WTO Protesters: Chastise Cuba, Not Nike

Commentary about business and finance.
Dec. 2 1999 1:36 PM

WTO Protesters: Chastise Cuba, Not Nike

Starbucks and NikeTown may make irresistible targets for the anti-WTO protesters who have been tying up, and tearing up, Seattle. But the real engines behind the WTO's hesitancy to take up environmental and labor standards are not Nike and Boeing. They're the developing countries to which those standards would be applied.

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This point seems either incredibly naive (since we all know that multinational U.S. corporations really rule the world) or incredibly banal (since the WTO can't really do anything if three-quarters of its membership--the developing countries--disapproves). Perhaps the point is both naive and banal. But it's still true, and imagining that low wages and poor working conditions are realities imposed upon developing countries by the United States is a delusion that makes understanding the actual operations of the WTO impossible.

It was a Cuban minister, after all, who said yesterday that developing nations needed to stick together, because "we produce goods and services with comparative advantages that they [that is, the United States and Europe] are trying to take away under the pretext of so-called labor standards." And it's Mexico, Thailand, and Indonesia who are insisting that those standards stay off the table, precisely because they fear that their inclusion in trade talks will eliminate any incentives for foreign (or even domestic) investment.

Now, just because the Indonesian government is against higher labor standards doesn't mean either that the Indonesian people are against them or that we in the United States should simply defer to the wishes of other countries. There are powerful indigenous movements in almost every developing country in favor of better working conditions and higher wages, and in any case the fear of engaging in cultural imperialism is a poor guide to making policy. But there is still something in the absence of developing-nation support for new standards that should give us pause.

From a Buchananite perspective, of course, developing-nation hostility to WTO intervention is irrelevant, because in Buchanan's ideal world, the United States wouldn't be trading with those nations at all. From what you might call the internationalist anti-WTO perspective, though, there's a real paradox here, since the WTO is simultaneously excoriated for being a kind of supranational government smashing down local regulations and excoriated for not being enough of a supranational government to create global living and working standards.

The paradox exists, though, because opposition to free trade depends upon two antithetical ideas, both of which, interestingly enough, are wrong. The first is that free trade is lowering the standard of living in developed countries by encouraging the migration of jobs and the creation of trade deficits. The second is that free trade is widening the economic gap between rich and poor countries. (A common corollary to this is that trade is widening the gap between rich and poor in all countries.) For both these to be true, rich countries would have to be losing jobs and productive capacity and getting richer at the same time, even as developing countries would be taking away jobs, growing faster, and yet getting poorer.

That's not happening, of course. It's almost certainly true that certain sectors of developed economies (textiles, steel) are hurt by free trade, but it's equally true that other sectors (computer software and hardware, financial services) are helped. More to the point, the fundamental truth of free trade is that when countries produce those goods in which they have a comparative advantage, both sides benefit, because capital ends up being allocated to its most productive uses, which is the only way real wealth can be created.

I don't know whether that Cuban minister has suddenly started reading David Ricardo, but his invocation of "comparative advantage" was right on target. For developing countries, the one meaningful road to economic development, which is to say the only way they can narrow the gap between themselves and the United States, Europe, and Japan, is via free trade. It's a mistake for these countries to argue that having minimum-wage laws or regulations keeping corporations from running toxic dumps will wreck their chances of competing in the world market, just like it's a mistake for small businesses to argue that having a minimum-wage law in the United States does irreparable harm to them. But it's not a mistake for these countries to believe that the fewer barriers to trade--of whatever sort--there are, the better. The really interesting thing, of course, is that it's not a mistake for the United States to believe that, either.