We've heard a lot from Democratic candidates about the need for "labor and environmental standards" in trade pacts, as well as eliminating tax-advantages for moving jobs offshore. But this is only part of the story and little of this rhetoric goes much beyond slogan. Kerry needs address the whole, complex set of remedies.
Standard economics commends free trade. By having open borders, American businesses get to sell their wares worldwide and locate production in its most efficient venue. American consumers get to choose from among the world's products. What could be bad?
But for millions of Americans, trade is a job-killer. Trade is destroying what was once America's "blue collar middle class" and making inroads even in high-skill service jobs like computer programmer, too. Supposedly, it's fine let the low-end jobs to go to poor countries, and have Americans move to better jobs. But what happens when the poor countries take the good jobs, too?
If American and Chinese workers with identical technology and skills were paid the same wages, there would be no problem. There would be no artificial reason to move jobs to China, and the Chinese economy would have enough purchasing power to buy a lot from us.
But a billion Chinese and Indian workers, using advanced technology, are paid a fraction of what their American counterparts make. In principle, they could export consumer goods to the US, we could export sophisticated production equipment to them, and both sides would gain. But China has a deliberate policy of compelling its US trading partners to transfer advanced know-how, so that China can start making the most advanced products at home. China, like Japan before it, is a free-trader when it comes to exports, but mercantilist when it comes to its own economic development.
In truth, tax laws that promote outsourcing are only a tiny part of the problem. Even without tax breaks, these trends will continue.
And some outsourcing makes economic sense. Some Democrats have sponsored legislation requiring workers in call centers to identify their locations, in the hope that consumers will demand American ones. But a lot of the tech-support people I reach in Bangalore are more customer-friendly than some of the geeks I speak to in the United States.
In the long run, as their productivity rates keeps rising, India and China will gain purchasing power. By 2040, they could be as wealthy as we are, and their artificial cheap-labor advantage could disappear. But in short run, a lot of Americans could become a lot poorer, as worldwide wages converge downward.
- There is no single solution, but several.
- Raise purchasing power in the Third World (and at home.) Democrats have pledged support for global labor standards, including the right to join a union. But right now the United States would not pass that test, because our own labor laws are not enforced.
- Raise wages, especially in service-sector jobs. Some jobs will never move overseas, because they have to be close to their customers-teachers, health care workers, retailing and hospitality workers. This "new-collar" service sector is the successor to the blue-collar middle class. It needs higher minimum wages, benefits, and unions to fight for them.
- Demand fair trade. China and India have a right to compete for jobs, but not to steal our technology and intellectual property. Japan needs to be as open as the United States. The administration needs to demand a level playing field.
- Socialize costs that put US firms at a competitive disadvantage. American companies pay health care and pension costs that are paid socially overseas.
- Use public funds to invest in new technologies that create good jobs and serve other national goals such energy independence. John Kerry has already led on this one.
And don't blame the trade problem on America's schools. Every American deserves a first-rate education, but that is a goal in itself and not a solution to the trade problem. For there are already millions of well educated Americans-including skilled programmers and technicians-losing jobs to overseas competition.
The right trade policy for the United States deserves to be a huge issue in this election and in the next administration's program. John Kerry, an advocate of good American jobs but no protectionist, has made a promising start. Now, let's hear the whole program.
Robert Kuttner is co-editor of The American Prospect. A version of this column ran in The Boston Globe.
