Mr. Thomas F. McLarty who was a big shot in the Clinton
Administration wrote an article that was published in the Wall Street Journal
on December 16, 2013 under the title: “It's Time for Nafta 2.0” and the
subtitle: “North America's share of the world's product is declining. The
historic trade pact needs an upgrade.”
The next day, December 17, 2013, Mr. George Osborne who is
the current Chancellor of the Exchequer in the United Kingdom, wrote an article
that came under the title: “How Britain Returned to Growth” and the subtitle:
“We cut spending and top tax rates, and now deficits are down and jobs are
being created at a healthy clip.”
What the two articles have in common is that they laud
export without giving a second thought at the negative side effects that result
from pushing to the extreme the idea that the more export the better it is for
the country. Look what McLarty says was said 20 years ago: “In 1993, Mr.
Clinton implored Congress to pass Nafta as a sign that 'we still have
confidence in ourselves and our potential.'”
I doubt there are many in America who would be that
confident today given what happened not only in the three countries that are
tied by the Nafta agreement but also what happened worldwide due to the ever
more free trade that is being advocated by so many people. Think of the big
ships that carry small boats called life rafts so that the passengers and the
crew can get on them and be saved if something happens, and the big ship starts
sinking. As it often happens, however, there are almost never enough life rafts
on a ship to save everyone. The result is that some passengers and a few crew
members go down with it. The same is happening with the economies that meet a
stormy international situation, and are forced to take drastic actions.
In fact, the analogy applies to the economies that were
advanced but now find themselves challenged by newly developing economies
having the ability to leapfrog ahead of them, and do so at a cheaper cost. To respond,
the captains of industry in the advanced economies look into their toolboxes in
search of a way to meet the challenge. They find a few areas of excellence
where their enterprises have an edge, and nurture them by relying on a small
number of people to render the enterprise competitive. These being the life
rafts that save the enterprise, they get ahead at the expense of those who are
left behind or let go in the name of efficiency.
In turn, the developing countries respond to the response of
the advanced economies by asking their own employees to work harder still, and
expect even less. Another factor comes into play when a number of other
underdeveloped countries start to develop, and see themselves competing not
only against the developed economies but also against each other. This triggers
what has come to be known as the race to the bottom where everyone undercuts
the price of the others, something they can do only on the back of their
employees.
And like their counterparts in the developed economies, the
captains of industry in the developing economies rely on a handful of highly
educated and well trained individuals to run the business efficiently if not
always safely. The net result is that the income between those in the
“executive suite” and those on the shop floor widens, a phenomenon that does
not bother the rich because their wealth comes not from selling to their own
impoverished small market but from a market that may also be poor but is large
enough to absorb all the cheap goods they can produce for it.
The remedy to get out of this vicious cycle is to protect
the local markets to the tune of say, 25 or 30 percent. That is, every time two
or more nations come together to negotiate a trade agreement between them, they
must include a provision that each country has the right to protect any
industry considered vital to its economy to that level.