If America is to redeem its status as the great middle-class nation, the next president will need to transform how we address the interlinked areas of labor and foreign trade. Laissez-faire trade is advertised as a policy that serves the general interest, resisted only by selfish interest groups. In reality, however, for two decades the trade agenda has been set by business elites in service of their own narrow interests. Business is so politically potent -- so hegemonic -- that its parochial goals succeed in parading as the public good. So the first task of a new progressive president is to remind citizens, as Franklin Roosevelt did, that corporate interests are not tantamount to the national interest.
We Americans, after all, are aware that business is not self-regulating -- when we support domestic government action to temper such predatory behavior as corporations polluting the environment, cooking company books, making deceptive sub-prime loans, producing unsafe products, discriminating against minority or women workers, destroying the right of workers to bargain collectively, or looting pension funds. But when it comes to cross-border commerce, financial elites and their economist allies wave a wand and bless all unregulated corporate behavior as "free trade" -- efficient and virtuous by definition.
In truth, recent multilateral agreements such as the one establishing the World Trade Organization, and numerous bilateral and regional deals like the North American Free Trade Agreement, have been less about promoting commerce and more about enforcing a brand of capitalism that weakens the mechanisms of a mixed economy, both in the U.S. and overseas. Under NAFTA, for example, consumer-protection regulations in any of the three participating nations can be deemed violations of free trade and challenged in a special court. The goal is to return capitalism to its model circa 1890, in which property rights are paramount, without the inconvenience of offsetting social regulations.
A progressive president needs to signal a new course -- to inject greater balance into trade agreements and use the leverage of the United States to bring a managed form of capitalism to global commerce, rather than allow trade to destroy a mixed economy at home. One good idea is to take a "time out" from the bilateral trade deals being feverishly promoted by business, and to insist on better corporate behavior as well as more robust domestic programs to help those displaced by trade as the price of further trade agreements.
The trade problem can be broken down into three separate challenges.
Foreign Mercantilism. Recent administrations of both parties have indulgently allowed other nations to practice forms of economic nationalism that the U.S. itself shuns and that harm the U.S. economy. China is a poster child for how not to run a laissez-faire economy. Beijing manipulates its currency to keep Chinese exports artificially cheap and uses a combination of carrots and sticks -- subsidies, mandatory licensing, and technology transfers -- to induce U.S. corporations or their supply chains to relocate there. But when China acts this way, flagrantly violating the letter or spirit of the free-market WTO, the fiercely nationalistic Bush administration turns oddly docile. High-level missions come and go, progress is promised, memoranda of agreement are signed, but little changes.
Why do U.S. presidents tolerate behavior that violates our own professed ideology of laissez-faire -- behavior that leads to structural trade deficits, a dangerous dependence on loans from Asian central banks, and a new vulnerability to foreign "sovereign investment funds" that are hardly free-market creatures? One reason is that American corporations like this environment. If they relocate in China, they move to the more attractive sides of the wage divide, the currency divide, the regulatory divide, and the subsidy divide.
Big banks and investment houses are also content, as long as they get to play. According to The Roaring Nineties, Joseph Stiglitz’s memoir of economic policy in the Clinton years, in the 1999 negotiations for China’s entry into the World Trade Organization, then–Treasury Secretary Robert Rubin played hardball on only one issue -- greater access for U.S. banks to the Chinese market.
In addition, America’s geopolitical ambitions often cause military goals to crowd out economic ones. Ever since Henry Kissinger negotiated detente with Beijing, American presidents of both parties have viewed China as a counterweight to Russia. We have bigger fish to fry with the Chinese than trade issues, and likewise with other key Asian economic powers practicing economic mercantilism, such as Japan and South Korea. But a new president could take a far harder line with foreign mercantilism, as the European Union has begun to do with Beijing. Asian mercantilists may operate their domestic economies any way they like. They just shouldn’t expect free entry of their products into the U.S. if they cheat the rules.
Regulation of Global Capitalism. Given the power of business, achieving a socially balanced form of capitalism requires great political struggle even in domestic politics, where policy issues are subject to democratic deliberation and mobilized citizens can vote. But globalization allows corporate end-runs around national laws, making the whole project of managed capitalism far more difficult to achieve.
