Showdown at the trade policy corral

Surprise: Economists don't agree about how to prosper in the global economy.


Andrew Leonard
June 27, 2006 10:09PM (UTC)

Is there a rhetorical flourish that carries less weight than one economist calling another "wrong"? The final panel discussion at the Wilson Center one-day seminar, Global Competition and Comparative Advantage, promised sparks and delivered them. The four panelists came from four very different points of view, and in contrast to the morning deliberations, where everyone mostly agreed with each other, these men did not. But what did it all add up to with respect to trade policy?

The panelists were Clyde Prestowitz, a Reagan administration official who took the hard line on defending the U.S. national interest in trade negotations. Prestowitz told the story of Form Factor, an American company that makes test equipment for semiconductor wafers. Form Factor's technology was copied by the Koreans, and the company is involved in patent litigation in Korea. The company is also considering numerous offers from Asian countries to locate its next plant offshore. Prestowitz argued that the U.S. either needed to stop foreign countries from providing incentives that lured American companies offshore, or get in the business of providing the same incentives itself. Put Prestowitz in the column of conversatives who are anti-free trade because he feels other nations are taking unfair advantage of the U.S.

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Next up was Edward Graham, a senior fellow at the Institute of International Economics. The IIE is a tricky think tank to pigeon-hole -- generally pro-free trade, but neither particularly conservative nor liberal. You might call them the wonk's wonk think tank, always proposing another technocratic fix to whatever problem has been identified. Graham did not disappoint -- in the middle of his opening statement he started scrawling complex physics equations on the whiteboard, which did a pretty good job of thoroughly confusing everyone. He also intimated that the thesis of the morning panelists, Ralph Gomory and William Baumol, that free trade can hurt participating countries, might be "wrong," but he didn't do a very good job of articulating why.

Then came Tom Palley, a labor economist with a distinguished résumé who now works for the AFL-CIO. Palley has popped up in How the World Works before -- he's written some of the best analysis from the left I've seen of U.S.-China trade and its impact on workers. He's also extraordinarily articulate and gave a compelling presentation on what policy options should address the inequities faced by American workers from current trade policy. My favorite: national healthcare for American workers. This seems so obvious that it is hard to understand why it isn't a political slam dunk. Right now, as Palley points out, healthcare is a job cost for employers. Make the federal government responsible, and with a single stroke you make every single company more competitive in the global economy, and provide American workers with important security insulating them from the tos and fros of global competition.

The final panelist was Phillip Swagel, representing the American Enterprise Institute, an extremely conservative Washington think tank. While Swagel did not come with the horns and pitchfork I've come to expect from AEI spokespeople, he did make the requisite pitch for getting rid of "burdensome regulation," the magic wand that the right thinks will solve nearly every economic problem. Oddly, though, he stopped himself in the middle of his presentation, noting that what he had just described was the content of his normal academic lecture on the "Washington Consensus," which, he said almost under his breath, "is now widely discredited."

Was he joking? Making an ironic gesture to the audience, which may have skewed liberal? Or is the Washington Consensus, with its prescription for deregulation, privatization and untrammeled free markets, really on its deathbed? It was a curious moment.

But there you have it: four very smart guys coming from four very different angles, willing to mix it up with each other, call each other wrong, and in general, provide stimulating entertainment for those who like to watch economists argue. I'd be happy to call any of these men up and get their take on complex economic issues, and I probably will.

But I can't say that the panel resulted in any kind of consensus on the topic of the day -- whither "comparative advantage"? Or what the U.S. should be doing to secure its own best advantage in the global economy. That may be a reflection on the fuzzy status of economics -- somewhere between hard science and social science, full of math, but also full of assumptions. Or it may be a reflection of how truly knotty questions of trade policy are. Isolationism is dangerous, and so is completely opening up. Picking winners is hard for government officials, but totally abandoning your industries to global competition carries with it its own peril.

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The host of the conference promised more panel discussions to come on related topics -- the conversation started this day, he said, would go on "for years." I will do my best to continue to follow it. But I'm not expecting complete enlightenment anytime soon, or even at the end of this particular thread.


Andrew Leonard

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

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