The Human Cost of Misguided Policy : IMF Conditions Have Hurt Third World, U.S. Workers as Well
Since 1980, 400,000 American textile, apparel and shoe workers have lost their jobs, and more than 650 plants have been closed. Here in California, the industry is attempting to compete with Third World imports with plans to import immigrant workers at minimum-wage levels that no legal residents will accept. But the flood of imports continues to grow, now representing more than 50% of the apparel market. If present trends continue, this largest of American manufacturing industries could disappear by 1995.
In response, the House just passed a textile and apparel import-quota bill. If the Senate adopts a similar measure, President Reagan, citing his commitment to “free trade,” will veto it as he did similar legislation a year ago.
Last week in Washington, the International Monetary Fund and the World Bank held annual meetings. Few in the apparel industry paid attention, but those meetings had as much to do with the survival of 2 million remaining American textile and apparel jobs--at least as much-- as do debates about immigration or trade protection. Consistent with the Administration’s “Baker plan” to relieve Third World debt, these international lending and development institutions have created policies that will destroy labor-intensive industries, like apparel, in the industrialized world.
It all began with OPEC. After oil price increases in 1973 and 1979, the OPEC sheiks were awash in cash. They deposited “petrodollars” in American, European and Japanese banks. The Western bankers then lent these billions out to anyone who promised to pay it back with interest.
Much of it was lent to developing nations in Latin America and Asia. It was lent irresponsibly, often to corrupt military dictators whose use of the funds had little to do with economic development. But the bankers had so many petrodollars to get rid of that they hardly cared whether the loans met normal standards of prudence. As Citicorp Chairman Walter Wriston said at the time, “countries don’t default.”
These loans were similar to variable-rate mortgages: interest wasn’t fixed but was pegged to future fluctuations in lending rates. In the early 1980s when Federal Reserve Board Chairman Paul Volcker’s anti-inflation policies and Reagan’s refusal to balance the budget pushed interest rates near 20%, Wriston was proved wrong. Third World nations couldn’t repay their debts and threatened to default.
Enter the World Bank and the International Monetary Fund. The IMF, in one case after another, offered to rescue near-bankrupt Third World nations, but not unconditionally. IMF loans, enabling developing nations to begin repaying Western banks, invariably contained two conditions: The borrower nation had to agree to invest the funds in privately owned labor-intensive industries whose exports could earn dollars in the United States to repay the banks, and the borrower nation had to agree to reduce the wages of its own work force. This wage reduction would guarantee that exports could be made cheaply for easy penetration of U.S. markets; it would also ensure that the borrower country’s own work force couldn’t afford to buy what it produced, leaving no alternative to selling to U.S. consumers.
In 1982-83 Brazil negotiated an IMF agreement requiring Brazilian workers to accept a 20% reduction in real wages and increasing Brazilian investment in labor-intensive industries like apparel and shoes. Brazilian shoe exports to the United States jumped from 31 million pairs in 1980 to 113 million in 1985. Four thousand Southern California shoe jobs were eliminated and the remaining 1,000 workers have been confronted with employer demands for reduced wages and benefits as the only means of remaining competitive. Nor is the average Brazilian’s per-capita income higher than when the export boom began.
This strategy differs from the response to past economic crises. The United States recovered from the Depression by increasing our industrial workers’ wages and purchasing power. The Marshall Plan did not attempt to rebuild Europe after World War II by reducing the incomes of European workers; by putting money in the workers’ hands, new markets were created for European and American industry.
Today, however, the impoverishment of Latin Americans and the unemployment of U.S. apparel workers are vehicles for saving Wriston and his friends from their own recklessness. While Congress debated whether to save U.S. jobs by throwing up trade barriers to low-wage imports, Treasury Secretary James A. Baker III offered to increase the U.S. contribution to World Bank capitalization, helping the IMF and World Bank to create more and more apparel exports from the Third World.
If we want to save our textile and apparel industry (and other job-producing industries in this country) we must resist the Administration’s praise of “free trade” while it forces Latin Americans and Asians into wage competition with our working people. But we must also expand our focus beyond a demand for quotas, which only pits American workers against the world’s poor for shares of a stagnant market.
We should advocate international strategies that not only create Third World export industries but also increase purchasing power of workers in poor countries, thereby increasing consumption of their own production and of our exports too. We should pay attention to the foresighted call of Sen. Bill Bradley (D-N.J.) for writing off part of the Third World debt. And we should sit up and take notice when, between the lines of the financial pages, we read that the Administration is content to let unemployed American apparel workers pay full price for the bankers’ stupidity.
