Must Trade Kill Equality?

By Kuttner, Robert | The American Prospect, March 2007 | Go to article overview

Must Trade Kill Equality?


Kuttner, Robert, The American Prospect


AN ECONOMIC STRATEGY TO ADVANCE OPPORTUNITY, PROSPERITY, AND GROWTH BY ROBERTC. ALTMAN, JASON E. BORDOFF, PETER R. ORSZAG, AND ROBERT E. RUBIN The Hamilton Project, 28 pages, free at Hamiltonproject.org

HOW WE COMPETE: WHAT COMPANIES AROUND THE WORLD ARE DOING TO MAKE IT IN TODAY'S GLOBAL ECONOMY BY SUZANNE BERGER Currency/Doubleday, 334 pages, $27.50

THE EUROPEAN ECONOMY SINCE 1945: COORDINATED CAPITALISM AND BEYOND BY BARRY EICHENGREEN Princeton University Press, 495 pages, $35.00

IN CHINA'S SHADOW: THE CRISIS OF AMERICAN ENTREPRENEURSHIP BY REED HUNDT Yale University Press, 200 pages, $26.00

THE WRITING ON THE WALL: WHY WE MUST EMBRACE CHINA AS A PARTNER OR FACE IT AS AN ENEMY BY WILL HUTTON Free Press, 421 pages, $28.00

EGALITARIAN CAPITALISM: JOBS, INCOME, AND GROWTH IN AFFLUENT COUNTRIES BY LANE KENWORTHY Russell Sage Foundation, 232 pages, $32.50

INEQUALITY AND PROSPERITY: SOCIAL EUROPE VS. LIBERAL AMERICA BY JONAS PONTUSSON Cornell University Press, 242 pages, $19.95

MAKING GLOBALIZATION WORK BY JOSEPH E. STIGLITZ Norton, 358 pages, $26.95

IMAGINE A MODERN DEMOCRATIC country that balances dynamic private business with effective social investments. This nation has progressive taxes to finance its generous public outlays, and regulations constraining private capital for the common good--labor laws, environmental standards, rules protecting investors and pensioners. The citizens believe, with good reason, that this balance makes their economy not merely more equitable but also more efficient. To create that balance took a century of popular political mobilization, punctuated by depressions and predations that undercut the credibility of private business and free markets. It also took a lot of trial and error as well as revision of economic theory.

Now imagine that the country's business leaders propose to exempt its poorest provinces from the entire extramarket apparatus--no social protections, not even democratic government. Presumably, the lower social costs would attract industry and promote growth.

Citizens object that we have already had this argument, and the mixed economy won; allowing privileged businesses in backward provinces to despoil the environment and exploit workers will lower standards generally. But, asks business, don't you care about the poor? Indeed we do, respond the citizens, but if you corporate leaders truly care about equity, you will support consistent social protections and reject a race to the bottom.

Such an extreme proposal would not be taken seriously by any democratic nation. But it is happening globally. As we become an integrated economic system, many newly emerging economies are largely exempt from the rules of modern managed capitalism, while their exports undermine its norms. So must we constrain free trade to save our own mixed economy? Can we devise trade rules to help poor people in both poor countries and rich ones? There is no more fierce debate dividing center-left from center-right-and the debate ramifies along sometimes improbable lines, with liberal economists such as James Galbraith invoking Third World development and opposing the "protection" that other liberals such as Jeff Faux view as a necessary defense of managed capitalism.

The debate traces a fault line between the congressional/labor wing of the Democratic Party, exemplified by Senator Sherrod Brown, and the party's executive/business wing, personified by Bill Clinton and Robert Rubin. It frames the argument between the Economic Policy Institute and the new Hamilton Project. To the center-left, deals like the North American Free Trade Agreement are less about trade than about helping U.S. manufacturers outsource production to platforms that lack even America's relative weak social protections. Chinas admission to the World Trade Organization, absent any enforceable commitment to respect basic human and worker rights, must undermine wages and social standards at home. …

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