Free Trade: Friend or Foe?

Free trade – good for us, or not?

The Bush administration got into some trouble not long ago, when a mid-level official tried to make the case that outsourcing – U.S. companies using overseas labor overseas, instead of in the U.S. – can be a positive for our economy.

More recently, State Senator Bob Welch got into a minor spat with the Wisconsin Democratic Party about his support for free trade, including NAFTA. DPW director Kim Warkentin makes the claim that Wisconsin has lost 80,000 jobs because of NAFTA “and other unfair and unbalanced trade agreements” over the last two years.

Even if this was true, there’s no way for Warkentin to tie that job loss directly to free trade. Oh, and it’s not true. According to the Bureau of Labor Statistics, Wisconsin added a net 37,500 jobs between May of 2002 and May of 2004.

So why bother making the claim? Because it’s good politics.

On one side: the free market argument – outsourcing labor means lower costs for companies here at home. Those lower costs free up capital to invest in new or bigger enterprises, which in turn means more jobs here at home. It also increases income in other nations, which means more customers for free market production, of which the U.S. is the undisputed master.

On the other side: the populist, protectionist argument, shared by an odd mixture of the political left and right. According to them, outsourcing hurts our own people, weakens us, while strengthening other nations, all to enrich a few billionaires and their corporations.

Politically, the opposing side is the stronger. That’s because free market arguments are too easily distorted into pro-outsourcing arguments.

When a company moves its factory overseas, or sends jobs overseas, or contracts with a foreign company, it means real people here in America losing real jobs.

Real people, losing real jobs, mean real people hurting. Real people going through their savings, having to move, having to start over.

The benefits of outsourcing – bigger markets, lower costs, more investment – are spread across our economy. Eventually, they benefit us all, but they don’t immediately benefit those who are hurt. New jobs are created, but not in the same town where the factory closed down.

For the person who lost a job to outsourcing, theoretical economic benefits might as well be old socks. They’re something tweed-wearing economists talk about in dusty rooms, or ivory towers. The man who loses his job has bills to pay now. A family to feed now.

Particularly following a recession, stories about displaced workers are fresh in our minds. We know people who have lost their jobs. If we aren’t touched directly, we at least feel the breeze.

Why do jobs move overseas? The easy answer is: cheap labor. But that’s not exactly the case: jobs don’t depend solely on pay – they depend upon productivity.

If a worker in India works for half the pay, but only produces half as much, the company hasn’t gained anything. There’s no point to sending the job there.

In the U.S., we have a lot of advantages on the productivity side. We have more widespread education, better transportation, better communication than the countries to which our jobs are mostly outsourced.

If our goal is to prevent outsourcing, there’s an easy solution: create an environment in which our productivity can’t be matched. Stack the deck a little more in our favor.

Here is where the liberal, anti-free-market philosophy breaks down. The same people who demagogue against outsourcing are likely to be the same people who favor higher taxes, more restrictive regulations, less development.

These policies mean higher costs. Higher costs mean less productivity. Less productivity means more jobs going overseas.

If the liberal side really hates outsourcing so much, they could support policies that help business increase their productivity.

They won’t do that, though. Some of them won’t because they honestly believe in government over the free market. Others won’t because they believe capitalism is evil, and business is driven entirely by greed.

Still others won’t, simply because it would deprive them of their favorite whipping boy.

Those who favor the free market can’t argue in favor of outsourcing. They can, however, argue against the policies that make business in America so expensive. They can point out that government overspending, over-taxation, and over-regulation are helping to drive businesses away. They can show how these policies let government creep further and further into the everyday lives of ordinary Americans.

They can make these arguments, and they should.