By Moshe Adler, who teaches economics at Columbia University and at the Harry Van Arsdale Center for Labor Studies at Empire State College. He is the author of Economics for the Rest of Us: Debunking the Science That Makes Life Dismal (The New Press). Originally published at Alternet.
In the competition for jobs between U.S. workers and developing world workers, American workers are losing, and the TPP, which the Obama administration touts as being pro-labor, is, like NAFTA, anything but. Under the TPP, signatories will be required “to have laws governing minimum wages, hours of work, and occupational safety and health,” but the level of the minimum wage and any other standard is left entirely to each country to determine on its own.
This is perhaps why Hillary Clinton now says TPP will not help American workers. But this raises the question of what can be done. Trump would slap a 35 percent tariff on goods imported from Mexico, while Bernie Sanders would “develop trade policies which demand that American corporations create jobs here, and not abroad.”
But the reason Third World workers get such a large share of jobs is because their wages are low. Third World countries export so much of what they produce because their workers cannot afford to buy these goods themselves. Handicapping them will only drive their wages lower, making them even more attractive to foreign corporations.
Is which group of workers to hurt, the only choice? Is there no trade policy that can help all workers at the same time? There is.
Wages in the Third World are low because production requires technology, which Third World countries do not possess. Why are Third World countries so technology poor? In Why Nations Fail economists Daron Acemoglu and James Robinson attribute this backwardness to the existence of powerful elites who grab for themselves the fruits of any advances that innovative and entrepreneurial individuals would make. This situation changed dramatically in China after Deng Xiaoping came to power in 1978 and it also changed in India after the economic liberalization of 1991.
But catching up with the technological capabilities of the developed world in countries with very large and very poor populations takes time. Lacking the technology to keep many of their workers employed in home-grown industries, these countries submit them to exploitation by the foreign corporations who do own the necessary technologies. These terms of trade are precisely what should be changed.
Patents should be sold in Third World counties at prices that local entrepreneurs can afford, and the duration of these patents should be significantly shortened. In return, Third World countries should be required to pass and enforce high minimum wage laws and labor-friendly collective bargaining mandates (aka “co-determination”). This would make almost all production local: Apple phones for Third World countries would be produced in those same countries, and for the U.S. market they would be produced in the U.S. Instead of fighting one another for jobs, workers would be able to unite in fighting for better working conditions everywhere.
To the general public, the enforcement of patents is presented as being in the U.S. national interest, because the patents are owned by U.S. corporations. But the U.S. public and U.S. corporations are of course not one and the same. It is the American people who, through their government, grant patents; the American people therefore ought to have the right to determine the conditions under which these grants occur. Patent laws should be used in order to enhance their well-being instead of lining the pockets of a few.
To get a sense of the importance of technology transfers to production, consider the fate of the Swedish automaker Saab. In 2010 General Motors, which had owned Saab since 2000, sold it to a Dutch company, Spyker, but General Motors retained veto power over the resale of the Saab patents. Spyker then purchased Saab in the midst of the Great Recession, a time when the banks were not making any loans. As a result, Spyker, which needed loans to operate, was never able to take control of the company. A Chinese auto manufacturer wanted to buy Saab both in order to continue production in Sweden, but also in order to start production in China. General Motors did not want to face an additional competitor in China, and refused to let Spyker transfer the patents. Of course, had the Chinese buyer paid General Motors for its consent the deal would have gone through, but the price was apparently too high. The upshot? Saab closed its doors and thousands of jobs were immediately lost in Sweden, and at the same time potential jobs were lost in China.
Low prices for patents would benefit U.S. workers because they would mean that many entrepreneurs would be able to enter each and every industry in the Third World, and all of these entrepreneurs would be competing for employees. The prohibitively high prices for patents that exist today turn corporations into oligopolists in the product market, and powerful employers (monopsonists) in the labor market.
