We need to look at other possible explanations than trade

Sir Jagdish Bhagwati in “The selfish hegemon must offer a New Deal on trade” August 20, complains that “the labour lobbies believe, without any compelling evidences, that the American wages have been stagnant because of competition from the developing countries”. But, even if he is right, since he offers no other alternative explanation for the widening gap between the returns to capitals and the returns to labour in the economy, he is actually helping to keep the focus on trade as being the culprit.

Bhagwati would serve his worthy cause better by pointing out the effects of other developments that have run in parallel to the growth of global trade. How much of the capital-labour gap could be explained by the following?

1. The discrimination implicit in risk based pricing that has allowed the financial sector to charge some groups with extremely high interest, based on some quite dubious logical reasons. Borrowers that cannot pay the high interests should not have received the loans to begin with, at least not at those high rates, and those who can serve the loans have de-facto evidenced they merited lower rates.

2. The growing tendency to use intellectual property rights of all sort and kinds to create unregulated monopolies that capture rents.

3. The increased regressiveness of taxes that results from the tendency of turning away from taxing income to taxing consumption.

Net out the effect of those three factors and you might not have anything left to blame trade with.

But ignoring labour rights and standards altogether will not get us anywhere either.

Sir, Jagdish Bhagwati in “Free trade’s foes get a foot in the door” May 22, lashes out against labour standards as a tool of protectionism. Be that as it may, and I tend to agree with him on the risks of an improper use of the standards, we must still know that in order for the world to become a better place we cannot really think of splitting it up into highly-regulated-consumer-societies and free-to-do-whatever-they-want -producers. So, if you don’t want to mix trade and labour standards in the World Trade Organization, then as Bhagwati mentions you can always go to the International Labour Organization… but do it!

Bhagwati also points out as a special circumstance “that the pursuit of labour standards today reflects not altruism and empathy but fear and self interest”. I am not that sure it ever was about anything else but fear and self interest, but if we really want it to be about altruism and empathy let us then make certain we discuss the labour standards from that point of view, as ignoring them completely do not seem that compatible with altruism and empathy either.