In 1994, the North American Free Trade Agreement (NAFTA) intertwined the economies of Canada, Mexico, and the United States. In the immediate context, NAFTA eliminated or significantly reduced most national tariffs on goods flowing across the boarders of the three countries. Mexican textiles were able to enter the United States free from trade restrictions, U.S. agricultural products moved into central Mexico to compete with local goods, and Canadian timber products could be used by the U.S. and Mexico to fuel the economic growth expected to follow the phasing in of tariff reductions. The laissez-faire system so touted by historical figures like Adam Smith and David Ricardo and contemporary figures like Ronald Reagan and Margaret Thatcher took another step forward, closer to a globalized economic system.
Under NAFTA, corporations are allowed to flourish. Some call the move towards free trade policies the extension of the "corporate economic bill of rights" because it removes any control that national economies had over the economy and places it in the hands of the market system. Goods now are able to move based upon the theories of supply and demand, free of virtually all forms of governmental interference, consistent with the arguments of both classical and neo-classical economist. According to these economists, a free market will supposedly facilitate unprecedented economic growth. With these suppositions in place, NAFTA is now looking beyond North America. President Clinton, President Zedillo, and Prime Minister Chretien will meet with Latin American leaders this year to plan the future Free Trade Area of the Americas , creating a huge regional trading block by the year 2005.
After more than four years, the results of NAFTA are now observable. The U.S. economy is the strongest it has been in decades when viewed through the success of American based multi-national corporations and other beneficiaries of neoliberal trade policies. Even, the U.S. government has a budget that for the first time since 1967 contains a surplus. Gross Domestic Product (GDP) has grown, interest rates are low, and inflation is steady. Large U.S. firms are taking advantage of the U.S.'s hegemonic position in the world, and expanding their businesses internationally. Firms are utilizing regional trade agreements, like NAFTA, and expanding further to countries with more attractive investment opportunities. From a national perspective, as national as can be in this intertwined world, it has arguably never been a better time to be engaged in business in America.
The Mexican situation is presented as similarly rosy by the individuals involved in the existing power structure. Inflation is under control after the peso crisis of 1994, foreign investment is up, the currency is stable and the size of the economy appears to be growing. Political stability is still a major problem, but the long ruling Partido Revolucionario Institucional (PRI) promises to reduce its vigilante practices. However, the recent slaughter of 45 indigenous Chiapasianos, mostly women and children, seems to contradicts this claim. President Zedillo remains committed to continued free trade expansion through export led industrialization and the privatization of national industries. Thus, Mexico remains an attractive site for foreign investment in Mexico.
Canada is also following the same liberalization policies of Mexico. Its competitiveness on an international scale is increasing partly due to the results of the competitive structure created by both NAFTA and the Canada-United States Free Trade Agreement (CUFTA), which was implemented in 1989. Non-tariff barriers have been reduced which has allowed the Canadian service industry to expand. Inflation is under control and GDP is increasing. Forecasts state that Canada will experience the highest rate of growth among G7 countries next year (1). Unemployment in Canada is still a problem, with the number hovering around 10 percent. However, much of the unemployment problem is blamed on Canada's slow conversion away from industry based upon natural resources to high-tech sectors. (2)
It appears that after only a few years, NAFTA has been a resounding success. Yet, it is important to look at the details and measurements of this supposed success. Macroeconomic performance is the sole basis for the free traders' arguments, while issues of microeconomics and real-life effects on the domestic societies involved receive little examination. The fact remains that NAFTA's benefits have risen only to the upper echelons of the socioeconomic ladder in the three countries, leaving the remainder of society's members with a host of negative micro-economic effects. A significant disparity has arisen, leading us to the question: How well have neoliberal practices benefited societies in real, overall, median terms?
An important problem in looking at the benefits and drawbacks of NAFTA is the confusion over macro- and microeconomic evidence. Much of the analysis produced to support NAFTA is based on certain macroeconomic theories of trade, which do not fully examine the situation, or assume too many factors which are not applicable in the contemporary economic climate. An example of this is the factor price equalization theorem, which states that under strict assumptions, trade between two countries will result in an equilibrium of factor prices, thus creating a positive-sum game from free trade. (3) However, this theory assumes identical quality of labor, similar technological levels, and also that there will be no increasing returns to scale. (4) Yet, as will be shown in this chapter and the later chapter by Molly Scott, there are no identical levels between countries, especially in the case of NAFTA and Mexico. Adrian Wood, author of a critical book on North-South trade and its links to inequality, points out the flaws in this macro-economic model as he looks to the tendency of markets to specialize in certain types of production. He predicts that by factoring the differing levels of these economic factors in developing and developed countries, "reduction of barriers to trade would thus result in the North producing only skill-intensive goods, [and] the South only labour-intensive goods. This division of labour would alter, but not equalize, the wages of skilled and unskilled workers in the two regions." (5) As Clark Reynolds, an economics professor at Stanford University states, "such an area [of trade] requires the same kind of labor in both countries, the same kind of capital, and no complete specialization--conditions that simply do not exist in reality." (6) These macro-economic theories have to be melded with reality of the micro-economic life, if these theories are to become valid and valuable. Yet, the current debate features little convergence in this area.
