"It's shipping jobs out of the country!" "No, it's creating jobs in the U.S.!" "It's the reason we have a trade deficit with Mexico!" "No, the deficit is plunging because of our exports there!" And so go the arguments about continuing the North American Free Trade Agreement (NAFTA), and extending it to include Latin America and the Caribbean in a Free Trade Area of the Americas (FTAA).
We all have a stake in this issue, whether we're involved with a manufacturing or service industry. If jobs are moving out of the country, traditional thinking is that unemployment should increase and fewer people will buy goods or services, which will eliminate even more jobs in an ever-increasing downward spiral. But are jobs really being eliminated, or are they actually increasing because of NAFTA?
Organized labor, some environmental groups and many politicians are very much opposed to NAFTA and any extension of it. They say that global trade shifts manufacturing jobs out of the U.S. to lower wage countries. They have a point.
However, with NAFTA or without it, low wage jobs are going to migrate to the place of least cost, and for many industries that may not be in the U.S. The fact is, labor in the U.S. is significantly more costly than in most third world countries -- especially low-end labor for manufacturing. Companies that don't understand this and act accordingly, won't be in business long. For many, there are two choices: move low wage jobs to least cost countries, or find ways to automate. Either way, these jobs will be eliminated.
Some argue that by moving these jobs, U.S. companies are supporting poverty level wages and living conditions abroad. Consider the recent flap over Nike paying what are called sub-subsistence wages in Asia.
But in these locations, such wages are reasonable, given the cost of living there. They buy the necessities of life and in many cases quite a bit more. These workers are beginning to improve their lives, albeit bit by bit. As with Mexico, the population is starting to save and is now buying more goods and services from the U.S.! Life without these jobs would be much harder, economic and living conditions might never improve, and we would have fewer exports.
Many economists credit NAFTA with reversing the devastating effects of the recent Mexican currency devaluation and recession. With little hard currency, Mexicans couldn't afford to buy much. With capital now flowing back into their country, in part due to jobs moving there, they are able to buy more imports -- from the U.S.
For example, recent increased Mexican demand for U.S. autos, specialized heavy machinery, telecommunications and other high-tech equipment has sharply decreased our previous $1-billion average monthly Mexican trade deficit. Mexico's economy has grown steadily for the past several years, in part due to NAFTA, which means even more U.S. exports.
Of course, along with gaining the advantage of low-wage manufacturing costs, it is also the responsibility of global companies to provide decent housing and living conditions for their workers -- and many are doing so. They also are improving the local infrastructure, such as roads and communication systems, in order to get raw materials to production facilities and finished goods to shipping points.
We must realize that the world economy is changing, whether we like it or not. U.S. companies must be able to compete on the world stage, which means we must understand that our competitive advantage is not in low-end manufacturing. It is in "knowledge work" -- producing goods and services which require a high degree of skill and training. Therefore, we must let these low-level jobs go elsewhere. However, we must also fund training programs for our displaced workers. We must move these people into the better paying jobs of high-tech manufacturing, as well as other functions that are not subject to export, such as administration, sales/marketing, research, accounting, human resources, etc.
Many socially conscious and responsible organizations are sponsoring such training programs. Former Labor Secretary Robert Reich has suggested tax incentives for companies investing in worker skill training -- a good idea. But for workers finding themselves out of work and with no "knowledge" skills, we must urge the public sector to provide this training and a path to better jobs.
Some estimate that since 1992, nearly 20 million new jobs have been created in the U.S., in part due to the 1994 NAFTA agreement. Total trade between the NAFTA partners -- the U.S., Canada and Mexico -- rose from $293 billion in 1993 to more than $475 billion in 1997, and has increased since. That spells sales and profits for U.S. companies and high paying jobs for American workers.
If such increases within NAFTA are possible, think what might happen if we extend the partnership to include Latin America and the Caribbean, with the Free Trade Area of the Americas (FTAA). Our "knowledge work" industries would thrive.