[Congressional Record Volume 154, Number 76 (Thursday, May 8, 2008)]
[Extensions of Remarks]
[Pages E858-E859]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     LAWRENCE SUMMERS EXPLAINS WHY ``A STRATEGY TO PROMOTE HEALTHY 
GLOBALISATION MUST RELY ON STRENGTHING EFFORTS TO REDUCE INEQUALITY AND 
                              INSECURITY''

                                 ______
                                 

                           HON. BARNEY FRANK

                            of massachusetts

                    in the house of representatives

                         Thursday, May 8, 2008

  Mr. FRANK of Massachusetts. Madam Speaker, it has been common for 
those who support increased trade without any accompanying policies to 
address the impact on foreign and domestic workers to dismiss arguments 
for such policies as mere protectionism, lacking any economic 
justification.
  In the Financial Times, Monday May 5th, one of the leading economists 
in the country, former Treasury Secretary Lawrence Summers, refutes 
this effort to dismiss our concerns. As former Secretary Summers says, 
some of the ``opposition to trade agreements and economic 
internationalism more generally, reflect a growing recognition by 
workers that what is good for the global economy and its business 
champions was not necessarily good for them, and that there were 
reasonable grounds for this belief.''
  Lawrence Summers has been and is a strong supporter of increased 
trade. But unlike many others who have stuck with a far less 
sophisticated analysis, ignoring contemporary reality, Secretary 
Summers explains why the current globalized economy means that trade 
can have a negative impact on some workers in higher wage countries. As 
he notes, ``in an open economy, where investments in innovation, 
brands, a strong corporate culture or even in certain kinds of 
equipment can be combined with labour from anywhere in the world, 
workers no longer have the same stake in productive investment by 
companies as it becomes easier for corporations to combine their 
capital with lower priced labour overseas. . . . Moreover businesses 
can use the threat of relocating as a lever to extract concessions. . . 
. Inevitably the cost of these concessions is borne by labour.''
  Madam Speaker, the economic explanation given by Secretary Summers is 
not meant by him as an argument against trade, but rather as an 
argument for accompanying continued expansion of trade with appropriate 
public policies that deal with some of these effects, and recognize 
that while trade has overall beneficial effects for the economy, the 
distribution of the costs and benefits are far from uniform. And the 
New York Times for Tuesday, May 6th, illustrates the economic reality 
that gives rise to the political opposition to increased trade and 
internationalization that Secretary Summers notes--as the Times article 
of that date noted, ``In inflation adjusted terms . . . weekly wages 
have slipped by 1.3 percent since late 2006.''
  Madam Speaker, I strongly urge leaders in the business community and 
others who would like to see further progress towards 
internationalization to read and understand Secretary Summers' economic 
analysis, and the very thoughtful public policy recommendations he 
includes that stem from this analysis. And because I can think of no 
more important contribution to the debate about economic policy in 
America, I ask that Secretary Summers' very important essay be printed 
here.

                [From the Financial Times, May 5, 2008]

              A Strategy To Promote Healthy Globalisation

                         (By Lawrence Summers)

       Last week, in this column, I argued that making the case 
     that trade agreements improve economic welfare might no 
     longer be sufficient to maintain political support for 
     economic internationalism in the U.S. and other countries. 
     Instead, I suggested that opposition to trade agreements, and 
     economic internationalism more generally, reflected a growing 
     recognition by workers that what is good for the global 
     economy and its business champions was not necessarily good 
     for them, and that there were reasonable grounds for this 
     belief.
       The most important reason for doubting that an increasingly 
     successful, integrated global economy will benefit U.S. 
     workers (and those in other industrial countries) is the 
     weakening of the link between the success of a nation's 
     workers and the success of both its trading partners and its 
     companies. This phenomenon was first emphasised years ago by 
     Robert Reich, the former U.S. labour secretary. The normal 
     argument is that a more rapidly growing global economy 
     benefits workers and companies in an individual country by 
     expanding the market for exports. This is a valid 
     consideration. But it is also true that the success of other 
     countries, and greater global integration, places more 
     competitive pressure on an individual economy. Workers are 
     likely disproportionately to bear the brunt of this pressure.
       Part of the reason why U.S. workers (or those in Europe and 
     Japan) enjoy high wages is that they are more highly skilled 
     than most workers in the developing world. Yet they also earn 
     higher wages because they can be more productive--their 
     effort is complemented by capital, broadly defined to include 
     equipment, managerial expertise, corporate culture, 
     infrastructure and the capacity, for innovation. In a closed 
     economy anything that promotes investment in productive 
     capital necessarily raises workers'

