Free Trade, and David Olive

I have often lauded David Olive, Toronto Star columnist, in this blog. It is with trepidation that I beg to differ with his Saturday Star column entitled,
Word must accept the realities of globalization.

I certainly agree with the title statement. I don’t agree that, once those realities are accepted, that we should go on accepting the presently natural outcome of reality. We need to change how things work, and globalization is one of those things.

NAFTA may have made a trade bonanza for the USA, but it did not make one, imho, for Canada. Even the US numbers are suspect, as for an example, the Vogue trade which was entirely intra-company: bra parts were sent to Mexico, and sewn bras were sent back. This was recorded as trade, instead of lost jobs in the USA. And, if my recall is correct, the Mexicans working in the maquiladoras were there because NAFTA ended their farm subsidies; ex-farmers got to live in makeshift shacks while working in modern factories. Asked what would happen if labour got cheaper, the spokesperson said, ‘If it gets cheaper in Bangladesh, we’ll move there in a heartbeat.’ Guess where the Rana Plaza disaster was.

To add insult to injury, factories in Bangladesh relocate at a whim to cheaper labour in the same country. Villages that became work towns became unemployment slums.

Canada lost major industries. Stelco. Caterpillar. GM workers accepted new pension plans for hires to (apparently) keep jobs in the country. Fingers crossed, anyone?

As Noam Chomsky pointed out, they are not really trade deals. They are agreements that allow the means of production to be moved at corporate will.

Olive thinks global trade has improved the human condition overall. This may be correct; the workers in Bangladesh were willing to risk bad buildings because they needed the pay (that was threatened to be withheld should they not enter the cracked building.) So we can deduce that their lot at that time was ‘better’ than before free trade. To quote David Olive, extreme poverty worldwide has been decreasing. To look at our own streets, extreme poverty at home has been increasing.

We are importing cheap goods produced by cheap labour in cheaply enforced ‘working conditions’. We are also importing their standard of living, instead of exporting ours.

Olive mentions the value of inflation in his article. (I am not sure if I am indebted to Krugman or Keynes for the next observation.) Inflation is favourable to business. Consider a small enterprise. I purchase supplies, rent facilities, manufacture finished goods, and sell them. Here’s how inflation affects me:

  • input stock gains apparent value while I get ready to use it.
  • output product gains apparent value by inflating before I sell it.
  • rent is fixed for long periods.
  • if the labour market is favourable (to me) I don’t need to keep up with inflation there.

Thus my theoretical small business likes inflation. It helps the bottom line.

Suppose instead that I am a worker in such a small business. Here’s how inflation affects me:

  • prices go up.
  • my salary does not go up.

Suppose I am retired, on a defined benefit plan even. Here’s how inflation affects me:

  • prices go up.
  • my pension does not go up. Nor my annuity. My RRIF goes down.

Inflation is a benefit to the business owner. Not to the citizen.

Now let’s have a look at free trade.

We have a trade deficit. Our Canadian government is having an orgasm because it is only $1.9 billion for August 2016. The United Stated of America has a trade deficit. It was $40.73 billion in August 2016. Mexico has a trade deficit of 1.91 billion (USD) for August 2016.

China has a trade surplus of $52.05 billion for August, 2016.

Bangladesh has a trade deficit largely because it imports energy. Australia’s trade deficit is narrowing because of gold exports, but it is a deficit.

Germany has a trade surplus of 19.5 billion Euros for July 2016.

I think that’s enough to suggest a pattern. North America as a whole is accumulating debt by buying more goods than we sell. Canada and the United States are exporting jobs. Manufacturing jobs. Call centre jobs. Any job that can’t be done more cheaply offshore.

Free trade has added manufacturing jobs to the list. Simple as that.

Olive argues that only free trade can keep us on a growth curve. The idea is, sell into markets that are growing.

I think this is a misunderstanding. It is not possible for an entire planet to ‘grow’ in real terms without limit. A single business growing at a fixed above-zero rate against inflation would eventually own the universe. It’s not possible to grow above inflation forever.

But we keep pretending that we can. We import what we can’t afford and borrow to do it. We then lose our jobs because our local knitting firm can’t compete.

Now for the cynical part of this post.

What happens when, say, a major store chain decides to switch from a local garment supplier to one in, say, Bangladesh?

Local jobs are lost. Trade numbers shift against our country. Foreign workers get jobs at, of course, lower wages and protections than here.
The company makes more profit. The displaced workers go on welfare or EI until that runs out. The extra cash goes into the bonus pool and possibly stock dividends. The company distributes cash and stock options to its directors and top executives.

In short, the rich (here) get richer and the poor (here) get poorer.

That’s the reality of globalization that we should be outraged by.
That’s the reality of globalization that we should be working against.
That’s the reality of globalization that we should not accept.

I apologize to David Olive for using his, as usual, thoughtful column and for attacking some of his main points. I respect Mr. Olive. I am not comfortable with the idea of letting globalization grow our domestic inequality.

There are other dimensions to globalization, with patents and copyrights working to add to the situation. All the workers and companies who actually build/assemble a computer or phone are likely to get one third of its net sale price, while the patent holder gets two thirds just for owning the patent, and can license the patent in another city, province, or country at the drop of a hat.

Again, jobs elsewhere, bonus pool and stock dividends (for the rich) at home.

No dumb question this time. Have a nice day.

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