Neoliberalism and free trade have produced a widening gap in income levels in the three countries. This polarization has occurred incrementally with the institution of free trade policies, and shows no sign of slowing. Carlos Heredia, an economist with Equipo PUEBLO, a Mexican non-governmental organization, points out that, "In the United States, the economy may be 'booming' but the gap between rich and poor is the greatest in over a generation." (7) This also holds true for the economic makeup of nations like Mexico where wealth is concentrated at the top of the economic scale. In Mexico, the 15 wealthiest people attributed for 10% of GDP growth in 1995 as a result of the privatization due to NAFTA. (8) These disparities are real, caused in large-part by free trade and can lead to dire future economic results without adequate safeguards.
NAFTA has created a distinct set of 'winners and losers' in the overall economic perspective of the agreement. The winners have emerged, and are easily identifiable. In Mexico, they are those with close political ties to the PRI and those who have survived the liberalization bonanza of pre-NAFTA Mexico. This is shown in the Mexican power structure, which has shifted, "to reduce further the power of leaders of populist and/or mass organizations in favor of the interests of a neoliberal duopoly within the coalition of elites (public and private) who favor the market system domestically and free trade internationally." (9) In the United States, the beneficiaries include large banks, shareholders and managers of firms that have been able to utilize cheap labor in the South to maximize profits in the northern market. Some examples of those who have gained from NAFTA include; J.P. Morgan and Citibank which have capitalized on the Mexican investment scene; (10) Ford Motor Company and other large manufacturing firms, which have moved most of its lesser-skilled labor operations to the maquiladora zone in Mexico; (11) and large insurance companies which have invaded the Canadian market for auto-insurance. In Canada, large firms like Bombardier, Northern Telecom and Novatel have taken advantage of the newly opened Mexican market, significantly increasing their trade with their new Latin partner. (12) These big businesses are precisely those who pushed for NAFTA, illustrating the drive for capital inherent to the neoliberal system.
Similarly, the losers are readably identifiable. Labor in each country is experiencing a serious downward harmonization of wages and benefits. This is because the recent liberalization of Mexico, the only developing country within NAFTA, has had dire implications for the lesser-skilled workforce of Canada and the United States. Thus, the decrease of trade barriers with Mexico has exposed workers in the U.S. and Canada to a labor surplus in North America, "driving down their real wages and degrading their conditions of work." (13) As Charles Carlisle, the former Deputy Director General of the GATT, said of labor conditions in the developed countries, "The burden of adjustment tends to fall most heavily on those least able to handle it--those who have few skills and little education, or lack job mobility because of their age, health, or economic circumstances." (14) To make matters worse, adequate social safeguards for these workers have not been developed to respond to the NAFTA's effects, leaving a large portion of the population without work and without the means to acquire the skills to find a higher skilled job. Pressure from labor and environmental activists and others outside of the neoliberal camp, to develop these programs have proved largely unsuccessful. Their lack of success is a result of the momentum of neoliberalism and its tendency to produce small government regulation with an anti-non-tariff-barrier stance , which is absent important social programs.
In Mexico, the neoliberal model's effects began showing in the early 1980's with the 1982 debt crisis, and later the 1994 peso crisis. Erin Hallock has elaborated on both financial situations in her previous chapter. President De la Madrid and his advisors who took control of the PRI in 1982 were steeped in free-market ideas and began the privatization push. As liberalization was occurring, largely to the benefit of Mexico's elite, the lower classes of Mexico were being extremely hard hit. Real wages declined by as much as 40 percent from 1981 to 1992, and laborers' share of personal income declined from 36 percent in the mid-1970's to less than 23 percent in 1992. (15) Subsistence farmers, which comprise a large portion of the population in southern Mexico, were no longer able to compete with the agricultural imports and large agro-conglomerates coming from the North, a group whose situation will be elaborated on by Yasmine Azam. Small businesses were also adversely affected. Furthermore, as George McAlmon states, "Without some import protection small Mexican factories and stores cannot compete with the cheaper high-volume production, heavy advertising, and wholesale purchasing power of U.S. companies." (16)
These are only a few results of liberalization, but they give a solid basis from which to explore other groups that have failed to gain under liberalization. Since, NAFTA is an extension neoliberalism, it is essential to evaluate not only the overall economic factors, but analyze the divisions and detractions within the nations populations. NAFTA, when analyzed using these factors, fails in its implementation and evaluation to adequately safeguard the majority of the population, nor does the agreement create a stable economic structure or flexible workforce that is necessary for sustained long-term economic growth.