[[Page E859]]

     wages. In a closed economy, corporations have a huge stake in 
     the quality of the national workforce and infrastructure.
       The situation is very different in an open economy where 
     investments in innovation, brands, a strong corporate culture 
     or even in certain kinds of equipment can be combined with 
     labour from anywhere in the world. Workers no longer have the 
     same stake in productive investment by companies as it 
     becomes easier for corporations to combine their capital with 
     lower priced labour overseas. Companies, in turn, come to 
     have less of a stake in the quality of the workforce and 
     infrastructure in their home country when they can produce 
     anywhere. Moreover businesses can use the threat of 
     relocating as a lever to extract concessions regarding tax 
     policy, regulations and specific subsidies. Inevitably the 
     cost of these concessions is borne by labour.
       The public policy response of withdrawing from the global 
     economy, or reducing the pace of integration, is ultimately 
     untenable. It would generate resentment abroad on a dangerous 
     scale, hurt the economy as other countries retaliated, and 
     make us less competitive as companies in rival countries 
     continue to integrate their production lines with developing 
     countries. As Bill Clinton said in his first major 
     international economic speech as president, ``the United 
     States must compete not retreat''.
       The domestic component of a strategy to promote healthy 
     globalisation must rely on strengthening efforts to reduce 
     inequality and insecurity. The international component must 
     focus on the interests of working people in all countries, in 
     addition to the current emphasis on the priorities of global-
     corporations.
       First, the U.S. should take the lead in promoting global 
     co-operation in the international tax arena. There has been a 
     race to the bottom in the taxation of corporate income as 
     nations lower their rates to entice business to issue more 
     debt and invest in their jurisdictions. Closely related is 
     the problem of tax havens that seek to lure wealthy citizens 
     with promises that they can avoid paying taxes altogether on 
     large parts of their fortunes. It might be inevitable that 
     globalisation leads to some increases in inequality; it is 
     not necessary that it also compromise the possibility of 
     progressive taxation.
       Second, an increased focus of international economic 
     diplomacy should be to prevent harmful regulatory 
     competition. In many areas it is appropriate that regulations 
     differ between countries in response to local circumstances. 
     But there is a reason why progressives in the early part of 
     the 20th century sought to have the federal government take 
     over many kinds of regulatory responsibility. They were 
     concerned that competition for business across states, and 
     their ease of being able to move, would lead to a race to the 
     bottom. Financial regulation is only one example of where the 
     mantra of needing to be ``internationally competitive'' has 
     been invoked too often as a reason to cut back on regulation. 
     There has not been enough serious consideration of the 
     alternative--global co-operation to raise standards. While 
     labour standards arguments have at times been invoked as a 
     cover for protectionism, and this must be avoided, it is 
     entirely appropriate that U.S. policymakers seek to ensure 
     that greater global integration does not become an excuse for 
     eroding labour rights.
       To benefit the interests of U.S. citizens and command 
     broadpolitical support, US international economic policy will 
     need to focus on the issues in which the largest number of 
     Americans have the greatest stake. A decoupling of the 
     interests of businesses and nations may be inevitable; a 
     decoupling of international economic policies and the 
     interests of American workers is not.

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