Debt Cancellation, Not Corporate Trade Deals, Would Help the Poor
The verbal flubs of President Bush in Quebec City were widely reported to the amusement of the educated. He referred to the language of Mexico (Spanish) as "Mexican" and called the Canadian leader "amigo" (rather than using the French "ami.")
Attention to these "dumb" things that President Bush said overlooked something truly dumb he said which, unlike knowing the foreign word for something, actually matters.
Bush, appealing for support for the "Free Trade Area of the Americas," claimed that "free trade" creates new jobs and income, "lifts the lives of all our people," and addresses the needs of the poor.
This may have escaped ridicule since many of the educated folks who make fun of the President are just as dumb as he is about "free trade."
Advocates of "free trade," when they are honest and competent, admit that "free trade" is not about job creation, as Federal Reserve Chairman Alan Greenspan asserted in his recent testimony before Congress. Unemployment is largely determined by the economic policies of the Fed. What "free trade" does is move people from one area of employment to another. The relevant question is who wins and who loses from these shifts and whether the costs outweigh the benefits for the majority of people.
A recent report from the Economic Policy Institute estimates that the U.S. lost half a million manufacturing jobs during the operation of the North American Free Trade Agreement due to increased trade deficits with Canada and Mexico. Surveys indicate that when workers displaced by trade liberalization do find new jobs, their wages fall, with earnings declining by an average of over 13%. "Free trade" may lift some, but definitely not all. Poor workers in the U.S., having fewer skills, are the most likely to lose.
Economic theory predicts that national income will rise as a result of trade liberalization. But the predicted gains are so tiny as a share of our economy that they probably can't be measured, and the majority of people are likely to see their incomes fall.
As for the poor in developing countries, their leaders are told that to raise living standards they must increase exports to the U.S. While increased exports could support development, there is no guarantee that they will. Without a reversal of the policies to which these countries are subjected by the International Monetary Fund and the World Bank, increasing trade as a share of their national economies will only lead to deeper poverty.
To service their foreign debts, these countries are pushed by the IMF and the World Bank to increase exports to the U.S. and reduce imports, because it's the difference that is available (at most) to service debt. But Argentina's debt service is seven times its exports to the United States. Halving Argentina's debt service would have the same effect as importing four times as much from Argentina as we do today, while not increasing exports. Halving Brazil's debt service would have be tantamount to tripling imports from Brazil, while not increasing exports.
When these countries export to service debt, money generated is not going into to infrastructure investment nor human welfare. Productive activity is being diverted from producing goods and services for people in these countries.
The debt burden is leverage for the IMF and the World Bank: every debt negotiation brings new conditions. This leverage has been used to restructure national economies to produce for export, lower living standards to attract foreign investment, and reduce the role of government in providing public services.
The World Bank has aggressively promoted water privatization. This is ironic considering that the United States, the dominant shareholder in the Bank, provides 80% of its water publicly. Water privatization in Bolivia caused an uprising there when Bechtel hiked fees for access to water beyond the reach of poor residents. The World Bank has also aggressively promoted privatization in education and health care. It has pressured governments to impose user fees on access to primary health care and education. This has led to falling school enrollments in countries like Nicaragua.
Canceling external debt and ending IMF-World Bank economic mandates are far more likely to help the majority of people in Latin America than would the creation of an FTAA.