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October 28, 2005
By Thomas Palley
WASHINGTON (PAI) - There is a famous theorem in international economics - the Stolper-Samuelson theorem - that says when a rich, capital-abundant country, such as the U.S., trades with a poor, labor-abundant country, such as China, wages in the rich country fall and profits go up.
The theorem's economic logic is simple.
Free trade is tantamount to a massive increase in the rich country's labor supply since the products made by poor country workers can now be imported.
Additionally, demand for workers in the rich country falls as its firms abandon labor-intensive production to the poor country. The net result is an effective increase in labor supply and a decrease in labor demand in the rich country, and wages fall.
The relevance of the Stolper-Samuelson theorem is clear. For the last two decades, U.S. policy makers, from both major political parties, have worked assiduously to create a global market place in which goods and capital are free to move. Over the same period, 2.5 billion people in China, India, Eastern Europe and the former Soviet Union discarded economic isolationism and joined the global economy.
Now, these tectonic shifts come together as a "super-sized" Stolper-Samuelson effect, and they stand to have depressing consequences for American workers.
Much attention has been devoted to the adverse impacts of the U.S. trade deficit, particularly with China. And the U.S. government is rightly criticized for failing to apply adequate pressure to get China to remedy its unfair and illegal trading practices. But no one in Washington is talking about the deeper question of what happens to wages when two billion people from low-wage countries join the global labor market.
Such an event is unprecedented in history. In the past, countries joined the international economy through a slow evolutionary process. Initially, they would export a few goods in which they specialized and had natural competitive advantage. Thereafter, they would gradually deepen involvement in international trade. The process was one of gradual integration, and production was largely immobile across countries.
Globalization changed this by accelerating the process of international integration. It also made capital, technology, and methods of production mobile, marking a watershed with the past. The new order is exemplified by China's recent experiences.
In less than two decades, China has become a global manufacturing powerhouse through massive foreign direct investment and technology transfer. The impact of this transformation on the U.S. economy is seen in the trade deficit, the loss of manufacturing jobs, and downward pressure on wages.
Whereas classical free trade connected goods markets across countries, globalization creates a global labor market and moves jobs. Previously trade equalized the prices of goods, now it also equalizes wages through job shifting.
With the emergence of China, India and Eastern Europe, the
dam of socialism
Manufacturing was already placed in competition across countries, with dire consequences for its workers. The Internet promises to do the same for previously untradable services. Higher-paid knowledge workers will start feeling similar effects.
Not since the Industrial Revolution has there been a transformation of this magnitude, and that took 150 years to complete. By comparison, the new revolution is a mere 25 years old. These developments have a significance far beyond the currency manipulation and WTO rules violations that have been the focus of trade deficit policy discussions.
There is no reason to think the end is in sight, and American workers can look forward to the international economy exerting downward pressure on wages and work conditions for the next several decades.
As is so often the case, workers understood the new reality long before economists and policymakers. Workers realize trade is no longer a matter of exchanging exotic commodities for manufactured products, and the new system involves trading their jobs and equalizing wages, often downwards.
Especially bitter is that large American multinational corporations that American workers helped build are driving the process of globalization. And U.S. policymakers have abandoned American workers by promoting free trade pacts that de facto created a global labor market that threatens workers' livelihoods and economic security.
Globalization demands we begin anew the task of establishing fair and just rules that make the economy work for all. This is the same challenge U.S. workers faced at the beginning of the 20th century. Unions, minimum wages, and fair labor practices were essential to meeting that challenge, and are essential again. But such tools are no longer sufficient when applied nationally. They must be applied globally.
That means China, India and other industrializing developing countries must agree to, and enforce, core labor standards and worker rights. Trade cannot be free without worker freedom and the right to share in the wealth created.
Successive administrations pushed free trade without worker
The consequences of these trade policies and the reality of the new global system must be exposed so that our approach can be changed. This is a task that will not be easy given Washington's captive economic policy elite and big business' interest in concealing the new reality.
Thomas Palley is former chief economist of the AFL-CIO and former chief economist of the U.S.-China Commission, a congressionally created panel that monitors U.S.-China trade and economic relations. This other economic analyses can be found on www.thomaspalley.com
By Mark Gruenberg
WASHINGTON (PAI) - In the 1980s, American jobs started moving to low-wage Mexico.
Then, many of them moved from Mexico to ultra-low-wage nations like Lesotho, Kenya, Bangladesh, the Phillippines, Sri Lanka and Cambodia. Now, textile-industry jobs are being removed from those poor nations and are headed to China.
