Fierce debate is raging in the US over the pros and cons of globalisation as Clinton seeks to widen free trade areas, reports Mark Tran in Washington
PRESIDENT Bill Clinton had to fight hard to win congressional passage of the North American Free Trade Arrangement (Nafta) three years ago as opponents of the trade pact with Mexico and Canada warned that it would lead to a haemorrhage of American jobs.
Nafta, however, has not led to that “great sucking sound” of jobs going south as predicted by Ross Perot. But then again it has not lived up to the grandiose claims made by Clinton. The impact has been rather modest, according to the first official assessment of the trade agreement.
Last week’s White House report to Congress, says trade with Mexico under Nafta has created 90000 to 160000 jobs, a very modest figure indeed, considering that the United States economy creates about 200000 jobs a month under the current robust expansion, although US trade officials insist that the agreement will yield further benefits in future.
The report to Congress is the prelude to what promises to be another heated debate in the autumn on the pros and cons of free trade and on the larger issue of globalisation, when the administration asks Congress for “fast track” authority to negotiate new trade deals in Asia and to bring Chile into Nafta. Fast track allows the president to negotiate trade agreements, which Congress must approve or disapprove without dragging out the process by attaching amendments.
High political stakes are in play as Richard Gephardt, the Democratic leader of the House, intends to play the populist card in his likely challenge against vice-president Al Gore for the Democratic party nomination in the 2000 presidential race.
Gephardt was quick to assert that Nafta failed to measure up to initial administration claims, adding that Congress needed to ensure that trade leads to real progress for most Americans before proceeding with further trade negotiations.
It has been easy until now for free-trade supporters to dismiss Gephardt as a protectionist, but his arguments are gaining credence among mainstream economists.
Despite the longevity of the current economic expansion, American workers have yet to shed a nagging sense of insecurity as they compete in an increasingly global economy. As the Clinton administration spoke of Nafta’s “modest positive effect”, Nafta critics begged to differ.
The Council on Hemispheric Affairs, a Washington think-tank, attacked the report for failing to address problems in the agreement, such as low wages and poor working conditions suffered by Mexican workers.
Most economists, particularly at the International Monetary Fund and the World Bank, have sought to minimise the negative while emphasising the positive aspects of globalisation. But some economists now argue that governments can no longer ignore the real disruptions resulting from globalisation and do so at their peril.
That point has been raised thoughtfully by Dani Rodrik, a visiting fellow at the Institute for International Economics, one of Washington’s most respected think-tanks.
In his study, “Has Globalisation Gone Too Far”, Rodrik argues that globalisation does carry costs, creating fissures between those with the education, skills and mobility to flourish in an unfettered world market and those without.
Rodnik asserts that if economists argue that expanded trade has been a source of many of the good things that advanced economies have experienced in the last few decades, they have to presume that trade has also had many of the negative consequences that its opponents have alleged, including rising wage inequality.
Rodnik believes that the empirical evidence for the leading alternative cause of rising wage inequality – technological change – is far from overwhelming, especially as it is difficult to treat technological change as being entirely independent from trade.
If not handled well, Rodnik warns, the social pressures unleashed by global economic integration will likely result in bad economics and bad governance. He urges his fellow economists to face up to the intellectual challenge of reconciling the tensions between social stability and globalisation.
Institutions such as the Organisation for Economic Co-operation and Development have to play a similar bridging role, Rodnik argues. They must simultaneously encourage greater convergence of policies and standards (tax harmonisation to prevent multinationals playing governments against each other) to help reduce tensions arising from different national practices, and make room for selective disengagement from multi- lateral pacts for countries in need of breathing room to satisfy domestic needs at odds with liberalising trade.
These issues will come to the fore when the great trade debate is renewed later this year. It will be a difficult moment for Clinton, who considers the expansion of free trade one of his greatest accomplishments. Too staunch a defence of free trade might hurt his heir apparent, Gore, as he tries to guard against Gephardt. But the president is a master of co-opting other people’s arguments as he has done so successfully at the Republicans’ expense. It will be time for the president to steal Gephardt’s lines, now that mainstream economists have legitimised the House minority leader’s reservations on free trade.