Are Sanders and Fair Trade a Threat to the Global Poor?

On April 24, 2013, some 1,134 people died in the collapse of the Rana Plaza complex outside Dhaka, the capital of Bangladesh.  The building housed factories where low-wage workers, largely women, stitched garments for the U.S. and European markets.

For several years before the disaster a number of U.S. opinion makers — notably New York Times columnists Thomas Friedman and Nicholas Kristof — had been arguing that assembly plants like those at Rana Plaza were crucial to the development of economies in the Global South and therefore a boon to the world’s most impoverished.  The media’s efforts to promote sweatshops suddenly slowed down after the collapse in Bangladesh, but they seem to be reviving now, just as we approach the third anniversary of the disaster.

The occasion for the new pro-sweatshop campaign is Democratic presidential candidate Bernie Sanders‘ opposition to trade pacts like the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP).  Senator Sanders has made criticism of the trade deals a key part of his bid for the Democratic nomination.
In an interview on April 1, editors of the New York Daily pressed Sanders to explain his opposition.  “I do believe in trade,” Sanders responded.

But it has to be based on principles that are fair.  So if you are in Vietnam, where the minimum wage is 65 cents an hour, or you’re in Malaysia, where many of the workers are indentured servants because their passports are taken away when they come into this country and are working in slave-like conditions, no, I’m not going to have American workers “competing” against you under those conditions.  So you have to have standards.  And what fair trade means to say that it is fair.  It is roughly equivalent to the wages and environmental standards in the United States.

Sanders’ remarks triggered a number of articles seeking to defend the trade deals.

“Worst Nightmare” for the Poor?

Sanders’ “fair trade” policy would mean “that the poor should remain poor,” British writer Tim Worstall announced in a Forbes op-ed.  The senator’s “anti-trade rhetoric . . . could doom millions to poverty,” according to a MarketWatch piece by Kenneth Rogoff (a Harvard economist who may be best known for a notorious data error).  “If you’re poor in another country, this is the scariest thing Bernie Sanders has said,” Zack Beauchamp charged at Vox.  The kicker for an article by Slate contributor Jordan Weissmann went even further: “Sanders,” it proclaimed, “is the developing world’s worst nightmare.”

The argument against Sanders is that the one “comparative advantage” poorer countries have is their supply of low-wage workers, so the use of sweatshop labor to produce for export is the best way for these countries to expand their economies.  And it works, these writers say: global trade has been “the driving force behind historic declines in poverty,” in Weissmann’s words.  So Sanders’ call for higher wages and better environmental standards would stymie progress for these countries.  The senator “basically doesn’t think the U.S. should be trading very much at all with countries where wages are much lower than its own,” Beauchamp writesThis, Weissmann adds, is “simply inhumane.”

There are two problems with the argument: it misrepresents the impact of “free trade” deals, and it misrepresents what Sanders said in the interview.

Sanders’ critics base their claims for the benefits of free trade mostly on the example of China, where Beauchamp says 800 million people have been lifted out of extreme poverty since 1981.

There’s no doubt that China’s economy has grown tremendously over the past thirty-five years and that global trade has played a part in the growth, but trade is only one factor out of many in the sweeping transformation of a large, mostly rural command economy to a more industrial market-based economy.  The comparison is also complicated by the fact that the increased wealth in China has been accompanied by a loss of some of the social and economic guarantees included in the old system’s “iron rice bowl,” with the result that defining poverty in monetary terms may not present the whole picture.

Mexico and Haiti offer better examples, since in these countries “free trade” policies were applied without the massive social and economic changes that characterized China during the period.

According to the Mexican government’s Consejo Nacional de Evaluación de la Política de Desarrollo Social (CONEVAL), 53.1 percent of Mexico’s population lived in poverty in 1992.  NAFTA went into effect in January 1994.  The country suffered a devastating financial crisis eleven months later, and by 1996 the poverty rate had soared to 69 percent.  The rate improved subsequently, falling to 42.9 percent by 2006, but it jumped again when the 2008 financial crisis hit the United States, Mexico’s main trading partner.  As of 2012 the rate was 52.3 percent, just one percent below the pre-NAFTA level.

