Trade agreements and labor problems: the current bearing of a commons proposal.

AuthorChasse, J. Dennis

A hundred years ago, in a symposium on tariffs, John R. Commons pointed out that contrary to predictions of advocates, high tariffs did not help workers in protected industries (Commons 1908). After their victory in the Homestead strike, managers of tariff-protected steel mills imposed harsh and inhumane conditions on steelworkers. Interstate competition drove conditions in textile mills below those of British competitors--against whom tariffs were supposedly protecting workers. On the other hand, working conditions were improving in unprotected industries such as construction.

Then he asked what could be done. Unions were impotent against the combined strength of trusts. The ability of trusts to move facilities to states with lax regulations neutralized any hope that state legislatures could protect workers. On the federal level, courts would strike down any regulation based on the constitution's interstate commerce or general welfare clauses.

Commons found hope, though, in federal taxing power. Its exercise in setting tariffs faced no constitutional problems. Neither did a bill that taxed state bank notes out of existence. Consequently, a federal tax designed to pass some of the tariff's benefits to workers would, "if properly drafted" be constitutional.

Recalling an Australian bill, later found unconstitutional by the Australian Supreme Court, Commons proposed a universal excise tax set lower than the tariff. Firms with good working conditions could be exempted from this tax. He proposed a new agency to define reasonable standards and decide whether firms merited exemption.

This paper contends that Commons' observations, made in a high tariff era, apply today in an era of falling trade barriers. As tariffs did not help workers then, trade agreements do not help workers now, and, as Commons' proposals made sense then, similar proposals make sense now. The paper makes the case in four parts.

Part one argues that trade agreements have not helped workers. Part two, that Commons' proposed tax still makes sense, and part three, that a Commons type agency or commission, structured according to his suggestions, also makes sense. The first three parts argue for the current reasonableness of Commons' proposals as if they were largely unchanged. The fourth asks where the evidence might lead if Commons' "constructive research" and views on power were applied to current global labor problems. The paper concludes that the remarks Commons made remain relevant because he recognized a blind spot in the vision of American policy makers, a blind spot with international dimensions.

The Objections Commons Raised in His Day Are Valid Today

In 1908, Commons charged that, contrary to predictions of advocates, tariffs did not help workers. A hundred years later, critics level the same charge against advocates of current trade agreements. Advocates predicted that the North American Free Trade Agreement (NAFTA) would improve working conditions (Huffbauer and Schott 1993; Lee 1995). Advocates of the Uruguay round of trade talks promised that the new World Trade Organization (WTO) would reduce the U.S. trade deficit and increase annual incomes of U.S. families by an average of $1,700 (Wallach and Sforza 1999, 2, 151).

Simple statistics refute rosy predictions. (1) After NAFTA's passage, real wages declined in Canada, Mexico, and the United States (Wood 1999; Jordan 2003; Hanson 2003; Larudee 1998; Stanford 1998; Scott, Salas and Campbell 2005; Bivens 2007). In the United States, real male wages have been declining since 1973 with slight blips upward at cyclical peaks. Evidence from many quarters indicates that whatever their virtues, NAFTA and the WTO are not perceived as helping most workers. On the contrary, an increased widening of income distributions within and between countries has raised complaints about these treaties (Wallach and Sforza 1999, 3-4; U.N. Economic and Social Council 2000; Stiglitz 2003). In short, the charge that Commons leveled against the tariff regime of his day applies today.

Commons did not blame tariffs for bad working conditions. He simply pointed out that tariffs did not improve conditions in protected industries. Today, there is no need to blame free trade. It seems tenable, though, to blame a complex of rules of which trade rules are a subset (U.N. Economic and Social Council 2000; Baker 2006; Polaski 2007).

This position--attributing poor working conditions to a complex of rules agrees roughly with the position that Commons developed in his analysis of employment transactions and of the public purpose. He measured employment transactions against common law standards of fairness; standards that required fully informed willing buyers and fully informed willing sellers (Commons [1934a] 1990, 91-93, 743; Commons and Andrews 1916, 9). (2) Unreasonable duress, coercion, and fraud violate those standards.

