Denying chances to the poor

Here’s what John Kerry had to say yesterday in a populist exchange risibly termed a debate among the contenders for the Democratic nomination:

I will fight for labor and environment standards in our trade agreements, and we'll enforce them. And it's that simple.

An international economist, Paul Krugman at MIT, had pertinent things to say on this matter a few years ago in an article in Slate entitled In Praise of Cheap Labor:

The only reason developing countries have been able to compete with [First World] industries is their ability to offer employers cheap labor. Deny them that ability, and you might well deny them the prospect of continuing industrial growth, even reverse the growth that has been achieved. And since export-oriented growth, for all its injustice, has been a huge boon for the workers in those nations, anything that curtails that growth is very much against their interests…. [A]s long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to an aesthetic standard...

A polemicist of the same name, Paul Krugman of the New York Times, says this today:

[In a speech this week Kerry] proposed speed bumps, rather than outright barriers to outsourcing: rules requiring notice to employees and government agencies before jobs are shifted overseas, steps to close tax loopholes that encourage offshore operations, more aggressive enforcement of existing trade agreements, and a review of those agreements with an eye toward seeking tougher labor and environmental standards.

I don't see anything there that threatens to unravel the world trading system. If anything, the question is whether it provides enough of a "political safety valve."

In fact, it’s clear from what Kerry is arguing (he states baldly, “I will fight for the American worker”) that his concern is to counteract what he considers to be unfair advantages accruing to developing countries that wish to export to the US. He says there is no difference between his position on trade and that of his principal challenger, John Edwards – who explicitly believes trade agreements should incorporate minimum wage requirements on the part of America’s trading partners.

We’re all entitled to change our views on issues of public policy, but so far as I’m aware Krugman, who in his academic writings has made important contributions to trade theory, hasn’t changed his view that imposing minimum wages beyond the productivity level of a developing country’s workforce will curtail the demand for labour in that country and thereby prevent poor people from bettering themselves. Other noted trade economists have no trouble stating their position forcefully on the matter: Jagdish Bhagwati of Columbia University says bluntly in the current edition of Foreign Affairs, “the Democratic candidates are staking out fiercely irresponsible antitrade positions.” Krugman, it appears, prefers these days to emphasise his partisan political prejudices.

Comments

[john s]

Well there's always been Krugman the economist on one hand and Krugman the man who would like to be a senior policy-maker on the other (Paul R. Krugman (1997): "What Should Trade Negotiators Negotiate About?" Journal of Economic Literature XXXV, March, 113-120). They've never been entirely compatible. I think Krugman's making a play for a place in President Kerry's cabinet here. He won't, after all, be getting an invitation from George Bush.

[ivan]

And of course as the most pro free trade presidents Krugman cites two Democrats and as the most protectionist two Republicans: Reagan and G.W. Bush. Mmmm, let's look what the latest Trade Policy Review of the WTO has to say. While mentioning protectionists measures like the steel tarifs the WTO writes:

"Since 2001, the United States has taken further steps to liberalize its trade regime, both unilaterally and through negotiations; liberalization has been carried out on both MFN and preferential bases. Competition in many domestic markets has thus increased, and helped maintain the drive for structural change and efficient resource allocation, which characterizes the U.S. economy as a whole. Trading partners have benefited as well, as the United States remains the world's largest single importer and a main engine of growth. Deepening and securing such beneficial interdependency has historically played a central role in U.S. trade policy; achieving this through the multilateral system offers the United States unique advantages in view of the distinctive global reach of its trade and investment interests. The United States thus has a major stake and a key role in bringing about a successful conclusion to the Doha Development Agenda, and thereby also contributing to the stability of international trade relations and to growth in the world economy."

No, Bush his record on free trade is not unblemished, but the most protectionist president? Hardly!