"The China Syndrome" of desperately uneven "free trade"

By Chrystia Freeland, Globe and Mail, February 2, 2012
(I)n his State of the Union address, the President opted explicitly for the 99 per cent perspective. Restoring their fortunes is “the defining issue of our time,” he said. “No challenge is more urgent. No debate more important. We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules.”

The Obama analysis gets a lift from “The China Syndrome,” a recent paper on the impact of trade with China by a powerful troika of economists: David H. Autor, David Dorn and Gordon H. Hanson. The empirical study, which was cited in an important speech on inequality a few weeks ago by Alan Krueger, chairman of the president’s Council of Economic Advisers, is particularly significant because it marks a shift in consensus thinking in the academy.
In the debate about the causes of growing income inequality, U.S. economists have tended to opt for technology as the driving force. Indeed, in his remarks, Mr. Krueger referred to a survey he did of those economists, who overwhelmingly cited technological change as the most important factor.
But, drawing on detailed data from local labour markets in the United States, the authors of the “The China Syndrome” argue that globalization, and in particular trade with China, is having a huge impact on blue-collar U.S. workers: “Conservatively, it explains one-quarter of the contemporaneous aggregate decline in U.S. manufacturing employment.”
The deleterious effects go beyond those workers who lose their jobs. In communities hit by the China Syndrome, wages fall – particularly, it turns out, outside the manufacturing sector – and some people stop looking for work. The result is “a steep drop in the average earnings of households.” Uncle Sam gets hit, too, especially in the form of increased disability payouts.
Messrs. Autor, Dorn and Hanson are no protectionists. But, in a challenge to the “one nation under God” view of the world, they offer a sharp reminder that the costs and benefits of trade are unevenly shared. As they put it, their finding does not “contradict the logic” of arguments favouring free trade: “It just highlights trade’s distributional consequences.”
When I raised the issue with Joseph E. Stiglitz, the Nobel economics laureate and long-time doomsayer about the downside of globalization, he practically crowed with vindication. “The economic theory is very clear,” he said. “What happens when you bring together countries which are very different like the United States and China, what happens is that the wages in the high-wage country get depressed down. This was predictable. Full globalization would in fact mean the wages in the United States would be the same as the wages in China. That’s what you mean by a perfect market. We don’t like that.”
The truth is we are no longer living in “one nation under God” – we are living in one world under God. Globalization is working – the world over all is getting richer. But a lot of the costs of that transition are being borne by specific groups of workers in the developed West.
We are accustomed to thinking of the left as having an internationalist perspective. Liberals are the sort of people who worry about poverty in Africa or the education of girls in India. The irony today is that the real internationalists are no longer the bleeding-heart liberals, they are the cutthroat titans of capital.
Little wonder, then, that the host of the Davos Conference on World Economy called for a transformation of capitalism, presumably to bring the "liberal" perspective to the table to counter the "cutthroat titans of capital" in their ravenous and unmolested greedy pursuit of profit.
The titans of capital have held the stage, starting in both the U.S. and Great Britain since the Reagan-Thatcher regimes in those countries in the 1980's. Deregulation, lower taxes for the rich and the corporations, and more international trade (so-called "free trade") have been the order of the day. While that combination has brought the names of various world cities and countries into the headlines of most dailies in western countries, names that rarely appeared prior to that time, it has also brought increasing competition to western workers, without adequate preparation of either economic and trade policy or transitional preparation of the workers who would have been and now are, displaced.  Politicians whose success depends on the success of their corporate "masters" (aka bag-men) have traditionally taken a very short-term view of the implications of their ego-and-vote-driven initiatives. So long as we have "more" trade, including theoretically more "markets" for home-produced products, (without requiring a commensurate level playing field in worker benefits, environmental standards and wages) the countries that can produce adequate quality goods at less than half the price of "western" countries will generate more sales, and thereby more industry than the countries where worker benefits including safety, pensions and health are, as well as environmental standards are higher.
In short, the political leaders whose careers relied on these short-sighted "free-trade" treaties, and "open markets" without the backfill of carefully monitored and prosecuted clauses needed for a level playing field, have sold out the very workers whose votes put them into power in the first place.
While we cannot prosecute people like Mulroney (in Canada) and Reagan and Thatcher and their ideological successors Dubya and Cheney, we can, however, hold our current leaders' feet to the fire to work to fill in the blanks left by those cowboys (and cowgirl) who have led the charge against workers, against unions, against the environment and for more trade through enhanced international legal oversight agencies to help to right the balance.
Siphoning off the profits from the top of the bottle, by the cutthroat titans, without regard to the basic, hard-fought-for and earned and merited "worker" rights, not to mention the starving and dying poor in the third world is a recipe for disaster. And now, finding the non-profits joining those same corporate titans, in order to survive, only completes the "gutting" of the liberal agenda, basically without a bang or a whimper.
We need strong, visionary, courageous leaders, like Obama, in all western capitals, including Ottawa, London, Paris, Berlin, and Rome to help right the balance of a world international "ship" that has struck the shoal of greed and is listing dangerously "to port" endangering the lives and livlihood of millions who are clinging to the rails by the fingers, in the hope that this ship does not take a sudden and dramatic dive into the deep.