Of course there are those who would argue that without very high profits, there would be fewer inventions. But this argument is simply not true. Economists Michele Boldrin and David Levine have done research that shows major inventions occur—and their use spreads—long before there is even the possibility of granting them patents, because in the early stages it is usually not known how to patent them. In fact, economists George Haley and Usha Haley discovered that patent laws actually curtail further developments because owners of existing patents stand in the way.
Trump has focused our attention on a yet non-existing wall along our southern border. But far more problematic are the walls that exist around technology, because they transfer income from workers around the world to corporations and are one of the main reasons for the unprecendented economic polarization around the world. What we need are agreements that swap access to technology for laws that would guarantee high wages everywhere.
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Its a neat idea, but I’d suspect it would be unworkable in practice. One country could decide ‘the public owns the patents, we will use it for global good’, but getting all the advanced countries to agree…. that would be so difficult.
But it does raise the key points is that patents are gifts given to the innovative by the State. Yet so many companies see these patents as ‘their property’. Any dialogue which reminds the public of the falsity of this notion would be very useful.
Wait. So if the Western World(TM) just gets up and gives all of its technological patents to Bangla-freaking-desh (or any and all entrepreneur therefrom), the average wage in the Bangladesh…will…rise…to…the dollar-equivalent average wage in…the U.S.?……..
What the hell is this?
I get it, patent regimes as they are create wealth polarization, extract economic rent, however you want to call it. Yes. That’s been a problem for years. Dean Baker has been ranting and raving about it for years, as one example. But what does this have to do with “globalization” of the labor market, which is basically arbitraging your labor costs between different (and wildly diverse) economies and as a result screwing First World workers slash consumers? Because wage and price levels in a given economy are solely a function of production technologies?! Because there is absolutely no way for the elites to “exploit” the labor force or manipulate the labor market in their favor once a “high technology” state is achieved?! This is an economics professor, you say?
Incidentally, I recall not too long ago a number of tech guys (either Dell or HP, for example) started moving their own production from Ireland – a European Union member – to Poland – also a European Union member – because wages in Poland (incidentally one of the EU’s poorest economies) were about one third lower than those in Ireland (somewhere in the middle of the EU list, if I recall correctly). Cue the Jeopardy theme song while I wait for an explanation of how patent sharing can fix this (or bring those self-same jobs back to the U.S.).
I believe his point is that if patent use was available to 3rd world countries at discount prices then companies in those countries could create consumer markets for things like smartphones at much lower prices. This would in turn create jobs other than low skill entry level manufacturing. It may be a bit abstract and speculative compared to Dean Baker’s usual point–which is that patent protection picks the pockets of everyone but the patent owners–but not necessarily invalid. And surely nobody can dispute that patent protections raise the prices that poor people pay for items regardless of where they are made. So in that sense patents hurt poor people on the demand side.
Of course poor countries can do what they have always done and just ignore the patents. Which is obviously a big reason for trade deals is to try to enforce IP world wide. To escape the long arm of the patent law you’ll have to move to Mars.
I’ve read a book that claims the industrial revolution started in England because of their nascent embrace of intellectual property in the 18th century. Owners of steam engine designs could profit there while they couldn’t in the rest of still patent-less Europe. But even if that were true we are now in an “information age” and this particular form of rent has become increasingly negative. I believe Congress is even now trying to rein in some of the patent abuses.
I’m with Angry Panda. I found this post well meaning but naive at best. If I read correctly, the plan is to get first world companies to license their patents to nationalistic third world companies that will only produce for domestic markets. That seems to simply ignore the last 40 years of first world corporate behavior, the first-world national governments that support them, and the global trade infrastructure that has been built to support them.
There are two key points that economists discussing trade rarely if ever acknowledge that need to be central to any economic analysis and proposal:
1. The countries that continuously run trade surpluses (Germany, Japan, Korea, China) are mercantilist. They are not “playing by the same rules” that trade economists think they are. And anyone who claims those countries are therefore doing us a favor by selling us things cheaper than they “should” otherwise cost is immediately disqualified as having anything relevant to say.