The solution to the problems created by neoliberalism is to shift from efficiency-minded decision making to fair-minded decision making. However, a conflict exists between the so called free versus fair traders. The hard-line free traders argue with the statistics of average benefits and aggregate economic gains as evidence of their policy's success. However, fair-traders utilize public opinion and logic that prefer policies that are fair rather than merely efficient. (17) As wage inequality continues to widen, and domestic political support for the global system begins to wane as a result, a fairer system of trade will become necessary, because of the demands from domestic forces. Provisions must be implemented to go beyond the basic issues of trade to include safeguards for domestic actors who lost as a result of NAFTA. The skeletal forms of these programs exist in the NAFTA Side Agreement on Labor Cooperation, but they have to be strengthened significantly to have an impact, and the original monetary and political support of the side agreements promised by the Clinton administration must be upheld.
There are two definitive schools of though regarding wage inequality among theorists considering free trade. Some economists look to the rapid advancement of technology as the impetus for income inequality. Gary Burtless argues, referring to two reviewed contributors to a 1994 edited publication on income inequality that:
Conclude that international trade has played at most a minor role in pushing down the relative wages of less-skilled U.S. workers. The authors... argue that rising earnings inequality in the United States and other industrialized countries is mainly the result of technological change rather than pressure on unskilled workers' wages from foreign competition. (18)
Robert Reich, in his classic book on globalization titled The Work of Nations, expresses this sentiment clearly in his analysis of the "symbolic analyst." (19) He attributes the expanding job opportunities for symbolic analysts, and the subsequent loss and flight of production jobs in the developing nations to, "... the dramatic improvement in world-wide communication and transportation technologies." (20) He feels that the rapid and free flow of technology, unfettered and unaware of national boarders, has expanded the global web of production to virtually every part of the globe. This has caused an increase in competition. Reich explains that, " Routine producers in the United States, then, are in direct competition with millions of routine producers in other nations." (21)
This has caused a downward, not an upward, harmonization in the wage levels of the three nations. When combining the high-wage areas of Canada and the United States with a low-wage area such as Mexico, and reducing the restrictions on this flow of jobs to Mexico, the result is inevitably a reduction of wage and compensation levels in the U.S. and Canada. As Harley Shaiken of the University of California at San Diego argues, "Even a small movement of high-wage, high-skill manufacturing jobs to Mexico could exert a significant demonstration effect.... Under these circumstances, the harmonization that occurs between the U.S. and Mexican labor markets will likely be in a downward direction." (22) Thus, shifts in production locality and changes in capital flows in the three countries will adversely affect the compensation levels in Canada and the United States. As Gary Burtless of the Brooking Institute says:
The problem is that the trend in what the median worker receives as income. The average has been climbing faster than the median--mostly because workers with high earnings have seen more rapid wage and compensation improvement than workers with median wages and compensation, and far faster than the gains enjoyed by workers with low wages and compensation. So the median has been lagging behind the average as far as compensation is concerned... (23)
Thus, workers who fall into Reich's category of symbolic analysts will see an increase in wages and benefits, but the average worker in NAFTA countries will not.
However, arguments that use technological advances, not the proliferation of free trade policies, as the reason for downward harmonization and wage inequality are not ultimately compelling. The arguments listed above and adhered to by these economists focus on technological advances, but ultimately fall back to trade functions to explain the complexity of their points. Trade is the significant factor, but its relevance is lost in the discussion of technology transfer. For example, The Economist states that, "The wider gap seems to be due mostly to technological advance, which has boosted the productivity and wages mainly of the better educated while leaving the least educated lagging." (24) Yet, this advancement of technology is linked to free trade.
