Workers Will Lose The Most If Nafta DiesRudi Dornbusch
The U.S. labor movement argues that if the North American Free Trade Agreement goes forward, labor on both sides of the border will lose. They say Mexican labor won't ever get higher wages without a meaningful development plan. They also say the U.S. needs a high-wage strategy, including a higher minimum wage, not additional opportunities for more of its companies to engage in low-wage competition.
All that may sound as if it's good for labor, but don't fool yourself. If NAFTA fails, Mexican workers are going back to square uno, U.S. workers won't get the high-wage treatment, and we will all fall for yet another narrow-minded, protectionist folly. Calling for a meaningful development plan is hypocritical, smacking of the interventionism and big spending that got Latin America in trouble in the 1970s. Most people in the world work for a living, they don't get meaningful development plans; just socialists do, and then only as long as the money lasts. The Mexicans wasted their money in the 1970s, and the U.S. did the same in the 1980s. Now, everybody has to pay their own way. Why shouldn't Mexico be allowed to work, export, and pay its debt in dignity rather than be consigned to welfare status? As for the high-wage strategy in the U.S., NAFTA doesn't preclude better jobs. More exports mean more and better jobs for American workers.
BETTER ANSWERS. Ross Perot's bugbear of cheap Mexican labor taking 5 million U.S. jobs is scare-mongering. Not surprisingly, Perot and the other peddlers of cheap scares are going all out. None of us should buy into such lies. The economics of NAFTA leave no doubt: Both sides will benefit. But if NAFTA fails, the U.S. and Mexico will lose a lot. Opponents of NAFTA on economic grounds should remember that 300 professional economists, including 16 Nobel laureates, recently urged the President to go forward. People who care for labor on both sides of the border should recognize that there are better answers to problems of skill, markets, and competitiveness in cooperation than in protectionism.
If NAFTA fails, Mexican President Carlos Salinas de Gortari will have to turn his back on the U.S., Japan will get into the Mexican market, and U.S. companies will keep waiting for better access. If NAFTA fails, external capital for Mexico will dry up, and that means a peso crisis. Mexico currently runs a deficit of more than $20 billion, financed by borrowing abroad or selling assets to foreign investors. If the money stops, so will deficit spending. U.S. exports to Mexico will be cut off overnight, and Mexican exports will stage a comeback. The 350,000 new jobs created by U.S. companies to produce extra goods in the past five years will be gone before the year is over. As the peso collapses, foreign goods become less affordable to Mexicans, and their own manufactures get a boost abroad.
MAJOR REVERSE. Peso collapse would saddle Mexico with a loss of economic control and yet another fall in Mexican real wages. This is tantamount to a major political reverse for the Salinas administration. The Mexican opposition plans to restore an old-fashioned Mexican control economy with nationalized industries and big labor bosses. Anyone who cares about social, economic, and political progress in Mexico must recognize that Salinas has been creating the preconditions for a stable and open political system. The last thing we want is to fall back a decade, with far less chance for progress.
The failure of NAFTA would have large costs for the U.S. The immediate loss of exports, jobs, and profits is important but not overwhelming. The large cost comes in two other ways. First, the coalition against NAFTA has an agenda that only starts here. Representative Richard A. Gephardt (D-Mo.), Ross Perot, Pat Buchanan, Ralph Nader, Washington labor bureaucrats, and countless groups of do-gooders are ready to build a big wall around America. Should they win with an anti-NAFTA platform, they would swiftly go on to kneecap the General Agreement on Tariffs & Trade. Why, they will ask, should we go even further toward an unlevel playing field that adds to environmental degradation and worker abuse while lining the pockets of greedy corporations?
The other important risk of saying no to NAFTA involves geopolitics. Our strategy of opening markets and preaching economic reform would rightly be called hypocritical. Reformists would have egg on their faces just as results are showing. And if the President loses on NAFTA, what can he credibly deliver? Surely any punk dictatorship will recognize this as a good time to launch a new affront to world peace. There is little cohesion among the former major players in the cold war, and the U.S. is the only country with any authority. If the President loses on NAFTA, his term ends long before 1996. That increases political gridlock at home and instability abroad.
By now, the stakes have grown much larger than the narrow issue of Mexico. When the peddlers of protectionism and scare go all out because they sense a unique opportunity to do mischief, it is important to stand up and speak out for strong ties across borders, open markets, and opportunities for all. Saying yes to NAFTA is the way to go.