2. The other main driver of international trade, as pointed out by Angry Panda, is arbitraging labor costs WITHIN THE SAME CORPORATION. The argument that poor countries can’t have advanced technology is idiotic. (“Wages in the Third World are low because production requires technology, which Third World countries do not possess.”) If Boeing, Apple, etc. bring their technology to a low-wage country, then it’s there.
The technology will follow the factory floor, not the Wall Street trading floor, simply because it is necessary to be there to do the job. The pursuit of low wages will bring with it loss of physical control of knowledge base and technology.
Maybe. The workforce/working class certainly loses (at least some of) its knowledge base – the industrial midwest used to be full of skilled tool and die workers but now not so much – but it isn’t clear to me that, after 30 or so years of off-shoring, Ford or Boeing has lost its knowledge base. And Apple chose not to develop in-house manufacturing competence. Again, that isn’t good for those who might otherwise be skilled Americans working for Apple but it isn’t clear that Apple has paid any price.
This is already going on to some extent. You can get a mobile phone brand new and unlocked much cheaper in Kathmandu priced for the local market including the big name brands. (You can still buy $800 models too if you prefer).
It’s the US market that is so monopolized one cannot get a phone independent of the monopoly carriers. Hard to see mfgrs rushing to enter that fossilized market.
Maybe he imagines trade agreements that basically enforce fair trade, that is they enforce living wages and fair working conditions in the countries they apply to (and yes of course living wages will still be cheaper in 3rd world countries). And he thinks in order the get the 3rd world countries to agree something needs to be offered them in return, hence the less restrictive patents. Or something needs to be offered them in return so they can compete on something other than wages that don’t even maintain their workers (again I still think 3rd world wages would be cheaper even if they were living wages under decent working conditions).
I’m not sure any of this has much of anything to do with how trade agreements progress in the real world. But it’s a nice vision.
Angry:
Labor Intensive Companies leave European and US countries not because of Labor Cost as it is a small ratio of the cost of manufacturing. They leave because of the overhead associated with operations in the US and advanced countries.
Give them all the patents they wish to have to improve technology within those countries. It will work for a while. With each improvement in technology, less labor will be needed, and there is no guarantee the productivity gains from the technological improvements will filter down to Labor. We see this in the US today. To minimize the strength of Labor, RTW laws are passed in states and courts are now attacking union dues.
Raise the specter of working fewer hours per worker and Lump of Labor arguments will crawl out of the woodwork. There is no need to work 40 hours and efficiency or throughput improves with well rested Labor Force. The ratio of Labor cost is small per component and product manufactured in comparison.
The argument is technology will not save them and will only put them back into the same situation. If we use technology, the productivity gains must be shared with Labor and not go solely to Capital and the 1%.
“Patents should be sold in Third World counties at prices that local entrepreneurs can afford, and the duration of these patents should be significantly shortened. In return, Third World countries should be required to pass and enforce high minimum wage laws and labor-friendly collective bargaining mandates (aka “co-determination”). “;
IMHO Most of those working in industry will tell you: patents are only a limited part of the “total picture”.
Delivering to-days’ products and services is not exactly outputting Ford model T in numbers, that’s requires an extraordinary sum of hi-end technologies, people (yes hi-end people…) and even much more in terms of hard work.
We certainly need to stop reduce the level of international division of labour. Sure we’ve gone much too far. And this has become possibly both socially adverse and possibly unproductive. But the only practical way out this messy solution is well known. It is called tariffs and is is a proven solution…
You just make sure that the way they are implemented is at least as smart as the way Ms Yellen informs the so-called markets about the coming decisions. Ahead of time, offering industries the time to adjust. Yep, as I said earlier, this adjustments require time and a lot of planning.
Is that too much to expect? Wall Street is treated with a lot of respect. Industry – which has much more to offer to the world – can also call for respect.
Don Lancaster has had some harshe thinges to say about patents. His perspective is as a small-business innovator, and the examples in the article here are high-tech, complicated, heavy industry. These posts are olde, but as far as I can tell, the situation hasn’t gotten better.
– Fact–Your patent does not in any manner prevent others
from stealing or using your ideas.
