From _CCH Report_ CALIFORNIA'S FUTURE: NAFTA AND THE CHALLENGE OF THE WORLD ECONOMY By Nathan Newman and Anders Schneiderman Pete Wilson and other conservatives say that California's economy has been collapsing because businesses have been fleeing to other states. But as the Center for the Continuing Study of the California Economy has shown, neighboring states such as Arizona and Nevada have also lost manufacturing jobs. Stephen Levy, director of the Center, notes, "the real challenges California faces are the ones we share with the nation." The largest challenge facing the country is the increasing export of our jobs to low-wage companies overseas and south of the border. But the conservatives do have a point. As Californians and as Americans, we are losing control of our political destiny to multinational corporations that do pit states and whole countries against one another in bidding for jobs. Local organizing, in isolation, cannot change this because it does not challenge the multinational bidding war. The challenge to those seeking a just society is how to regain that sovereignty over our economic system and tie local organizing to national and international movements. "An Offer We Can't Refuse"? In the last generation we have lost the American Dream of handing on a higher standard of living to our children. Instead, over the last two decades, the average wage in America has declined for the first time in our history. When you adjust for inflation, the take-home pay for an average worker has fallen from $387 in 1969 to just $335 in 1989. Even the standard of living our families have maintained is deceptive. Only a tripling of the number of mothers in the workplace--from 13 million in 1975 to 33 million in 1988--has allowed families to survive. Without those second incomes, the America standard of living would be the lowest among the major industrialized countries. Conservatives argue that the only way to stop our loss of jobs and wages is to fight harder in the world-wide bidding war: i.e. bankrupt our government budgets to offer tax incentives, lower our environmental standards to the lowest common denominator, and weaken workers' rights in order to offer a more docile workforce. In other words, conservatives argue that multinationals are making us an offer we can't refuse--pay up or lose our jobs. When states and countries bid against each other, they encourage companies to compete for profits based on who can most abuse the environment, abuse the tax system, or abuse their workers. This will not create wealth but metely transfer it from workers and the community to the hands of corporations. The only reason the conservatives are remotely credible is that California might be able to steal jobs from other states. However, if we fight a bidding war with Nevada or South Carolina, the only winners will be the corporations. In the end, as has happened repeatedly in the past, many corporations will move to Mexico or other developing nations that will inevitably underbid us. Do we really want to compete with Mexico to see who can lower their wages and environmental protections faster? "If We Build It They Will Come"? Liberals like Clinton argue that rather than try to compete with Mexico, we should follow in the footsteps of Germany and Japan. They call for investing in our people and our infrastructure in order to create an environment which will attract high-skill, high-wage jobs. [Reich quote on ballparks] As the Clintonites argue, the US does lag far behind Europe and Japan in investing for the future. Across the board, US businesses and government spend less on new investment--from new factories to research & development to transportation--than almost every other industrialized country in the world. Where the US spends only [16%] of its Gross Domestic Product (GDP) on new investments, Germany invests [19%] of its GDP, and Japan invests a full [30%] of its GDP on investments in its economic future. There is a strong case that investments in infrastructure and new technologies like high-speed rail or fiber-optic communication systems will make the US a more productive society for all businesses. California has fallen far behind the rest of the US in investments, just as the US has fallen behind Europe and Japan. For example back in 1960, California spent the same on transportation per person as the rest of the US; by 1985, California was spending only two dollars per capita for every five dollars other state were spending. Wth little of this spent on mass transit, we are left with cars stalled for hours at rush hour contributing to the haze on the skyline. Similarly, despite conservative complaints about too much public school spending, the US spends less of its GDP on K-12 education than almost every other industrialized country. Where Sweden spends 7% of its GDP and Japan spends 4.8% of its GDP on K- 12 education, the US spends only 4.1% of its total national income on K-12 schooling. And California spends less on its public schools than all but two other states: only 3.3% of all income in the state. And once people leave school, both private industry and government spend miniscule amounts on training. US employers commit only $10 billion per year (out of a $5.5 trillion economy) to training our non-college educated workforce, affecting only 8% of our front-line workers. Only the largest 0.5% of American companies seriously train their workers. With state and federal governments adding a small amount to worker training, Clintonites argue that we cannot continue to spend a quarter of what Germany spends on training per worker. Why High-Skills Won't Mean High Wages Clintonites argue that with investments in our infrastrcture and our people, the US can win the bidding war for jobs in the international economy. Because they believe the US can compete based on a high-investment, high-skill, high-wage approach, Clintonites are enthusiastic about NAFTA, GATT and other free trade accords. They do support minimal international safeguards for labor and the environment, but treat that as a side issue. They assume that through trade, the US will increase its high- skill employment by exporting goods to new markets. Unfortunately, what Clintonites fail to take into account are places like the Ford factory in Hermosillo. According to an MIT study, this Ford factory has the highest qulity of any auto plant in North America. More generally, studies have shown that auto factories throughout the maquiladoras are 80-100% as productive as US factories. These high-productivity