The Race to the Bottom

The following is an excellent excerpt from the book “ECONOMIC APARTHEID IN AMERICA: A Primer on Economic Inequality & Insecurity” by Chuck Collins and Felice Yeskel from Chapter 3 “The Causes of Inequality; Why Has Inequality Grown?” on page 90 and I quote: “Global Trade and Investment Policy – The Race to the Bottom. – For centuries, governments around the world concerned about protecting national interests and industries have erected barriers against free trade. For generations, the United States imposed tariffs on imports of textiles, steel, and agricultural products to protect their domestic industries and their workers from global competition. Nations also develop their own environmental, labor, and commercial standards. Part of the new global trade regime is to “harmonize” these standards downward by adopting uniform standards above which countries can’t go.
The problem with removing barriers to trade with countries like Mexico, China, and Malaysia is that these countries have weaker health and safety laws, lower wages for workers, and lax environmental standards. U.S. workers cannot and should not compete against workers in countries like China, where wages are very low, reports of forced prison labor abound, and workers are not allowed to form unions. Nor should U.S. workers compete with countries with high rates of child labor. Corporations operating in Kenya and Nepal benefit from the fact that over 40 percent of children between the ages of 10 and 14 in those nations are full-time workers. This places strong pressure on workers in the United States, where there are strong restrictions against child labor (although violations of labor laws are growing in the U.S. apparel and agricultural sectors.).
Free trade agreements as they are currently written create a climate in the United States where employers are more emboldened to threaten to move plants overseas to extract wage concessions or discourage unionization efforts. A study of 500 union-organizing drives after the North American Free Trade Agreement (NAFTA) was signed found that over 50 percent of employers made threats to close all or parts of plants if a union was elected. The figure was 62 percent in mobile industries such as manufacturing, transportation, and warehouse distribution. Some companies intimidated workers by placing shipping labels on equipment in the workplace with a Mexican address or posting maps of North America with an arrow pointing from the current plant site to Mexico.
Global trade agreements could be written to stop the race to the bottom by establishing a uniformly decent floor for labor rights, wages and environmental standards. However, the global standards and rules currently being written tend to lower the bar rather than raise it. Environmental activists in many communities around the planet have worked hard to protect the natural environment and pass stricter environmental laws prohibiting the dumping of toxic wastes and the fouling of the air, land, and water. In the past, manufacturing companies could “externalize” the pollution costs of production by dumping waste in a stream and letting society live with the degraded environment or foot the bill for cleaning it up. But thanks to stricter rules, companies in some countries often have to bear the real costs of production.
In order to avoid these costs and to increase profits, companies have moved thousands of manufacturing operations to countries with lower environmental standards, no unions, or lax enforcement of existing environmental and labor laws. For plants remaining in the United States, companies often use the threat of moving to prevent communities from imposing stricter environmental regulations. When international treaties codify low environmental standards, this puts tremendous pressure on U.S. communities to lower their standards.
Race-to-the-bottom competition has meant that the United States imports more products from countries with reduced production costs and lower environmental and labor standards. The American consumer market is flush with inexpensive consumer goods manufactured in low-standard nations in Asia and Latin America. Meanwhile, domestic manufacturing firms, bound by higher standards, find it increasingly hard to compete. This swells our national trade deficit, the difference between what we, as a nation, import (buy) and what we export (sell). In 2003, the annual trade deficit was a record-breaking $489.4 billion. This is 280 percent higher than the record-breaking trade deficit in 1998 of $170 billion.
The solution is to raise global standards by expanding the right to organize, establishing a bottom-line core set of labor standards, eliminating child labor, and raising human rights and environmental standards. Instead of being pitted against one another, workers, consumers, and communities should be allied in raising standards and improving the quality of life for everyone on the planet. This is the opposite of a race to the bottom. (These action strategies are discussed further in Chapter 5,)
Unfair Trade and Investment Agreements. – Global trade and investment agreements are the primary mechanisms through which U.S. workers are forced to compete in the race to the bottom. In the last fifteen years, free-trade and investment agreements such as NAFTA and the expansion of GATT into a World Trade Organization (WTO) have reflected the biased and narrow interests of the worldwide governing corporate elite.
