Can Free Trade Be a Fair Deal?

By Harold Meyerson
Thursday, February 22, 2007

Within the past year, an important new debate has taken shape, though it's not likely to be the focus of any forthcoming presidential debates as such. It is likely, however, to distinguish liberal from centrist thinking for decades to come.

The debate begins at the familiar flash point of trade -- more particularly, with the realization of business elites and their political champions that the nation's free-trade policies have become threatened by growing public anxiety over our economic future. While corporate profits soar, individual wages stagnate, held at least partly in check by the brave new fact of offshoring -- that millions of Americans' jobs can be performed at a fraction of the cost in developing nations near and far. November's elections, in which voters sent to Congress a freshman class composed almost entirely of free-trade skeptics, rang alarm bells on both Wall Street and K Street.

In reaction not just to November but to reams of economic data showing that the U.S. median income has flat-lined, such longtime champions of free-trade orthodoxy as former Clinton Treasury secretary Robert Rubin have changed their tune. Maintaining and extending our trade agreements is still their holy writ, but to compensate for whatever leveling effect trade may have on Americans' incomes, they now call for wage insurance to help workers who've been compelled to take lower-paying jobs than the ones they lost. As call centers relocate to India, the Rubinauts call for extending trade adjustment assistance to service as well as manufacturing workers. They call for a universal health-care system delinking insurance from employment, so that U.S. companies can compete globally without having to be the only corporations in an advanced economy that cover their workers' medical costs. They call for improving our education system so that American workers can be more competitive.

These domestic policy proposals all have merit; the question is whether they're remotely sufficient to the challenge of a globalized economy. In fact, there are nations with advanced economies that trade even more than we do and have still managed, chiefly through domestic policies, to retain high levels of economic equality and vitality: the nations of northern Europe. Trade constitutes a higher percentage of Scandinavian nations' gross domestic product than it does ours, with little of the downward-leveling and, accordingly, anti-trade backlash that we experience. Their secret is a series of job-training and placement policies, a bigger and better-paying public sector than ours, and the fact that their leading trade partners are other high-wage European nations.

The cost of creating this economic security while remaining globally competitive isn't cheap. In the March issue of the American Prospect (which I edit), my colleague Robert Kuttner calculates that these nations devote roughly 15 percent more of their GDP to governmental outlays than the United States does. That pencils out to roughly $2 trillion a year that we'd have to shift to the public sector to build an economy in which globalization wouldn't be viewed as so dire a threat. Neither Rubin, a true believer in balanced budgets, nor anybody functioning in the real world of American politics is calling for anything this far-reaching to reshape the U.S. economy.

Free-trade skeptics such as I believe that these domestic reforms, while overdue, are not enough. We argue that there need to be rules for the global economy that protect workers no less than investors, that global minimum wage standards, say, are no less necessary in a global economy than national minimum wage standards are in a national economy. Our challenge is that absent a global government, a global polity, such standards are excruciatingly difficult to create -- though altering the rules of the World Trade Organization would be a good place to start.

And so the debate: Is it possible, in a globalized economy, to have decent capitalism in one country? Or must enforceable laws be enacted to create a more egalitarian global economy, just as the New Deal here and social democratic governments in Europe established the framework for broadly shared prosperity on a national scale in the middle of the last century?

The historically minded may hear in this debate a dim echo of a Soviet controversy of 80 years ago, in which Stalin argued it was possible to build Soviet-style socialism in one country while Trotsky insisted that without global socialism, Russian socialism was bound to fail. Today's debate, fortunately, concerns the fate of a vastly more benign system: decent capitalism. And -- since neither a Scandinavian conversion nor a global government is just around the corner -- it is a debate that will pit the left against the center probably for the next half-century.

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