Comparative disadvantage

Global labor standards: Justice, or protectionism? Or both?

Published June 19, 2006 6:21PM (EDT)

Daniel Altman, the global economics correspondent for the International Herald Tribune, recently began a daily blog/column about globalization. (A couple of weeks ago, one of his posts even featured the oddly familiar title "How the World Works, in a Nutshell.") Last Thursday, Altman ran a mini-interview with Pascal Lamy, the director general of the World Trade Organization.

One question was of particular interest: "What do you think about the argument that says that the only solution to the 'race to the bottom paradox' is setting a global minimum wage (and other global labor and ecological standards)? Do you think that the WTO can, or should, be a force that pushes in that direction?"

Lamy, as one would expect of a veteran politician, dodged and weaved. But he did note that "in 1996, WTO members agreed not to take steps that would undermine the comparative advantage developing countries have with respect to labor costs. Attempts to link trade rules and core labor standards as per the International Labor Organization (ILO) failed at the launch of these talks in Doha in 2001 due to a lack of consensus."

"Comparative advantage" is the core theoretical underpinning of free trade. Generally attributed to 19th century economist David Ricardo, it purports to explain how trade between two countries can be beneficial to both, provided both countries specialize in what they do best.

I alluded last week to the work of Harvard labor economist Richard Freeman, who has written at length on international labor standards. He sums up the basic showdown better than I can:

"The battle between the proponents of unfettered globalization and the proponents of globalization with standards to protect labor and the environment has replaced the struggle between communism and capitalism over the best way to deliver the benefits of modern production to people around the globe. On the side of expanded globalization, many economists, international organizations, and developing country governments believe that free trade of goods and services and foreign investment promote the growth of less developed countries, and they fear that labor and environmental standards will undermine their competitiveness in global markets. The critics see global standards as a scheme to lower the comparative advantage of poor countries, and they believe that trade sanctions to enforce standards are protectionism in disguise."

"Embracing an alternative vision of globalization, many nongovernmental and human rights activists, as well as most trade unions, believe that unencumbered free trade increases income inequality and creates a race to the bottom for workers worldwide. Many of these groups, particularly from developed countries, want trade agreements that include global labor standards and trade sanctions to enforce them. Nongovernmental organizations and unions from developing countries are often in the middle of this debate, favoring higher standards in their own countries but opposing the linking of those standards to trade for fear that their exports, and therefore jobs, will suffer."

What are the standards at issue? According to Freeman, the 175 members of the International Labor Organization have endorsed four basic principles: freedom from forced labor, nondiscrimination in the workplace, the "effective abolition" of child labor, and freedom of association and the right to organize and bargain collectively.

The fourth principle is by far the most thorny. As the AFL-CIO argued in a recent petition to President Bush, in China (which, by the way, is a member of the ILO) workers have essentially no independent unions to represent them. For a host of reasons, the AFL-CIO wants trade sanctions.

The AFL-CIO's declaration is substantially correct in its analysis of how workers are being exploited in China. But it is also clearly protectionist. There's the rub. The reality of the global economy is that trade sanctions based on labor standards are simultaneously rooted in concerns of social justice and yet also serve to privilege one set of workers, in the developed world, over another set, in the undeveloped world. A trade negotiator for Vietnam could be entirely understood for viewing with suspicion calls from the United States or the European Union for stronger unions. Oh, so, in addition to requesting that we remove all our tariffs on imported goods and services, and institute stringent intellectual property laws, you ALSO want us to raise our labor costs. As Freeman, who is a strong supporter of linking globalization with standards, notes:

"With or without the WTO, however, trade measures to enforce labor standards are unlikely to be a significant part of any global labor standards initiative. The not wholly unfounded fear of developing countries that such measures would be manipulated to discriminate against their exports makes the issue simply too sensitive."

But the flip side is equally true. Just as that trade negotiator's suspicion must be warranted, so too is our lack of trust in any corporate spokesperson touting the sacredness of "comparative advantage." For of course it is in the corporate interest, at home and abroad, to resist any movement toward giving labor an advantage versus capital.

But there is a way forward. The mini-brouhaha that broke out last week over Apple's iPod Nano manufacturing assembly line indicates that, justified or not, a company can suffer a reputational hit when it is linked to labor practices that the developed world considers beyond the pale. Corporations that take advantage of the cheapest possible labor should pay a price. Their brand should suffer.

Freeman calls for more "transparency" -- by which he means more exposure of what is actually occurring on the factory floor. He focuses on encouraging change in the developing world. "Some countries might be shamed into changing particularly egregious practices, while others might decide to market themselves as reputationally less risky to large brand-name retailers and as having more stable labor relations."

But the same shaming should also be directed at the large brand-name retailers. Transparency might seem like a slender thread upon which to base a campaign on global labor standards. But it has worked, more or less, in the global campaign against child labor. Kathie Lee Gifford suffered when allegations emerged that child labor was involved in the production of clothes marketed under her name. The real challenge facing labor activists is to ensure that other corporations pay a similar price when word gets out that the workers producing their goods don't have the right to bargain collectively.

That's a tall order, particularly in the United States, where union power has been on the decline for decades. But isn't charity supposed to begin at home?

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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