The game becomes what the AFL-CIO’s chief economist, Ron Blackwell, calls "tax, wage, and regulatory arbitrage." Corporations can outrun the mixed economy by moving their operations to nations with lower taxes, cheaper wages, and weaker regulations. This practice, in turn, places pressure on nations with decent social and labor standards to join the race to the bottom.
For two decades, corporations have successfully used tax competition to induce one advanced country after another to reduce rates on corporate taxes and on investment income. This process either shifts the tax load onto consumers and workers or just reduces public revenues generally. With the undermining of government’s fiscal ability to temper the extremes of the market, the mixed economy becomes a less attractive bargain to voters, who find themselves paying a larger share of overall taxes and getting less back.
Hedge funds, typically, are domiciled in tax havens such as the Cayman Islands, which not only allow avoidance of taxes but also of financial disclosures. Interlinked financial markets increase the risk of contagion. The first casualties of the sub-prime collapse were two state development banks in Germany. To date, global financial regulation has not been equal to the challenge.
For example, in the 1980s, national regulators became concerned that global banks based in different countries were using wildly divergent standards for acceptable ratios of bank capital to debt. This was giving riskier banks a competitive advantage and increasing systemic risks. So regulators negotiated a common floor for capital standards, known as the Basel Accords. However, exotic new forms of financial engineering soon rendered these standards moot. So a second round of expert consultation produced Basel II, relying heavily on the banks’ own risk models. However, when national regulators took a closer look, they learned to their horror that Basel II would actually permit weakening of bank balance sheets. Global bank regulation is too important to leave to bankers.
Other new transnational regulatory challenges such as global warming, the exhaustion of fishing stocks, commerce in unsafe consumer products, and the absence of standards for labor all require new efforts that can only be accomplished at the global level. In a new administration, the economic leverage of the United States should be used not to undermine necessary regulation at home but to enhance it globally.
To some degree, our friends overseas have grasped this potential. While antitrust regulation has been moribund in the U.S., it is alive and well in Europe. Domestically, Microsoft is permitted to abuse its Windows near-monopoly to limit consumer choices and to frustrate the use of non-Microsoft software applications. Brussels has taken a harder line and has compelled Microsoft to permit more choice and compatibility. U.S. regulators have also allowed cell phone networks to limit consumer choices and thereby raise prices. An iPhone, for instance, requires a contract with AT&T. This practice is an old-fashioned tying arrangement, presumably a violation of antitrust laws that the administration won’t enforce. Overseas, by contrast, regulators require "unbundling." You can use any product with any network. And thanks to concerted pressure by Third World nations and their allies in civil society, drug companies now face compulsory licensing in cases where people in poor nations need but cannot afford life-saving drugs. This provision permits locally manufactured, low-priced medications. The U.S. government, acting for the pharmaceutical industry, fiercely resisted this advance. A new president should switch sides and join the global coalition for consumer, labor, and environmental protections as part of the rules of global commerce.
Trade, Jobs, and Wages. In the absence of enforceable global labor standards, liberalized trade with low-wage, low–worker rights nations tends to produce a downward convergence of wages. Standard economics terms this effect the Law of One Price: Freely traded identical products will fetch something very close to the same price, and a wage is the price of labor. If workers in China have roughly the same productivity as workers in Detroit (most of the productivity being embedded in the technology), their wages will tend to converge, which is bad news for Detroit.
Until fairly recently, trade economists tended to trivialize the problem, contending that it affected only a million or two presumably overpaid factory workers. Increasingly, however, even mainstream economists, such as Alan Blinder, former vice chairman of the Federal Reserve, in his writings both in Foreign Affairs and in The American Prospect, calculate that tens of millions of jobs are at risk because of the broad downward pressure that trade, and the threat of offshoring, places on wages. Blinder’s former chairman, Alan Greenspan, recognized the same dynamic in his recent memoir, where he attributed the absence of inflationary pressures to weakened labor bargaining power resulting from foreign low-wage competition.
