February 08, 2017
Economists have been worried about the weak productivity growth of the last decade, with some worried it will continue indefinitely. In the last decade, productivity growth has averaged less than 1.0 percent annually. This compares to a rate of close to 3.0 percent a year in the decade from 1995 to 2005 as well as the quarter century from 1947 to 1973. Slower productivity growth limits the extent to which wages can rise, except through redistribution.
However, Thomas Friedman apparently believes that if we end NAFTA, we will bring back manufacturing to the United States. But he argues that the new manufacturing capacity will be far more productive than the industry at present, and therefore mean very few jobs. He told readers:
“And if Trump forces all these U.S.-based multinationals to move operations from Mexico back to the U.S., what will that do? Help tank the Mexican economy so more Mexicans will try to come north, and raise the costs for U.S. manufacturers. What will they do? Move their factories to the U.S. but replace as many humans as possible with robots to contain costs.”
Economists usually believe that expanding trade leads to higher productivity, so Friedman is offering a novel thesis with this idea that contracting trade will lead to more rapid productivity growth.
There are a couple of other points worth noting in Friedman’s piece. He notes that U.S. companies have moved to Mexico to take advantage of low cost labor:
“And by the way, why is labor in Mexico cheaper than in America? One reason is that Mexico has weaker labor rights and environmental standards. Let’s see … what would TPP [Trans-Pacific Partnership] require of Mexico and other signatories? That they bring their labor rights and environmental standards closer to ours (italics in original).“
It’s important to note that the requirement that countries respect their own labor standards (e.g. that they enforce the minimum wage laws they set) is not enforceable by non-state actors. While the TPP allows Pfizer to take a complaint that its patents are not being honored to a special investor-state dispute settlement tribunal, foreign investors are the only ones who get this privilege. The TPP does not provide unions in either Mexico or the United States with a direct route for challenging abuses in Mexico. They would have to rely on the Trump administration to press a complaint against Mexico for abusing the rights of its workers.
Friedman also pushes the case that the TPP was important as a way of solidifying an economic bloc to contain China. If the goal of the TPP was to contain China then the U.S. negotiators probably should not have pushed so hard on protectionist provisions for longer and stronger copyright and patent related protections. The latter were especially focused on provisions that would raise the prices of prescription drugs in the countries in the pact.
It’s probably also worth noting that Friedman questioned whether Trump had even read the TPP before deciding to scrap it.
“Trump scrapped TPP on Day 1, without, I am sure, having read it.”
This is an interesting complaint from Friedman. On Meet the Press in 2006, Friedman said:
“I was speaking out in Minnesota — my hometown, in fact — and a guy stood up in the audience, said, ‘Mr. Friedman, is there any free trade agreement you’d oppose?’ I said, ‘No, absolutely not.’ I said, ‘You know what, sir? I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative. I didn’t even know what was in it. I just knew two words: free trade.‘”
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