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Chapter Ten: A Proposal for Fair Trade

 

I must backtrack to an earlier point about employers’ expected reaction to government-imposed reductions in hours. The U.S. economy is not a self-contained system. In the event of shorter-workweek legislation, it is likely that some employers in manufacturing and other sectors of industry would accelerate plans to move production to other countries. With a liberalized trading order, multinational corporations can move production freely to foreign countries with assurance that they can sell those products back in the United States. There is strong bipartisan support for free trade in the U.S. Congress and in the White House. However, this book is not about political realities; it is about dreaming of a better world.

That better world, in my view, includes both a robust system of trade and maintenance of social standards. The solution is not isolationism but a trading system which promotes, rather than retards, the advancement of labor and environmental standards. We need not accept the idea that the current model of “free trade”, pushed through by the large corporations, is the only system possible.

The world political order needs to develop to the point that it can regulate international production and trade much as national governments regulate economic activities within their own domains. Clearly, shorter-workweek legislation enacted within a single country will be counterproductive if it serves only to drive business abroad. (And then opponents will seize upon this piece of evidence to argue that shorter workweeks don’t work.) Such regulation, to be effective, needs to be adopted at an international level. While the world community is still many years away from having a strong central government, it does have specialized organizations which function quite well within their areas of concern.

The two which would pertain here are the International Labor Organization (ILO) and the World Trade Organization (WTO). The ILO, conducting tripartite discussions between employers, employees, and governments, sets global standards relating to labor. However, it lacks an enforcement mechanism. The WTO, representing trade officials of many countries, establishes and enforces the rules of international trade. The enforcement lies in its authority to sanction retaliation against a country judged to have engaged in “unfair” trade practices. Other countries are allowed to slap tariffs on the offending country’s products. There is a tribunal which decides trade disputes.

Currently, the aim of WTO regulations is to remove impediments to world trade both in the form of protective tariffs and non-tariff trade barriers. Whatever restricts trade is considered a problem. From our standpoint, it is unfortunate that WTO rules consider it a trade barrier if importation is restricted because a product was made in violation of fair labor standards. Manufacturing process is not supposed to be a factor in evaluating products. That is the present rule; it could be changed. The rules of international trade could just as easily include incentives, built into its enforcement mechanism, for employers to observe fair labor standards. In practice, those incentives would consist of penalties for noncompliance with the standards. The Secretaries of Labor in the Carter and Clinton administrations, Ray Marshall and Robert Reich, were both in favor of linking ILO-set labor standards to the rules of world trade. However, they did not propose to include shorter work hours in the package of standards.

The gap in industrial development between rich and poor nations has been a major stumbling block to adoption of such a system. Representatives of the poor countries fear that if labor standards become a trade criterion, they will be used against countries which cannot afford to meet the standards. Even a $1-per-hour wage might be too costly in a nation such as Sri Lanka. On the other hand, data from the United Nations Conference on Trade and Development (UNCTAD) show that the world’s 48 poorest countries, many in Africa, “are not benefiting from free trade and globalization and instead face worsening poverty.” The poor countries want their products to receive preferential treatment in world markets. The Foreign Minister of the Philippines, Domingo Siazon, has suggested that the rules of world trade might resemble the handicap system in golf, where the less able players receive equalizing points. U.S. Labor Secretary Reich agreed that certain labor standards, called “developmental standards”, should be gauged according to a nation’s stage of development rather than be applied in absolute terms.

The world community considers adequate leisure, wages, and standards of living to be a fundamental human right. Article 24 of the Universal Declaration of Human Rights states: “Everyone has the right to rest and leisure, including reasonable limitation of working hours and periodic holidays with pay.” Article 25 states: “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family..” Such “rights” assume, of course, that society, or certain persons within the society, will take the necessary steps to provide resources to support them. What is considered adequate depends upon a society’s economic base and, in turn, its stage of development. For such things as wages and hours, there cannot be a single standard for workers throughout the world. I would accept the argument that an industrially advanced nation such as the United States should be required to meet a higher standard than that set for Third World countries. It should also be required to show long-term progress toward improved conditions for workers.

With respect to the level of work hours, the U.S. economy has failed to show progress. It might already be considered substandard in several respects. A report issued recently by the International Labor Organization revealed that, while annual working hours continued to fall in most industrialized nations, they have risen in the United States. The average American worker worked 1,979 hours per year in 2000, compared with 1,943 hours in 1990. The 1,979 annual hours are 137 more hours than required of the average Japanese worker, 260 hours more than for the average British worker, and 499 hours more than for the average German worker, all of whose work hours continue to decline while ours rise.