A new president could bring a very different agenda to trade negotiations, bargaining hard for meaningful labor standards in both multilateral and bilateral trade accords. In recent trade deals, with the partial exception of the Cambodia agreement negotiated in 1999 under President Clinton, nominal labor standards have been tossed in, mainly as a bone to throw the labor movement. Whereas property rights and the rights of investors are contractually ironclad in international law, labor rights are not subject to meaningful enforcement.
A close analysis by Columbia law professor Mark Barenberg found that the labor provisions of the recent U.S.–Peru deal actually weaken existing trade law. Business gets concessions that limit Peru’s capacity to operate a mixed economy. The deal requires in principle that the two signatory nations comply with the core labor rights of the International Labor Organization, as well as respecting their own labor laws. However, it is up to the president of the United States, or of Peru, to bring any complaint. This is the same president of the U.S. whose appointees have run roughshod over workers’ rights under the Wagner Act. But no third party, such as the labor movement, has any meaningful right of redress. Yet this slender fig leaf was enough to win over the votes of key Democratic committee chairmen and half the House Democratic Caucus, because congressmen are under such pressure from business elites to accept these deals. It will take presidential leadership to move trade policy in a fundamentally different direction, with labor and social rights at the core.
Even if we dramatically changed trade policy -- to reduce foreign mercantilism and increase labor and social rights worldwide -- open trade with emerging economies would still depress some domestic wages. Chinese workers could organize free trade unions, and the Chinese yuan could trade at a more realistic value in foreign exchange markets, but Chinese manufacturing wages would still be low for a long transitional period, because living costs are lower in China and the vast sea of Chinese peasants seeking regular employment pulls down prevailing wages. So trade remedies solve only part of the problem of U.S. wages.
On the domestic front, there are things a new president could do to shore up America’s middle class, from the first hundred days to the life of a presidency. The single most important thing is to remind citizens of the value of the labor movement and identify a new administration with the resurgence of unionism. The trade union movement is not only the instrument of worker voice and of better wages and working conditions, but it remains the most potent civic counterweight to the political power of organized business. The last Democratic president to openly celebrate the labor movement was Franklin Roosevelt. John L. Lewis, then-president of the Congress of Industrial Organizations, was exaggerating only slightly when he declared, "President Roosevelt wants you to join the union."
Too often, recent Democratic administrations have treated the labor movement merely as a Democratic interest group to be endured or tended but not as a crown jewel of progressive politics. It would be a fine thing to see a Democratic president celebrate the heroism of ordinary people who braved the loss of their jobs to organize or join unions. At his first State of the Union address, Bill Clinton pointedly seated then–Federal Reserve Chairman Alan Greenspan in the gallery next to the first lady, to signal the press and the money markets that he and Greenspan had a close working relationship. The next president should accord that seat of honor to the leader of a janitors’ local and take a few minutes of the State of the Union address to tell the story of what it took to win a first contract and what difference that made in the lives of ordinary people.
Recent Republican presidents have relentlessly used the levers of government to help business elites weaken or destroy unions. Some 40 National Labor Relations Board decisions under Bush appointees have made it easier for employees to harass or intimidate pro-union workers and harder to win union certification. In a flagrant double standard, the NLRB allows employers to get decertification of unions based on signed cards, but makes it almost impossible for unions to use signed cards to win union recognition. Employers are required to post notices of workers’ rights to decertify unions as bargaining agents -- but not to freely organize them. The NLRB has allowed managers to require compulsory anti-union meetings, which is plainly illegal under the Wagner Act. A September 2007 case reversed 40 years of precedent and made it much harder for wrongfully fired workers to collect back pay. Mercifully, NLRB appointees, unlike Supreme Court justices, are not lifetime appointees.
Occupational safety and health enforcement under Bush has been scandalous. The administration refused to issue an ergonomics standard that had been 10 years in the making. This refusal leads to hundreds of thousands of needless workplace injuries annually. Meanwhile, the failure to enforce environmental standards puts other workers at risk from toxic workplace substances.
