The Importance of Property Rights

One of my fixations as an academic is with the concept of property rights and their impartance in structuring the functioning of markets. To most economists, property rights have been irrelevant since their models are typically unconcerned with distributional effects. Yet property rights do more than affect distribution -- although that ought to be enough to make them significant to us. They also affect incentives and behavior since what one gets out of a market will affect what one puts into a market system. Institutional and empirical economists such as Douglas North, Joseph Stiglitz, Alan Krueger, and Dani Rodrik understand this. Most macro- economists do not sadly. Which is why the debate over CAFTA has been defined as one between free traders and protectionists.

But you can believe in Free Trade to some degree and still see that CAFTA is a bad deal. CAFTA could after all, be re-written. What this debate is about is whether the corporate written version will be jammed down our throats.

For most macroeconomists -- "free trade is always good." But imagine free trade with a country that is run by a powerful dictator who has confiscatory labor policies. People work for pennies a day under the boot and the gun. They produce cheap goods that are sold for low prices in the US. American consumers are better off. American workers are worse off. And the workers in our hypothetical country are worse off since no one feels a need to intervene on their behalf. "Why raise a stink if doing so increases the price of our TVs, etc.?" The gains from trade to the foreign country accrue to the oligarchic class of leaders. And no distributionary policy is necessary for a macro economist to show that this country is better off. Overall GDP will rise. But suffering will to because increasing the wealth of the oligarchs increases their ability to oppress their people more and extract more gain for themselves. Is it too much to demand that free trade be with countries that at least pay minimal respect to the rules of democracy and the principles of freedom? Think CHINA and Latin American for a moment. Then read the following from Nathan Newman at TPM Cafe:

Torture and DR-CAFTA
By Nathan Newman bio

For those who wonder why many people are skeptical of labor rights in Central America, read this decision from the 11th Circuit Court of Appeals last week. The Court, based on charges by the Guatamalean workers and union leaders, is allowing a lawsuit against Del Monte foods under the federal Alien Tort Act (ATA) and the Torture Victim Protection Act (TVPA) based on the torture allegedly suffered by the workers.
Here are the charges:

Private security forces are permitted and regulated in Guatemala. According to Plaintiffs, on 13 October 1999, Del Monte agents met with the security force "to plan violent action against the Plaintiffs and other SITRABI leaders."..
According to Plaintiffs, at 5:45 p.m. the security force, which is described as "a gang of over 200 heavily armed men," arrived at SITRABI's headquarters in Morales, Izabal. There, the security force held two Plaintiffs hostage, threatened to kill them, and shoved them with guns.

Later, a mayoral candidate appeared. While the candidate was at SITRABI headquarters, the security force "reached a consensus that the two main leaders of SITRABI [both of whom are Plaintiffs in this case] would be taken to a radio station . . . where they would be forced to denounce the union." Plaintiffs also allege that the actual Mayor of Morales participated. He, along with "several other armed aggressors," allegedly accompanied Plaintiffs to a radio station. There, Plaintiffs, at gunpoint, announced the labor dispute was over and that they were resigning.

The leader of the security force allegedly threatened to kill Plaintiffs if they failed to leave Guatemala or relocated to Mexico. Plaintiffs now live in the United States.

The scary part of the Appeals Court decision is that nothing that the private companies did violates international law or would have any cause of action in US courts on that basis.
Only because an elected official, the local mayor, was on hand did the court let the case move forward.

Which gives you a pretty good idea of why union leaders in both Central America and the US find a trade agreement without enforceable labor standards unacceptable in a region where private mercenaries threaten and torture workers and union leaders on a regular basis.

TPMCafe Politics, Ideas &Lots Of Caffeine

How about this for a Democratic policy on Trade. Instead of "Fair trade, not free trade." Or even Free Trade with economic equals that respect the environment and labor laws." How about, Free Trade with democracies only?