These agreements spell out in careful terms the rights for global corporations and investment capital—while remaining shockingly silent on the concerns of workers, communities, and the environment. The WTO, for instance, has intricate legal protections for “intellectual property rights,” which are the rights of ownership related to patents, inventions, research, and artistic materials. WTO rules carefully spell out how a corporation like AOL/Time Warner could sue the government of India if they allow an “underground market” in compact discs by Michael Jackson. Yet the WTO says virtually nothing about human rights, conditions for workers, the right to organize labor unions, minimum wage standards, worker safety conditions, or protections for the environment.
Because of agreements like NAFTA and the WTO, owners of capital can quickly move their investments and operations offshore with minimal constraints. Meanwhile, U.S. workers have little bargaining power against countries that allow slave labor, outlaw unions, or have minimal environmental standards. Despite promises of job growth, the U.S. Department of Labor certified that, between 1994 and the end of 2002, 525,094 workers lost their jobs directly as a result of NAFTA. And this number includes only those who qualified for NAFTA Transitional Adjustment Assistance (NAFTA-TAA), special job-training benefits for production workers who lose their jobs because their employer shifts production to Canada or Mexico. In actuality, these job losses are just a small fraction of the total number of jobs lost under NAFTA. In fact, Robert Scott of the Economic Policy Institute argues that between 1993 and 2003, 879,280 jobs were lost due to NAFTA. Service workers are ineligible for NAFTA-TAA, and many eligible workers do not even apply for the program because they do not know it exists or choose to seek other forms of assistance. Proponents of NAFTA claim that over 200,000 jobs have been created by the agreement, yet they are unable to produce evidence. A survey of companies that pledged to expand jobs after the passage of NAFTA found that 89 percent admitted that they had failed to do so. Many had relocated jobs to Mexico.
Mocking Democracy. – Recent global trade and investment treaties have created governing bodies that float above the democratic institutions of nation-states while setting the rules for how the global economy will work. For example, the WTO is working to get uniform standards and shared regulatory systems across borders in an effort to remove barriers to free trade. As a result, the rules of dozens of individual nations on such vital issues as auto emissions and food safety standards are viewed as impediments to open markets.
WTO officials, elected by no one, meet behind closed doors and create rules that can supersede the laws of local jurisdictions. “The Geneva negotiators do not have to adhere to many of the rules requiring openness to the public and interest groups that govern similar proceeding in the United States,”observed Jeff Gerth in the New York Times. Former U.S. Trade Representative Mickey Kantor remarked: “This is about sovereignty, multinational corporations, the new post-Cold War world, global standards, and international harmonization. These are important issues. But it is like they are being dealt with in a closet somewhere and no one’s watching.”
Because there is no democratic accountability, large transnational corporations have constant and ample access to influence the agenda of the WTO while community, labor, environmental, and consumer groups have limited access. For instance, the WTO committee charged with developing automobile standards for the planet had sixty-two government regulators, twenty-six industry representatives, and two consumer representatives. Needless to say, the forthcoming global auto-safety regulations will put the interests of industry before those of the environment or consumers.
With corporations in the driver’s seat, the new rules governing the global economy are leading a race to the bottom in global environmental, labor, and safety standards. When a country like the United States tries to maintain higher standards and regulations, these rules are subject to legal challenge before international panels because they represent a barrier to imports and trade.
New treaties are being proposed to extend NAFTA-style free trade to other parts of the planet including Africa, other Latin American countries, and Asia. The Central America Free Trade Agreement (CAFTA), if it is approved by Congress, will include most Central American countries and several Caribbean nations in a new free-trade regime.
In the late 1990s, the Organization for Economic Cooperation and Development, the association of the twenty-nine wealthiest countries in the world, proposed a new treaty, the Multilateral Agreement on Investment (MAI), to take global corporate dominance to new heights. The MAI would enable corporations to sue local government jurisdictions directly over restraints in trade, bypassing sovereign governments and elected bodies. The city of Peoria, for instance, might have a living -wage ordinance or a law requiring businesses receiving city subsidies to hire local workers or use locally produced materials. Under the terms of the MAI, however, such laws would be considered a restraint on trade. A foreign corporation denied access to local markets could sue the city of Peoria in the WTO, seeking monetary damages or changes in their laws.
Thanks to grassroots activists from around the world, especially those from Canada, the MAI treaty was posted on the Internet and came under enormous attack. Opponents sought to expose the provisions of the MAI, pointing out that though none of the representatives of these trade bodies have been elected by citizens in any county, their agreements will have worldwide impact on local communities everywhere if adopted. MAI treaty negotiations at the Organization for Economic Cooperation and Development have temporarily come to a stop. But we must be vigilant. The components of the MAI are the long-sought aims of transnational corporations, which will not easily be discouraged. They will resurface in other trade and investment treaties, including the “millennium round” being negotiated through the WTO.