The wages and hours division of the Labor Department has allowed gross abuses of employers’ reclassification of workers either as independent contractors or as managers, in order to avoid paying overtime, or in the case of independent contractors to avoid payroll taxes and fringe benefits. This practice denies workers both rights and earnings and puts more honorable employers at a competitive disadvantage. Enforcement even of such basic legal protections as the right to collect time-and-a-half pay for overtime has been minimal. The enforcement divisions of the Labor Department have been deliberately underfunded. The administration has also sought to limit data collected and made public by the Bureau of Labor Statistics, in order to conceal what is being done to workers.
All of these practices and countless others could be reversed by appointing progressives to Cabinet and sub-Cabinet positions, through the use of executive orders and better budgetary priorities. The appointment of senior officials with a concern for workers should not be limited to the Labor Department but should include people at the power positions in economic policy at the Departments of Treasury, State, and Commerce, the U.S. Trade Representative, and the White House.
Legislatively, the next president should begin by raising the minimum wage and by pushing for early enactment of the Employee Free Choice Act, restoring the right of Americans to organize and join unions and bargain collectively. Looking toward the longer term, the next president should pledge a signature commitment to Good Jobs for Americans, using three strategies.
First, we need policies to assure that every job in the human services will be a good job. Even if global labor standards slow down the process of needless outsourcing, automation will continue to displace traditional manufacturing jobs. However, there will be tens of millions of new jobs in the human services -- taking care of the young, the old, and the sick. At present, far too few of these jobs provide professional training, decent wages, or good prospects for career advancement.
The typical nursing-home worker makes well under $10 an hour, and turnover rates are in excess of 100 percent a year. In custodial day-care centers, workers usually have little training and earn wages less than half those of kindergarten teachers. In France, by contrast, teachers in early childhood schools get more education -- additional courses in child development and in public health -- than those in kindergartens and are compensated as professionals. In much of northern Europe, workers in nursing homes, assisted-living centers, and in mobile teams serving elderly people living independently are part of the national health service and are educated and compensated as professionals.
A national policy of upgrading the professionalism and the pay of people who work with the old and the young would not just create millions of good middle-class jobs to replace the good jobs once held by factory workers. It would be far better for our parents and our children, and ourselves as we age. Enriched rather than custodial pre-kindergarten and child care would help the next generation realize its potential. Hospitals do somewhat better than day-care centers or old folks’ homes in treating nearly all occupations as at least para-professions. But there are too many relatively low-wage jobs and too few career ladders.
At least half the money that pays the wages of human service workers is ultimately public money -- through Medicare, Medicaid, Veterans Affairs, and publicly subsidized home care, child care, and other social services. A national policy to make every human-service job a living-wage job would cost serious money, but it would be a social investment well spent. Small-scale programs don’t inspire voters because they don’t achieve great national purposes. This one would.
A second source of good domestic jobs and technologies would be a national commitment to renewable energy. This would require the kind of industrial policy and public planning disdained by conservative ideology and discouraged by the current rules of the WTO -- good reason for scrapping both. It would also require serious public investment, but again it would be the kind of initiative that could once more win public support for government. Energy policy would incubate entire new domestic industries and production jobs, as well as good blue-collar jobs retrofitting buildings. Berkeley, California, recently approved a program that uses property-tax revenues to pay the upfront cost of installing solar heat and hot water systems in every home in the city. Savings in energy costs pay back the initial expense -- and more -- over 15 years. Along the way, the city creates many hundreds of good domestic jobs installing the systems.
A third initiative to produce more middle-class jobs would be a serious active labor-market policy. In Europe, the Danes rely more on foreign trade than we do, but they have suffered nothing comparable to the U.S. erosion of income equality and employment security because they spend nearly 3 percent of their GDP on customized training for good jobs and transitional subsidies to support people while they learn new skills. Three percent of our GDP is about $500 billion! Small-bore programs of "wage insurance" of the sort proposed by the Hamilton Project are nothing but temporary subsidies to move workers permanently into lower-wage sectors.
A stronger trade union movement, a more balanced trade policy, and a national commitment to create good jobs in human services and in renewable energy could offer voters an economy with no jobs that fail to pay a living wage. In a country this rich, where so many of the riches have gone to the very top, we should settle for nothing less.