The U.S. example is a drag on further progress toward shorter hours in Europe. In the l980s, a Frenchman named Victor Scherrer published a book, La France Peresseuse, which argued that the French economy could not afford to shorten its workweek while facing stiff competition from the overtime-working Americans. He was an executive with the Pillsbury Company who was impressed by his hard-working colleagues at the Pillsbury headquarters in Minneapolis. Ironically, Pillsbury was taken over by a British food conglomerate, Grand Metropolitan P.L.C., after Scherrer’s book was published.

If the long hours worked by Americans were, as some suggest, a matter of personal choice, they would be of less concern to policymakers. But the fact is that only a few workers (such as elite computer programmers with specialized skills) can dictate or even effectively negotiate their own work schedules. Most workers must accept what the employer offers. The so-called “work ethic”, translated into a willingness to work long hours, is a compulsory attitude expected of workers who want to remain employed at their firms. Since the labor unions have largely given up on the goal of winning shorter work hours, workers cannot expect to control their hours collectively. To change work schedules, one must put pressure on employers through government regulation and, ultimately, upon government itself.

Such pressure can come in the form of adverse publicity. For instance, the Japanese government decided to adopt shorter hours in order to combat its “sweatshop” image. The U.S. government seems less susceptible to external criticism. It might, however, begin to pay more attention if, accused of tolerating substandard work conditions, the WTO allowed other nations to impose sanctions upon U.S.-made products. Even as a candidate for U.S. Senate, I would not hesitate to encourage such a move against “the United States” by foreign governments if I felt it might improve working conditions here.

I wish not to be unpatriotic but question whether current policies of the U.S. government are being directed, as they ought to be, towards improving the average person’s situation in life. I also ask this in the context of improving people’s lives around the world. So involved are we Americans in trade, immigration, and global affairs that we can no longer afford to isolate ourselves from the rest of the world. We cannot aspire to enjoy advantages of natural bounty and a developed economy while others in the world are suffering. We must envision a better global society as well as one in the United States.

The process of “globalization” is said to produce “many winners and a few losers”. Political conservatives think the losers should tough it out or go back to school until better times arrive. Political liberals are more into helping displaced workers with welfare-like benefits while also proposing to send them back to school. Neither wants to consider whether a realistic alternative exists to free trade and, if so, what its shape would be. Perhaps that is because such an alternative implies central planning on a global scale. The degree of industrial development within a nation would be a critical element in this planning.

I believe that national industrial development occurs or can occur in three stages:

First, we have the flow of foreign investment into an underdeveloped country. Manufacturers build factories to take advantage of cheap labor. They reap profits from this enterprise. One might say that this is where we now are in most cases. The escape of investment capital to less developed countries is not necessarily bad from the standpoint of U.S. workers because it creates the possibility of rising living standards in those countries and reduces the need for emigration to the United States. In the long run, it creates export opportunities for American-made products.

In the second stage, workers in the poor countries become dissatisfied with their low wages. They form unions to agitate for wage increases. If successful in that struggle, wages rise and workers enjoy higher standards of living. A prosperous middle class emerges. Because of organized labor’s role in that process, international political bodies have consistently supported workers’ “right of assembly” - i.e., the right to form and join labor unions. Even with strong support in theory, this right is often violated. Union organizers and their supporters are prone to layoffs, firings, or even worse.

There is also a third stage. It’s possible that working people have succeeded in forming unions and obtaining wage increases. As productivity continues to rise, the condition of being employed and receiving high wages becomes associated with a shrinking group of workers who are currently employed. Union members horde the high-paying jobs for themselves as would-be newcomers are frozen out. In this situation, we need shorter work hours to spread the employment opportunities to a broader group of people. I would say that the U.S. economy has failed to clear this last hurdle while those of western Europe have succeeded.

Using this model, it is possible to track a nation’s progress toward greater economic development. Wages and hours, though developmentally graded, can be measured objectively. It may be that a certain level of wages or hours, acceptable in a poor country, would be substandard in a country such as ours. Standards are relative to the nation’s stage of development. The penalty for substandard performance would be for the WTO to sanction tariffs on products exported to other countries which were produced in this way. Now, of course, we are talking about a system which does not exist. The WTO wants to do away with tariffs altogether, not use them to advance developmental agendas. The current trade rules prohibit evaluations of process.

