FAIR TRADE: THREAT TO GLOBAL POOR?

Bangladesh

by David L. Wilson, MR Zine

On April 24, 2013, some 1,134 people died in the collapse of the Rana Plaza complex outside Dhaka, the capital of Bangladesh. The building housed factories where low-wage workers, largely women, stitched garments for the U.S. and European markets.

For several years before the disaster a number of U.S. opinion makers—notably New York Times columnists Thomas Friedman and Nicholas Kristof—had been arguing that assembly plants like those at Rana Plaza were crucial to the development of economies in the Global South and therefore a boon to the world's most impoverished. The media's efforts to promote sweatshops suddenly slowed down after the collapse in Bangladesh, but they seem to be reviving now, just as we approach the third anniversary of the disaster.

The occasion for the new pro-sweatshop campaign is Democratic presidential candidate Bernie Sanders' opposition to trade pacts like the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP). Senator Sanders has made criticism of the trade deals a key part of his bid for the Democratic nomination.

In an interview on April 1, editors of the New York Daily pressed Sanders to explain his opposition. "I do believe in trade," Sanders responded.

But it has to be based on principles that are fair. So if you are in Vietnam, where the minimum wage is 65 cents an hour, or you're in Malaysia, where many of the workers are indentured servants because their passports are taken away when they come into this country and are working in slave-like conditions, no, I'm not going to have American workers "competing" against you under those conditions. So you have to have standards. And what fair trade means to say that it is fair. It is roughly equivalent to the wages and environmental standards in the United States.

Sanders' remarks triggered a number of articles seeking to defend the trade deals.

'Worst Nightmare' for the Poor?
Sanders' "fair trade" policy would mean "that the poor should remain poor," British writer Tim Worstall announced in a Forbes op-ed. The senator's "anti-trade rhetoric...could doom millions to poverty," according to a MarketWatch piece by Kenneth Rogoff (a Harvard economist who may be best known for a notorious data error). "If you're poor in another country, this is the scariest thing Bernie Sanders has said," Zack Beauchamp charged at Vox. The kicker for an article by Slate contributor Jordan Weissmann went even further: "Sanders," it proclaimed, "is the developing world's worst nightmare."

The argument against Sanders is that the one "comparative advantage" poorer countries have is their supply of low-wage workers, so the use of sweatshop labor to produce for export is the best way for these countries to expand their economies. And it works, these writers say: global trade has been "the driving force behind historic declines in poverty," in Weissmann's words. So Sanders' call for higher wages and better environmental standards would stymie progress for these countries. The senator "basically doesn't think the US should be trading very much at all with countries where wages are much lower than its own," Beauchamp writes. This, Weissmann adds, is "simply inhumane."

There are two problems with the argument: it misrepresents the impact of "free trade" deals, and it misrepresents what Sanders said in the interview.

Sanders' critics base their claims for the benefits of free trade mostly on the example of China, where Beauchamp says 800 million people have been lifted out of extreme poverty since 1981.

There's no doubt that China's economy has grown tremendously over the past thirty-five years and that global trade has played a part in the growth, but trade is only one factor out of many in the sweeping transformation of a large, mostly rural command economy to a more industrial market-based economy. The comparison is also complicated by the fact that the increased wealth in China has been accompanied by a loss of some of the social and economic guarantees included in the old system's "iron rice bowl," with the result that defining poverty in monetary terms may not present the whole picture.

Mexico and Haiti offer better examples, since in these countries "free trade" policies were applied without the massive social and economic changes that characterized China during the period.

According to the Mexican government's Consejo Nacional de Evaluación de la Política de Desarrollo Social (CONEVAL), 53.1 percent of Mexico's population lived in poverty in 1992. NAFTA went into effect in January 1994. The country suffered a devastating financial crisis eleven months later, and by 1996 the poverty rate had soared to 69 percent. The rate improved subsequently, falling to 42.9 percent by 2006, but it jumped again when the 2008 financial crisis hit the United States, Mexico's main trading partner. As of 2012 the rate was 52.3 percent, just one percent below the pre-NAFTA level.

Haiti hasn't experienced any single trade pact of the same scope as NAFTA, but since the 1970s successive Haitian governments have followed US advice to focus on assembly plants for export as a way to transform the impoverished country into a "Taiwan of the Caribbean." The program faltered in the political instability that followed the 1986 overthrow of dictator Jean-Claude Duvalier ("Baby Doc"), but it has continued to this day on a somewhat reduced level. Reliable statistics aren't easy to come by in Haiti, but in 2005 the United Nations Economic Commission for Latin America and the Caribbean (CEPAL, for the initials in Spanish) put together a table of estimates. In 1970 from 73.8 to 87.7 percent of the population was thought to live in poverty. In 2001, after three decades of export-based development projects, Haiti's estimated poverty rate was 76.0 percent.

'Free Trade' in the Real World
The reality is that under present conditions low-wage production for export is simply not an effective way for most countries to develop their economies.

Clearly economic development isn't going to be powered by consumption on the part of the assembly plant workers -- not when they're trying to survive on wages near or even below subsistence level. The impetus for development would have to come from the profits of the factory owners and their local suppliers, which would need to be spent or invested locally. But the assembly plants are often owned by foreigners who return the profits to their own countries; the suppliers are also often foreign. Even domestic factory and supply company owners are quite likely—thanks to the globalization of finance—to invest or spend their profits abroad, or stash them away in tax havens like Panama.