Adrian Wood, in his book titled North-South Trade, Employment, and Inequality, refutes the technology argument when it is applied to modern situations. Wood argues that manufacturing growth in the South, due to an increase in demand, is the key factor in explaining the rise in the gap of earnings of Northern low- and unskilled workers in the post-Fordist period. (25) Wood takes issue with those who argue that trade issues have had a small impact on labor markets and wage inequality. He discredits the use of the factor content of trade (FCT) (26) method, which is used to explain trades' impact on labor markets. He argues that the FCT is often misused in calculating wage disparities and its relation to free trade, because it relies upon a misleading assumption, which states that imports from developing countries actually compete on an equal basis with similar goods produced in developed countries. Specialization of goods, a reality, which comparative advantage theory also leaves out, seriously alters this assumption. (27) In reality imports from developing countries become 'non-competing' as the markets specialize. Consequently, the estimates of the unskilled labor content of products are grossly understated. As a result, these calculations underestimate the extent that demand for unskilled in the developed countries are reduced because of trade with developing countries. (28) When Wood corrects these integral errors and factors them into his modified version of the FCT, he finds that, "up to 1990 the changes in trade with the South had reduced the demand for unskilled relative to skilled labour in the North as a whole by something like 20 percent." (29) Intuitively, the reduction of demand due to trade will drive down workers wages, perpetuating the inequality problem.
In addition, Burtless points out another weakness in the argument that technology causes wage inequality and trade does not. He says:
... There has been a change in technology in the United States [but] technological progress was more rapid measured in the crudest way from the end of World War II until 1973.... so it seems strange that this technology explanation could account for the rapid erosion in the position of less skilled workers since 1973. (30)
This points to the fact that technological innovations failed to increase wage inequality in the post-WWII period, when innovations far out-stripped those advances that have occurred since the end of the Bretton-Woods agreement in 1973. However, as Nicholas Vitek argued in the opening chapter, it was this post-Fordist period in which economies of scale began to integrate and production facilities began to move to lower wage areas in the developing world. It is this linkage that is far more compelling then the argument that technological innovations are the only factor in wage inequality.
Neo-classical and classical economic models indicate that there is a direct correlation between the elimination of trade barriers and the rise in aggregate economic efficiency. As a result of the rise in efficiency and the rise in productivity, the country involved will on average benefit. As more products flow into a country, this causes an attractive situation for consumers by lowering the price of domestic goods, and thus expands domestic spending power. According to the theory by David Ricardo, the British free trade champion of the 19th century, labor markets will adapt, and national economies will become more specialized in producing the products their human and natural resources are able to produce.
Ricardo illustrated this theory with his famous examination of the Portuguese and British trading situation. He hypothesized that with a free market, Portugal would eventually focus on the production of wine, which it is most apt to produce, while Britain would focus on its specialty of producing textiles. The free market would allow these two industries to thrive in their respective countries, and allow the flow of the scarce good into the country duty free, thus each would specialize in their own comparative advantage. (31)
However, there are serious flaws when considering the theory today. As Brown says in his essay, free trade is "beautiful in its simplicity and breathtaking in its scope", but does not function nearly as well in the empirical world as it does in theory. (32) The different political, economic, social, and technical levels in each country skew the comparative advantages. Christopher Merritt, in a critique of Ricardo's theory in modern times, says that, "Free trade was presented as a natural, neutral concept, but it actually concealed the existence of unequal exchange and hid the process of technological underdevelopment." (33)
Yet, despite these changing modern factors, this is the basis for much of the pro-NAFTA debate. Browne says, "The economic models cited by NAFTA proponents are virtually all based on sophisticated versions of Ricardo's theory of comparative advantage... Although economists know better, they use these models because they do not have the tools to analyze the real economy." (34) Actual observations of the effects, listed throughout this chapter and this document, however, tell a decidedly different story.
Yet, how do all these factors relate to NAFTA and its effects on wage inequality in North America? By lowering the barriers for trade and creating a free trade zone between the United States and Canada (wealthy, developed countries) and Mexico (poor, developing country), production facilities and lesser-skilled job opportunities invariably will move into Mexico. The net effect on the economies of Canada and the United States will be consistent with Wood's modified FTC model, reducing the demand for skilled labor and driving down wages and living standards. Merrett contends that, "Free trade actually undermines the standard of living for workers by driving down their wages under the threat of capital mobility." (35) These factors have to be considered in both the current debate on NAFTA and the functional problems resulting from the agreement, and also when considering expansion of NAFTA to other countries of Latin America. Because Canada and the U.S. are the only developed countries in the Western Hemisphere, any expansion reflecting President Clinton's proposed FTAA by 2005 will have to include those countries we identify with developing countries, thus perpetuating the same problems mentioned above.