Speaking Oct. 5 to the United Nations Association of the National Capital Area, Peter Bakvis, General Secretary of the International Confederation of Free Trade Unions, said China's influence is so pervasive that even plants in poverty-stricken nations are closing.
"China does not recognize International Labor Organization standards. And its government-controlled trade union body often fires workers who stand up for their rights," he said. "When you have globalization without any rules, this is the result," in China and elsewhere."
Bakvis noted China is just the largest symptom of the race to the bottom, in which companies and countries ignore the standards - such as the right to free association, the right to organization, freedom from job discrimination and bans on child labor - promulgated by International Labor Organization (ILO) and agreed to by more than 150 nations.
But ILO standards have no force of law and Bakvis admitted it and its allies, including ICFTU, often must use public shaming to advance workers' rights.
And organizations that could enforce workers' rights, including international monetary institutions--such as the World Bank, the IMF and the World Trade Organization, have no mandate to do so and indeed are explicitly told not to include workers' rights in their analyses, conclusions and decisions on trade, aid and loans.
Bakvis said a publication by the World Bank said, "Countries are given negative points for such things like 'too much red tape,'" he said. "And the report basically says that 'If you have labor regulation, you have a problem.'
By Marty Mulcahy
LANSING - Tens of thousands of Michiganians, including residents, businesses and lawmakers in next-door Lansing, lost power during the great blackout of August 2003.
However, the lights and air conditioning remained on at Michigan State University, thanks to the school's own self-sufficient T.B. Simon Power Plant, which has been pumping out electrical power to the campus since 1965.
The plant has been upgraded over the years, and currently 60 megawatts of power are being produced by the plant's Unit 1-4 coal-fired boilers. Now, the building trades, the joint venture of Christman Co./TIC, and their subcontractors are in the process of adding Unit 5 (a turbine run by steam created by other boilers) and Unit 6 (fired by natural gas) to the facility, which will add an additional 38 megawatts of capacity to the plant.
"The campus is in a continual growth mode and we're getting close to running out of generating capacity at the existing plant," said MSU construction representative Ken Gottschalk.
The Simon plant has an inter-tie with the Consumers Energy power grid, allowing both utilities to sell and purchase power. MSU Operating Engineer First Class Gary Mell said while the tie-in with Consumers gives the campus a backup source of power, the blackout pointed out a major shortcoming in the university's power grid: MSU's system needs an outside source of power to jump start its system, should both its own grid and Consumers' grid go down.
The new equipment will allow for a "black start," in which a utility relies on its own power production capacity via a generator to re-start after a loss of power.
"If we had also gone down during the blackout, we would have had to wait for the rest of the grid to come back up," Gottschalk said. "The blackout was a real eye opener. This is a college campus, and there are important, ongoing experiments here. Losing power has a great impact on our campus. Minimizing any down time is critical."
The $39.5 million project is employing about 100 building trades workers. "My impression is that they're doing a good job for us," Mell said. "We're coordinating a lot of people in a very small area, and they're doing very well."
The Simon plant started with two coal-burning boilers in 1965, and added units in 1973 and 1992, Mell said. The new units are being added in a row to the west side of the plant in an addition that spans 13,000 square feet. The plant also creates steam to run absorption chillers to air condition campus buildings. There's plenty of additional space for future expansion, he said.
Construction began in the fall of 2004, and the new units
are expected to come on line in January.
By Marty Mulcahy
Plumbers Local 98 has only had four training centers in the local union's 112-year history.
The latest and easily the best facility among them was unveiled on Oct. 11 during the grand opening celebration of the 35,000-square-foot Plumbing Industry Training Center.
Tom Delehant, who became Local 98's business manager last year, credited past business managers and the union's contractors for leading the effort to acquire and transform a building in an industrial park in Troy into new training, classroom and office space.
"Hopefully our plumbers will have better opportunities than they would have had at the other school," Delehant said. "This is a huge improvement."
Local 98's most recent school on Seven Mile Road in Detroit was built in the early 1960s. The building served its purpose well until the early 1980s, when the union hall moved into the top floor of the building, leaving the school with only 7,000 square feet of space to operate.
With the diminished space, the clock started ticking on when, not if, a move would take place. Twenty years later, the will to move, plus dedicated contributions from members and contractors, put into motion the acquisition of the new training center.
"If you went to the Seven Mile school and came here, you'd be quite impressed," said Local 98 Training Director Carl Schroeder. "The membership has graced us with the money and the opportunity to build this, and we will continue to do what we can to bring the industry together with the best training program possible."
The building includes a technical lab, dedicated areas for hands-on training, and an environmentally safe welding lab. Classrooms can be set up for both local and distance learning, via the Internet. And the new building allows Local 98 to be the only plumbing training center in the nation with ISO 9000-2001 certification.