Trade negotiators at the World Trade Organization and in other multilateral bodies thrive on secrecy. Their worst nightmare, observes one trade commentator, is that citizen organizations around the world, and “NGO specter”–referring to non-government organizations—will start to hold them accountable. As journalist Reginald Dale observed, this is an “uncomfortable new reality for the exclusive club of high-powered negotiators used to settling the future of the world trading system in inaccessible conference chambers, or the backrooms of fine restaurants, in Geneva.”
NAFTA Forces a Canadian Environmental Retreat
“Canada maintains tougher environmental standards than the United States, but NAFTA is gradually chipping away at the differences. In 1997 the government of Prime Minister Jean Chretien introduced legislation in the Canadian parliament to ban methlycyclopentadienyl manganes tricarbonyl (MMT), because it is suspected of causing nerve damage. In response, the manufacturer of MMT, the U.S.–based Ethyl Corporation, sued the Canadian government for $250 million for violating NAFTA provisions guaranteeing free trade. In July 1998, the Canadian government lifted the ban and agreed to pay the Ethyl Corporation $13 million in compensation for legal costs and lost sales.
This was a dramatic reversal of policy. Canadian environmental activists were appalled, pointing to the Canadian government’s cave-in as evidence that Canada will not be able to maintain its sovereignty around environmental regulations. It is outrageous that a U.S.-based multinational has more weight with the Chretien government than our Parliament, public health and our own environment,” said Elizabeth May, director of the Sierra Club-Canada.”
These conditions of the new global capitalism can make citizens feel hopeless about the prospects for change and powerless to make a difference. After all, we are up against powerful transnational corporations with deep pockets. The good news is that across the planet, people’s movements are in motion to counter the new rules of the neoliberal global order.
Since 1997, labor and community organizations in the United States have mobilized to slow the granting of “fast track” authority to Presidents Bill Clinton and George W. Bush. With fast track, a president could put a treaty before Congress for an up or down vote with no possibility for amendment, as was the case with NAFTA and the WTO. Stopping fast track was a significant victory for those who want to put the brakes on the pace of global trade agreements. A form of fast track was reinstated in 2002, but the prospects for future trade agreements have changed since the Seattle WTO meeting.
Activists from around the world converged on Seattle for the first round of new WTO trade talks at the end of November 1999. Twelve thousand religious activists linked hands and formed a human chain to call on northern nations to cancel the international debt. Over 50,000 labor and environmental activists marched in protest of WTO policies, pressing for adoption of higher labor and environmental standards. And thousands of people engaged in nonviolent direct action to surround the Seattle Convention Center and delay the beginning ceremony of the WTO meeting.
Most media attention from Seattle focused on a small bank of self-proclaimed anarchists who broke windows, and on the police’s decision to use tear gas and rubber bullets on demonstrators. But the long-term impact of the “Battle of Seattle” is that the global trade and investment debate will never be the same in the United States. The concerns of farmers, workers, environmentalists, and food safety activists will no longer be left off the table.
Transnational corporations are still the dominant voice in many of the new global trade treaties and institutions managing global economy. The biased rules they write only worsen the growing economic divide in the United States and abroad. In Chapter 5 we will examine strategies for stopping future unfair trade and investment agreements, expanding democracy in the global economy, and increasing economic justice in the southern half of the world.
Taxation – Tax policy is one of the areas in which we can easily understand how the rules have been tilted in favor of asset-owners, corporations, and the wealthy, against the interests of wage earners, small businesses, and working families.
With the negative image taxes now have, it may be surprising to learn that the income tax and the estate tax were initially the result of a nationwide, popular movement to amend the constitution. Populists in the 1880s advocated for an inheritance tax and a progressive income tax system—not just to raise revenue for public services, but to break up overconcentrations of wealth and power that were threatening to a truly democratic, self-governing society. Given the grotesque inequalities that exist as we enter the twenty-first century, we need tax policies that prevent inequities from worsening and ensure equality of opportunity.
