September 28, 2006 | EPI Briefing Paper #173
Revisiting NAFTA: Still not working for North America’s workers
By Robert E. Scott, Carlos Salas, and Bruce Campbell
ECONOMIC POLICY INSTITUTE • 1333 H STREET, NW • SUITE 300, EAST TOWER • WASHINGTON, DC 20005 • 202.775.8810 • WWW.EPI.ORG
Introduction
by Jeff Faux
Despite its name, the primary purpose of the North American Free Trade Agreement (NAFTA) was not to facilitate trade among separate sovereign societies. Rather, it was to promote an integrated continental economy and establish the rules to govern it.
As a former foreign minister of Mexico once remarked, NAFTA was “an agreement for the rich and powerful in the United States, Mexico, and Canada, an agreement effectively excluding ordinary people in all three societies.” It should, therefore, be no surprise that NAFTA rules protect the interests of large corporate investors while undercutting workers’ rights, environmental protections, and democratic accountability. Hence, NAFTA should be seen not as a stand-alone treaty, but as part of a long-term campaign by the conservative business interests in all three countries to rip up their respective domestic social contract.
This report details how this campaign played out in the labor markets of all three nations. It is, of course, not the full and complete measure of the impact of NAFTA. But it is arguably the most important one, because the agreement was sold to the people of each nation on the promise that it would bring large net benefits in better jobs and faster growth.
Indeed, supporters claimed the gains would be so large as to more than compensate for the erosion of the average workers’ bargaining power and the weakening of citizens’ rights to use government to protect themselves against the insecurities of unregulated markets.
Twelve years later, it is clear that the costs to workers outweighed the benefits in all three nations. The process differed from country to country, and given the greater size and wealth of the United States, the impact there has not been as great as it was in Mexico and Canada. But the overall pattern was similar. In each nation, workers’ share of the gains from rising productivity fell and the proportion of income and wealth going to those at the very top of the economic pyramid grew.
Americans were promised that NAFTA would generate large numbers of net new good jobs. Instead, over a million jobs that would otherwise have been created were lost, and wages were pressured downward for a large number of workers with less than a college education.
Mexican employment did increase, but much of it in low-wage “maquiladora” industries, which the promoters of NAFTA promised would disappear. The agricultural sector was devastated and the share of jobs with no security, no benefits, and no future expanded. The continued willingness every year of hundreds of thousands of Mexican citizens to risk their lives crossing the border to the United States because they cannot make a living at home is in itself testimony to the failure of NAFTA to deliver on the promises of its promoters.
Canada likewise saw continental integration undercut working families. Except for those at the top, real incomes
have virtually stagnated. Canadians were assured that NAFTA and the earlier Canada-U.S. Free Trade Agreement were necessary to save the social safety net of which they are justly proud. Yet a dozen years later, government transfers to individuals have dropped from 11.5% of GDP to 7.8% of the country’s GDP, and Canadian government’s overall (non-military) program spending fell from 42.9% of GDP in 1992 to 33.6% of GDP in 2001 (see Canadian analysis starting on p. 53).
Defenders of NAFTA have two main responses. One is that its damage to workers is exaggerated. Perhaps. But NAFTA was supposed to make thing a great deal better for workers, not—even a little—worse. The second response is that the problems of inequality are largely the result of domestic policies and have nothing to do with globalization. Yet that ignores the enormous increase in bargaining leverage over workers that the ability to shift production out of the country, and then sell the products back home, gives the transnational corporation. With that leverage, corporate influence over economic policy has greatly expanded in all three nations since the agreement was signed.
The reality is that the denial of social protections in the rules of an internationally integrated market inevitably undermines the protections established in the previously separate domestic economies after decades of political struggle. In that sense, the “vision” of NAFTA is profoundly reactionary: it pushes nations back toward a 19th century ideology in which government’s economic function is to protect the interests of investors, while working people—the overwhelming majority in each nation—are left to fend for themselves.
The following three studies add to the mounting evidence of NAFTA’s perverse impact on the distribution of income, wealth, and political power in all three nations. For over 12 years, we have been told by NAFTA’s champions to be patient, that NAFTA’s great benefits were just around the corner. We are still waiting. The time for a continent-wide debate over the future of this agreement, which was negotiated by and for the rich and powerful in all three countries, is now overdue.
Jeff Faux is the founder and former president of the Economic Policy Institute. He is a contributing editor to The American Prospect, and a member of the editorial board of Dissent.