It's taken me a long time to realize the problems with free trade. But one day it hit me like a bolt from the blue. I tried explaining it to somebody who didn't understand my opposition, and it sort of came out like the well-beloved "day in the life of Joe Republican" email we've all seen. So I'm posting it below in the hopes that a reader or two will offer their comments- my understanding of economics is quite humble, and reading the excellent diaries of Jerome a Paris and Stirling Newberry on the housing bubble and the economy as a whole yesterday was quite humbling. But here's my pithy offering......
Joe factory worker is employed by Widgets inc., to use a favorite HS economics model. Joe works at a widget factory in, say, Ashtabula, OH. Joe is a member of an AFL-CIO union, and he gets a high union wage at his factory job, which enables him to support a family at a working-class level of comfort. Widgets, inc, pays for much of his health coverage and for a pension plan.
Meanwhile, 2000 miles away, Miguel Farmer grows bananas and melons in Honduras. He's not rich, but his farm produce brings in enough for him to get by relatively comfortably by local standards, even though he may not have hot running water, a TV, a car, or even electricity. Miguel's relatively impoverished country is not a rich one but Miguel owns his land and uses his co-op to do OK. (Co-ops are big in Latin America).
In Washington, the American and Honduran presidents sign CAFTA, eliminating tariffs on goods and agricultural products flowing between the two countries. So here's what happens next:
The board of Widgets, Inc. realizes that it can make widgets much cheaper in Honduras, and now that the tariff is gone, they can charge less for them. So they close down the factory in Ashtabula and Joe Factory Worker is unemployed with no health care and no pension. They move their factory to Honduras, where they can pay workers far less and build a factory that doesn't have to pay attention to environmental concerns or workplace safety. The impoverished Honduran government will be so glad to have the economic activity that they'll probably let Widgets Inc. dump cobalt in the water supply or whatnot.
Meanwhile, Miguel Farmer is suddenly seeing lots of American bananas and melons popping up in Honduras. Since American agri-business has growing techniques that are far advanced to Miguel's, genetic engineering to make crops tastier and more resilient, and the ability to mass produce and harvest with equipment 30 years more advanced than anything Miguel has, Miguel can't compete. He is forced to sell his produce cheaper to keep up with the cheap American imported fruit. Eventually the strain becomes too much. Miguel is losing money and can't afford to keep farming. So he sells most of his land, or leaves the land he is using courtesy of the co-op or local baron. But all is not lost- Widgets Inc. has just opened up a brand new factory! Miguel takes Joe's old job, but where before the company was paying a good hourly wage, health, benefits, and overtime on a 40-hour week, they are now paying Miguel a few bucks a day max, no pension, no health care, and are definitely expecting him to work more than 8 hours a day. Even if this isn't a sweatshop, it's a long long way from Ashtabula.
Back in Ohio, Joe is really needing a job. Joe's wife's job as a secretary for a real-estate company is not bringing in enough money, especially with burgeoning gas and health care costs, to really keep the family going. As many other American families are in similar straits, the businesses that are going through the roof are discount retailers- so Joe takes a job at Wal-Mart. There is no union, he is payed half of what he made at Widgets Inc., and his health plan blows. At wal-mart, Joe finds himself one day stocking boxes of widgets over in the automotive/ mechanical section. He finds a label on the box, on the back, that says "Made in Honduras." 2000 miles away, Miguel is taking his 15-minute lunch break at the widget factory. He pulls out his lunch- some rice and beans, and a banana. As he peels the banana, he sees a Dole Fruit sticker on it.
So who wins in this "free" trade agreement. Well, not Joe. And not Miguel. But the owners of Widgets Inc. and Dole Fruit certainly win. So their shareholders will win, even though the government doesn't get to tax their dividends any more. So the shareholders of those companies will get some extra cash to stick in a trust fund, or buy some imported luxury items with, or send their kids to college, while the wages of the working and middle class will stagnate as they have been doing. The Hondurans will get to buy things they can't afford from American companies, and their lot might improve marginally, but somehow I doubt Widgets, Inc., is going to open up a free clinic in rural Honduras. Now I may sound like a little marxist here, but it seems to me that the problem with free trade is this: The promised benefits of free trade- increased earnings by US companies translated into growth and higher wages and more jobs- are nebulous, far down the line, and full of shit by and large. The IMMEDIATE benefit is simply more money to the ownership class while the workers continue getting fucked. sigh
There it is. Overly simple and overly dramatic, I know. Comments welcome!