However, these affects of free trade do not only affect developed countries... Mexico, for example, would experience increased competition from lesser unskilled labor coming from other developing nations. With additional human resource inputs from the Latin American countries, the effect could be extremely harmful to the workers of Mexico. Developing countries would effectively bid for jobs, producing a downward harmonization effect on Mexican wages and standards. For example, the Chilean minimum wage is less than $5.50 per day, and is one of the highest in Latin America. (36) This would inherently reduce the effectiveness of efforts to improve workers wages and conditions in Mexico, as their workforce is made to compete with other cheap work-forces. In addition to an increase in competition, the proliferation of NAFTA will also unfavorably affect the Mexican government's ability to directly intervene in economic development. As Ronald Wannacot emphasizes, "... Mexico is agreeing to abide by the same rules as Canada and the U.S., severely limiting the government's freedom to intervene in the economy whether in regulating investment or public procurement." (37) Furthermore, as will be seen in Molly Scott chapter, the workers of Mexico already have a difficult situation to deal with.
Many theorists point to the increase in GDP of nations, and question the veracity of an argument that free trade is not beneficial to all. Yet, free trade is beneficial for some, and they are the ones who have the largest voice in NAFTA. It is possible to divide the population of NAFTA countries depending on whether they gain or loose with NAFTA. This would create a network of beneficiaries consisting of large multi-national corporations, large investment firms and banks, and the political leaders who identify with and receive contributions from those businesses. Those who lose in the process would be labor unions, environmental groups, human rights and other non-governmental organizations. Yet, aside from the faceless naming of disparate groups, it is necessary to identify specifically those whom are benefiting and losing.
In Mexico, those who have benefited have been "companies able to concentrate production and marketing in an integrated way in both the U.S. and Mexico." (38) The new NAFTA agreement has also allowed those in Mexico who have invested in the recently privatized companies at a significant profit. As Guy Poitras concludes, "The state and its partners, the large firms of the private sector, were expected to be the major beneficiaries of both kind of dividends," dividends being the political and economic benefits of the NAFTA. (39) In Mexico, most of these beneficiaries were politically linked to former President Carlos Salinas, who signed NAFTA on behalf of Mexico. (40)
Because of Canada's previous link to the United States under the CUFTA, the results have been more dispersed. In Canada, the beneficiaries have been those skilled workers involved in the massive Canadian telecommunications industry and executives of multinational corporations. (41) In addition, executives and shareholders of large natural resource companies involved in fisheries and forest products have benefited. Canadian consumers have also enjoyed a reduction in the price of goods produced by the low skilled Mexican workforce, while wealthy Canadian investors have reaped the benefits of the improved investment opportunities in Mexico. (42)
In the United States, there is also a distinct set of winners separate from the losers. Executives and others in upper management have benefited most, since they have retained their jobs through downsizing and the transfer of production facilities to Mexico. As Reich asserts, "The salaries and benefits of America's top executives, and many of their advisers and consultants, have soared to what years before would have been unimaginable heights, even as those of other Americans have declined." (43) Furthermore, others, like foreign investors, have gained because they have taken advantage of Mexico's privatization of national companies. In fact, JP Morgan and Citibank, firms based in the United States, are two of the largest banking institutions in Mexico, and along with the Spanish bank Santander account for 81% of the foreign banking profits in Mexico. (44) U.S. corporations have also gained in other noneconomic dimensions. They have made strides in affecting political decision making and linking themselves to government control, a situation which gives them an increased say in U.S. federal government's decision making power. This is because the MNCs are benefiting from free trade agreements like NAFTA. Michael Sandel, a professor at Harvard University, said it best when he stated that, "Democracy today is not possible without a politics that can control global economic forces, because without such control it won't matter who people vote for--corporations will rule." (45)
Those who have not benefited economically from NAFTA are easier to identify. In both Canada and the United States they can be found in Ottawa and Detroit, both formerly strong and bustling hubs of the North American auto industry, but now dilapidated cities as a result of the relocation of automobile production facilities to other regions. Browne illustrates that, "As U.S. car companies find that they can achieve equal or higher levels of efficiency and quality in Mexico at much lower labor costs, more of their operations are being shutdown in the United States and reestablished in places like Hermosillo and Chihuahua." (46) Thus, those who are losing out in NAFTA are those who only graduated from secondary school and do not go on to university: comprising approximately two-thirds of the population in the developed countries and a much larger proportion in developing countries. These people have significantly less opportunity to get a job that pays well enough to support themselves, let alone a family. In 1980, college graduates earned about 80 percent more than high school graduates, but that gap has doubled to 160% in 1990. (47) Yet, those who are failing to gain from NAFTA because of their lack of education are finding it increasingly difficult to enter into college, as the cost of higher education rises faster than inflation. Also, older workers with lower skills are going to find it almost impossible to find alternative employment after the manufacturing sectors shrinks. They are simply less adaptable to the changes that the global economy is demanding. (48)
In Mexico, it is those involved with the 60% of commercial establishments which have had negative repercussions due to NAFTA. (49) McAlmon observes that 1994, the first year of the agreement, was a successful year for American companies selling in the Mexican market. Yet, McAlmon's most poignant statement was that it was at the expense of "a thousand small businesses [in Mexico]," who were, "unable to match American products and prices." (50) Furthermore, it is the rural populations of Mexico, regions, which are largely based on subsistence farming, that have been hit the hardest. They are unable to compete with the agricultural products flooding into the country from the United States and Canada, two countries with some of the most advanced forms of agricultural production in the world. It is estimated that up to 13 million peasants will be forced to abandon their rural countryside by the year 2010, and will flock to the increasingly crowded urban centers of Mexico. (51) Molly Scott will elaborate on this in her chapter on displacement caused by the NAFTA.