Should you go patent something, anyone is totally free to
market your product, rip off all your ideas, or tell others
about your work. And there is nothing immediate you can
do to stop this from happening.
All a patent does is give you the right to sue someone in
a civil action. At some future date in a ridiculously costly,
extremely drawn out and easily circumvented legal process.
Nobody has ever “won” any patent litigation. The main
purpose of patent fights are to cause more grief and harm
to the opposition than you are causing yourself. Almost
always, this purpose fails miserably.
http://www.tinaja.com/glib/casagpat.pdf
http://www.tinaja.com/glib/when2pat.pdf
Two examples I can think of that are relevant. One is the degree to which contractors use cheap knock-offs when fulfilling terms. It’s been some years, but I read this was a serious problem for the Pentagon, as Chinese counterfeits were being used which could have backdoors built in. Of course, the security state then knocked a hole in the back wall of the fort. Out-maneuver them by shooting yourself in the foot.
The other example is pharmaceuticals. Reputable sources not only diluting the intended dose, but buying from secondary sources and relabeling. I know for a fact this has been a long-standing practice with nutritional supplements. The U.S. healthcare system has perversely promoted alternative sourcing, as witnessed by pharmacy towns just across the border in Mexico. The quality may be variable, but when the choice is food or medicine, harsh choices get made. And I expect on-site testing to get better, is it did in the illicit drug trade.
And I just read the ‘Kingpins: OxyContin, Heroin, and the Sackler-Sinaloa Connection’ in the Links. An alternative method of secondary sourcing evidenced.
Too funny, assumes control over Fred Flintstone technology is the difference.
How do you / get politics out of public education when it is controlled by RE feudalism.
Yes, they are taking stem cells, but they can’t do anything productive with them.
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Build your own generator. You have a collapsing entitlement cohort impoverishing the remainder, the natural response to which is increasing reproduction to maintain the culture, all trying to avoid change themselves, creating demographic variability, driving climate variability with failed technology. At equilibrium the actuarial ponzi false signals generator couldn’t last one day.
The price of power, creating all other prices, has nothing to do with supply and demand, and everything to do with willful ignorance.
Oil is 45 because that price maximizes the transfer of wealth.
People with equity don’t riot, but equity in a failed system isn’t equity.
So the problem that this proposal solves for is “How do we get the other 90% of the population of the planet to consume on par or at least closer to that of the US/Europe”. In other words infinite growth on a finite planet.
Why is it that this is the only model we are ever able to discuss for keeping people alive?
Naive is the word that pops immediately to mind:
If we assume that his analysis is correct as to expected outcomes, it is immediately apparent why this sort of policy has no chance of becoming law — those who write the laws (and trade agreements) have a direct interest in keeping wages down, everywhere. “Better working conditions everywhere” is synonymous with “lower profit margins everywhere,” so why would the oligarchs who run our societies be expected to go along? Strictly fantasy, imho.
At best it shows another world is possible. But we know this, in a better world many solutions would be available as potential solutions: enforced fair trade, enforced fair trade with patents, protectionism and tariffs, etc.. But not because of economics but rather because we are ruled by plutocrats only the exploitation of labor and the race to the bottom is possible.
“Third World countries export so much of what they produce because their workers cannot afford to buy these goods themselves.”
The actual answer, then, is to make it illegal to exploit one’s workers by paying them less than what they produce. The article breezes right by it!
Of course, mandating that workers cannot be exploited is a worldwide revolution in itself. It sure would make articles boring if every single one said that, so I guess we need variety.
Middle sentence is close to the solution. How about productivity gains going to Labor?
