Is banning slavery protectionist?
Christopher Caldwell from the right-wing US journal The Weekly Standard has returned to the theme of protectionism in the Financial Times today (referring to the ‘Buy American’ clauses in the US rescue package). He takes a sideswipe at requiring labour (and environmental) standards in trade agreements. His argument is that anything which raises prices for consumers is a bad thing, and that labour standards are one of the causes of keeping prices high. But that’s not always the bad thing he makes out, and sometimes prices can be too low for our moral welfare.
He’s right that protectionism can raise prices for consumers (and producers – when President George W Bush slapped tariffs on European steel he allowed domestic steelmakers to hike their prices by reducing the competition of EU steel, but that meant Detroit carmakers had to raise the prices of their cars which immediately became less competitive than imported Japanese cars: so the USWA was happy with the move, by the UAW wasn’t!) Protectionism sometimes fosters monopoly provision of goods, and therefore raises prices (although by raising prices, it should theoretically encourage others inside the tariff boundary into the market, thus increasing competition and lowering prices again, although one of capitalism’s problems is that it works better in theory than practice). And unions can sometimes use those price hikes to increase the wages of the producers.
But is the pursuit of lower prices always a good thing? Slave labour produces things very cheaply, but there are two tpes of objection to slavery: moral and pragmatic. One moral argument is that slavery is evil (another is that it makes the enslavers more brutish). Freedom from forced labour (a slightly more sophisticated concept than slavery, but not much) is of course one of the ILO core labour standards that right-wing liberal economists are opposed to including in trade agreements, by the way, although you don’t hear many people arguing that “banning slavery is protectionism”, for some reason. A pragmatic argument against slavery is that societies based on it are less dynamic than those based on free labour, because wealth tends to concentrate among the free elite, and they simply cannot consume enough to make the economy move very fast and grow (there are many other pragmatic arguments against slavery – for example, it’s a system that doesn’t encourage worker involvement and effort). So banning slavery is good for growth as well as the sole, and keeping prices low through slavery is not a good thing either morally or pragmatically.
Another problem with the argument that labour standards drive up prices is that there is some evidence that actually what they do is reduce profits, instead. The price of what you buy contains an element that goes to labour (wages), an element that goes to materials (although ultimately, these too can be broken down into the other two components), and an ingredient that goes to profit (the ‘return on capital’). If you reduce one or two of these, you can increase the other without raising the price, which is one reason why unions sometimes get good results from ‘productivity bargaining’, sharing the benefits of reductions in costs with their employers. The TUC Congress carried a resolution a couple of years ago that called for accounting practices to be changed so that for any large company, the different share of company revenue going to capital and labour should be spelled out so that people could see how much wages could rise by reducing profits.
Labour standards and tariffs aren’t the only things that raise prices, of course, and their absence isn’t the only way to reduce prices (IT has fallen in price mostly because materials have become cheaper, economies of scale have increased, and productivity and technical proficiency have improved). And most consumers would agree that there is a limit to what measures should be used to cut the costs of their goods – slavery being one, child labour another, discrimination a third and repression of trade unions a fourth. And, gosh, those are precisely the issues dealt with in the core labour standards of the International Labour Organisation! Add enviromental standards, and you have the modern trade union case for putting social clauses into trade agreements. Because these are universal rights, they don’t discriminate against any particular nation, as long as everyone upholds rights they have agreed to uphold by joining the ILO.