The majority of the Big Three automakers' Mexican plants opened before NAFTA. "Roger and Me" was released in 1986, if I'm not mistaken. NAFTA likely sped things up, but the trend of companies moving to Mexico was already underway beforehand. That's because it wasn't primarily driven by tariffs, quotas, etc., but rather, by the unavoidable fact that it really was cheaper to make stuff in Mexico.

The only way to stop companies from moving there (or to stop non-U.S. companies operating in Mexico from outcompeting U.S. companies on costs) would have been to drastically increase tariffs so that the costs involved in selling a Mexican-made car (or whatever) in the U.S. would have gone way up. Of course, that only would have affected cars that were imported into the U.S. It would still be cheaper to make cars in Mexico if you intended to sell those cars in a bunch of other countries, so it would still be worthwhile for companies to maintain some manufacturing operations in Mexico as opposed to the U.S.

Posted by JP | May 10, 2007 2:33 PM

"Free trade" is a bit of a misnomer anyway. There aren't all that many countries that have 100% free trade with one another (not the U.S. and Mexico under NAFTA, for sure). And apart from North Korea, not many countries these days have 100% unfree trade with other countries either. The question isn't really whether you should have free trade, but how free or unfree it should be.

Posted by JP | May 10, 2007 2:36 PM

What JP said. It's true that the impact of trade, while not being as significant as technological change and weak labor unions, isn't neglible either.

If you have somewhat higher taariffs, the effect isn't huge. If you have sky high tariffs, the negative effects get pretty serious, and low income people will get screwed more than anyone.

Posted by David Weman | May 10, 2007 2:47 PM

Reality Man:

"(Ironically, now American cars can't enter the Chinese market because the Chinese fuel efficiency standards are too high for the likes of GM and Ford.)"

You may want to do a little more research on this. GM is doing a ton of business in China (selling cars there that it builds there) -- and it's far more profitable in China than it is here.

Posted by Fred | May 10, 2007 2:52 PM

How long, I wonder, until Pat Buchanan joins the Democratic Party? He already leans isolationist (check), and protectionist (check). His position on Israel is probably closer to that of the Congressional Black Caucus than that of the GOP.

I really think someone at the DNC should approach Buchanan about this. You'd lose the Jewish vote, for sure, but Jews are maybe 2% of the population here. The Dem brand is so strong with blacks that you'd still get 90% of them (after all, blacks were voting Democrat when segregationists were still a significant wing of the party. It was economic/welfare policy that got blacks on board with Dems under Roosevelt). You might lose some of the Latino vote, but how many of them can legally vote anyway?

Posted by Fred | May 10, 2007 3:14 PM

I am truly mystified by the exchange between Reality Man and Ed Marshall.

Reality Man - Do you deny the existence of practices comparable to slave labor internationally? You appear to concede their existence in the Marianas. Do you think that refutes Marshall's point?

"Do you even know people who live in poor countries?"

What the hell is this supposed to mean anyways?

I'm not talking about economic national populism. I'm talking about labor versus management. When you allow imports from countries with substandard labor practices, you undermine labor standards in the US. I really don't understand MY's position that these things don't matter. What if we are talking about real, actual slavery. Does it matter then? Because that sure isn't helping any poor people, regardless of race.

There are two different issues here. Free trade with countries with respectable labor practices in combination with a strong welfare state is a reasonable position (and one I agree with). But I don't care what kind of social safety net you have, trade with countries engaging in barbaric labor practices is never acceptable.

Posted by mpowell | May 10, 2007 3:29 PM

Mpowell,

There are plenty of shades of gray in discussions of trade and international labor standards, and that's where the interesting and useful thinking is being done. See, for example, yesterday's front page WSJ article on the Steelworkers Union's approach to these issues. I can't find a free link to it for you, but the AFL-CIO's blog summarizes it and provides excerpts

Posted by Fred | May 10, 2007 4:16 PM

mpowell, why don't you read Galbraith's article? It's really good.

Posted by David Weman | May 10, 2007 4:29 PM

One of the facts of the matter is that very few people know the facts of the matter, and of those who do, most of them are wrong. That means the chances of developing a trade policy that results in the desired improvements at home are somewhere between slim and none.

Domestic policy to achieve desired results, OTOH, is almost absurdly simple once you've actually decided to do something. If, for example, we wanted to solve our "drug problem", we actually know how to do that- legalization and medicalization instead of criminalization- and we know we'd save money if we did that. The fact that we don't do that is more related to industries that profit from the status quo than it is to a lack of know-how.

In short, in discussing trade policy you enter the Great Dismal Swamp of seven centuries of argumentation, and probably end up confusing even your friends about what you really stand for. Some politicians think that's a feature, not a bug.

It's interesting to see how this is probably going to play out. The rest of the world will adopt minimal standards of human welfare and refuse to trade with us until we do the same. Liberals need to develop greater skills in explaining how helping the least among us helps us all.

