Topic: Trade and Immigration

Nike, Trade, and the Left’s “Race to the Bottom” Canard

To capitalism’s detractors, Nike symbolizes the Dickensian horrors of trade and globalization – a world ripened for mass exploitation of workers and the environment for the impious purpose of padding the bottom line. They are offended by President Obama’s selection of Nike headquarters as the setting for his speech, last week, in which he touted the benefits of the emerging Trans-Pacific Partnership agreement. But Nike exemplifies the redeeming virtues of globalization and illustrates how self-interested capitalism satisfies popular demands – including, even, the demands of its detractors.

Fealty to the reviled bottom line incentivizes companies like Nike to deliver, in a sustainable manner, what those genuinely concerned about development claim to want. U.S. and other Western investments in developing-country manufacturing and assembly operations tend to raise local labor, environmental, and product safety standards. Western companies usually offer higher wages than the local average to attract the best workers, which can reduce the total cost of labor through higher productivity and lower employee turnover. Western companies often use production technologies and techniques that meet higher standards and bring best practices that are emulated by local firms, leading to improvements in working conditions, environmental outcomes, and product safety.

Perhaps most significantly, companies like Nike are understandably protective of their brands, which are usually their most valuable assets. In an age when people increasingly demand social accountability as an attribute of the products and services they consume, mere allegations – let alone confirmed instances – of labor abuses, safety violations, tainted products, environmental degradation, and other objectionable practices can quickly degrade or destroy a brand. Western brands have every incentive to find scrupulous supply chain partners and even to submit to third party verifications of the veracity of all sorts of practices in developing countries because the verdict of the marketplace can be swift and unambiguous.

Nike remembers the boycotts and the profit losses it endured on account of global reactions to its association with “sweatshop” working conditions in the past. Mattel’s bottom line took a beating when some of its toys manufactured in certain Chinese factories were found to contain dangerous levels of lead paint. There have been numerous examples of lax oversight and wanting conditions, but increasingly they are becoming the exception and not the rule.

Roger Milliken’s Company Joins the Global Economy

Roger Milliken, head of the South Carolina textile firm Milliken & Co. for more than 50 years, was one of the most important benefactors of modern conservatism. He was active in the Goldwater campaign, and was a founder and funder of National Review and the Heritage Foundation. He dabbled in libertarianism, too. He was a board member of the Foundation for Economic Education and supported the legendary anarchist-libertarian speaker Robert LeFevre, sending his executives to LeFevre’s classes.

But he parted company with his free-market friends on one issue: free trade. Starting in the 1980s, when Americans started buying a lot of textile imports, he hated it. As the Wall Street Journal reports today,

Milliken & Co., one of the largest U.S. textile makers, has been on the front lines of nearly every recent battle to defeat free-trade legislation. It has financed activists, backed like-minded lawmakers and helped build a coalition of right and left-wing opponents of free trade….

“Roger Milliken was likely the largest single investor in the anti-trade movement for many years—as though no amount of money was too much,” said former Clinton administration U.S. Trade Representative Charlene Barshefsky, who battled with him and his allies….

Mr. Milliken, a Republican, invited anti-free-trade activists of all stripes to dinners on Capitol Hill. The coalition was secretive about their meetings, dubbing themselves the No-Name Coalition.

Several people who attended the dinners, which continued through the mid-2000s, recall how International Ladies’ Garment Workers Union lobbyist Evelyn Dubrow, a firebrand four years younger than the elderly Mr. Milliken, would greet the textile boss, who fought to keep unions out of his factories, with a kiss on the cheek.

“He had this uncanny convening power,” says Lori Wallach, an anti-free-trade activist who works for Public Citizen, a group that lobbies on consumer issues. “He could assemble people who would otherwise turn into salt if they were in the same room.”…

“He was just about the only genuinely big money that was active in funding trade-policy critics,” says Alan Tonelson, a former senior researcher at the educational arm of the U.S. Business and Industry Council, a group that opposed trade pacts.

But the world has changed, and so has Milliken & Co. Roger Milliken died in 2010, at age 95 still the chairman of the company his grandfather founded. His chosen successor, Joseph Salley, wants Milliken to be part of the global economy. He has ended the company’s support for protectionism and slashed its lobbying budget. And as the Journal reports, Milliken’s executives are urging Congress to support fast-track authority for President Obama.

E-Verify in the States

Many state legislatures are proposing to expand E-Verify – a federal government-run electronic system that allows or forces employers to check the identity of new hires against a government database.  In a perfect world, E-Verify tells employers whether the new employee can legally be hired.  In our world, E-Verify is a notoriously error-prone and unreliable system.

E-Verify mandates vary considerably across states.  Currently, Alabama, Arizona, Mississippi and South Carolina have across the board mandates for all employers.  The state governments of Georgia, Utah, and North Carolina force all businesses with at least 10, 15, and 25 employees, respectively, to use E-Verify.  Florida, Indiana, Missouri, Nebraska, Oklahoma, Pennsylvania and Texas mandate-Verify for public employees and state contractors, while Idaho and Virginia mandate E-Verify for public employees. The remaining states either have no state-wide mandates or, in the case of California, limit how E-Verify can be used by employers.

Despite E-Verify’s wide use in the states and problems, some state legislatures are considering forcing it on every employer within their respective states. 

In late April, the North Carolina’s House of Representatives passed a bill (HB 318) 80-39 to lower the threshold for mandated E-Verify to businesses with five or more employees.  HB 318 is now moving on to the North Carolina Senate where it could pass.  Nevada’s AB 172 originally included an E-Verify mandate that the bill’s author removed during the amendment process. Nebraska’s LB611 would have mandated E-Verify for all employers in the state.  LB611 has since stalled since a hostile hearing over in February.