plants pay on average one-tenth of US wages. In Mexico, these wages are barely enough to feed a family, let alone buy a refrigerator or one of the cars they assemble. The export of manufacturing jobs to lower-wage countries is hardly unique to the US. European workers are facing the same pressures from low-wages in other countries. Germany, which has been touted as being one of the most successful in following a high-skill, high-wage strategy, is expected to lose one-third of their manufacturing jobs by the year 2000. Even Japan has had to face the outsourcing of many manufacturing jobs to other countries. While the so-called "high-wage, high-skill" strategy in countries like Germany and Japan have slowed this loss of manufacturing jobs compared to the US, its limits are becoming obvious even as President Clinton and others have begun promoting it. As UAW economist Steve Beckman has noted, "If you pluck that technology there, [Mexican] workers can do the same things our members can do with a certain amount of training." What this shows is that while we do need to make investments in our society- -especially in the education of our citizens-- in order to save our economy, such a program is not enough. Moreover, the challenge of low-wage workers from Mexico, South Korea and Singapore are being undercut by the emerging workforces of Indonesia and China. Nike subcontracts the manufacture of its shoes to multiple factories in Indonesia, where in 1992 they were paying $1.03 per day or 14 cents per hour- -less than what the Indonesian government declares is needed for "minimum physical need." Not surprisingly, a recent International Labor Organization survey estimated that 88% of the Indonesian women working at such wages were malnourished. But the challenge of Mexico or even Indonesia is nothing compared to the potential challenge of 1.3 billion workers in China--more than the total workforce of the US, Europe and Japan combined. Nike subontractors in China are now producing 2 million pairs of shoes per month. Western multinationals are transferring jobs from the developed countries to Chinese workers who are being paid two to four dollars per day. The sobering fact is that when measured in actual purchasing power for local goods, China is now at the level of development South Korea was in the early 1970s; experts estimate it will continue to grow by 10% each year for the next decade. And China is equivalent to one hundred potential South Koreas now entering the global labor market US, European and Japanese workers increasingly find themselves being pitted against Third World workers in a bidding war to lower wages and environmental standards. If we continue to treat Mexican and Chinese workers as just competitors for jobs, we will lose this bidding war. We face the challenge of bettering both their lives and ours together if we are to advance together rather than fight against each other over ever declining living conditions. A New World Order: Global Keynesianism? This dilemma is nothing new. At the end of World War II, people throughout the West feared that once military spending slowed, countries would revert back to to 30s-style depression. The US feared that low wages in war-ravaged European countries would undermine wages in the US, while leaving European workers with too low a wage level to purchase goods from the US---exactly the same worries we now express about Mexico and China. The solution at the time was a combination of massive US government aid to Europe in the form of the Marshall Plan and the stabilization of investment through a US-dominated International Monetary Fund (along with renewed military spending as the Cold War took off). This aid was immediately used to employ European workers and in turn to buy goods from the United States, thus assisting economic growth and employment in all countries involved. The problem was that this solution was a one-shot deal. No permanent mechanism was created that would insure that as Western countries recovered from the war and as other countries developed, they would in turn aid other developing nations, nations in recession, or nations which were having difficulty competing in the global market. What was lacking was a mechanism to keep the process of wage growth moving forward across the globe. And in the early 1970, we felt the result of this failure: wages in the US began to fall in real terms and have continued to do so. Back in 1945, economist and British statesman John Maynard Keynes and US labor leader Sidney Hillman prophesied this exact result in the long-term when post-war world leaders failed to create a permanant system for growth and employment; i.e. "global Keynesianism." Instead, we had the phenomenon of the US-dominated International Monetary Fund (IMF) forcing Latin American countries to lower their wages during the 1980s to pay off debt, thereby furthering job flight from the US to those countries. In Mexico itself, wages fell almost in half during the decade of the 1980s. It is clear that we need to begin the hard process of building a system of global Keynesianism and the global institutions necessary to make such a system democratic. However, the process of creating such a global system will probably require a number of smaller regional "one-shot" job creation mechanisms to build the political momentum and experience for the broader goal. In pursuing an alternative to NAFTA, we can begin the process of moving forward the goal of global Keynesianism. How to Get There From Here If in the short-term we agree that the proposed NAFTA agreement in not the right next step, then what should we do? Some people argue that the best alternative is raising tariffs and excluding many imports that might threaten jobs here in the US. While free-traders use the protectionist Smoot-Hawley? Act that furthered the Great Depression to attack any discussion of democratic management of trade, they have a point. Protectionism is a recipe for international division, conflict and ultimately lower wealth for all that will undermine any chance for global cooperation needed to raise wages for all workers aound the world. So, what can we do in the short-term to both save jobs in the short-term and begin to build the institutions that can coordinate world-wide job creation? The priority must be on building the cross-national grassroots organizations--unions, community groups, and environmental alliances--that can defend and move forward on each step of a long process towards global cooperation. In that context, we