Posted by serial catowner | May 10, 2007 7:15 PM

The insinuation of racism and xenophobia against those who question corporate globalist "free trade" is indeed "nauseating", as Ed Marshall noted. I'm so sick of this fundamentally elitist, dis-connected argument. I am practically certain that those Americans who smugly parrot the Tom Friedman free-trade line have never dealt with genuine economic struggle and insecurity themselves, and it's a statistical reality that "free trade" has led to growing global inequality. Caring about one's own citizenry (let's take this in the broadest sense of all those that live within the nation's borders) IS the progressive position. And for a nation to consider a fair social compact with one's own people does not mean that we cannot care about the rest of the world--that's simply a false opposition.

Thom Hartmann is the best on this subject. You go back to the first half of the last century and the growth of progressivism with the passage of the Wagner Act and the onset of the New Deal, and it becomes clear that trade policy as well as limiting the labor supply, per Malthus's formulation, was an important element of progressivism. The great period of American liberalism from FDR through Kennedy (through Carter, really, notwithstanding the 70's economic slump) saw the massive growth of the American middle class and was also, notably, a period of robust tariffs and regulated trade--also, in the Eisenhower years the very top tax bracket was 90%!

All this obfuscatory talk that we live in a new age with new realities is really a kind of rationalization that hides the deep-seated contempt on the part of American punditocracy for the more egalitarian, socially-conscious economic models you see, for instance, in Western Europe.

Posted by Warren | May 10, 2007 7:18 PM

You go back to the first half of the last century

Go back to early 1800's for free trade battles, nothing said here today is new. No one has busted out "Jesus Christ is free trade. Free trade is Jesus Christ" yet, but give it some time.

Posted by Ed Marshall | May 10, 2007 7:30 PM

Talk of trade and "free" trade tends to obfuscate the realities of our actually existing trade regimes. We could have written and approved trade agreements that set professionals and other upper income earners in competition against those in the developing world. Instead, we have primarily done deals that put industrial workers in competition with the developing world.

there is a whole, largely unspoken, class based dimension to what passes as "free" trade in these discussions.

I recommend that folks take a look at Josh Bivens' response to the debate between Faux and Galbraith. His is posted at TAPPED today.

Posted by dale | May 10, 2007 7:46 PM

Dale:

"We could have written and approved trade agreements that set professionals and other upper income earners in competition against those in the developing world."

Really? How?

I can understand how you could, say, lower health care costs in the U.S. by changing our immigration policy and medical licensing requirements to bring in more foreign physicians, but I don't see how trade policy can increase the competition between high-income professionals.

Posted by Fred | May 10, 2007 8:45 PM

How about free trade, as opposed to "free trade"? That is, how about supporting genuine free trade, as opposed to what big business, neoliberal politicians, and their journalistic lackies mean when they sully the term?

Free trade would simply mean eliminating all trade barriers, and letting Americans trade with anyone willing to trade with them, on whatever terms they could negotiate; but it would also mean making them trade entirely on their own nickel, and assume ALL their own costs and risks, without any corporate welfare or regulatory protections.

Most importantly, it would mean removing international "intellectual property" [sic] monopolies, which should be anathema to any genuine supporter of free markets.

Perhaps not coincidentally, the sectors that currently dominate the global economy are those most dependent on government subsidies (e.g. aerospace and agribusiness) and "intellectual property" [sic] protections (e.g., entertainment, software, Big Pharma, and biotech).

And I'm guessing there'd be a lot less offshoring of jobs if government didn't subsidize (via foreign aid and World Bank loans) the road and utility infrastructure prerequisite to make overseas capital investment profitable, and if it didn't subsidize the long-distance shipping to bring the finished goods back home.

The only slogan the Democrats need is "Take Big Business off the Taxpayer Tit!"

Posted by Kevin Carson | May 11, 2007 1:52 AM

I simply don't see how you can have a strong welfare state without a strong, broad based productive economy. I'm no expert, but I think that's basically why the "Bob Kuttners" of the world continue to lean toward "protectionism," the slander term for a managed domestic national economy with real restraints on what corporations are permitted to to do with the national wealth.

See how weird that sounds?

Now, what do we pay our state employees to do in Congress, exactly again?

Posted by JT Farasay | May 12, 2007 8:51 AM

I'm no expert, but I think that's basically why the "Bob Kuttners" of the world continue to lean toward "protectionism," the slander term for a managed domestic national economy with real restraints on what corporations are permitted to to do with the national wealth.

Which of course isn't protectionism. A managed domestic economy with real restraints on corporations is what the Scandinavians practice. What Kuttner advocates; that we should block foreigners from importing their foreigny wares is protectionism, and is what the mostly open economy Scandinavian countries don't do.

Posted by DRR | May 12, 2007 4:49 PM