Commentary

An Export that Developing Countries Don’t Need

By L. Jacobo Rodríguez
This article originally appeared in The Washington Times.

At the World Trade Organization (WTO) meeting in Singapore last week, the United States, along with other Western countries, insisted on the harmonization of labor standards across nations as a condition for further trade-liberalization agreements. Developing countries, including the Asian Tigers, led the fight against that agenda.

The push for minimum labor standards across nations is part of a larger effort to establish a set of so-called international fair-trade rules intended to “level the playing field.” Those rules, union leaders and other interest groups in industrial countries claim, would make workers in rich countries less vulnerable to competition from cheap labor in developing countries.

Yet this is merely a new brand of protectionism. The vulnerability of workers in industrial countries is not due to increased trade with developing nations. Even the International Labor Organization (ILO) now acknowledges as much. In its recent annual report, the ILO stated that the empirical evidence suggests that trade with developing countries “has been only a minor explanatory factor behind the rise in unemployment and the declining wages of unskilled workers in industrialised countries.” The main factor, not surprisingly, is unsound macroeconomic policies in wealthy countries. For instance, over-generous, government-mandated unemployment benefits have increased total labor costs and lowered the rate of permanent hiring in Western Europe.

More important, for protectionists, the very notion of “fair” trade implies an equality of outcomes—that is, balanced trade accounts. But it is individuals, not nations, that trade with one another. And the reason they exchange goods and services is that they expect to benefit from the exchange, which necessarily implies that they value the goods and services they receive more than those they give up.

Thus, because those valuations are subjective, what constitutes “fair” trade cannot be objectively determined using the trade-account criterion. A better criterion for fairness, then, is to determine if trading rules are equally applicable to all, which is the legitimate role of the WTO.

Of course, many Westerners advocate the harmonization of labor standards out of concern for workers in developing countries. Unfortunately, such advocates often unwittingly ignore the pernicious effects those standards would have on the lives of the workers they are trying to protect. Regulations to require Western-style working conditions for workers in developing countries would price those workers out of their jobs.

For those workers, a job that might be unacceptable to Westerners is much better than no job at all. In the words of Guatemalan economist Lucy Martínez-Mont: “Depriving developing countries, even with the best of intentions, of the capital and jobs needed to grow out of these centuries-old conditions of poverty will merely insure the indefinite perpetuation of this misery.”

One key to escaping impoverishment, experience has shown, is to adopt a policy of open markets. Developing countries have come to that hard-learned realization after having adopted the protectionist dogma for many decades. As the cases of South Korea and Hong Kong show, increased trade leads to greater wealth. And, as standards of living rise, workers are able to satisfy needs, like better working conditions or a cleaner environment, that are less important to them than the need to provide a living for themselves and their families.

The U.S. agenda for the WTO meeting was especially dangerous for developing countries because it would frustrate the progress that these countries have made in recent years. Furthermore, it is an agenda likely to stall free-trade initiatives between developed and developing nations, thus preventing consumers (which includes workers) everywhere from fully enjoying the benefits of the global marketplace.

The freedom of individuals to dispose of their property as they see fit and to engage in voluntary exchanges with other individuals—whether they be from the same city or from another country—is a fundamental characteristic of the free-enterprise system. The regulatory excesses of the Western industrialized nations, which are leading to stagnation and a greater dependence on the state, are a restriction on that freedom and an export that developing countries don’t need.

L. Jacobo Rodríguez is assistant director of the Project on Global Economic Liberty at the Cato Institute.