Trade Agreements and Labor Problems: The Current Bearing of a Commons Proposal
Chasse, J. Dennis, Journal of Economic Issues
A hundred years ago, in a symposium on tariffs, John R. Commons pointed out that contrary to predictions of advocates, high tariffs did not help workers in protected industries (Commons 1908). After their victory in the Homestead strike, managers of tariff-protected steel mills imposed harsh and inhumane conditions on steelworkers. Interstate competition drove conditions in textile mills below those of British competitors--against whom tariffs were supposedly protecting workers. On the other hand, working conditions were improving in unprotected industries such as construction.
Then he asked what could be done. Unions were impotent against the combined strength of trusts. The ability of trusts to move facilities to states with lax regulations neutralized any hope that state legislatures could protect workers. On the federal level, courts would strike down any regulation based on the constitution's interstate commerce or general welfare clauses.
Commons found hope, though, in federal taxing power. Its exercise in setting tariffs faced no constitutional problems. Neither did a bill that taxed state bank notes out of existence. Consequently, a federal tax designed to pass some of the tariff's benefits to workers would, "if properly drafted" be constitutional.
Recalling an Australian bill, later found unconstitutional by the Australian Supreme Court, Commons proposed a universal excise tax set lower than the tariff. Firms with good working conditions could be exempted from this tax. He proposed a new agency to define reasonable standards and decide whether firms merited exemption.
This paper contends that Commons' observations, made in a high tariff era, apply today in an era of falling trade barriers. As tariffs did not help workers then, trade agreements do not help workers now, and, as Commons' proposals made sense then, similar proposals make sense now. The paper makes the case in four parts.
Part one argues that trade agreements have not helped workers. Part two, that Commons' proposed tax still makes sense, and part three, that a Commons type agency or commission, structured according to his suggestions, also makes sense. The first three parts argue for the current reasonableness of Commons' proposals as if they were largely unchanged. The fourth asks where the evidence might lead if Commons' "constructive research" and views on power were applied to current global labor problems. The paper concludes that the remarks Commons made remain relevant because he recognized a blind spot in the vision of American policy makers, a blind spot with international dimensions.
The Objections Commons Raised in His Day Are Valid Today
In 1908, Commons charged that, contrary to predictions of advocates, tariffs did not help workers. A hundred years later, critics level the same charge against advocates of current trade agreements. Advocates predicted that the North American Free Trade Agreement (NAFTA) would improve working conditions (Huffbauer and Schott 1993; Lee 1995). Advocates of the Uruguay round of trade talks promised that the new World Trade Organization (WTO) would reduce the U.S. trade deficit and increase annual incomes of U.S. families by an average of $1,700 (Wallach and Sforza 1999, 2, 151).
Simple statistics refute rosy predictions. (1) After NAFTA's passage, real wages declined in Canada, Mexico, and the United States (Wood 1999; Jordan 2003; Hanson 2003; Larudee 1998; Stanford 1998; Scott, Salas and Campbell 2005; Bivens 2007). In the United States, real male wages have been declining since 1973 with slight blips upward at cyclical peaks. Evidence from many quarters indicates that whatever their virtues, NAFTA and the WTO are not perceived as helping most workers. On the contrary, an increased widening of income distributions within and between countries has raised complaints about these treaties (Wallach and Sforza 1999, 3-4; U.N. Economic and Social Council 2000; Stiglitz 2003). …