From Naked Capitalism:
Eduardo Porter began by studying physics but decided not to complete his studies and pursue a career in that field in favor of becoming a journalist. He worked for the Wall Street Journal before joining the New York Times, where he writes a periodic column. His primary interest is now economics. I was intrigued by a recent column he did entitled “The Folly of Attacking Outsourcing.”
I reviewed a number of Porter’s NYT columns to get a feel for his views. Defending outsourcing and minimizing the criticisms of undocumented immigrants are his twin passions. He has written roughly a dozen columns on each of these topics. Porter’s starting point is neo-liberal economics. As I will show, he does so despite knowing that neo-liberal economics dogma has proven disastrously wrong. He often sees the errors, but he remains incapable of developing an alternative perspective.
Porter knows better. CEOs structure their own compensation and they generally ensure that they will become wealthy. They are not “paid to maximize profits.” Banks, for example, often maximize reported (albeit fictional) profits – and the best way to do that is often to maximize real losses through the accounting control fraud recipe. But consider the implications for outsourcing of Porter’s admission that CEOs “behave as corruptly as they can” if unconstrained by an effective rule of law. (He implicitly assumes that a concern for reputation constrains fraud. It can constrain or motivate fraud. Because accounting control fraud is a “sure thing” and produces extreme wealth and because wealth tends to bolster reputations, a concern for reputation can encourage fraud.) He knows that American workers lose their jobs to outsourcing overwhelmingly to firms based in nations that are highly corrupt and have weak rules of law. These nations may have laws against unsafe work conditions, failure to pay overtime, pollution, bribery, and securities fraud but if these laws are not enforced (and they typically are not enforced in these nations) then the result is not increased economic efficiency. The result is a race to the bottom that harms many workers in both nations.
This recent article by Porter must be read in conjunction with his article on the Gresham’s dynamic that shows that if even a few firms are able to cheat with impunity in these highly corrupt nations the result is “rampant” “bribing.” Some firms will be able to cheat with impunity in any highly corrupt nation. We do not want to encourage American firms to “compete” in an ethical race to the bottom with unethical firms in other even more corrupt nations. Recall that the point of a Gresham’s dynamic is that it causes market forces and competition to become perverse and produce greater social ills. The only way to win a race to the bottom is to refuse to enter that race. Instead, it is essential to a race to integrity through international enforcement of minimum ethical norms. Allowing outsourcing under conditions that encourage a race to the bottom is an insane, inhumane, and economically inane policy that will create a nasty, brutish world of extreme inequality and crony capitalism.
The challenges call for a more sophisticated debate about trade. American policy makers might consider global taxation treaties, to reduce the scope for tax competition. They could engage foreign countries in a debate on global standards — overcoming mistrust of American protectionism to develop rules protecting workers from abuse by footloose corporations seeking the cheapest labor. And they could think about the kind of safety net needed to protect workers from the dislocations that the relentless onslaught of globalization is sure to bring.
We have seen in the ongoing global crisis the terrible cost of the competition in regulatory laxity in the finance context. Trillions of dollars of wealth – many orders of magnitude greater than all the supposed gains of outsourcing American workers’ jobs – were destroyed by that competition.
http://www.nakedcapitalism.com/2012/08/bill-black-eduardo-porters-folly-why-we-must-end-the-race-to-the-bottom.html
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