In the “better world” which I imagine, the WTO and its “free trade” rules would be replaced by a trading system linked to labor and environmental objectives. Tariffs would be an important tool of enforcement. I would, however, suggest one additional feature. Evaluations of compliance with labor and environmental standards might take place at the level of the business firm rather than at the level of a national economy. The tariffs would be applied, for instance, to General Electric products made in Mexico rather than to all Mexican products, or even to the particular GE product made in a certain factory. We need to target penalties for noncompliance with standards as closely as possible to the actual offender.

Any system which evaluates traded products from the standpoint of compliance with labor and environmental standards will include the following three elements:

1. It would set standards of desirable business and trade practice.
2. It would inspect for compliance with the standards.
3. It would enforce compliance by assessing penalties for non-compliance.

The standard-setting function would be left to economists and accountants who gather data on wages and hours in particular countries. The standards would apply only to products exported to other countries, not those produced for domestic consumption. I would propose that the standards be set high. It might be expected, for instance, that the manufacturer of exported products would pay the highest hourly wages and schedule the shortest workweeks of any business firm (or perhaps the highest quintile of firms) found in the particular industry in the country where the goods were produced. We would want foreign-owned exporters of products to set an example of improved wages and benefits, not precipitate a race to the bottom. The standards for wages and hours would be related to a country’s actual stage of development. Businesses would not be required to meet the standards but be financially pressured to do so. After gathering data about the actual wages and hours worked, the number-crunching bureaucrats would work this information into a standard. I cannot say how these calculations should be done. International bureaucrats following principles and procedures accepted by the national governments would do the math.

The inspection function would be left to professional auditors. As certified public accountants review business documents to make sure that a firm’s financial statements comply with generally accepted accounting principles, so labor- or environmental-standards auditors might review wages, hours, and environmental practices at a company’s production facilities around the world. There is a precedent for auditing the nonfinancial aspects of business performance in the ISO-9000 certification of quality-control practices and the ISO-14000 certification of environmental practices. Some companies such as Levi Strauss already employ international auditors to monitor compliance with labor standards. Alternatively, the U.S. Department of Labor employs its own teams of inspectors to see if businesses have complied with the wages-and-hours law.

The enforcement function would occur at national borders as goods produced in one country entered another. Each imported product would be assigned a tariff based upon an index number which was calculated by the trade bureaucrats using information certified by the standards auditors. This number would be compiled from several weighted factors representing the relative compliance with labor and environmental standards in the facility where the goods were produced. The higher the degree of compliance with the standards, the lower the tariff. The lower the degree of compliance, the higher the tariff. No tariff would be applied when the standard was fully met. Such tariffs would be designed to offset the cost advantage which a firm might derive from “social or environmental dumping”. Such a system would not bring a burdensome increase in paperwork. In this day and age, computers can easily and quickly process computations to grade products exchanged in international trade. Bar-code technology adds convenience to product handling. This may well be a regulatory process whose time has come.

Americans today, especially the young, are concerned about goods produced with sweatshop labor. However, the usual remedy is hit-or-miss. Fact-finding is anecdotal. Enforcement consists of turning the spotlight of adverse publicity upon businesses which produce or sell sweatshop products. In some cases, attorneys may become involved. This is an overly adversarial and expensive approach to enforcing social standards. The accounting model is comparatively benign from a business standpoint. The purpose is not to embarrass or punish business firms but give them an incentive to improve performance. We want to create a more level playing field between socially responsible and irresponsible competitors. This system of trade would discourage U.S. businesses from moving production out of the country to gain a cost advantage from cheap labor or lax environmental regulation. It would provide incentives for wages to rise, work hours to drop, and living conditions to improve for workers in foreign countries.

The economic and social objective is to hasten the day that peoples in underdeveloped countries can acquire a thriving middle class and engage in balanced trade with us in the United States. It is to ensure that their economic “growth”, unlike ours in the past, does minimal damage to the environment. It is to bring all the world’s people into an orderly process of development which results in generally increased standards of living. The move to universally short working hours would be an important part of this process.

I confess that we are talking here of an internationally planned economy, involving UN bureaucrats and other types unpopular in our culture. Yet, the mechanisms of the free market, including supply and demand, would continue to function. We are talking of a plan to combat world poverty not through forced charitable donations from the rich countries but through controlled development which gives more people an opportunity to work productively. This is also an economic system which would tread lightly on the natural environment. It is one which would give the world’s masses of people both a reasonable level of income and the chance to enjoy it.

Therefore, whatever your political philosophy might be, don’t pretend that there is no plausible alternative to free trade. A fair-trade model does exist. And, no, even in my short-hours utopia, you and a few others can still drive a Mercedes Benz.

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