return to Mexico as a focus, but not just as a trading partner but as fellow workers and global citizens with whom we share much more than trade. In bridging the world-wide divide between developed and devoloping nations, the US and Mexico are in a unique position to build a model for further North-South integration. The US and Mexico share the longest border between an industrialized and a developing nation; Mexico is the US's third largest trading partner (after Canada and Japan) and the US is Mexico's largest trading partner. More important is the human connection in the form of immigration between the two countries, especially for California where over half of all Mexican immigration comes. To put the importance of this immigration in perspective, the Lewis Center for Regional Policy Studies has noted that the economic size of the Latino population in the U.S. is not much less than that of the entire GDP of all of Mexico. This human link means that we have more grassroots links, both at the personal and organizational level, with Mexico than with any other developing country. We need to build on these human relationships to create not just a trade agreement but a political and social community between our nations. Unlike NAFTA, such a community would create create a democratic forum where democratically-elected representatives could meet to create joint standards of environmental and labor treatment and foster Continent-wide development of good jobs. This is hardly a radical new idea. Across the ocean, the Europeans rebuilt their war-torn economies in the context of an ever deepening European Community. Today, the EC includes countries ranging from countries as wealthy as Germany and France to countries as poor as Portugal and Greece. On a European-wide level, standards are slowly being created for labor rights, environmental responsibility, and general social standards. While the EC is hardly perfect and while it lacks effective grassroots control, it is a start. For example, to accomodate the imbalance of wages between richer and poorer regions, the EC has established "cohesion" funds to foster higher wage economies in those poorer regions. In this way, Europe is working to level-up wages rather than to level them down. Some would argue that the economic gap between the US and Mexico dwarfs the gap between richer and poorer European nations. While the gap is larger, it is a quantitative rather than qualitative difference. As one example, Mexican wage rates are approximately 15% of average rates in the US, while Portugal's wages are 19% of Germany's. Now, Mexico's size relative to the US and Canada is larger than comparative differences of poor to rich countries in Europe, but the gap is not insurmountable. On the positive side, the very imbalance between the US and Mexico means that a coordinated plan for creating jobs could have a dramatic effect on Mexican wages. There is general agreement among liberal and progressive forces in the US that we need a serious job creation program for this country, especially aimed at inner-cities. In dollar terms, the Mexican economy is roughly the size of Los Angeles County, so including Mexico in such a national jobs plan would be a significant but not overwhelming challenge and the payoffs could be dramatic. In creating greater integration between our countries, there are justifiable worries about political corruption in Mexico. However, the EC faced and overcame these problems when they accepted Portugal, Spain and Greece which were run by corrupt dictatorships until the 1970s. The very process of European integration helped pressure those dictatorships to democratize in order to fully participate in a European union. Worries about political corruption in other countries or sacrificing power to multi-national governing bodies are really about our justifiable fears of losing sovereignty over our destiny. However, given the increasing economic integration within the global economy, we are losing our sovereignty to multinational corporations. When we are told that we have to accept lower wages and weaker environmental standards or companies will leave for other nations, we have already lost control of our political and economic destiny. An International Wild West or a Global Community? Even the people like Clinton who want to play the global bidding war admit that we are in danger of losing all control over our economy. In the discussion of NAFTA, this worry takes the form of the "side agreements." The problem with these labor and environmental side accords is that they are only on the side, focusing on punishing the worst outlaws without getting at the real roots of low-wage exploitation and environmental crime that come out of the lack of Keynesian-style coordination. The NAFTA side agreements amount to swapping national regulation on business for an international Wild West where all the marshall can do is shoot the worst criminals (or at least gives them a stiff fine). And as Keynes and Hillman said, an international Wild West is a recipe for depression and disaster. What we need is a system not just to police outlaws but to assist honest workers in raising wages across North America. Obviously, building a North American Community can only be a first step given the worldwide challenges symbolized by China. In the long run, to regain real sovereignty we must deepen and democratize global institutions at the inter-governmental level. More importantly, we must expand the international grassroots institutions of unions, environmental and community organizations. Whether building on already existing international labor federations or expanding on the Rio Summit connections between NGOs around the world, we can build the institutions to keep the process of global democracy moving forward. In California, there are a number of actions we can take to strengthen our position in the global bidding war. At the local level, we can also fight to protect the most vulnerable from the ravages of this international competition. But Californians can't save California, just as Mexicans can't save Mexico. Together we have to enter the debate over the rules of the international game. And in taking the first step of challenging NAFTA, GATT and other global agreements, we must do more than just fight for their defeat. We must work for positive alternatives that can regain our sovereignty over our economic future and begin the long-term process of creating a just global order. It's time to bring an end to the international Wild West.