The winners and losers of NAFTA are created, in large part, by the income inequality that exists in North America. According to World Bank figures, Mexico ranks sixth from the bottom of nations (excluding Africa) is the category of income inequality. (52) Real wages for Mexican workers dropped between 20 and 40 percent between 1982 and 1991, coinciding with Mexican liberalization. (53) The United States is facing a similar dilemma, and has watched the gap in income levels increase sharply for several years, even prompting The Economist to notice that, "The widening gap is a fact." (54) Bernard Cassen, of the French publication Le Monde Diplomatique, reports that workers in the U.S. who leave secondary school without a diploma have seen their real wages fall by one-third from 1973-1993 from $11.85 to $8.64. (55) This has prompted sociologists to open a new category of workers, "the working poor," for those who work yet can not achieve a level of sustenance. (56) Robert Reich to levels of compensation for corporate leaders in comparison to low-waged employees, a stark reference, further solidifies this fact. Those same executives are content with this increasing polarization. In a 1992 Wall Street Journal article over a quarter of all executives surveyed, and over half of all executives of companies with annual sales over $1 billion, said that they would use NAFTA as a means to keep workers wages suppressed. (57)
Economic flexibility, or the ability to adapt to changes in the world market, will significantly decrease because of wage and compensation polarization we are observing under existing free trade policies. Fernando Fajnzylber, the late Chilean economist, argued that an unbalanced distribution of income is detrimental to national economies as a whole. (58) He looked at growth rates in industrialized countries, such as Japan, West Germany and the United States, from 1960 to 1980. He found that growth rates were correlated with income inequality, exemplified by Japan where growth rate was the highest and wage polarity was the least. While, in the United States, Fajnzylber found that the U.S. fell into the opposite category. It is true that the three countries had many different inputs in the post World War II period which could have caused the differentiation, but the impacts of income inequality can not be overlooked.
When economists and theorists look at the benefits of free trade, they are often looking only at the 'aggregate benefit.' Benefits are assumed to have more positive inputs than negative inputs, creating an advantage, thus the net effects of free trade are often characterized as positive. Gross Domestic Products of countries rise, and national wealth seems to increase.
In spite of the average gains of NAFTA, qualifiers like average, aggregate, net, and overall have to be carefully examined, due to the effect of income inequality. Steven Suranovic, an economist at George Washington University, points out that, "Economic models demonstrate that trade liberalization will raise aggregate economic efficiency. Thus, free trade will benefit everyone on average, or the country benefits in the aggregate. However, both of these statements mask the income redistribution effects caused by free trade." (59) We are clearly discussing, when examining benefits of free trade, the benefits of a certain portion of the population outweighing the losses of another portion, creating these aggregate benefits. Suranovic observes that, "The reality is that any movement to free trade must lead to uncompensated losses for some individuals in the economy." (60) These losses to "some individuals", which have proved to be a substantial number, can have negative economic and social reverberations on a nations' economy.
This leads us to precisely the question posed by Dr. Suranovic, "Under what circumstances is it appropriate for a government policy [like trade-liberalization] to cause uncompensated losses to some individuals?" (61) Further, it is important to think about why the losses to some individuals are less important than the gains of others.