Gary Young, who preceded Delehant as Local 98's business manager and is now the International Representative for Michigan, said, "the contractors were truly the driving force behind this building. They put their money where their mouth is and that needs to be acknowledged." He told attendees at the grand opening that he envisioned a smaller training center - but those who pushed for a larger training center, "in the end, they were right. I think we need to think big in terms of growing into the future."
Bill James of Bill James Plumbing Services said the training center "is the culmination of 10 years of planning."
Ghafari provided the architectural and engineering services for the project, while Skanska USA was in charge of construction. The building that was transformed into the training center was 19,000 square feet, and two additions totaling nearly 15,000 square-feet were added. Construction began in October 2003 and was complete in April 2005.
Also on hand for the grand opening was William Hite, general president of the United Association of Plumbers, Pipe Fitters and Sprinkler Fitters.
He said Local 98's school is the latest among the 25-30 training center grand openings he has attended in recent months around the country. He was taken to the old Local 98 training center, and the new one, and was struck by the improvement.
"You've come a long way, this is a gorgeous facility," Hite said at the grand opening. "There has obviously been a lot of good planning here and this is one of the top training centers I've seen."
Hite pointed out that collectively, the United Association's 330 unions spend about $120 million in training - and not a dime comes from the federal government.
"When contractors pick up the phone and call unions halls today, they want a trained workforce right now," Hite said. "Training is a lifelong commitment to our industry, and it's obvious to me that Local 98 has made that commitment, and I'm damn proud of them."
With the decline in union membership slipping generally unabated over the last 25 years, what are the prospects for a turnaround?
At the moment, not so good. A nationwide Zogby poll conducted
last summer and released to Michigan AFL-CIO delegates last month
offered little encouragement that American workers have a positive
attitude about unions.
Less than half (16 percent) of those 35 percent of nonunion workers would "definitely" vote to unionize. By comparison, 38 percent of that 56% majority "definitely" would not vote to unionize their workplace. Those trends were strongest among workers age 30 to 49.
The survey found men more likely to oppose unionizing their workplace, by a 61% to 50% margin versus women, and married people are more likely to oppose unionization than single people by a 61% to 51% margin.
The survey also found that, on a host of other issues, workers were generally content with their present employment. When asked if they were happy or unhappy with their jobs and interested in finding new positions, more than seven-in-ten (72%) indicated they were content with their current jobs, while just one-in-four (27%) were unhappy.
Three-in-five workers (60%) approve of labor unions in general, while just a bare majority (52%) say that unions remain necessary. The polls found that 39% believe that while organized labor may once have been needed, its time has passed.
Despite this generally favorable impression of unions, however, a 46% plurality of workers believe organized labor exerts too much influence on government, while a lower 39% believe unions should exert more power.
"The present controversy within the AFL-CIO revolves
around the continued decline in union membership and organizing
failures," said David Denholm of the Public Service Research
Foundation, which sponsored the poll. "These survey results
seem to indicate that, under present circumstances, no amount
of organizing effort would be able to turn around the decline."
On Oct. 7, a federal judge, for the second time in two months, threw out Bush's plan, which would throw unions out of the 125,000-worker Department of Homeland Security (DHS) and impose rules that would let supervisors unilaterally cut pay and fire workers.
In a communication sent to AFGE members, union General Counsel Mark Roth and Assistant General Counsel Ward Morrow describe Bush's proposed "Work for America Act," which, they note, has yet to garner any congressional sponsors.
"In the aftermath of the Hurricane Katrina disaster, where the merit system employees and their union leaders documented ineffective high-level management and bureaucratic structural problems, apparently the same folks who brought you a weakened Federal Emergency Management Administration now want to extend the system they are creating at DHS to the rest of the federal workforce," they wrote.
They pledged federal worker unions will fight Bush's bill. While Bush justified his DHS rules with "national security," there is no such excuse for the rest of government, they added.
"It is an outright anti-union, anti-employee piece of legislation. The DHS and DOD plans were pitched to support national security, this follow up has no such justification. It is a power grab pure and simple," they said.
The DHS system has been halted in its tracks by U.S. District Judge Rosemary Collyer, who was a Reagan administration NLRB official before becoming a judge.
Instead, Collyer again agreed with AFGE and four other federal
worker unions, who said the Bush rules "essentially would
eliminate the collective bargaining process." She urged
Bush's DHS to "revisit the personnel system in a renewed
rule-making effort" covering employee workplace rights.
DHS has yet to respond to the judge.