The Neoliberal Mind at Work: Brad DeLong’s Muddled Defense of NAFTA
The stakes here are higher and more immediate than the rehash of an old ideological dispute. This is not so much about the past as about the future. Corporate lobbyists are pushing President Obama and congressional Republicans to pass the NAFTA-like eleven-country Trans-Pacific Partnership” (TPP)—right after the November election.
Since it took effect in 1994, NAFTA has been the template for the subsequent series of trade agreements that have accelerated the globalization of the U.S. economy. But its failure to deliver as promised has soured the public and many in Congress on so-called “free trade.” Getting lawmakers to swallow the TPP will be easier if its promoters can somehow make lemonade out of the NAFTA lemon.
To start with, DeLong fails to tell the reader that he is evaluating a law he helped to produce. He worked on NAFTA when he was a deputy assistant secretary in Bill Clinton’s Treasury Department.
There are two parts to DeLong’s critique. One is his attempt to prove NAFTA was a success. The other is a series of gratuitous remarks about me and what he calls the “American left” that he sprinkles from his lofty pinnacle of ignorance about both.
DeLong makes three arguments for NAFTA. First, that Americans only lost a net of 350,000 jobs. Second, that the jobs NAFTA created in the U.S. paid more than the jobs it destroyed. Third, that Mexicans gained more jobs than U.S. workers lost.
His estimate of the net US job loss is half of mine, which was based on the work of Rob Scott, whose accompanying blog post points out how the data DeLong grabbed off the web are flawed for this purpose. But for the sake of getting to the heart of this argument, let’s accept for the moment DeLong’s low-ball figure.
350,000 jobs is a small number relative to the entire U.S. labor force, writes DeLong. And so it is (although obviously not to the 350,000 workers and their families). But the point is that it was a loss, which contradicts the entire case on which NAFTA was sold. Clinton’s economists told us NAFTA would create—not destroy—net new jobs because the U.S. surplus with Mexico would expand. As opponents predicted, it turned the surplus into a deficit, hence the job loss.
The script hasn’t changed. Each new trade deal has been accompanied by a promise that net exports will expand, creating net new jobs. Listen to Obama on TPP: jobs, jobs, and jobs. And after each deal, the free-trade apparatchiks explain away the net losses on the grounds that compared to the entire U.S. labor force, the losses are really not that big. So, suck it up!
That you would promote a “jobs” policy for America on the basis that it would only destroy 350,000 of them seems not a little odd.
But DeLong says there were offsetting benefits. Whatever jobs were created here must have been at higher pay. Why? “Because if the jobs we have swapped in add less value-added than some [italics added] we have swapped out to Mexico, our businesses could make more money by unswapping them and also unswapping some of the jobs we have swapped out.”
DeLong’s convoluted and simplistic characterization of trade as a 19th century model of job-swapping among nations is completely disconnected from the facts. Scott found that the jobs lost by imports from Mexico actually paid more than the jobs gained by increased exports and they certainly pay more than jobs in the nontradable sector. DeLong also doesn’t seem to understand how globalization has undercut many of the hoary assumptions of free trade theory. In the tradable goods sectors at issue, not only is capital detached from its national moorings, but labor markets are much more integrated than the Ricardian world in which DeLong seems stuck. Visit Mexican factories along the border and you will discover that the level of productivity is as high or higher than in equivalent plants in the United States, while the level of wages is substantially lower. Then visit plants in the United States that must compete with those Mexican plants and, surprise, wages have dropped toward the Mexico standards.
Only in its legal structure was NAFTA an agreement among the three nations. In reality it was a deal among the investor class of all three nations to expand their power over their working classes and their governments. That Democratic presidents have been willing to split their party in the fierce battles over trade tells you that there is more here at issue than a marginal impact on the job market.
If the purpose of NAFTA had been “free trade” it could have been written on two pages. Instead it’s roughly a thousand pages, containing extraordinary restrictions on the governments’ ability to regulate foreign corporate investment, to protect workers, the environment, and public health, and to manage their economies. For the American capitalist class, a prime—if not the prime—goal of the NAFTA model was to undercut the bargaining power of American workers. They succeeded.
After years of denial, the mainstream economics profession has finally come around to admitting that globalization has played a major role in wage stagnation. But, as per DeLong, globalization is treated as exogenous to the U.S. political economy (as he puts it, “containerization and all the other -izations that make up globalization”).
The United States has been a trading nation for 200 years, during which we progressed from sails to steam to diesel to jet engines to airplanes and a multitude of other innovations. Until recently, trade was generally balanced and made a positive contribution to domestic growth. But because capital was constrained by our borders, trade could not be used as a weapon against labor. Eventually, the spread of democracy forced U.S. capitalists to respect the New Deal social contract.
What changed was that the U.S. corporate class, abetted by leaders of both parties, tore up that contract, a process in which the NAFTA model of trade and investment deregulation played a crucial role
DeLong declares NAFTA a success because lower wages mean that the trade deficit creates more jobs in Mexico than it destroyed in the US. Of course, only a “U.S-centric” person like Jeff Faux lacking the superior “cosmopolitan” morality of a tenured academic could object to such an outcome.
How comforting that our economic policies are influenced by people who believe that America’s government should have no particular obligation to American workers, and that a job created anywhere else in the world is as important—no, more important—than a job created here. Wonder why the working class has lost its enthusiasm for the Democratic Party?
