RBR’s previous post got me thinking again about free trade. Both Barak Obama and Hilary Clinton have said that the key to free trade is to strengthen protections for workers, consumers, and the environment. Current trade deals do include these protections, but that they are not enforced. Both candidates have said as much. Obama at one point mentioned putting FDA inspectors on the ground in China. Good idea. But how about putting them on the ground here at home as well.
There are those who argue, usually in the business community and the Republican Party, that regulation hurts business by placing onerous burdens on them resulting in higher prices on consumers. Republicans are big on “voluntary standards”, which rarely work in the long term. Regulation may be a hassle, but the lack of regulation hurts everyone else.
This got be thinking about free trade and quality. I wonder if we haven’t reached a state of diminishing returns with free trade. Free trade has met the promise of lower prices and greater variety. But now, that I have all this stuff, I find that the relationship between quality and price seems skewed. I am paying more for lower quality. Why? Well one reason is that free trade has done its job by enriching emerging nations like India and China thus driving up demand on raw materials as well as finished goods. The need to meet demand results in lower quality goods more quickly produced and shipped. To compete, even our own companies are cutting costs, often at the expense of safety. Need proof? Just look at what has happened to Southwest and American Airlines.
The FAA, much to the chagrin of the thousands of stranded passengers, has successfully grounded 500+ aircraft. Southwest was flying aircraft with cracks and faulty fuselage panels! Had the FAA been doing its job properly all along, this wouldn’t have happened. Industry took over the regulators.
We have a government that uses security as an excuse for limiting our civil rights. Yet this same government fails to enforce regulations that are meant to protect Americans from our own greedy companies. The TSA is supposed to protect us from terrorists on planes, but yet who is protecting us from the terrorists in the boardrooms who fly damaged and aged aircraft? Everyone is worried about dirty bombs or poison in the food supply, but the FDA doesn’t even have enough field inspectors to catch a company abusing injured cattle and serving it up to school children. We are relying on whistle blowers, amateur videos on You Tube, and the court system to address such problems.
Free trade and the rush to comparative advantage coupled with the dismantling and weakening of our national regulatory agencies, such as the FAA, EPA, FDA, etc. as resulted poor quality goods and poor consumer protections while filling the pockets of big business. I say Obama is right. Let's keep free trade, but let’s bring back the regulators.
Sunday, April 13, 2008
Bring in the Regualtors
Posted by USWest at 9:53 AM
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14 comments:
The idea that lowering trade barriers is always a good thing is a point of theology, not science or economics. We can debate what the conditions are under which free(r) trade is not beneficial, but there are such conditions. For example, where free trade encourages exploitation of prison labor (slavery) as in China, increased trade without regulation is far from an unmitigated blessing.
I am very skeptical of free trade agreements that encourage capital to seek cheaper labor with no provision whatever to help workers in third world countries avoid exploitation and environmental horrors.
So, I agree with USWest that regulation is important. If free trade means no more than the "race to the bottom," almost everybody loses.
I agree that there needs be regulations, especially when it comes to employee safety, a living wage and safe products. This is part of the reason why I'm for opening up immigration to unskilled laborers, it gives them a safety net.
I do think, however, that sometimes labor unions get a little too full of themselves and hold companies hostage. There needs to be a balance between the two so that everybody gets a piece of the pie.
History Buff's immigration remark is the key to understanding the hypocrisy here, I think.
Free-market theologians preach free movement of goods and capital but deny free movement of labor. As borders are barriers to efficiency in the global markets for goods and capital, so they are also barriers to efficiency in the global market for labor. The "race to the bottom" only becomes possible when capital is united while labor is still balkanized.
LTG is incorrect about the unscientific basis of the benefits of free trade. The theories and evidence related to the basic principles of trade economics are very well established after over two hundred years of research. Hardly something that needs to be taken on pure faith.
He is correct that there are circumstances in which people lose from trade but he is wrong to blame those conditions on trade itself.
US West is on the right track when she blames differences in regulatory polices between countries that trade with each other (such as the example LTG blames on trade - slave labor). If the use of slave labor in China gives China an unfair trade advantage the problem is the the slave labor issue NOT the trade issue.
Think of the two alternative responses. We could take the course LTG seems to prefer - reducing trade. This will not help the slave laborers. And it will make our goods cost more. Everyone loses - thank you very Mr. LTG. Alternatively, we could continue to trade and pressure the Chinese government to abandon the use of slave labor (the solution suggested by US West's call for a return to regulatory approaches). That would allow us to help the Chinese laborers help themselves AND give us access to the benefits of trading with them.
The FAA thing is interesting. Consider how this situation would have played out before the 2006 elections. The inspectors who blew the whistle would have come forward, lose their jobs and then maybe the New York Times would have run a story. The Republican control of the executive branch would not be conducive to an appropriate response. And Republicans in Congress would not force their hand.
Then when an MD80 went down CNN et al would show lots of dramatic footage of the crash itself but the results of the investigation would hardly be reported - a guy reading a report makes bad TV.
But since we have a Democratic majority in Congress they can force the FAA to respond to the reports that the Republican managed FAA has been completely "caputred" by the airline industry.