Within the scope of free trade, a more balanced agreement can be modified from the current NAFTA. The focus needs to shift from unfettered free trade and move towards securing a fairness in trade policy. Fairness does not necessarily mean a regression to protectionism, which would also be unfair in its own right, since it denies the advancement of those who could gain from free trade. However, given the context of NAFTA polices, fairness is not the intended result of the current NAFTA. Rather, the present NAFTA is denying the right of advancement and livelihood to those who are unable to adapt to the new global market because of a variety of reasons, ranging from domestic discrimination, their economic situation, level and access to education, age and many other factors. Furthermore, the governments who are causing this imbalance are not helping alleviate the problems that have been created. A fair balance needs to be struck between those whom the government is choosing to help and those it hinders with its policies. A balance, which includes compensatory programs to handle the effects of the fallout from free trade.
Florida's agricultural situation offers an interesting example of the duality of results of the NAFTA. The United States Agricultural Department reported that in 1996 Florida farm exports had reached $1.2 billion, an increase of over 20 percent in the two years since NAFTA. (62) Yet, the export gains barely covered the losses from an increase in imports from Mexico. (63) In the words of a citrus grower affected by NAFTA,"With NAFTA there was supposed to be an opening to Mexico, but all it did was open Florida to Mexico." (64) Mostly due to this ambivalence, the Floridian representatives in the U.S. Congress were deeply divided on their support for renewing President Clinton's fast-track negotiating authority. As Martha Roe Burke, member of the Florida Citrus Commission says,"We know free trade is good, what we're trying to do is navigate across and stay intact in the process." (65)
One of the clear effects of NAFTA on policy making is the shift in concentration away from issues such as public health, basic domestic affairs, and the rising gap between the rich and the poor, to instead focus upon a strict mantra of making the country more competitive in the global market. As Browne states, "Without Safeguards... competitiveness becomes the bottom-line consideration of all national and international policies." (66) Mickey Kantor, the former Secretary of Commerce for the Clinton Administration, stated the government's position on international competition when he spoke in support of renewing the presidents' fast-track authority. He said, "The inability of U.S. negotiators to reach new, balanced, and fair market-opening agreements will significantly harm our ability to compete." (67) With the emerging evidence proving the increase in wage inequality and compensation levels due to free trade, policy makers need to consider the question: How many resources are we going to direct to competing in the international market before we realize that our domestic societies are suffering as a result?
The situation is not unique to the United States. Canada and Mexico are both experiencing the same pressure for competitive, and not necessarily fair, policies. In a request to federal and provincial governments in Canada, the Canadian Chamber of Commerce demanded that, "All Canadian [provincial and federal] governments must test all their policies to determine whether or not they reinforce or impede competitiveness. If the policy is anti-competitive, dump it." (68) The Mexican has felt similar pressures as well, exemplified by its desire to enter into NAFTA after an acrimonious transition to neoliberal policies and politics in the 1980s.
In order to have successful trade policies, the current NAFTA has to be restructured and oriented towards social benefit and an increase in the median quality of life. The current agreement, as it stands, preserves the rubric of competitiveness and economic gain for skilled and educated workers, but does not maintain even minimum standards for those of the lower income, and lesser skilled classes. In the initial negotiating process, the interests of leaders of multi-national corporations and political elites were held well above those of lesser-skilled workers--those that on fall either side of the median population. The continuation of policies to improve competition are important and have to be bolstered, but social issues to benefit the widest range of population need to be considered with the same immediacy and importance as global competitiveness. Simply, while the needs of the winners are important, the needs of the losers in the process need to be considered as well.
Many economists argue that linking social and environmental issues to trade agreements is out of place, citing an increase in regulation as having negative impacts on free trade. They argue that trade agreements should involve trade issues, and nothing else. Ideally, for the neoliberals, the effects of NAFTA will be to eventually lower taxation, reduce the intervention of the government, removal of social welfare benefits, and let the market take over the control of cost controls. This will presumably lead to a more decentralized governmental system. Therefore, it is a simple government impingement on the market if social or environmental issues are linked to free trade. This is, however, based upon assumptions from an outdated model based upon Ricardo's thesis of comparative advantage.
This view is extremely limited. It assumes that the effects of the market will be benevolent, and market forces will work out the kinks and nuances in the system. Evidence leads us in the other direction. As Robert Kuttner said, "... Trade has feedback effects on our own society that utopian free traders seldom acknowledge." (69) We have witnessed NAFTA decreasing the quality of life for the median of the population, and benefiting only a segment of the people. Downward harmonization of labor and environmental standards have occurred as the forces of the market have taken effect. These issues must be central to NAFTA's goal if it is to satisfy the needs of democratic countries, whether it is politically, economically, socially and morally.
