Free-trade debate: a US professor speaks out on the `con' side
John M. Culbertson maintains that the Bonn summiteers made a mistake in pressing for another round of trade negotiations. ``These people are thinking in the old slogans and symbols, that free trade is beneficial,'' says Mr. Culbertson, a University of Wisconsin economics professor. ``They are not realistic. [French President Franois] Mitterrand did a good thing by preventing them from going ahead with it.''
Many particular industries, corporations, trade unions, or other special interests oppose the removal of specific barriers to trade. Mr. Culbertson, however, is something of a maverick among economists. The vast majority of economists argue that free trade boosts the standard of living according to the principle of ``comparative advantage.'' One nation makes a product because it has some special advantage, such as a good supply of raw materials, low energy costs, workers with particular skills, low wages. Another nation has different advantages and thus can make other products that are better or cheaper. By trading these products, the people of both nations are better off.
Culbertson contends that recent changes in the world economic situation have thrown the workers of the high-income nations into a new kind of competition with those of efficient low-wage nations.
``All countries now have access to the same technology and management methods,'' he continues. ``Thus, all workers now are competing on equal terms. In this new situation, unregulated international trade tends to equalize wage rates in different nations.''
Thus wages in the United States, having no basis for rates that are many times higher than those of Japanese, Korean, Taiwanese, or Chinese workers, would fall to a level far below those now prevailing, he maintains.
This view is not uncommon in union circles. But Culbertson may give the idea some intellectual underpinnings. A booklet he wrote is already in circulation within the steel industry.
Here are the arguments and counterarguments, with Professor Culbertson mostly paraphrased:
Culbertson: Wage leveling has already started. For example, the auto and steel industries are moving abroad to such nations as Japan, Brazil, and Korea, where wages are low and workers and management are efficient. Many laid-off steel and auto workers have had to take other jobs at much-reduced wage levels. Soon such populous nations as China or India will be competing with US industry, and they will pay wages that are a tiny fraction of those in the US.
Free-trader: Culbertson exaggerates. Sure, free trade causes some adjustments. But the auto and steel workers had wages some 60 percent above the manufacturing average in the US and thus were especially vulnerable to overseas competition. New industries are springing up that substitute for those lost to other nations -- say in high-tech, or consulting, or finance, or other service areas. These will pay good wages, too.
C.: That is wishful thinking based on a political faith and economic ideology. It is a faith in, as Adam Smith put it, ``natural harmony'' under ``natural liberty,'' the conception that things naturally work out for the best, without planning or guidance by government, when each person and enterprise pursues its own profit.
But ``laissez faire'' and ``free trade'' lead to an economic merging of nations. There is no guarantee of high-paid jobs for Americans. Over the past 20 years, the US has already lost all or portions of such industries as machinery, textiles, clothing, shoes, radios, television sets and other electrical equipment, cameras, optical equipment, photographic film, tractors and farm equipment, aluminum, glassware, shipbuilding, mining, and in this past year, agriculture and oil refineries. We have in recent years seen unprecedented wage cuts and freezes in several industries.
FT: Those losses may be true. But the American standard of living, despite something of a pause because of the last two recessions, has continued to rise. New jobs have been created. Productivity has risen. Robots and other forms of automation should make cheap manpower less important. Europe and Japan have become highly prosperous without the US losing out. We get a bigger slice out of a larger pie created by research and development, advanced technology, and greater productivity.
C.: Today is different. Transportation is relatively cheap. Multinational corporations have become universal and spread new technology and production techniques more rapidly to other countries. In many cases, they quickly farm out production to the nation with the cheapest wages. Europe and Japan have had slowly growing, limited populations. In many developing countries, population growth is out of control. The people are desperate for jobs, even those paying tiny wages. Their wages will improve somewhat, but they will still drag down our wages.
FT: New barriers to trade would just worsen the situation, protecting inefficient industries and wages that unions or professional associations have forced too high. We would have to pay too much for the products or services of these industries or groups. The nation's economy would gradually stagnate or worse. It would result in defaults on the debts of developing countries. Political unrest and revolution could sweep the third world if it is not able to make sufficient economic progress.
C.: We shouldn't just ``protect'' all old-fashioned industries and their workers. But companies should not have anarchistic freedom to do anything in shifting production and work around the world. Governments should make mutually beneficial deals with other nations which will serve the interests of the nation and its people. Though not always through international deals, Japan has successfully looked after its own interests and future. In America's case free trade is undercutting our economy and our industries. Declining wages would create political unrest here, too.
So the argument goes. If the dollar remains strong and American industry continues to face severe competition from imports, Professor Culbertson's ideas could win greater favor. The free-trade-vs.-managed-trade debate could rage for years.