Prologue
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.