The Real Legacy of Free Trade: Lost Jobs and Slashed Incomes

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May 2015 - Former Michigan Democratic Governor Jennifer Granholm likes to tell the story of her tenacious and determined, but ultimately unsuccessful effort a decade ago to try to keep a company called Electrolux from relocating its refrigerator manufacturing plant from the town of Greenville, Michigan, to Mexico to exploit cheaper labor.

Governor Granholm offered an incredibly generous package of tax breaks and government assistance, even promising to construct a publicly funded new factory for the company if it would just stay and keep its jobs in Greenville.

She recalls how the company’s executives shook their heads, rolled their eyes and chuckled before instantly declining the offer. “There is nothing you can do,” they told her, “to compensate for the fact that we are able to pay $1.57 an hour in Mexico.” Also, no workers’ compensation, no Medicare, no state or federal taxes. That’s hard to beat.

That ability, in turn, was enabled by the North American Free Trade Agreement, or NAFTA, which provided unprecedented new rights and market access for foreign manufacturers and investors, as governments agreed to roll back and simply quit enforcing their rules in the name of encouraging foreign trade.

Referring to NAFTA and the similarly named Central American Free Trade Agreement (CAFTA), Governor Granholm recalled: “That’s when I started to say, NAFTA and CAFTA have given us the shafta!”

It’s a clever, funny line about a circumstance that was not at all funny. Greenville’s refrigerator factory closed, putting 3,000 people in a town of 8,000 out of work all at once. Those workers had typically earned around $20 per hour, enough to cover homeownership and a pleasant middle class lifestyle in a small Midwestern town. But no more. Those jobs and incomes, and that lifestyle, were gone.

Greenville had been home to refrigerator manufacturing since the 19th century, even proclaiming itself the “Refrigerator Capital of the World,” providing good livelihoods to the town’s families over many generations, 114 years of workers giving it everything they had to build a company that was competitive and profitable. That all ended after NAFTA.

It was a Democratic president, Bill Clinton, who ultimately did big business’ bidding, pushing hard for NAFTA and getting it enacted in 1994.

Now, incredibly, another Democratic president, Barack Obama, who has a generally favorable record on issues important to working families, is trying to expand NAFTA’s provisions to the entire Pacific Rim through the Trans-Pacific Partnership (TPP), and is further trying to do it by a process called “fast track,” which provides for an expedited vote with minimal public exposure or input, without debate or amendments.

NAFTA, which has over 21 years destroyed much of America’s industrial manufacturing capacity, applied to the United States, Canada and Mexico. TPP would extend those provisions to 12 nations on the Pacific Rim in Asia and the Americas.

Just how bad an idea is that? The non-profit consumer advocacy organization Public Citizen in 2014 released a detailed study of NAFTA’s 20-year legacy, and what it suggests about the effects TPP would have. 

It is fascinating and disturbing reading. You can find it here: http://www.citizen.org/documents/NAFTA-at-20.pdf.

In short, none of the economic benefits promised by NAFTA advocates occurred, the study found. “Instead, millions have suffered job loss, wage stagnation, and economic instability from NAFTA.” Additionally, environmental, health, and consumer protection provisions have been rolled back.

The greatest direct effect of NAFTA was to give businesses a new incentive to relocate to low-wage areas, throwing middle-class Americans overboard to allow for greedily exploiting impoverished people in Mexico, as Governor Granholm in Michigan painfully learned.

Those displaced American manufacturing workers who could find new jobs generally got them in the low-skill, low-wage service sectors, creating a new glut of workers that drove down those already poor wages even further. By enabling companies to threaten to move to poorer countries, NAFTA also gave employers new clout in bargaining with workers, pushing down wages still more.

Now President Obama, in partnership with the Republican Party, is trying to spread the disastrous policies of NAFTA to the Pacific Rim by giving TPP the “fast track” treatment. It is a terrible idea that would have terrible consequences for working families.

As Public Citizen’s report concluded: NAFTA’s two-decade legacy of tumult and hardship for millions of people in North America is the evidence needed to hasten the downfall of the attempt to expand the NAFTA model via Fast Track and the TPP. “If so, it would constitute a unique benefit of an otherwise damaging deal.”

In other words, the only good thing to come from NAFTA may be that it provides the proof to stop an even worse deal for American workers. And that’s what the Trans-Pacific Partnership would be.

 

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