After last year’s presidential election highlighted broad dissatisfaction with American trade policy, much public debate has centered around whether to march forward with an inadequate status quo or to instead ramp up tariffs and other trade barriers. Analysis of the Trump administration’s trade policy often boils down to whether the “globalists” or the “nationalists” are winning the internal policy debate at any given point.
What this commentary misses is that the status quo is not some inevitable outcome of globalization. It is, rather, the result of conscious decisions designed to grow profits for holders of capital. It’s time for a new trade policy that protects the rights of workers around the world to negotiate jointly for better wages and standards, starting with the ongoing renegotiation of the North American Free Trade Agreement (NAFTA). In the same way that corporations can freely move jobs and funds across the globe, workers’ bargaining rights must be empowered to cross borders.
Globalization’s Impact on Income Distribution
Global income distribution has changed dramatically in recent decades, a change largely attributable to globalization. The world’s wealthiest have done very well, as research by City University of New York Professor Branko Milanovic shows that more than half of all income growth since 1988 has gone to the world’s richest 5 percent, with most of that growth concentrated among the global 1 percent. Meanwhile, incomes have also grown for many on the bottom half of the global income distribution, but have stagnated for those in about the 70-85th percentiles globally—in other words, working and middle class people in developed countries.
Income growth among the global poor, meanwhile, has been wildly uneven. Of the nearly one billion people who escaped extreme poverty since 1981, three-quarters were Chinese. Chinese economic growth has indeed been a miracle—middle earners in China saw their incomes nearly triple between 1988 and 2008. Yet, these gains have not been replicated in many other developing countries. NAFTA member Mexico, for instance, has seen an increase in poverty and almost no real wage growth over the last two decades.
Wage stagnation has impacted American workers more dramatically than those in most other wealthy countries. Since 2000, the United States has lost roughly five million manufacturing jobs, largely due to trade. Because of manufacturing’s high wages, job losses in manufacturing will contribute to wage stagnation absent increases in service sector pay that have not come to pass. Labor’s share of U.S. income has declined dramatically over the past quarter-century, following decades of stability. According to the McKinsey Global Institute, 81 percent of households in the United States saw their market wages decline between 2005 and 2014, compared with roughly two-thirds of households in advanced countries overall. Trade policy is one of several forces that have helped drive inequality by weakening worker power relative to capital.
The Race to the Bottom
Globalization’s impacts are not inevitable, but are instead the result of policy choices structured specifically to protect multinational investors as they move money and production across the world. That protection of multinational investors drives a race to the bottom, in which corporations can easily move jobs to whatever country has the lowest wages and standards, undermining the negotiating power of workers in the process. This dynamic impacts an increasingly broad group of people, as technology allows more jobs to be done remotely—not just manufacturing, but also white collar professions like accounting, customer service, and paralegal work.
The key element of multinational investor protection is a process called Investor-State Dispute Settlement (ISDS), which allows corporations to sue countries in special tribunals if they allege that they have not been afforded broad rights such as a “minimum standard of treatment” or “fair and equitable treatment.” This process, included in almost all American trade agreements, was originally envisioned as a way to protect corporations seeking to invest in underdeveloped countries lacking functional legal systems.
ISDS has spread dramatically in recent years. Only 100 cases were initiated between 1987 and 2002, but 468 additional cases were filed by 2013. Most criticism of ISDS has focused on its increasing use to target legitimate public interest policies in developed countries with functioning legal systems, as when TransCanada sued the U.S. over denying the Keystone XL pipeline permit. But the procedure is also a powerful driver of the race to the bottom in developing countries. The nations with the lowest wages and weakest labor protections are often the same countries with unpredictable legal and governing systems, meaning that ISDS helps companies move jobs to the places where they can exploit low-income workers. The mere threat of ISDS suits has been found to have a chilling effect on efforts to raise standards. Research has found that foreign direct investment generally increases for low-income countries that adopt agreements including ISDS, suggesting that the process indeed makes companies more comfortable shifting production to these countries.
Unsurprisingly, making it easier for companies to move jobs and money to whichever country offers the cheapest production drives down wages and weakens bargaining power in high-wage countries. A 1996 study by Cornell University economist Kate Bronfenbrenner examined the responses of companies to union organizing drives in the United States. It found that companies were three times as likely to shut down their American plants following a successful organizing drive after NAFTA took effect compared to pre-NAFTA years, while companies explicitly threatened to move facilities to Mexico in more than 10 percent of the organizing drives that faced threats.