Indeed, following DeLong’s logic, Scott’s larger estimate of the loss of jobs to Mexico would make NAFTA even a greater success. And if we’d lost 7 million jobs instead of 350,000 or 700,000 it would rank as one of the greatest economic policy triumphs of our era.
DeLong criticizes my article for not dealing sufficiently with Mexico. He has a point; it was a brief op-ed about NAFTA’s impact on U.S. workers. Among other things I omitted were a discussion of climate change, nuclear disarmament, and the de-criminalization of marijuana.
But for all his self-proclaimed concern for Mexico, his response to my point about that NAFTA’s lack of protections for Mexican workers is a snicker. Is that all Jeff Faux has to say? Well, what does Brad DeLong have to say about labor rights in Mexico? Is it true or is it not true that NAFTA was used to further suppress the bargaining position of Mexican workers? But the plight of real live Mexicans in the actual Mexican economy apparently holds no interest for DeLong, who’s protected from reality by the happy abstractions of benign job-swapping theory.
For the most thorough recent up-to-date analysis of NAFTA’s impact on Mexico, I refer the reader to the thoroughly researched “Did NAFTA Help Mexico? An Assessment After Twenty Years” from the Center for Economic and Policy Research.
The report finds, that compared with Mexico’s economic performance during its bad old “statist” days, or with the rest of Latin America, Mexico’s growth rate since NAFTA has been dramatically slower. The poverty rate is stuck where it was 20 years ago, and real wages are barely (2.3 percent) above the 1994 level. The official 5 percent unemployment rate for Mexico that DeLong touts does not capture the level of joblessness, but its direction tells us if things are getting better. Today’s number is considerably above the 1990-1994 average of 3.1 percent. The devastation of Mexican agriculture by subsidized U.S. agribusiness corporations cost another 1.9 million jobs for dirt-poor rural people with no alternative way to make a living. One would have thought that the massive surge in migration to the United States from Mexico after 1994 should have made the architects of NAFTA a little more humble about their accomplishment.
No one blames the NAFTA for all of Mexico’s troubles. But neither was its impact there limited to jobs and wages. NAFTA represented deliberate U.S. intervention in the domestic politics of Mexico to assure the political triumph of its corrupt ruling class. Throughout the 1980s, the U.S. State Department supported the efforts of American corporate investors and Mexico’s crony capitalists to break the back of the old nationalist Mexican development model which restricted U.S. investors’ access to cheap labor, a disposable environment, and bribable government officials. The election of 1988, which had to be stolen by the U.S.-backed “winner” Carlos Salinas, revealed widespread resistance among the Mexican electorate. Protecting the rights of foreign capital in an international treaty, enforceable by the United States, was designed to put the neo-liberal regime beyond the reach of Mexican democracy.
DeLong seems to know there was an ugly American politics to NAFTA. In an aside he says he now agrees that Mexico’s energies would have been better put to a development strategy. Unfortunately, it’s a little late. This was the reason Mexican progressives opposed NAFTA. When I raised it during the debate, NAFTA-backers responded that this was exactly the kind of “statist” thinking they had to crush. During the congressional debate, Clinton’s U.S. Trade Representative blurted out to me that “we have to keep the Left out of power down there.”
While Cuauhtémoc Cardenas was trying to save Mexico’s capacity for self-development, DeLong was busy helping Rubin, Clinton, and the U.S. Business Roundtable do all they could to make it impossible. NAFTA was not some default “second-best” policy; it was designed to kill the first-best.
DeLong goes on to chide the “American left” for focusing on NAFTA instead of fiscal and monetary policy. This is a monstrous distortion. Rehashing NAFTA is hardly a major obsession with progressives. It comes up periodically because of corporate America’s relentless campaigns to push more trade and investment pacts will further liberate them from legal or moral obligation to the United States.
Regarding macroeconomic policy, the only real agitation for fiscal expansion has come from those on the left, who argued—even before the 2008 crash—that the gap between flat wages and rising productivity in a noninflationary environment required faster growth in demand, while the macroeconomic elite wrote off fiscal policy as only useful to keep down public spending and save us from the inflation phantoms.
Most skeptics of neoliberal globalization do not doubt that under conditions of sustained full employment expanded trade brings net benefits. That is why we have been arguing for twenty years that we should establish full employment first with appropriate macroeconomics and fully-funded, effective labor market strategies. Then we can liberalize the rules of trade. This also makes political sense, in that it would give us a bargaining chip: the Business Roundtable gets trade, the working class gets full employment. But whenever we have raised this, the answer from free traders is another tiresome rant about “protectionism.”
Finally, DeLong’s smarmy mantra of the things Jeff Faux might have said reflects both ignorance and unearned arrogance. I have been writing about these issues for 20 years. I wrote an entire book in 2006 called The Global Class War where I used NAFTA and the relations between Wall Street, Washington insiders and the corrupt Salinas regime as a prime example of how the new globalization worked. I warned that Salinas was corrupt and connected to the narcos while Brad DeLong’s buddies Robert Rubin and Larry Summers were selling him as a model of an honest, competent, democratic reformer, and then rushed to rescue him and the Wall Street bondholders after he ran the Mexican budget into the ground.
Brad DeLong simply doesn’t know what he is talking about.