The simple solution to me would be for part of the agreement to require that the underdeveloped countries allow the American Unions to organize their workers as well, have strikes and picket lines and shut them down. If the auto makers in Mexico had to deal with the UAW instead of 5 dollars per hour the auto workers would be making a lot more and it might not really be worth moving so much production to Mexico. If the computer makers in China were subject to strikes by the IBEW or the IAM they would have to raise wages. If all of a sudden a big chunk of their workers started making western money……it would transform their economy. I suspect the problem is that the people negotiating for us have never been in a Union, spent their formative years in an Ivy League Law School, and have no idea what a real job is. They think a job is selecting an Armani suit and going to a nice office and talking legal talk……..kind of how HRC sounds……….a Yale lawyer. Of course I am an ex Teamster and I remember seeing picket lines shut down a plant……in my day you never crossed a picket line. The workers of the world need to work together………the financiers of the world are.
It’s only simple if you ignore the law. US unions exist under US labor law, which is not enforceable in other countries. And in many low-wage countries, including Mexico, many workers do have unions, legalized through their own laws, though it is legit to question how helpful they are.
Time for world government?
Yes indeed.
there are few international issues that would not be much more easily managed under world government.
“Wages in the Third World are low because production requires technology, which Third World countries do not possess.” Translation: third-world workers do not possess magic beans. What?
Wages in third world countries are low because there is massive competition for jobs. When there are 100 desperate starving people competing for every job, wages will be low. Technology has nothing at all to do with this. It’s supply and demand.
Computer programmers in India get low wages simply because there are so many of them competing for jobs. It doesn’t matter that they have ‘technology’. So what?
In Japan or Switzerland a janitor using a bucket and mop that have largely been unchanged for centuries if not millennia, can get a decent wage – because the number of people available to work these jobs is limited. In fact, they get higher wages than engineers in many third-world countries that are far more engaged with technology.
Workers in late Medieval England had a higher physical standard of living than workers in many modern third-world countries. They had less technology than any modern third-world country. They also had abundant land, and resources, and limited competition for jobs. The issue is not technology.
With respect, this is just another way to avoid what they rich want us to avoid: that wages are set by the balance of supply and demand for labor. A population explosion increasing the supply of labor, and a parasitic finance choking off the demand of the real economy, are the issues (and while both factors are critical, the power of sustained exponential growth means that no amount of financial games can prevent high fertility rates from creating poverty).
We know how to create widespread wealth. But the rich don’t want that, because they like cheap labor. So they have brainwashed us into thinking that any mention of demographics is a priori racist and cannot be mentioned, so we must talk about automation or non-existent robots or sunspots or the evil of people opposed to gay marriage. Until we can address the core issues intelligently, we will achieve nothing.
Keynes was a Malthusian. He was not a racist, or a demagogue, but an intelligent person who wished for a better world. Perhaps we should revisit his example.
Agreed. There is plenty of “technology” in Chinese factories. They were able to meet Steve Jobs’ demand for scratch-proof glass for the iPhone, for starters.
With respect, this is just another way to avoid what they rich want us to avoid: that wages are set by the balance of supply and demand for labor. Yes, except when they aren’t. Which, for working people, almost always means unions have negotiated higher salaries for them than they can “negotiate” for themselves.
In Japan or Switzerland a janitor using a bucket and mop that have largely been unchanged for centuries if not millennia, can get a decent wage – because the number of people available to work these jobs is limited. No way. If the wages of janitors in Japan or Switzerland were cut in half tomorrow, the people holding those jobs would have to eat the pay cut, as U.S. workers holding similar jobs have, unless they had a union going to bat for them.
No, they would not, because unionization rates in Switzerland and Japan are not much better than in the USA.
Hence it’s not unions protecting janitor’s wages. Rather both nations are representative of an island mentality where (outside agriculture in Japan) in the name of national unity foreign workers are excluded from all but the certain specialist jobs (such as trading of finance derivatives). Japan may be forced to change this policy because their investment in robotics to mitigate a rapidly aging worker population & below sustainment birthrate so far have not paid off.
When unions did their best to improve worker conditions in the USA there was also not a shortage of available workers. Rather due to fear of communism, the oligarchy recognized that the US both socialist safety net and strong pro-union legislation which together with Jim Crow, provided for an artificial shortage of “qualified” workers. This middle class became both tool against communist infiltration of society and a condenser/concentrator for wealth being extracted from the rest of the world by a dominant US. Once the communist were no longer a threat and better financial tools for concentrating wealth were developed, the unions were thrown to the “right to work” wolves or their constituents work functions shipped off to China and Mexico. Jim Crow outlived it’s usefulness and it was expedient to replace it with other tools to wave over the masses, to keep labour in line.
