CAFTA

Here I address why Democrats win points on CAFTA and my thoughts on Nico and Jason’s Exchange.

Sorry this is long, but I like to get everything out at once. CAFTA is a big deal!

------------------------------------------------------------------------------------------------------------
Well it’s official: by two votes early this morning CAFTA passed. And it was no surprise really- I mean come on did we really think W would’ve made the trip to the Hill to personally lobby folks knowing he would be publicly humiliation if he failed? This was certainly calculated. And when Pelosi and Rangel say they are for free trade but are voting this down because of the “softness” of the standards it sets forth on labor and the environment, do we really believe them? Was NAFTA much different? And they voted for that one just fine.

This was political alright. It was the democrats saying “look at us! We are the poor, neglected, oppressed, abused, minority trying our best to stand up to the evil elephantine political machine.” Case and point: the arduous yet humorous debate on extending debate on the debate! Don’t get me wrong there were more than one or two republicans (especially in the sugar producing south) that had to swallow a jagged little political pill and take the party vote, and God knows if W would have lost this his delegation to the Hong Kong Ministerial would have lost all semblance of credibility. This is Hollywood for the ugly to be sure, and the Democrats played the cards the best they could have.
------------------------------------------------------------------------------------------------------------
Now in regards to the comments about the poor being worse off with trade- I would like to preface by saying that I am a free trader, but that I do come from a developing country.

Economic THEORY, and I highlight theory here, suggests that in the short run trade can be very painful especially for developing nations with transitioning market and governmental institutions. It follows that producers with economies of scales and better efficiency ought to produce certain goods (competitive and absolute advantages sound familiar?). The painful part, as was the case with NAFTA, was that say corn producers in the US- with all there sophisticated and efficient capital- could outperform inefficient grower in Mexico that relied heavily on labor instead of this mechanized capital. This was (and is) in the short-run more expensive for Mexico considering the cost of competitive capital (often having to be bought from the US itself- but for that refer to dependency theory…).

Those firms that modernize survive (but at huge financial cost) and those that try to ride it out lose. Still the big losers are rural workers that go jobless and whom subsequently resort to migration, first to the urban centers (this is in part why Mexico City is so damn huge) and then fleeing the saturated labor market often come to the US. Hence I scoff when the republicans suggest that over night this is going to “solve” the immigration problem. Theory suggests the opposite.

The big problem here is, and I think it is an underlying point in Nico’s argument, is that there is a huge institutional learning curve for governments in developing countries vis-à-vis the US. Even assuming that the economic playing fields were equal between the US and the CAFTA nations (which we know they aren’t), how can small and medium businesses in these nations compete with the US firms with years of experience in knowing how to trade when there government hasn’t even established the protocol on how to get say a trading permit or shipping license to the US? The difference is that the US already has these simple institutional mechanisms in place from years of experience while for the most part, the CAFTA nations have to invent them as they go.

But I maintain that trade is NOT an evil. I can definitely see the long-run economic benefits to it. Again theory argues that living standards will rise in developing nations through their entrenchment in markets where they own the competitive advantage, and that consequently the propensity to migrate will become less. Questions obviously still loom such as can developing nations even carve out a niche competing with such diverse and experimented sector in the US market? What happens to labor surpluses as they make a move to mechanization? Will developing nation’s competitive advantage only be in labor? If so, how will their labor compete with other sources of labor from other nations the US trades with (ie CHINA!!)?

Nevertheless there is more than the economics of it. Here I am a strong believer that wealth creation is the key to institutional and political change. I believe that you can’t have good (or legit) democracy without economic growth. India for example has struggled economically since independence (until recently) because it focused too much on democratic development and not enough on economic growth—this led to a very politically unstable environment in the 1970s especially.

Democracy is a great thing, but the only way it will work is by creating interests. And while the socio-political interests that have dominated these areas are important, they also tend to be short lived (ie the Zapatistas) and often can’t sustain and routinize democracy. I assure that the pocketbook however not only creates interests, but it creates sustained interests (in order to protect it of course). I think Mr. Fox owes a bit of his 2000 success to the power the growing Mexican business interest.

The point of this whole rant is that free trade obviously has short term growing pains. Like the Mexicans, the CAFTA growers, producers, workers will experience these pains unfortunately. But I feel that in the end, not only will net wealth be created for the CAFTA nations, but their democracies will be stronger for it too.