I’ve been reading Jagdish Bhagwati’s excellent take-down of “fair trade” advocates’ alleged desire to raise labor and environmental standards in developing countries. I will restate the argument made by “fair trade” policy (also known as protectionism) proponents and then my summary and elaboration of Bhagwati’s response:
1. Environmental standards should be equalized (preferrably at a high level) across the world. Otherwise countries with strict standards are in “unfair” competition with low-standard countries.
- Countries differ in local preference for the environment, economic situation, geography and climate. This requires environmental legislation to be adapted to these local conditions in order to optimally reflect the tradeoff that people are willing to make. Imposing high-standard countries’ preferences would make developing countries worse off by limiting their flexibility.
- high environmental standards are the expression of a policy preference for pollutants to be more expensive. If a country taxes alcohol and alcohol then becomes more expensive that is exactly why the policy was introduced. Similarly, making the output of polluting industries less attractive/more expensive is the purpose of environmental legislation, as less output is what saves the environment. Complaining that these industries are “unfairly” disadvantaged by the high environmental standards (their goods are more expensive/their output is lower) is just saying that the policy did what it was meant to do.
- This argument confuses absolute with comparative advantage in international trade. If all developed countries were better at producing everything in absolute terms than developing countries, the pattern of production would be that developed countries produce in their strongest sector compared to other developed-country industries, while developing country production concentrates in the strongest sector relative to other developing-country production. Thus, the margin of competition at which the shift in production will occur in response to a change in environmental standards is between developing countries. In other words, if there are giants and dwarves, the giants will specialize in picking cherries and the dwarves in picking mushrooms. If the giants complain that they are picking cherries barefoot while the dwarves “unfairly” wear shoes while mushroom-picking and push through rules that everyone has to be barefoot, what happens? The mushroom-picking will still not be done by the giants, but it shifts to the dwarves with the least sensitive feet. Thus, developed-country industries will not necessarily profit from a change in environmental legislation in developing countries.
2. A race to the bottom might develop in which countries underbid each other in ever-more destructive environmental practices.
- while theoretically possible, there is no empirical evidence of this happening. Empirically, companies are not strongly attracted to places with weak environmental standards (see Africa). It seems to me that, anecdotally, the move has been in the opposite direction towards more and stronger environmental regulation globally. China is coming around to consider the environment as important to balanced growth; the former Warshaw Pact/Soviet states have moved from deliberate complete neglect of the environment during socialist times to more sensible policies after the transition to democracy…
3. Trade with countries lacking adequate “labor rights” should be suspended. It is immoral to exploit/trade with countries/companies that do not guarantee “good” working conditions. Granting labor rights should be a condition of WTO membership, ie violation could be punished with trade sanctions.
- All the arguments above about efficiency and the lack of empirical evidence for a race to the bottom apply
- The world is a diverse place without universal agreement on what constitutes “acceptable” labor conditions. An interesting question is, what would happen if the world decided that having minors work in unpaid internships, limiting union representation and refusing to give immigrants rights and legal protection is a failure to guarantee “labor rights”, resulting in a complete global boycott of many American industries. Would we simply accept that as deserved punishment for American immorality or try and cite specific local circumstances that make American labor standards excusable? Developing countries should have the same leeway in defining their labor norms as developed countries do.
- Instances of almost universally condemned labor treatment, e.g. slavery, are rare and mainly in economic environments that are unlikely to be reached by international policy agreements
- Unsurprisingly from a political economy perspective, the list of potential “labor rights” to be enshrined in global agreements is dominated by the things that protectionist rich-world industries have and what developing countries are lacking, while issues like migrant workers’ rights are conspicuously lacking
- It is not obvious that official government policy is the right tool to use, even if the goal was desirable. NGOs could help without government force. After all “if your ideas are good, they should spread without coercion”
International spillover effects and coordination on bigger issues like climate change often require legitimacy for international organizations in order to be meaningfully addressed. Only if petty domestic concerns of developed countries and misguided ideological crusades of the sort often exemplified by the international “fair trade” movement cease to threaten developing countries’ sovereignty will these organizations be able to gain support and legitimacy. Just like no country will like to actually disarm when the UN Conference on Disarmament is headed by North Korea [sic], it will be hard to coordinate CO2 emission controls as long as developing countries are continually threatened with sweeping and self-serving environmental rules by developed country advocates.
The bias of international “labor rights” proposals against developing country morals and practice reminds me of Slavoj Zizek’s idea that human rights have been defined in a way that dehumanizes the countries of the developing world while basically defining humanity as whatever it is that us wealthy people already have. Note that this idea seems very much in keeping with the UN’s recent push to make internet access a human right. After all, if we don’t keep moving the goalpost, there might come a time when the “huddled masses” actually gain entrance to the noble club of “humanity” and then no sovereign borders will be there to help us keep them in their disadvantaged place.