The 1% want cheap Overhead. Labor is already cheap when one considers the ratio of cost in a component or product.
‘Imagination at work” = “Arbeit macht frei”
From birth to death, one is always at work, working for Capitalism.
The proposal depends on those who concentrate and control capital and power to give it up. It won’t happen without a very big stick. Just look how hard and bloody organs like IWC has gotten attempting to raise wages in the 3rd world, an act that is in every poor and middle class American’s best interest. Without solidarity the owners of this technology will simply set one set of workers against the other, threaten to extract their patents off-shore, after all if there is no manufacturing in the USA, then what value are manufacturing patents inside the USA. It’s only our government’s strong-arming overseas that gives them value.
The Lesson of Carrier: America Needs a Real Socialist Agenda: Econospeak
Besides being prescient on all the problems of capitalism Karl Marx was right on at least one part of the solution. What the world really needs is an international workers community. Trying to address these issues at the national level without an effective tool to counteract Capitalism ability to go international is doomed to fail. Seeing this as us against the Mexican workers, rather than all of us against the capitalist is just playing the game they want us to play.
How will we live in this new world? Not where borders no longer exist, but where they have become, ever increasingly, the impediment to safety of our health and wealth? This is going to be one of our real challenges in the future!
My answer is also simple: setup corporate taxes so that they discourage offshoring domestic jobs to slave labor countries beyond a minimum point. Say a corporation can only offshore 1/4 of workforce. If they go above this level then their taxes go up and import duties go into effect on all offshore-produced merchandise such that it eliminates the value of offshoring in first place. This allows for development of poor nations but under controlled conditions that do not rape the workers in the developed nation.
I also have ANOTHER answer to the problem of offshoring labor to slave labor countries in addition to the one previously posted: national security.
EVERY critical agricultural and tech/manufacturing function should be REQUIRED to keep a certain level of production 100% domestic. The US used to design and make CPUs, computer memory, other electronic components right here. Same with automobiles, aircraft, etc. Now, most of that is offshored to slave labor across the ocean. What happens when some political or environmental disaster occurs that curtails our access to CPUs, memory, ICs, etc? We DEPEND on advanced electronics to such an extent that anyone that can control access to that controls us. The US (and all other advanced/developed nations) need to REQUIRE a certain minimal level of production for ALL this to remain 100% domestic so, if the need ever arises, that we can continue to have full access to such things entirely within our own borders. Same thing with food. Each nation that is capable of doing so should ensure that their agriculture is diverse enough and large enough that it is capable of feeding its own domestic population without need for external imports to as much as possible so that, if an unforeseen disaster of some sort happened, then your own populace would remain fully fed and not dependent on anyone else to survive. It doesn’t mean you have to do that all the time, just that you are capable of switching to full internal support if needed.
Back in the early 90s right after Desert Storm, I was sent to an advanced strategic war planning school. I remember a briefing we received on threats and capabilities of potential enemies and ourselves. There was a briefing that covered compromised computer hardware (chips) that could be created such that if needed, we would be able to remotely kill/destroy computers of enemies. I will never forget that briefing because I have to think now, how can they begin to think that China or other actors are not building such hard-coded kill hardware into many or all of the chips being manufactured outside the US? WE don’t control it, other governments do now and if WE could consider doing that then so can they and if WE would do it, so would they. The only way to make certain that critical computers are NOT compromised is to ensure that their components are manufactured domestically outside the control of any foreign entity.
This national security concern can fold directly into my previous idea (only allowing 1/4 workforce offshoring). We retain high-skill, good-paying technical jobs domestically while also helping poor countries develop by having limited manufacturing there too. We retain the ability to feed ourselves 100% in event of war or disaster while also benefiting from international food trade.