Politically, society will begin to demand the improvement of life from trade policies. President Clinton found this to be true in 1997 with the defeat of his fast-track proposal to Congress. It was a clear message from the legislative branch of the U.S. government that the speed of implementing neoliberal policies has to slow down, and the goals have to be re-tooled to include stronger social and environmental safeguards. Daniel Seligman said it best when he compared the international visions of neoliberals and those who favor a more cautious approach to the market:
One vision trusts the global market and the goodwill of corporate chief executive officers to balance the values of economic growth, social equity and environmental protection. The other vision, the basis of American greatness since the days of Teddy Roosevelt, holds that citizens acting through democratic government must preserve community, workers' rights and environmental quality against the excesses of the unbridled market. (70)
The defeat of fast-track authority reflects these feelings and sentiments of the population. People do not simply want stronger corporations who can compete on an international level, especially at their expense. Instead they demand policies that are fair as well as efficient.
The NAFTA side agreements come close to addressing the problem, but lack one vital tool which is essential to the successful execution of social and environmental policy--enforcement. The supplemental agreement, the Agreement on Labor Cooperation, is supposed to to alleviate the problems that exist in the labor sector. However, this agreement, as it stands, has failed in achieving its intended goal, and has to be restructured and strengthened before it is acceptable. Referring to the lack of punishment for two major corporations operating in Mexico who were found guilty of violating the labor side agreement, Jerome Levinson, a labor law professor at American University said, "The record of the side agreement [on labor] is dismal, [and] shows the limits of the side agreements and why they don't work." (71) Examples of failed enforcement abound when it comes to the Labor side agreement and the 20 cases it has dealt with. (72) The recent exposure of a maquiladora factory, which fired female workers who were pregnant, will hopefully reopen the debate on the enforcement of the regulations. (73)
However, the difficulty in establishing a strong enforcement mechanism stems from the political control that a large and powerful conservative block hold in all three countries who refuse to consider a social safeguard requirement in NAFTA, especially as it relates to the expansion of the agreement. Robert Collier of the San Francisco Chronicle says that:
Faced with stiff Republican opposition to the inclusion of labor or environmental issues in fast-track authorization, Clinton is expected to bow to the GOP and stipulate that any such provisions be "directly related to trade" -- a narrow definition that congressional experts say would block almost all complaints filed to redress labor or environmental issues. (74)
Similar political divergence exists between the right and the left in Canada and Mexico also.
It is this bridge which has to be crossed in order to create a NAFTA which is acceptable and exportable. The defeat of fast-track authority in the U.S. was not just about the absence of improvements in labor and the environment, but it was also a call from the people to re-tool the free trade agreement before attempting to expand the agreement to Chile, or to the proposed FTAA. The labor side agreement has to gain teeth if they are to succeed in protecting the rights of workers. The current and proposed agencies must be able to financially punish industries and corporations who are in violation of the basic tenets of the side agreements. The wording of the agreements themselves also has to be reinforced. This is the first step in creating an acceptable agreement.
Next has to be the establishment of national programs to compensate for the industrial change which has occurred as a result of the flight of low-wage labor. Opportunities for lesser-skilled workers and job retraining programs need to be implemented and given adequate funding to function to help alleviate the loss of jobs in the manufacturing sectors.
These changes will encounter significant opposition from conservative lawmakers. Yet, as we have seen with the defeat of fast-track and the heightened role of labor and environmental groups, the public is demanding these changes. It is morally and economically irresponsible to extend the existing agreement. Since the effects of trade impact all sections of social existence, provisions, a revised NAFTA that could be expanded must include provisions to protect a minimum level of human rights and labor standards. Until these changes occur, we will see a perpetuation of each of the aforementioned problems and an increasingly unstable social and political situation that will result in increasingly vociferous demands for basic rights historically protected and provided by the federal government.
In order to justify the change, it is helpful to engage in a real world metaphor for perspective. In university classes, oftentimes the grading system of exams is based on a mean score, with the grades directly reflecting the bell curve pending on the highest and lowest grades in the class. The standard policy engaged by professors is to drop the grades of the students which are disproportionately high, usually the top five percent of students, when figuring the mean score, so as not to distort the bell curve grade distribution will disproportionately high grades. These students are given the perfect score, a 4.0. The professor does this to help out those students in the middle and lower end of the grade curve that would be given lower grades if the scores of the extremely successful test takers were included. Basically, the high scorers' sacrifice is merely to receive 100 percent of the spoils regardless of how the others do. The same approach should take effect in relation to free trade. Instead of the government working to benefit those high scorers, more attention needs to be paid to narrowing that gap by instigating policy to help those of middle or low scores. You never know, those middle and low scorers may be the intellectual power of the next generation, and their progress vital to continued economic prosperity and success.