Haiti hasn’t experienced any single trade pact of the same scope as NAFTA, but since the 1970s successive Haitian governments have followed U.S. advice to focus on assembly plants for export as a way to transform the impoverished country into a “Taiwan of the Caribbean.”  The program faltered in the political instability that followed the 1986 overthrow of dictator Jean-Claude Duvalier (“Baby Doc”), but it has continued to this day on a somewhat reduced level.  Reliable statistics aren’t easy to come by in Haiti, but in 2005 the United Nations Economic Commission for Latin America and the Caribbean (CEPAL, for the initials in Spanish) put together a table of estimates.  In 1970 from 73.8 to 87.7 percent of the population was thought to live in poverty.  In 2001, after three decades of export-based development projects, Haiti’s estimated poverty rate was 76.0 percent.

“Free Trade” in the Real World

The reality is that under present conditions low-wage production for export is simply not an effective way for most countries to develop their economies.

Clearly economic development isn’t going to be powered by consumption on the part of the assembly plant workers — not when they’re trying to survive on wages near or even below subsistence level.  The impetus for development would have to come from the profits of the factory owners and their local suppliers, which would need to be spent or invested locally.  But the assembly plants are often owned by foreigners who return the profits to their own countries; the suppliers are also often foreign.  Even domestic factory and supply company owners are quite likely — thanks to the globalization of finance — to invest or spend their profits abroad, or stash them away in tax havens like Panama.

But this “free trade” policy doesn’t just fail to reduce poverty — it often increases poverty.  NAFTA, for example, opened the United States to Mexican exports, but at the same time it exposed Mexico’s small businesses and family farms to competition from U.S. retailers and agribusiness giants.  The rural population was especially impacted when it was forced to compete with companies like Archer Daniels Midland that benefit from the U.S. government’s agricultural subsidies.  Mexico gained some 660,000 manufacturing jobs after NAFTA took effect, but this wasn’t nearly enough to offset the loss of 2.3 million jobs in agriculture.

There was a similar process in Haiti, although without a pact like NAFTA.  Instead, the U.S. government and the international lending organizations used direct pressure to have Haiti, a mostly rural country, remove protective tariffs for local farmers; the strong-arm tactics of former president Bill Clinton in 1994 were especially effective in this process.  The result: while Haitian farmers produced about 80 percent of the country’s food in the 1970s, today 60 to 70 percent of Haiti’s food is imported, and Port-au-Prince is flooded with displaced farm families.

In other words, many of the workers supposedly lifted out of poverty by U.S.-sponsored trade policies were actually put there by those same policies.

Listening to the Workers

But what would happen if we applied Sanders’ “fair trade” policies instead?  Slate‘s Weissmann speculates that Vietnamese workers would start earning $5 or $7 an hour and U.S. companies would stop buying T-shirts from Vietnam.  “Factories are going to close, and businesses will move their operations,” he claims.

But Sanders didn’t tell the Daily News editors he wanted to raise Vietnamese workers’ wages to U.S. levels; he mentioned “roughly equivalent” wages.  The possibility of establishing wage equivalence between different countries — that is, determining a wage level that would guarantee workers in the Global South a standard of living in their own societies comparable to what workers have here — has been under discussion for some time among labor rights activists and some development economists.  There has even been talk of negotiating a global minimum wage, at least for certain industries.

It’s true that this type of wage equivalence probably wouldn’t bring many jobs back to the United States, but it also wouldn’t lose many jobs for the poorer countries.  And while it might mean a slight reduction in the bottom line for the U.S. manufacturers and retailers currently profiting from the exploitation of sweatshop workers, it would hardly constitute a “nightmare” for those workers.

Bangladeshi Trade Unionists Stand in Solidarity with Workers in Wisconsin, Ohio, and Elsewhere

Both Beauchamp and Weissmann cite “experts” for their positions.  Maybe they should listen to a different set of experts — the people who actually work in the low-wage assembly plants.  Far from feeling they need to maintain their “comparable advantage,” many of these workers have organized to fight low wages and intolerable conditions, often in the face of government repression.

The low-wage workers who died at Rana Plaza three years ago can no longer speak for themselves, but we can honor them by listening to the living workers now organizing for decent wages in Bangladesh and around the world — and by rejecting the U.S. media’s effort to recycle a discredited rationale for sweatshops.

David L. Wilson is working on a revised edition of The Politics of Immigration: Questions and Answers (Monthly Review Press, July 2007) with co-author Jane Guskin.