A friend of mine recently said, "I'm sure glad this didn't happen last week when I was flying to XYZ." I said, "Say rather that you are lucky to have arrived home safely on what turns out to have been an unsafe plane."
I agree that the American thing is a terrible mess and that the regulators did get too cozy, but I can't believe that it wouldn't be reported that there was a major problem with the MD80 plane. Also, if American Airlines had several MD80s fall out of the sky it would be bad for business. It would not be in their interests to fly faulty planes.
I think that after the first failure they would definitely be looking at their fleet. Now what is bad about this is the families of the dead people on the first plane. This is where good regulation counts.
I think it would reported but in the absence of any significant change in oversight by Congress, I think the report would be presented and percieved as an isolated incident and would not be looked into much until another plane of the same type went down.
I see the FAA thing as th opening salvo in what will be strengthened regulations and regulators in what I hope I will be a Democratic Administration.
The purpose of regulation, History Buff, is to prevent the first plane from going down. It is meant to prevent dangerous situations. That is how government should protect its citizens. That is part of the social contract that we have with our government. It is as important if not more so than protecting them from outside threats.
There has to be a balance there as well. Over-regulation can be as harmful as under-regulation. One commentator that I was listening to recently pointed out that regulation has been terribly unfair in that the wealthy and the big companies they operate have been under regulated while the private citizen has been over-regulated. I have to take my shoes off to get on a plane, or get harassed if I wear noise canceling headphones during landing, but Southwest et al. have been allowed to operate faulty planes. They were faulty, History Buff. Cracked fuselages and poor wiring a faulty plane does make.
RBR believes that the incident would have been under reported because that is what happened over the last 6 years. We got warnings about lead in toys, but we blamed China and moved on. We got poisoned pet food. It was Canada's fault. We moved on. If investigations were launched, no one reported on them, nor did anyone hold the guilty companies to account in any substantial way. If there is no press reporting on it, then there is no negative PR for these companies.
Only the coal companies have been held to account for their dangerous practices and they affect only a small number of people.
But planes are a big deal. 1) many private citizens across all income levels are affected 2)the airline industry is already in a ton of trouble financially 3) no one is satisfied with their traveling experiences these days. 4) It is just one more symptom of a crumbling infrastructure in this country. So it is the perfect thing to jump on.
What RBR says about slave labor: the promise of Free Trade was that we would, through engagement, affect policy in other countries.
But if you don't enforce the agreed upon rules, then you don't affect policy, you only allow the profiteers to benefit. The answer isn't to build more walls. It's to provide the proper means for getting around/through them.
US West is absolutely right, regulations don't mean much without enforcement.
Of course the problem with other countries' regulations is that we can't enforce their regulations for them. Sovereign governments tend to resent that kind of thing.
That said, one thing that the Helsinki Accords showed was that even when a totalitarian regime signs what they think is a cheap talk treaty, their citizens can start to take it seriously and demand that it be implemented.
I suspect that if we can get China to put the right kind of laws on the books, the increasingly prosperous and assertive Chinese people will start to have success in demanding enforcement. It's already starting to happen there. Chinese people ware beginning to demand better enforcement of environmental and labor safety laws that are on the books but rarely or corruptly enforced.
I agree with all of your points, US West and RBR, but I do seem to remember the companies that had lead in their toys and poison in their dog food having huge recalls and many people suspicious of their products.
Regulation does need to be enforced and no one should be given a pass for dangerous equipment or products.
I also think the border wall is the stupidest thing I ever heard of. Most illegal immigrants come into the States legally, initially, and then over stay their visas. And the drug cartels in Mexico have a tunnel system beneath the border that I'm sure they would rent out for the right price. The money for the border wall would be best spent for other types of infrastructure.
All it is doing is pandering to the fear of people who live north of the border who aren't used to having hispanics in their neighborhoods.
HB - I couldn't have expressed better how dumb the border wall is.
Oh, RBR, I'm not interested in reducing trade. That's a red herring. I'm just not interested in expanding it with certain countries without doing something serious to mitigate the effects on working people both here and abroad. So, no, I don't advocate any policy that would lead to less trade or increased prices. I advocate moderate, careful expansion of free trade relationships with protections for workers and the environment. Free traders just want to lower barriers on the theory that, no matter who gets hurt in the interim, it will ultimately help everyone. This is a means/ends problem. It's not okay, in my view, to adopt policies that impoverish and enslave hundreds of thousands in the short term even if we know for certain that, twenty years later, things may be better for their children.
But this is the point. All else equal, increasing trade will make more people better off than worse off. So if we have a world exactly like we have today, we'll have a richer one across the board if we increase trade.
We'll have an EVEN happier one if we ALSO increase regulatory protrections of the environment, human rights and worker safety.
But increasing trade is always a good idea.
The debate should be about what we do in addition to increasing trade.
To resond to something else in USWest's post about meat packing, slaughterhouses, and youtube. Apparently the government allows slaughterhouses to keep their operations confidential and exclude the public. This provides the opportunity for a rare quick fix. All slaughterhouses should be open to the public at any time. To concretize a metaphor from politics: allow the public to see how sausage is made.
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