But this "free trade" policy doesn't just fail to reduce poverty—it often increases poverty. NAFTA, for example, opened the United States to Mexican exports, but at the same time it exposed Mexico's small businesses and family farms to competition from US retailers and agribusiness giants. The rural population was especially impacted when it was forced to compete with companies like Archer Daniels Midland that benefit from the U.S. government's agricultural subsidies. Mexico gained some 660,000 manufacturing jobs after NAFTA took effect, but this wasn't nearly enough to offset the loss of 2.3 million jobs in agriculture.

There was a similar process in Haiti, although without a pact like NAFTA. Instead, the US government and the international lending organizations used direct pressure to have Haiti, a mostly rural country, remove protective tariffs for local farmers; the strong-arm tactics of former president Bill Clinton in 1994 were especially effective in this process. The result: while Haitian farmers produced about 80 percent of the country's food in the 1970s, today 60 to 70 percent of Haiti's food is imported, and Port-au-Prince is flooded with displaced farm families.

In other words, many of the workers supposedly lifted out of poverty by US-sponsored trade policies were actually put there by those same policies.

Listening to the Workers
But what would happen if we applied Sanders' "fair trade" policies instead? Slate's Weissmann speculates that Vietnamese workers would start earning $5 or $7 an hour and US companies would stop buying T-shirts from Vietnam. "Factories are going to close, and businesses will move their operations," he claims.

But Sanders didn't tell the Daily News editors he wanted to raise Vietnamese workers' wages to US levels; he mentioned "roughly equivalent" wages. The possibility of establishing wage equivalence between different countries—that is, determining a wage level that would guarantee workers in the Global South a standard of living in their own societies comparable to what workers have here—has been under discussion for some time among labor rights activists and some development economists. There has even been talk of negotiating a global minimum wage, at least for certain industries.

It's true that this type of wage equivalence probably wouldn't bring many jobs back to the United States, but it also wouldn't lose many jobs for the poorer countries. And while it might mean a slight reduction in the bottom line for the US manufacturers and retailers currently profiting from the exploitation of sweatshop workers, it would hardly constitute a "nightmare" for those workers.

Both Beauchamp and Weissmann cite "experts" for their positions. Maybe they should listen to a different set of experts -- the people who actually work in the low-wage assembly plants. Far from feeling they need to maintain their "comparable advantage," many of these workers have organized to fight low wages and intolerable conditions, often in the face of government repression.

Chinese workers have repeatedly engaged in protests and work stoppages—notably in 2010 and in the current period, with the country reportedly witnessing more than 2,700 work-related actions in 2015.

Workers at the assembly plants known as maquiladoras in Mexico's Ciudad Juárez have been organizing since last summer to form independent unions willing to fight for higher wages and better conditions—a struggle ignored by most of the US media.

Haitian garment workers started organizing in 2009 to demand that the government raise their minimum wage—now a little over $6 dollars a day—and that the manufacturers comply with the wage laws. Port-au-Prince's main industrial park was shut down for several days in August 2009 and again in December 2014 as thousands of these workers walked out and marched through the streets.

The low-wage workers who died at Rana Plaza three years ago can no longer speak for themselves, but we can honor them by listening to the living workers now organizing for decent wages in Bangladesh and around the world—and by rejecting the US media's effort to recycle a discredited rationale for sweatshops.

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This article first appeared in MR Zine on April 13.

Photo: Labor is Not a Commodity

From our Daily Report:

Workers' uprising in Bangladesh
World War 4 Report, April 26, 2013

Haiti: new general strike shuts down capital
World War 4 Report, Dec. 17, 2015

Haiti: union and maquilas negotiate on pay
World War 4 Report, Dec. 10, 2015

Mexico: wages stay down in stalled economy
World War 4 Report, June 24, 2014

Latin America: poverty down except in Mexico and Honduras
World War 4 Report, Dec. 6, 2011

Econo-protests paralyze Mexico City, Juárez-El Paso bridge
World War 4 Report, Jan. 31, 2009

Chiapas economist: NAFTA displaced Mexican campesinos
World War 4 Report, Sept. 9, 2005

Panama Papers pummel Peru politicians
World War 4 Report, April 6, 2015

Rival trade pacts vie for Pacific hegemony
World War 4 Report, May 5, 2014

China land reform: great leap backward?
World War 4 Report, Oct. 19, 2008

World Bank peddles rosy scenario on global poverty
World War 4 Report, Oct. 9, 2015

Bernie bucks Washington consensus on Israel
World War 4 Report, April 17, 2016

See also:

HAITI: HIDDEN COSTS OF THE INDUSTRIAL ZONE
by David L. Wilson, World War 4 Report
‚ÄčWorld War 4 Report, November 2012

'REBUILDING HAITI': THE SWEATSHOP HOAX
by David Wilson, MRZine
World War 4 Report, April 2010

CLIMATE CHANGE MIGRANTS OF BANGLADESH
by Mubashar Hasan, IRIN
World War 4 Report, December 2015

OCCUPY JUAREZ DEFIES REPRESSION
by Dawn Paley, Upside Down World
World War 4 Report, December 2011

MORE MARKET, MORE DICTATORSHIP
China's Third Plenum Signals New 'Paramount Leader'
World War 4 Report, November 2013

TRANS-PACIFIC PARTNERSHIP: STRICT SECRECY
by Pete Dolack, Systemic Disorder
World War 4 Report, October 2013

BEHIND THE FOOD CRISIS
Global Markets and Deregulation Strike Again
by Gretchen Gordon, Food First
World War 4 Report, May 2008

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Reprinted by World War 4 Report, April 29, 2016