Doha and a Better Deal for trade

Jagdish Bhagwati wrote an op-ed in todays Financial Times on Doha and the failures of US trade policy.

I would agree with his basic analysis of the US hegemonic role in international trade and how to square these with the WTO. His basic points:

Change is indeed in order, although along totally different lines. It must reflect a holistic view of the new reality that the US confronts. In particular, the economic anxiety that overwhelms US workers today stems from the increased fragility of their jobs.

First, as with Japan in the 1930s, when one-dollar blouses flooded the world, India and China today are growing and exporting rapidly. They are like Gullivers in a Lilliputian world economy. They create tsunamis for specific industries where their exports concentrate.

Second, competition has intensified. As exemplified by the Boeing-Airbus saga, the margins of competitive advantage have shrunk. No chief executive or any of his workers in tradable industries leads a happy life any more as there is always someone, from somewhere, breathing down his neck. I call this new phenomenon “kaleidoscopic comparative advantage”. It leads to volatility of jobs, as you have an advantage today and can lose it tomorrow.

Third, labour-saving technical change continuously threatens assembly-line jobs for the unskilled. The assembly lines continue but increasingly do not have workers on them; they are managed from a glass cage by skilled operators whose jobs increase instead.

The agenda for institutional change has to address this fragility of jobs, enabling unskilled and skilled workers to face the new uncertainties. To illustrate: higher education will have to be recast to reduce the proportion of time spent on specialisation: this would enable an easier response to shifting skill requirements as the kaleidoscope turns. Unskilled workers will have to be helped and encouraged to acquire skills and therefore increase their ability to shift to other jobs, even as they continue to work.

Then he adds a curt assessment of Obama's campaign prescriptions:

Senator Barack Obama does not quite get this. By asking, as part of his agenda for change, that the US should now impose even more draconian labour requirements in future PTAs, and that the North American Free Trade Agreement should be revised to incorporate yet tougher labour requirements, he is making export protectionism, and the reputation of the US as a selfish hegemon, worse, not better. Some change.

In previous posts I've made the case that we need new thinking for the domestic management of trade. The key objective is flexibility and adaptability to manage a fast changing, uncertain, but open, world economy. This goes beyond wage incomes, benefits, training and skill sets. It requires greater diversification of income sources that distribute the benefits of trade more widely. Diversification beyond labor incomes mitigates against fast changing competitive advantages that can concentrate losses on a single industry and its workers.

Neither party, obsessed with short-term electioneering, seems particularly attuned to the larger institutional context this will require. We don't need a new New Deal, we need a Better Deal that reflects the technological changes of the 21st century.