"We Are All Protectionists Now"
The Myrtle-Beach Sun News, March 3, 2004
Knight-Ridder/Tribune Information Services, Feb. 24, 2004
Topeka Capital Journal (KS), March 8, 2004
Garden City Telegram (KS), March 8, 2004
Salt Lake Tribune
International trade is once again becoming a big issue in presidential politics. Not since Ross Perot's much ridiculed warning in 1992 of "a giant sucking sound" -- to describe his prediction of jobs heading South if NAFTA were approved -- has trade-related job loss received so much attention.
The new buzzword is "outsourcing" -- companies moving jobs from low-level telemarketing to high-end computer software design to places like India and China. It seems that the outsourcing of higher-paying jobs has attracted the most prominent opposition. "Second Thoughts on Free Trade" was the title of a recent New York Times op-ed on this subject, co-authored by New York Senator Charles Schumer.
But isn't this what has been happening to the majority of the U.S. labor force for 30 years? Now that international competition is creeping up the occupational ladder, it seems we have a problem that is recognizable by people in high places.
Better late than never. But this should help us see how badly the whole issue of how we deal with the "global economy" has been misrepresented in media and policy circles.
In a typical newspaper article or op-ed, politicians or union leaders who criticize agreements such as NAFTA or the WTO are described as "protectionist" or against "free trade." Those who support such commercial agreements are called "free-traders."
But this is completely inaccurate. The proponents of "free trade" are only in favor of international competition that drives down the wages of ordinary workers. They do not support similar measures to reduce the salaries of doctors, for example. Quite the opposite, in fact: current law makes it difficult for foreign professionals to practice in the United States, and the government has limited the number of foreign residents in U.S. medical schools so as not to depress doctors' salaries.
As a result of this selective application of "free trade," a cardiologist earning $500,000 a year can go to the local Wal-Mart and get a DVD player made in Malaysia for less than $100. He has gained both from "free trade" and the international out-sourcing of our manufacturing sector.
The "free-trader" will respond: yes, but so has the janitor, the security guard, and on up the ladder. But if we add up their gains in the form of cheaper consumer goods, and subtract what they have lost due to the downward pressure on their wages, most workers have suffered a net loss from America's global economic experiment of the last 30 years.
The better-off professionals -- doctors, lawyers, economists -- have all the protection they need from foreign competition. Neither immigration nor outsourcing can lower the cost of their services.
The picture changes drastically as we move below the 27 percent of Americans who have a college degree. The protected professionals who write the rules of global commerce have been eager to expose as many people below them as possible to the rigors of international competition.
The result has contributed significantly to the most massive upward re-distribution of income in U.S. history. While income per person has risen more than 85 percent over the last 30 years, the median wage has risen by only about 7 percent.
A few things to note: first, the real wage decline or stagnation suffered by the majority of American workers has been the deliberate objective of those promoting "free trade" in merchandise goods. It is also a logical outcome of such competition, according to standard economic theory.
Second, if the goal of our commercial agreements were primarily to increase economic efficiency (thereby benefiting consumers) there is much more to be gained by introducing international competition at the high end of the income distribution. The potential savings to consumers from such competition among professionals are enormous -- some 60 to 90 times the savings from removing the steel tariffs imposed in 2002.
The gains from free international trade in pharmaceuticals are also huge -- but our most important "free trade" arrangements such as the WTO have substantially increased protectionism (in the form of patent protection) in this area.
Third, most of our well-off professionals are doing well not just because they have skills or work hard -- the same can be said of many mechanics, carpenters, or skilled factory workers. The main difference is that these professionals benefit from protectionism that keeps their salaries from being driven down by international competition.
To paraphrase Richard Nixon ("We are all Keynesians now"), we are all protectionists now. It's just a question of whose income we are trying to protect.