Free Trade and Labor

The development of social rights in the 20th century was based on the notion of establishing mandatory mechanisms to compensate for the imbalances between capital and labor. To face capital's power, a set of regulations were designed – multilateral and bilateral international treaties as well as regional social charters and national laws and regulations – with the goal of endowing organized labor with enough power to enable employers and workers to negotiate a wide range of subjects in a balanced framework.

In the last 25 years, the world has seen an unprecedented worldwide expansion of the market as the main economic mechanism. At the same time, democracy has become the planet’s predominant political system. Technological changes and a new open economy have endowed capital with extraordinary volatility. Deregulation provided companies with freedoms never before experienced. The imbalances that earlier social legislation helped to alleviate have, as a result, reappeared in capital-labor relations.

Clearly, free trade’s expansion has created previously unknown possibilities for specialization, exchange, and economic growth. It is desirable that these new opportunities, and the more open relations between national economies, help to overcome the poverty that afflicts hundreds of millions of the world's inhabitants, many in Latin America.

To insure that free trade achieves its full potential as a catalyst for development, the new wealth it creates must be distributed fairly among and within countries. Moreover, in this fair distribution it is desirable to provide for advantages for those sectors often excluded from social progress, such as the unemployed and underemployed low-productivity workers, who are in no position to adequately negotiate working conditions and salaries.

But an acceptable distribution of free trade’s benefits will be hard to achieve so long as a sharp imbalance between capital and labor persists. While this unequal relationship may not impede economic growth, it makes it impossible to translate the benefits of free trade into greater social justice.

Even in the global economy of the 21st Century, regulatory instruments to insure that free trade translates into social equity are relevant. The conventions of the International Labor Organization (ILO), in particular those known as “basic agreements” (on trade unions, collective bargaining, discrimination, forced labor and child labor) and the concept of “decent work,” promoted nowadays by the ILO, are sound instruments towards this goal. In the Americas, the efforts of the Working Group on Labor of MERCOSUR – the Latin American complement to the North American Free Trade Agreement (NAFTA) – and other similar tools developed, have yielded valuable experience that should be evaluated, consolidated and consequently promoted.

National labor laws should also balance the need for flexibility for employers with protection of worker’s rights. These laws should establish basic rules and define accepted areas of possible negotiation between social parties. Among the options available, those based on the willingness of corporations and business groups to self regulate could open new avenues for action. Proposals whereby employers make transparent their undertakings on labor and social issues, agreeing to keep the public informed are also worth following. Such transparency is necessary to stimulate better practice, and to progressively improve social and labor conditions.

The proposals to dismantle protective national labor legislation that we sometimes hear in Latin America, are not acceptable and do not promise the sound conditions needed to develop free trade. It is also inadequate, no doubt, to look to the past to find norms that have been surpassed by today’s economic reality. Sooner or later such legacies will hinder development. Efforts aimed at social justice embedded in modern and dynamic thinking, however, can allow free trade to become an instrument of greater equality, instead of a mechanism that concentrates its benefits on the rich. In Latin America – because of its cultural and socio-economic profile – these efforts could gain unexpected success.

There are those, however, who fear that such considerations only provide ammunition to free trade’s adversaries, or to those states which use labor questions as a pretext for practicing protectionism, closing their markets to relatively less developed countries. The latter type of behavior obviously annuls the legitimate competitive advantage possessed by poorer countries, creating a vicious circle of poverty that includes, as one of its elements, the unfair treatment of workers. This abuse of, or bad faith in agreements and norms concerning basic labor questions work against less-developed countries, countries that need the consumer markets of the richer economies.

But the inverse is also true: the stance that defends free trade and refuses to consider labor as an element in development can be a way of masking a lack of public policies designed to diminish the abysmal difference between the rich and the poor that burdens many nations, including those in Latin America.

It is critical to put an end to the suspicions that make a viable solution impossible. The inability to sort out these difficulties creatively may set undue limits to expanding free trade. They also signal an obstacle that all of Latin America must avoid for the elimination of poverty to move from words and speeches to actual fact.

It is important not to forget that the relationship between democracy and the market is not made virtuous by some fixed automatic mechanism. It must be built so as to harness the virtues of each institution while bringing both together. An essential part of this architecture is the existence of labor relations that insure basic rights.