Parting Shots on NAFTA : Only the Shortsighted Trust the Economists : Americans have lost too many jobs already to econometric ‘models.’ Why not take a gradual approach to freer trade?

On this one, I’m with the skeptics. While most of my fellow economists argue that the North American Free Trade Agreement will create more jobs than it eliminates, I join many of my fellow citizens in asking when, where and for whom.

The average citizen understands that in an economist’s perfect equilibrating world, free trade would be better for all parties. But two decades of watching blue-collar jobs migrate toward the low-wage American South and to even lower-wage platforms overseas has taught the public about the gap between theory and reality. Capital has left, and no alternative employers have emerged to absorb much of the surplus labor. In most of our rural communities and in major cities from Miami to Los Angeles to Buffalo, long-term structural unemployment has compounded poverty, out-migration and infrastructure decay.

We are not in an equilibrating world, but in one of change, as President Clinton is so fond of pointing out. And in times of change, pace matters. That’s why managed trade--gradual, negotiated reductions in tariffs and other trade barriers--is a better policy. A cold bath, which is what many communities and small firms on both sides of both borders will experience in the dive into NAFTA, can put under whole groups of people who with a little more time and help could rise to the adjustment challenge.

Some sectors would do well under a trade agreement, creating some new jobs. High-tech firms would find new markets. Wall Street would make money in trade and restructuring. Importers and retailers would expand to market Mexican goods. Large-scale farmers could out-compete Mexican peasants. But in the past two decades, robust (if volatile) growth on Wall Street and in the Silicon Valley did not come near compensating for industrial job loss. Jobs in retailing are low-paid, often part-time and impermanent. And agriculture is an almost insignificant employer.

Meanwhile, a fair number of multinational corporations would be increasing the pace at which they build new plants in Mexico, both to service Mexican markets and export back to the United States. That would set off another round of hard-to-handle displacement, on top of the auto, steel and defense jobs we’ve lost.

For NAFTA-displaced workers, the Clinton Administration promises an overhaul of retraining programs. But these now serve only about 7% of those eligible for displaced-worker assistance.

Many citizens simply don’t believe us economists any more, and why should they? Have we kept the country out of debt? Were our predictions that greater productivity would translate into higher real wages accurate? Has retraining resulted in better jobs, even any job, for enough workers? The answers, embarrassingly, are no, no and no.

Opponents of NAFTA are often depicted by advocates as economic nationalists. But my hunch is that most Americans would welcome an initiative to help Latin American countries get their economies going. Economists’ mechanistic trade models have nothing to say about important questions such as how to jump-start developing countries’ economies and ensure sustainable world development. For Mexico, for instance, the answer lies in debt forgiveness, aid, elimination of corruption, better environmental standards and redistribution of wealth, land and income.

Without these, free trade really is a zero sum game. Americans are right to suspect NAFTA as an inadequate formula for economic vitality of any of the signatory countries. And they are right to demand more and better of their economists.