Other recent research focusing on capital mobility has found that, after countries open their capital markets to cross-border transfers, domestic income inequality increases, the labor share of income decreases, and that these impacts are exacerbated in the aftermath of financial crises.
It is important to remember that the goal of the way globalization is currently structured is to make it easier for companies to move production and jobs to any location that provides the maximum profit. Although many workers, especially in developed countries, have suffered, the deals that structure our current trade system have indeed achieved their goal of enriching multinational corporations.
A Path Forward for Working People: Cross-Border Bargaining
Historically, countries have generally set their own rules for collective bargaining. Even members of the International Labour Organization (ILO) who have ratified the ILO conventions protecting collective bargaining rights must only adhere to fairly general standards respecting the right to organize. In turn, most unions operate principally in one home country, “limited by the national boundaries of their own labor laws.”
This model is inadequate in the face of a global economy. To remedy this problem, our trading system must require countries to strongly protect the right to organize and bargain collectively, while also allowing the unions operating in their countries to affiliate or ally with unions in other countries. Implementing this new right should start with a new NAFTA.
For a plan guaranteeing cross-border bargaining rights to be effective, unions must be allowed to engage in solidarity strikes with their counterparts overseas. Today, multinational corporations can easily break strikes in one country by threatening to send the work abroad. For example, when Verizon call center workers went on strike last year in the U.S., Verizon shifted some of its calls to centers in the Philippines, where workers are not organized, and are usually paid less than $2 per hour. Allowing international strikes would help working people blunt this tactic, and make it harder for multinational corporations to drive down wages and working conditions in one country by threatening to move elsewhere.
Similarly, workers must be guaranteed the right to negotiate joint contracts covering a company’s global workforce. Obviously, workers in low-wage countries like Mexico and Vietnam will not earn American-level wages in the near term, but international contracts could account for differences in standards of living. This would allow working people to push for a global race to the top, in which incomes and working conditions would improve from each country’s respective baseline.
Finally, there must be a workable enforcement mechanism to guarantee that these rights are actually respected in practice. U.S. trade agreements have long included supposedly “enforceable” labor protections, yet, despite widespread abuses, the United States has literally never won a single labor dispute in this context and has only brought one case to dispute settlement, which the United States ultimately lost more than eight years after it was filed.
Some efforts to enable organizing internationally are already ongoing. For example, union groups such as the Building and Woodworkers’ International and the Union Network International have pushed multinational companies to adopt International Framework Agreements (IFAs) that commit them to respecting workers’ right to organize. These efforts are laudable and have generated real positive outcomes for workers, yet their success has been constricted by the broadly weak international legal framework protecting collective bargaining rights and by the limited commitments that companies make in many IFAs.
Some unions have created alternative partnerships, such as the joint organization “T-Mobile United” formed by the Communications Workers of America and the German union federation ver.di, to publicly pressure companies utilizing existing legal structures like the OECD Guidelines for Multinational Enterprises to advance workers’ rights. These alliances could well form the foundation for more robust cross-border organizing in the future, yet the fact that the OECD Guidelines are voluntary and non-binding has often meant that companies are often able to evade international accountability, necessitating a stronger legal framework.
Other steps are also needed to reorient globalization to work for all working people. Trade agreements like NAFTA should not include any special protections for multinational investors like ISDS. Instead, the U.S. should provide technical assistance to help underdeveloped countries strengthen and improve their judicial systems to ensure that all stakeholders have access to fair, functioning court systems. Trade deals also should include broad, robustly enforceable human rights protections. Finally, it is crucial that protections be strengthened for migrant workers, who are often the most vulnerable to exploitation. Doing so would also help undermine the false narrative advanced by xenophobic politicians that immigrants are to blame for economic problems.
We find ourselves in a very troubling situation. The rapid growth of nationalist, proto-fascist political power in democracies around the world could portend a dangerous new era. Yet, given the rapid concentration of power and money in the hands of a small group of elites at the expense of hundreds of millions among the global middle class, it is no surprise that many are turning to even the most dangerous ideologies.
As negotiations for replacing NAFTA play out, there is an urgent need to develop a re-envisioned model of globalization that actually empowers and enriches working families. Restoring power for workers worldwide by allowing people to negotiate together—rather than against each other—provides a solution that benefits all working people.