E-Verify imposes a large economic cost on American workers and employers, does little to halt unlawful immigration because it fails to turn off the “jobs magnet,” and is an expansionary threat to American liberties.  Those harms are great while the benefits are uncertain – at best.  At a minimum, state legislatures should thoroughly examine the costs and supposed benefits of E-Verify before expanding or enacting mandates.

Scott Platton helped to write this blog post.

The Ex-Im Bank and Globalization

This is from a Wall Street Journal article about President Obama’s push for the Trans Pacific Partnership (TPP):  
Mr. Obama also warned of rising anti-globalization sentiment in Washington, reflected in Democratic opposition to the trade agreement [TPP], Republican efforts to kill the Export-Import Bank, and congressional unwillingness to approve new rules for operation of the International Monetary Fund.
I agree that opposition to the TPP often, although not always, reflects anti-globalization sentiment; I’m not familiar with the IMF issue here.  But on the Ex-Im Bank issue, I think the President has it backwards. His logic, I assume, is that subsidies from the Ex-Im Bank promote exports, and are therefore pro-globalization.  But this logic is flawed.  The reality is that all export subsidies are a form of economic nationalism, in the sense that they try to give an advantage to domestic products over their foreign competition.  This leads to escalating trade wars and international economic tension.  The pro-globalization approach would be negotiate an end to the subsidies provided by export credit agencies, and let all products compete in the global marketplace without government support for domestic industry. 

Public Support for Immigration Increasing

John Hinderaker at the powerlineblog posted immigration polling data from the Republican Senate staff.  You can read the poll results here.  According to the top Gallup poll reported by the staff, 60 percent of Americans are dissatisfied with the current immigration system while 33 percent are satisfied.  Of those dissatisfied, 39 percent wanted less immigration and 7 percent wanted more, a subgroup wants less immigration is hardly a ringing endorsement of more restrictions.

However, here is another poll question that Gallup has asked periodically since 1965 that shows public opinion becoming more supportive of increasing immigration as the annual number of green cards climbs.  The question is: “In your view, should immigration be kept at its present level, increased, or decreased?”  Surprisingly, Americans have become more supportive of liberalizing immigration over time.  In 1965, only 7 percent of respondents wanted to increase immigration while 24.5 percent did in 2014 (average of two polls in that year).

Chinese Free Trade Is No Threat to American Free Trade

I’m seeing a lot of support for the Trans Pacific Partnership (TPP) on the basis of reasoning along the lines of “we must stop China from dominating Asia.”  Here are two recent examples.

First, an analyst with the Third Way think tank says:

The Chinese economy is built on low labor standards, and they want to export these standards to the world.

This analysis of Chinese and U.S. trade deals demonstrates that, in the area of worker rights, there is an immense cost to ceding trade and commerce rules to China. And with China trying to impose those standards on the rest of the world, policymakers need to be extremely concerned with the effect on American workers.

Second, the Washington Post editorial board says:

the TPP would ensure that the Pacific Rim plays by U.S.-style rules and regulations, rather than by China’s neo-mercantilist ones

There are two arguments here: (1) China is imposing low labor standards on the rest of the world; and (2) China is spreading mercantilism through its trade agreements. Neither is true.  As I explain in this Free Trade Bulletin, China does not care what labor standards its trading partners use, and it is not trying to impose its standards on anyone through trade agreements.  In addition, Chinese trade agreements liberalize trade in goods and services, just as other countries’ trade agreements do; China is not using trade agreements to push for its trading partners to have more interventionist economic policy.

I conclude:

Chinese free-trade initiatives in Asia and the Pacific region should give the United States an incentive to get its own free-trade act together, but not for the reasons suggested by some. Chinese free trade is not a threat to American free trade. The justification for U.S. trade agreements is that free trade is good, not that China is somehow bad. Thus, the TPP should succeed or fail on its economic merits. The concerns about letting China write the rules are misguided. China’s trade rules are not a version of state-led capitalism. They are the removal of protectionist trade barriers, just as our trade rules are.

Immigration and Economic Inequality

Discussions of economic inequality are common nowadays thanks to Thomas Piketty’s new book Capital in the Twenty-First Century.  There are several good critiques of Piketty’s book and at least one wonderful podcast.  I’m not convinced that economic inequality in a (mostly) free-market economy matters one way or the other for economic growth, social stability, or political stability (ceteris paribus), so this blog is a response to those concerned that liberalized immigration could exacerbate wealth inequality.   

Papers on how immigrants affect the wages of Americans almost uniformly present the results as relative gains or losses compared to the wages of other workers.  While that work is valuable, below I will only discuss papers that focus exclusively on economic inequality caused by immigration. 

Borjas et. al. found that immigration (along with trade) only modestly affects earnings inequality – a role not substantial enough to account for more than a small percentage of the change.  Instead, he attributes the growth in income inequality to the acceleration of skills-biased technological change (SBTC) and other institutional changes in the labor market. 

David Card failed to find a substantially causal relationship between increased immigration and growth in wage inequality.  He discovered that immigration explains about 5 percent of the rise in overall wage inequality between 1980 and 2000.  An important distinction is between the wage inequality effects of immigration on natives and the effects on wage inequality for immigrants and natives.  While 5 percent of the growth in overall wage inequality can be attributed to immigration, immigration’s effect on native wage inequality is negligible.  Immigrants tend to have either very high or very low wages compared to natives, meaning that immigrants have a naturally higher residual level of income inequality than natives do.  Thus, immigration causes the economy-wide level of wage inequality to increase without changing native wage inequality.  Immigration has little, if any, effect on native wage inequality according to Card.