Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, July 31, 1993 TAG: 9309080416
SECTION: EDITORIAL PAGE: A9 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
This is one of the reasons why free trade increases prosperity. Capital will tend to flow, for any given activity, where productivity is highest. So countries in a free-trade environment will tend to do and make what they do and make best.
And so, as Brink Lindsey of the libertarian Cato Institute argued on Thursday's Commentary page, ratification of the North American Free Trade Agreement should help raise U.S. living standards.
As consumers, Americans have long been enjoying the benefits from trade with growing, productivity-improving economies abroad. Of course, lower consumer prices and better products are of little avail if you yourself aren't earning income from providing a share of them. But the rise in the past three years of U.S. productivity - as much as 4 percent annually in the manufacturing sector - offers encouragement that, as producers, Americans also can share in the global economy.
But Lindsey went too far in assuming that public policy should be simply to ratify NAFTA, then sit back and enjoy the wealth-accumulation.
NAFTA ought to be ratified. Continually improving U.S. productivity should be a major economic priority. But freer trade and higher productivity, while the essential bases of economic growth, are alone not enough.
Most NAFTA supporters (including Lindsey) concede it will disrupt some sectors of the U.S. economy. But, they say, the overall gain will outweigh localized losses. They are right.
Except that, if you happen to be part of that local loss, the pain can seem pretty general, and the dislocation can be pretty costly to society.
There's a tendency among free-traders to underestimate the significance of such disruptions. Unless properly addressed, they could lead to productivity-destroying joblessness and demoralization of displaced workers.
The answers include retraining programs and, perhaps, relocation assistance. Both might be seen as latter-day versions of American responses to economic change in earlier eras: the growth of public schools to provide a literate work force, the establishment of land-grant colleges to lend technical support to agriculture and other industries, homestead acts to boost internal mobility, so Americans could move to where economic prospects were brighter.
The retraining-relocation question is part of the larger issue of how the benefits as well as costs of productivity-producing prosperity are to be shared. This, too, has not always been answered in the way it is being answered today.
At the moment, much of the increase in U.S. productivity is coming through new processes and technology that are enabling corporate America to streamline operations. The result in many cases has been big layoffs; even where labor costs are reduced through attrition alone, this reduces job opportunites for young people just entering the labor force.
But lost jobs are hardly an inevitable consequence of streamlined, and thus more profitable, operations. For decades, the American response to heightened productivity was a steady reduction in the length of the standard workweek rather than in the size of the work force.
Public policy has influenced the trend reversal - has raised the costs of hiring new workers, making it more attractive for employers to hire fewer people for longer hours each rather than more people for fewer hours each.
While generally a good thing, for example, the development of anti-discrimination law lessens employers' readiness to hire new workers, each of whom is a potential lawsuit. The same could be said of the emerging field of sexual-harassment law.
Among employers where it is part of the overall compensation package, the rising cost of health insurance provides another example. Those costs can make it more expensive to hire a new worker than to expand the hours for a current worker even if more highly paid.
Productivity gains of recent years are to be greatly celebrated; there is no other way to create wealth and prosperity for the future. But one can support free trade and still help ease and facilitate the worker-transitions thereby fostered. One can toast higher productivity while still being concerned about the distribution of resulting benefits.
Helping workers respond quickly to dislocation, to get back as quickly as possible into productive work, is a help - not a hindrance - to the marketplace. And a more equitable distribution of the nation's wealth is the surest means of sustaining popular support for free trade and rising productivity.
by CNB