The first income tax, levied after the Sixteenth Amendment was ratified in 1913, was extremely progressive and taxed only the richest 5 percent of households. Subsequent tax “reforms” have steadily broadened the tax base to include lower- and middle-income households. Started during World War II, taxes have increasingly been levied on a majority of the population. The Victory Tax of 1942 expanded taxation to low-income households to cover the costs of war. In 1942, composer Irving Berlin wrote a patriotic song called “I Paid My Income Tax Today” to mark the unprecedented tax collections on workers. One verse went: “You see those bombers in the sky, Rockefeller helped to build them, so did I.” After the war, the Victory Tax was not repealed and federal income taxes continued to be assessed on low- and middle-income working households.
The top tax rate paid by the richest taxpayers in the years following World War II was extremely progressive, reaching a 91 percent rate in 1954 on household income that exceeded $44,000. However, the effective rate, the rate at which the rich actually paid taxes, was lower thanks to myriad loopholes that chipped away at progressivity in the 1950s and 1960s. Automaker Henry Ford used to say that if he had to pay any taxes, he would fire his accountant because they obviously had not been working hard enough to find all the loopholes he could use.
In the last two decades, the U.S. tax system has become a two-tier, two-class tax system. Investigative journalists Donald L. Barlett and James B. Steele argue that there is one system for the wealthy, what they call “the Privileged Person’s Tax Law,” and another for everyone else, the “Common Person’s Tax Law.” When Congress pushes for progressive tax changes that ask the wealthy to pay more, it is labeled “class warfare.” However, when the tax burden is shifted onto middle-class and poor people, it is packaged as “tax reform.” In their analysis, when corporate-funded politicians start talking about tax reform, working people better hold onto their purses and wallets.”

(THIS IS PROBABLY ONE OF THE BEST SEGMENTS OF THE BOOK BECAUSE IT IS TALKING ABOUT TWO OF THE BIGGEST PROBLEMS WE HAVE IN OUR COUNTRY AND THE WORLD. THE FIRST BEING A TRADE POLICY AND THE FACT THAT ALL COUNTRIES DON’T HAVE UNIONS AND I DON’T BELIEVE THINGS WILL EVER WORK UNTIL ALL COUNTRIES, HOPEFULLY, ACQUIRE UNIONS, WHICH WILL TAKE TIME, SO RATHER THAN FORCE THE ISSUE, LET THE TWO GROUPS WORK IT OUT UNTIL THEY COME TO THE CONCLUSION THAT EVERYBODY NEEDS A STANDARD OF LIVING. HOPEFULLY, WHEN THEY DO THIS, THEY WILL COME TO THE FACT THAT THEY HAVE TO HAVE A FAIR INCOME TAX SYSTEM, BASED ON ABILITY TO PAY, TO GET THEIR BILLS PAID IN THEIR OWN COUNTRIES—FOR BETTER ROADS, SCHOOLS, POLICE, HEALTH CARE AND EVEN CORPORATIONS AND GOVERNMENT BUT NOBODY SHOULD GET EXCESSIVE PAY OVER OTHER GROUPS. I HEARD JAPAN DOES NOT ALLOW CEOs TO GET ANY MORE THAN 10 TIMES MORE THAN THEIR WORKERS AND I BELIEVE THAT IS FAIR AND IS SOMETHING THAT THE WHOLE WORLD SHOULD ADOPT. LET’S HOPE ALL COUNTRIES DEVELOP A DEMOCRACY , THROUGH ELECTIONS AND CAN WORK THESE PROBLEMS OUT TOGETHER, RATHER THAN HAVE CONTINUOUS WARS.
LaVern Isely, Progressive, Independent, Overtaxed, Middle Class Taxpayer and Public Citizen and AARP Members

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About tim074

I'm a retired dairy farmer that was a member of the National Farmer's Organization (NFO). Before going farming, I spent 4 years in the United States Air Force where I saved up enough money to get my down payment to go farming. I also enjoy writing and reading biographies and I write about myself as well as articles and excerpts I find interesting. I'm specifically interested in finances, particularly in the banking industry because if it wasn't for help from my local Community Bank, I never could have started farming which I was successful at. So, I'm real interested in the Small Business Administration and I know they are the ones creating jobs. I have been a member of Common Cause and am now a member of Public Citizen as well as AARP. I have, in the past, written over 150 articles on the Obama Blog (my.barackobama.com) and I'd like to tie these two sites together. I'm also on Twitter, MySpace and Facebook and find these outlets terrifically interesting particularly what many of these people did concerning the uprising in the Arab world. I believe this is a smaller world than we think it is and my goal is to try to bring people together to live in peace because management needs labor like labor needs management. Up to now, that hasn't been so easy to find.
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