Free trade is a good thing. Free trade is a bad thing. Free trade is a very contentious issue with two sides of the argument, both believing they are the only side that is right. What I believe and what I argue, is that free trade is most certainly a good thing but it could be done in a very different way.
In 1981, the percentage of people living in extreme poverty (estimated at $1.91 USD per day by The World Bank) was roughly 44.3 percent of the total global population. As of 2012, that percentage has dropped down to roughly 12.7 percent. Over this time period, global free trade (free movement of labor, capital and products) increased drastically, so clearly it had something to do with this change in poverty statistics.
Now, I am not arguing wholeheartedly for the free trade that has become so prevalent in contemporary economic and political circles. The form of free trade that has become so popular to argue for is simply the movement of capital and of products. What this means is that people and companies can invest in foreign labor markets to reduce their cost of production, and then sell their products in more lucrative markets. What this has done is create large numbers of manufacturing jobs for low-skill workers in developing nations, and destroy the manufacturing industry in highly developed nations.
What this type of free trade has done to the world is create a system in which the wealthy are able to get increasingly wealthy while the extremely poor are ever so slightly lifted out of extreme poverty, and the middle class has become worse off. The solution to this problem is not to cut off and end free trade completely (it clearly has positives) just as the solution to the problem is not to just completely allow this form of free trade to go on as is (it clearly has negatives). A possible solution to this problem is to change how free trade and all trade is done.
As I stated earlier, the current form of free trade restricts trade to the movement of capital and products. The change to this system that I suggest is to also allow the free movement of the labor force.
The labor force is made up of the members of society that are eligible to work, so basically the labor force can be understood as people. If people are able to move as freely as possible, between states (state being understood as a recognized and official government) and possibly continents, then the market for labor is that much more competitive. For a capitalist society to be successful, complete and total competition must be incentivized and ensured.
However, as it is right now, if the free movement of the labor force was allowed, there would not be the movement that would be required for this system to work. Simply allowing the labor force to move would lead to people moving from poorer countries into wealthier countries, possibly worsening the living conditions for millions or billions instead of improving it.
In order to avoid an outcome where overcrowding becomes a much larger issue than it already is, labor laws must also be in place to protect workers no matter where they are. These labor laws would not necessarily include a minimum wage/salary exactly, as currency differs across countries and regions, but a basic standard of living wage could easily be set. This standard of living could be set to adjust for the CPI (consumer price index). The CPI is a way to measure the average prices of consumer goods and services like food, transportation and medical care. A generic minimum wage/salary could be set to follow and adjust for changes and fluctuations in a regions CPI.
However, minimum wage/salary laws are not the important aspects of the labor laws and regulations that would need to be set in order for the free movement of the labor force to be effective. Certain workplace and product safety standards must be set and applied. Workers' hours must be regulated (so that something like overtime and overtime pay can be established) to ensure that workers are not being overworked and abused. Child labor must be curtailed to ensure that future generations have a future that is not in danger due to workplace accidents that never should have happened to them.
If the current model of free trade is changed to include the free movement of the labor force, there would be drastic changes to the world economy. This drastic change would allow for people to live and work where they are please, this would lead to a much-more-competitive jobs market. A more-competitive job market will increase the wages of the world’s poorest as it opens up more opportunities for them to work. This increase in wages is not exclusive to the poorest members of society; the wages of the middle class will also rise as their job opportunities increase as well.
Now I understand that currently, this is all theoretical, and that applying this to world markets is a very different scheme. To understand how this can be applied, let’s take a look at contemporary trade deals. An incredibly important trade that is rather close to home, is the North American Free Trade Agreement, NAFTA. What NAFTA has done is allow for the free trade, movement and investment of goods and capital. What this means is that American companies are able to move their manufacturing to Mexico (where the price of production is lower) and to sell their goods in the United States. The goods that are produced in Mexico are then treated as if they were not actually imports, meaning that there are no barriers to trade in foreign marks (such as tariffs).
This has led to the creation of countless jobs in Mexico and cheaper consumer goods in the United States. This is clearly good for the American consumer and Mexican worker. However, it is much more complicated than that. American manufacturing jobs were lost, and these jobs were well paying and regulated to protect the worker. Mexican factory workers were taken advantage of in this situation to lower the prices of select goods for select consumers in select American markets. This trade deal does not really have a 100 percent positive aspect to it, just some things that appear positive on the surface.
If the free movement of the labor force were also applied to this situation and trade deal, the amount of American jobs lost would be decreased and the working conditions for Mexican workers would most likely be improved. Manufacturers would not be able to take advantage of the most vulnerable people in society as those people will now have bargaining power to argue for improved pay and working conditions. This may lead to an increase in the price of consumer goods, however, this would likely be offset by the increase in the wages and salaries of the consumers.
An easy criticism of this proposal would be to say that it is not possible politically and that this could possibly damage borders between states. However, a system and organization similar to this already exists: the E.U.
The E.U. is not perfect. It has its positives and negatives. The most important positive to take from the E.U. is that a system of free trade between member nations still works when the free movement of the labor force is included in a trade agreement. So while this economic theory can clearly work to some degree, movement across continents may not be as easy as it sounds in theory. The most relevant issue with an organization such as the E.U. is that nonmember nations do not have the best trade deals with the E.U. This creates inefficiencies in global economies as barriers to trade are created.
For my vision of what the idea of free trade should look like, a trade organization similar to the E.U. would have to be established. It should not be like the E.U., in that there is a completely separate government that functions as the E.U. with power over member nations. It should be much more similar to the U.N. If anything, the U.N. could function appropriately. An oversight organization would need to exist in some form and would be made up of representatives of member nations. The representatives would either be appointed by the governments of member nations or elected by the populations of said nations.
This idea of giving more authority to the U.N. or creating a trade organization made up of as many of the world’s nations as possible is clearly the end goal. This will allow for the world economy to function as efficiently and equitably as possible. For now, however, focusing on much more feasibly political goals for trade deals is enough. Trade deals, like NAFTA, must not be put into place unless the free movement of the labor force and labor protections and regulations are established, included and protected.
