Guest Column

Time for a New Protectionism

by Colin Hines and Tim Lang

THERE IS A GROWING DEFENSIVENESS among free-market zealots who have long had the ear of politicians. They are concerned that people are acting irrationally and irresponsibly by voting or demonstrating against the social and economic havoc caused by their policies. A couple of days after the General Agreement on Tariffs and Trade (GATT ) Uruguay Round was initiated on December 15, 1993, the Russian people voted out many of the "reformers" whose implementation of market-oriented austerity policies devastated the living standards of the majority, caused unemployment to burgeon and hastened the rise of the Mafia that now rivals the power of the government. Similarly, the January 1, 1994 Chiapas rebellion, coinciding with day one of the North American Free Trade Agreement (NAFTA ), captured world attention and acted as a focal point for those throughout Latin America wary of the downside of the free market.

 But perhaps the most fundamental long-term threat to the ability of multinational corporations to maximize their profits came a couple of days before the signing of the GATT Uruguay Round. The Clinton administration, with support from the French, demanded that labor standards and workers' rights be put on the agenda of the GATT Uruguay Round discussions at the April 12-15 ministerial meeting in Marrakesh, Morocco. This demand for a social clause in the GATT was reinforced by U.S. Labor Secretary Robert Reich's calls for a modest global system of minimum labor standards, including a ban on goods produced by prison or slave labor or very young children.

 The near-hysterical responses from the free-market advocates reached their nadir with Martin Wolf, assistant editor of the Financial Times, justifying the use of prison labor in exports as "better than for inmates to rot in useless idleness."

The debate over workers' rights and GATT promises to continue indefinitely. Indeed, it could be the catalyst for facing up at last to the unpalatable truth that the United States and Europe can't possibly compete with cheap labor imports, especially from Asia. It should also hasten the realization that the only way to tackle unemployment is the introduction of a new form of protectionism.

The status quo's fantasies

 Today's accepted wisdom is that the way to create new jobs is to keep inflation under control, lower interest rates and increase labor productivity while holding back wages and promising to invest in new skills and training to compete with low wage economies. Much hope is pinned on the new GATT deal, signed by 116 countries in Marrakesh on April 15 and scheduled to take effect in 1995. The Organization for Economic Cooperation and Development (OECD), made up of the world's industrialized countries, guesses that the GATT Uruguay Round will create $270 billion in worldwide economic growth. While this speculative claim might seem impressive, it amounts to a mere $40 dollars a head on average globally and will only reach this level in 10 years. The real question, however, is whether this projected financial growth will result in more jobs in the United States and elsewhere.

Globalization's realities

The fact is: the new GATT will add to pressure on Northern high-wage economies. When tariff barriers come crashing down, as they shortly will, how can the West's workers compete with low-wage economies? In 1993, West Germany's manufacturing labor costs were $24.90 per hour; Japan's $16.90; the U.S. costs were $16.40; France's $16.30; and the United Kingdom's $12.40. Compare those with South Korea's manufacturing labor costs of $4.90 per hour; Hungary's of $1.80; and China's at 50 cents! You need an awful lot of super-efficient equipment for U.S. workers to out-compete low labor costs like that. But that equipment is also available to plants hiring cheaper workers, who are often highly-educated, skilled and motivated. This is why companies like the Italian sportswear and shoe maker Fila have, in the words of one commentator, "found one way of coping with a fundamental problem of European manufacturing. It is trying not to have any." In the Philippines, college-educated data punchers paid $150 a month receive free medical care and a few grams of rice if they don't miss a day of work. Their total labor costs have been estimated to be one-sixth of their European equivalents. It is now cheaper for Manhattan law offices to fax draft letters to an anonymous woman employed by a data firm in Barbados than to hand it to a secretary in the next office.

Who will buy?

Already, the OECD estimates that 35 million people will be unemployed in its member countries this year. There are warning signs that this situation could lead to a dangerous fall in consumer buying power. As Jeff Faux of the Economic Policy Institute has argued, "One does not have to be an expert in economics to see that the world economy cannot continue with all nations expanding exports and constricting the ability of their workers to buy imports." Eighty years earlier, Henry Ford put it more succinctly: "If you cut wages, you just cut the number of your customers."

But will this realism about purchasing power stem the political stampede to transfer power to multinational corporations? At present, whenever the question of unemployment is raised, the usual answer is that workforces must become ever more competitive. Calls are made for more deregulation and fewer taxes on industry, for workers to avoid pricing themselves out of the ever more cut-throat international marketplace, and for more inducements for private investment to replace that of the state - in other words, for more of the same damaging policies of the last decade that have led to rising unemployment.

A new approach: constraining business

 A radical new approach is long overdue. Its starting point must be the replacement of the need to be internationally competitive with the goal of building up local economies world-wide. To realistically tackle global unemployment, it will be vital to increase import and export controls on a regional bloc level. This will allow localities and countries to produce as much of their food, goods and services as they can by themselves. Anything that can't be provided nationally should be obtained regionally, with long- distance trade as the very last resort.