Parties to a transaction could be subjected to duress, coercion, or fraud if they were needier, had fewer alternatives, or were less intelligent than their counterparts (Commons [1934a] 1990, 216). Limited liability facilitated the growth of giant concerns whose size and access to resources gave them an edge on all these grounds. Workers are more needy than corporations. They have less information and fewer analytical resources. They bargain, not with some property distinct from their persons, but with their liberty, and with risk to their personal survival (Commons and Andrews 1916, 5-6). For workers, the alternative to the present job can be stark. For corporations, the alternative to one worker is simply another. Consequently, employment transactions force workers to accept terms they would not accept if they had larger financial resources, better alternatives, and access to better information or better analytical resources (Commons [1924] 1975, 58-62, 72).

In the History of Labor in the United States, Commons and his students wrote a complex story about how expanding markets further reduced worker bargaining power (Commons 1909; [1934a] 1990, 763-773). The story starts with craftsmen and consumers bargaining directly--often as equals. As markets expanded, an increasing number of firms and transactions intervened between consumers and workers. Firms dissolved and combined. Functions such as finance and marketing split off into separate enterprises. Financial empires gained control of railroads, coal, steel, and oil. Economic power shifted unpredictably around this complex of rising and falling concerns. The powerful forced the weak to compete, creating the "competitive menace," a situation in which cost competition drives all firms in a market to the level of the least ethical. (3) This process deprived workers of "the last vestige of property rights" and left many helpless in employment transactions (Commons 1909, 75).

This view of power and coercion, based on the history of markets spreading across North America, applies almost without change to markets expanding over the globe. Improvements in technology and communications would have expanded markets without NAFTA and WTO, but these treaties shaped that expansion by creating and enforcing rights for certain types of concerns. As a result, these concerns could deploy enhanced coercive power in transactions with employees, with farmers, with firms less favored by the new legal environment, and even with sovereign nations. Resentment at the unfairness of these transactions boiled over into violent demonstrations. WTO supporters generally dismissed such demonstrations as unenlightened protectionism, or as selfish antics of "narrow special interests."

Commons' notion of an evolving public purpose could explain this attitude of WTO supporters. Empirically, public purpose appears in justifications given by public officials for their decisions (Commons [1924] 1975, 114, 118-119, 124). These justifications reflect traditions embodied in past decisions that resolved conflicts of interest, but they also reflect habitual assumptions of "dominant classes," assumptions "so familiar that they are not formulated in words" (Commons [1934a] 1990, 697).

In England and the United States, the notion of public purpose evolved over centuries through the complex, and confusing judgments that Commons analyzed in his Legal Foundations of Capitalism (Commons [1924] 1975, 126-127, 226-227, 293295, 324-325, 381, 388). Immediately after October 14, 1066, Britain's public purpose was William the Conqueror's property. Through royal decrees, judicial decisions, revolutions and class conflict, the public purpose changed and expanded. By the mercantilist era, public purpose had become the welfare of the merchant class (Commons [1934a] 1990, 110). Because of the changing nature of class conflict and the dependence of decisions on personality, the public purpose remains complex and unfinished.

To act in the presence of this vague complexity, public officials base decisions on one or two factors considered major limitations to attainment of this inadequate concept (Commons [1924] 1975, 343-344, 366). From the time of Queen Elizabeth to that of Commons, officials believed that physical capital was the major factor limiting attainment of the public purpose, and so they created institutions to favor the class that supplied it (Commons 1975 [1924], 330). This belief supported high tariffs to encourage capital investment in a technically advanced steel industry with terrible working conditions.

In similar fashion habitual assumptions about limiting factors motivated architects of the current trade agreements. Officials created WTO and NAFTA because they thought that alleged trade barriers were major factors limiting attainment of a vaguely conceived world public purpose. Tribunal members continue to share this belief. Objections of critics can almost always be rephrased in Commons' terminology as complaints that officials operate from excessively narrow conceptions of public...

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