The Real Free-Trade Debate Hasn't Taken Place Yet

THE passage in Congress of the new Uruguay Round of the General Agreement on Tariffs and Trade (GATT) marks a victory for the political establishment in Washington and a defeat for what passes for populism today. The approval of GATT was never really in doubt - in part because the ``protectionists'' in Congress seem entirely unable to make their argument effectively to a skeptical, restless electorate.

House majority leader Richard Gephardt tried and failed to win the Democratic presidential nomination in 1992 on a platform of protectionism and more government, neither of which seems palatable to most voters. And the nervousness of the supporters of GATT and its close cousin, the North American Free Trade Agreement (NAFTA), suggests clearly that ``free trade'' as now defined will include both blue-collar job losses and higher corporate profits.

There is already wide discussion of how to ``manage the backlash'' from Americans made angry after losing their jobs to foreign workers willing to work for a tenth of the minimum wage in the US.

The leading exponent of the coming protectionist backlash is Sir James Goldsmith, the British financier and one-time corporate raider whose new book, ``The Trap,'' predicts that low-wage competition from emerging markets is going to hurt workers in the Group of Seven (G-7) industrialized nations and eventually provoke political unrest. ``The social divisions that this will cause will be deeper than anything ever envisaged by Marx,'' he writes.

Goldsmith argues that in a world economy where all competitors have access to the same technology, capital, and information, wage levels will eventually determine the race for industrial predominance.

Another even more troubling aspect of ``free trade'' is the rapid consolidation taking place in major manufacturing sectors around the world. One year into NAFTA, larger international firms are systematically eliminating hundreds of local competitors in Mexico; the short-term effect of ``free trade'' has been to actually lessen competition.

Free-market economists argue correctly that attrition is a price to be paid for a healthy, efficient capitalist economy. Yet when US workers earning $15 to $20 per hour assembling cars or manufacturing other high-value products lose their jobs, only to find new work at $5 to $10 per hour in a service industry position, the ``gain'' promised is not apparent. Indeed, as the November election suggests, Americans rightly suspect that there is a widening gap between claims of ``growth'' made by politicians in both parties and the hard reality found on Main Street.

The debate over GATT is being conducted with labels rather than with an honest examination of the economic reality that exists between the industrialized countries and the developing world. Unless and until wages and working conditions in nations like Mexico, Poland, and Taiwan begin to approximate those of the G-7 nations, the promise of broad, generalized growth for all nations will remain illusory.

The ``free trade'' of Adam Smith and other classical liberal economists required that the nations involved had roughly comparable legal systems and economic environments: free movement of capital and labor, the right to work or organize freely, and the right to fair compensation for labor provided.

WHAT today passes for free trade, however, is something entirely different. Because labor and/or wages are not free in authoritarian regions such as Mexico, Asia, or central Europe, and because the political leaders of the G-7 nations are disinclined to push for greater political and labor rights in these markets, the stated goal of the free traders - greater prosperity for all nations - seems unlikely to be reached soon. On the contrary, by putting commerce ahead of political liberty, we may unwittingly be sowing the seeds of our own economic and political destruction with the modern mercantilism some call ``free trade.''

One need only observe the Clinton administration's reluctance to enforce the labor side agreements to NAFTA with respect to union activity in Mexico to see the true nature of ``free trade'' in the 1990s. The same example applies to Germany with respect to Turkey and the nations of Central Europe, or to Japan's relationship with the emerging nations of Asia - including China.

Because most economists and politicians in the industrialized nations have forgotten (or perhaps never understood) the distinction between classical free trade and modern-day corporate statism, they are unwilling to examine the economic relationship between the industrial nations and developing economies. What passes for ``free trade'' is, in fact, managed trade, a dismal, updated version of the corporativism of the 1930s that seeks to keep the low-wage countries down as long as possible while using limits on immigration and military power to preserve the political status quo.

When the labor and capital markets of the industrial nations are ``free,'' and those of developing nations in ``free trade'' agreements are not, advocates of GATT and NAFTA in the G-7 countries are simply undermining the living standards and long-term economic prospects of their own people. Whether one talks about auto workers in Detroit, machine-tool operators in Stuttgart, or steel workers in Kawasaki, the result is the same: unemployment, dislocations, and rising pressure for radical, perhaps even dangerous political change.

The reason Mr. Gephardt and other liberals should heed Goldsmith's warnings is evident from the Nov. 8 election, but goes even further to the long-term political stability of the G-7. Corporate statism is, after all, the mother of the fascist structures created by the Great Depression and led to the rise of Hitler, Mussolini and Stalin, World War II, and the cold war.

These reactionary, essentially protectionist political movements of the 1930s arose not from the classical liberal left, the natural home of free trade, but from the reactionary right. Gephardt and other liberals find protectionism a tough sell because it conflicts directly with the very liberal traditions that once underpinned the Democratic Party. Forget imitations like Pat Buchanan and Ross Perot; somewhere, out there, in the hinterland of America, Germany, or Japan, an authentic populist conservative is being groomed who will one day successfully lead the coming reactionary, protectionist backlash.

By pursuing the kind of ``free trade'' envisioned under NAFTA and GATT, the industrialized nations are creating the very same circumstances that led the world to the brink of destruction half a century ago. Only as and when the G-7 nations are willing to push for freedom as much as they push for free trade - freedom to organize, to think and speak, and even to immigrate - will the optimism now surrounding the GATT vote be fully justified. The Opinion/Essay Page welcomes manuscripts. Authors of articles we accept will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts by mail to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHEL.CSPS.COM.

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