Big business will also have to be constrained. According to the World Bank, the top 350 transnational companies already control an estimated 40 percent of world trade. Their activities need to be brought back under government control. Market access would be dependent on compliance with a "site here to sell here" policy. The present domination of economies by big companies is reducing the positive aspects of competition. Their power is awesome and many should be broken up, thus guaranteeing the local competition needed to maintain the impetus for improved products, more efficient resource use and the provision of choice.

It will also be essential to keep capital local. With barriers to trade being dismantled and international capital flow virtually unfettered, national treasuries will have less and less control over their economic destiny. Money flies around the globe when there should be controls on banks and pensions, insurance and investment funds to ensure the investment of the majority of funds in the locality where they are generated and/or needed.

The General Agreement on Tariffs and Trade should be revised to become a General Agreement for Sustainable Trade with an emphasis on trade and aid for self-reliance. Aid, technological transfer and the residual international trade should be geared to building up sustainable local economies.

Such a transformation will of course be expensive. Resource taxes would be the key to helping to pay for this radical economic transition. They would be environmentally advantageous and for the first time politically feasible, since competition from regions without such taxes could be held at bay by reintroduced tariffs and controls. In addition, the emphasis on local production would mean that adverse environmental effects would be experienced locally, thus in turn increasing the impetus and potential for control and improved standards.

The first signs of a political counterattack

 Such a progressive vision for the future may sound hopelessly utopian. However, the first tentative steps towards it may have just occurred in Europe. In the European Parliament elections in June, a right-wing, specifically anti-GATT party won 12 seats. Its most famous candidate is the billionaire, Sir James Goldsmith, who gained international fame for his foresight in selling his stocks just before the 1987 stock market crash, transferring his assets to gold bullion. The essence of his platform is that Europe has no hope of successfully competing against highly-qualified, cheap labor, particularly from China, in a time of unfettered capital flows. Europe must protect itself against such imports.

Goldsmith's views could lead to a similar result as those demanded by many progressive voices in the Third World, who don't want further distortion of their economies away from meeting basic needs and towards producing the cheapest exports.

Apologists for the "kinder, gentler" hand claim things would be better for the South if the industrialized countries would only open up their markets more to cheap imports. This fails to take into account how conditions are worsening for Third World workers, even in the Asian Tigers' economies. They are seeing their hopes for effective union bargaining for better wages and conditions dashed as firms leave Taiwan and South Korea for cheaper labor in China and elsewhere.

 In the North, the same process results in workers losing their jobs and facing insecurity while they try to find work in the new McJob low-wage service economy. Of course, cheap imports and relocation aren't the only causes of growing unemployment. Trends in automation will continue to make things worse as well. But it is the incessant and virtually unchallenged drumbeat of international competitiveness, plus the threat of relocation to counteract workers or governments that demand higher wages, taxes or stricter legislation, a trend that is forcing all countries to submit to structural adjustment and a race to the bottom.

Europe poised for the New Protectionism?

Given the success of Goldsmith in the European Parliament election, Europe could well be the first region to start the political debate about how to protect its economies from imports produced with cheap labor and at an unacceptable expense to the environment. Such a retaking of control of the local, national and regional economy would require long-term policies that address the power of multinational companies and international capital.

Europe is a politically powerful and sufficiently organized bloc to break the power of the multinational corporations and international speculators. Such a debate will of course not go unnoticed in the United States and the rest of the world, and similar demands to take back control of the economy would grow as it becomes clear that this is the only way to tackle unemployment. The IMF, World Bank and other aid agencies' policies of contorting all economies to emphasize cheaper exports will suddenly become largely irrelevant in such a "new protectionist" world.

Lastly, to ensure that the poor of the world benefit by these changes, it is vital that the practicalities of retaking control of economies in the North, East and South becomes a priority in the discussions of the global network of citizens groups.

 The world political and economic system is more destabilized than at any time since the 1930s. This provides progressive forces with an opportunity to prevent the extreme right from capturing the debate and to halt today's worrying trend of the spread of "free market fascism," filling the vacuum left by the upheavals caused by the present market-dominated system. The alternative to such a radical solution for the industrialized countries' unemployed was chillingly described by a Taiwanese shoe manufacturer, who has moved his plant to China to cut his labor bills by 90 percent. His company alone already supplies one in 40 of all U.S. shoes; when asked on British television how big a threat he was to U.S. manufacturers, he replied, "A fatal threat as far as we know."

In the face of all this, the call for a rapid ratification of GATT, with its reduction of protective barriers and President Clinton's call for the United States to "compete, not retreat" are the economic equivalent of the military thinking behind the Charge of the Light Brigade.