[Date Prev][Date Next][Thread Prev][Thread Next][Date Index][Thread Index]
FWD: Weisbrot on Tom Barry's "progressive response"
FORWARDED MESSAGE from NAIMAN @ CITIZEN * Robert Naiman (NAIMAN @
CITIZEN.ORG <ROBERT NAIMAN>) at 7/07/97 5:47 PM
Mark Weisbrot, an economist, is Research Director at the Preamble Center
for Public Policy.
-------------------------------------
This is in response to Tom Barry's recent essay on anti-NAFTA work and
Sidney Weintraub's new book, "NAFTA at Three."
John Cavanagh and Sarah Anderson of IPS have already shown that Barry and
Weintraub's criticisms of the opposition to NAFTA do not apply to
progressive organizations like IPS, Public Citizen, and others who have
taken issue with globalization. These activists and researchers have taken
great pains to demonstrate that the process of globalization-- increasing
capital mobility and unrestricted trade-- has benefitted the owners of
transnational corporations while eroding the living standards of the great
majority on both sides of our border, and throughout the world generally.
This is clearly not a "mercantilist" or "ultra-nationalist" analysis, as
Barry claims.
I would only like to add that Barry is wrong in his most crucial economic
arguments as well. The first is a purely logical error and cannot be
disputed. Barry argues that we "should not adopt the dogma that a trade
deficit with Mexico means more unemployment in the United States," and
points out that "overall trade with Mexico has expanded substantially since
1993."
As a matter of logic, an increase in the US trade deficit (which is what
we are talking about here) with any country does indeed result in more
unemployment in the United States. This is true under any economic
assumptions that include the fact that unemployment exists. For those who
have had the benefit of an introductory economics course, the equilibrium
condition for the simplest (Keynesian) income expenditure model is
GDP= C + I + G + (X-M)
where GDP = Gross Domestic Product
C = Consumption
I = Gross Domestic Private Investment
G = Government Purchases of goods and services
X = Exports
M = Imports
As can be seen, it is (X-M), or *net* exports that matters here. When net
exports shrink-- in the US case, become more negative-- GDP shrinks. The
growth of exports, or "overall trade," does not matter. And when GDP
shrinks, so does employment.
For those who are not comfortable with these symbols, the same result can
be explained in words. Imports are produced elsewhere and so represent a
"leakage" of demand out of the domestic economy. Exports are an "injection"
of demand into the domestic economy. In a less-than-fully-employed economy,
the increased demand from an increase in a country's exports will bring
forth an increase in production and employment. Imports have, for the same
reason, the opposite effect.
The only way around this result is to assume full employment, as many
neo-classical economists like to do. In that case, trade has no relation to
either GDP or employment, because GDP is fixed at its full employment
level. Therefore even an increase in exports-- that is, "X", without any
increase in imports, will not affect GDP or employment, but only alter the
composition of GDP.
I am sorry to take so much space to explain what looks like a theoretical
point, but there is an awful lot of confusion on this issue, and I think it
is crucial to much of the debate over NAFTA and globalization generally.
There are two major confusions here. The first concerns the difference
between exports and net exports, as explained above. The US Trade Rep's
office and other pro-NAFTA lobbyists routinely confuse the two, and argue
that the US economy gains whenever exports increase. There is no reason for
progressives to make the same error.
The second concerns the underlying assumptions of the whole analysis.
Let's assume that NAFTA had actually increased US *net* exports to Mexico,
instead of the opposite. This would increase output and employment in the
US. However, by the exact same logic, an increase in government spending of
the same amount would have the same effect. So it is important to realize
that all these economists and politicians who are arguing that countries
will gain from increased exports, even net exports, are saying-- often
without realizing it-- that these economies would get the same benefit from
an increase in domestic demand. That could just as easily come from a
public works program, for example.
We have reached the sad state of confusion where the major econometric
studies of the results of structural adjustment, for example, all measure
the increase in exports (as a percent of GDP) as a measure of the "success"
of these programs. What good does it do for a country to have a higher
proportion of their economy devoted to exports? The real reason for this
emphasis on exports, and "export-led growth," is that the IMF and World
Bank, who literally *dictate* the economic policies for two-thirds of the
countries in the world, are acting as a creditors' collection agency. They
want to increase debtor countries' exports as a means of restricting
domestic consumption and paying off their foreign debts. There is no reason
for progressive forces to adopt a similar position.
This brings me to my second point, which is more debatable than the first,
but I would argue that the historical evidence is overwhelming. There is no
reason for progressives to accept the neoliberal demonization of
"protectionism." If we don't think we can rehabilitate the word, then
fine-- call it something else. But the fact remains that virtually every
country that has ever industrialized in this world has done so under heavy
protective barriers, including the United States, which had average tariffs
on imports that often ran close to 50% up to World War I. It is currently
fashionable to dismiss the protectionism of the Mexican economy prior to
1980 as a miserable failure, but Mexico had a 6% annual real (after
inflation) growth rate from 1946 to 1980, and has grown at less than 2% per
year since then. The Mexican experience is not atypical in Latin America.
There is nothing wrong, or inherently jingoistic, or "ultra nationalist"
for any nation-- including the United States-- to choose an inward-oriented
development strategy, including protectionist measures and a deliberate
reduction in trade and capital flows. That fact that the only people with
access to the means of communication in the US who are willing to discuss
such ideas are people like Pat Buchanan is primarily a reflection of the
fact that our liberals have embraced the internationalism of transnational
capital, and abandoned the interests of the majority of working people in
the US. As to the benefits to consumers from a more open economy, we have a
good statistic that takes into account both the downward pressure on wages
from globalization and the reduced price of imported consumer goods: it is
called real wages. And real wages have been declining, for the majority of
the US labor force, for the past 25 years. I have little doubt that the
majority of the American people would be better off with a more closed, and
yes, "protected" economy, and I don't see why progressives should be afraid
to utter this forbidden truth. As for the rest of the countries of the
world, they will be better off when they are allowed to choose their own
path to economic development, whether "export-led," "protectionist," or any
other strategy.
***** NOTES from LORI WALLACH (LWALLACH @ CITIZEN) at 6/19/97 6:31p
***** NOTES from Robert Naiman (NAIMAN @ CITIZEN) at 7/07/97 5:45 PM
Robert Naiman
Senior Researcher
Public Citizen -- Global Trade Watch
215 Pennsylvania Ave SE
Washington, DC 20003
naiman@citizen.org
202-546-4996 x 302
***** NOTES from MDOLAN (MDOLAN @ CITIZEN) at 7/07/97 5:44 PM