Archive for Saturday, July 22, 2000

NAFTA a factor in prosperity

July 22, 2000

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— Has NAFTA, the North American Free Trade Agreement, caused massive unemployment, and did this tariff-lowering treaty cause what Ross Perot described as a "giant sucking sound" that took American jobs south of the border? In fact, some jobs did go to Mexico, but more jobs were created here.

What remains are complaints about displacement the idea that jobs in Silicon Valley are replacing jobs lost in El Paso, Tex. To the people in El Paso, their jobs simply went south. This is what Adam Smith in his 1776 "The Wealth of Nations" referred to as the "invisible hand" of the marketplace, an unforgiving survival-of-the-fittest economic dogma that winnows out some industries and rewards others, which is why more computers than buggy whips are manufactured today. It is essential for progress.

But in the short run it is not worker-friendly, so Congress came up with a solution. By June 2000, more than 232,375 individuals registered and were certified with the NAFTA Transitional Adjustment Assistance program. This program was created to provide job training and income support for those whose jobs are lost due to NAFTA. But NAFTA-TAA's narrow criteria has failed to help the vast majority of people who have lost their jobs because of the trade agreement.

According to the NAFTA-TAA regulations, only certain workers in certain types of companies qualify. Only those who produce a goods directly affected by NAFTA qualify. The program excludes the entire service sector. Moreover, only those workers who know about the program apply. Since there is no mandatory posting of information about NAFTA-TAA, only a small percentage of those who have lost their jobs actually have applied.

Some examples of large companies that closed down their American plants to move to Mexico are Huffy Bicycles and Bass Shoes, which laid off 350 workers when it closed down its plant in Maine.

Approximately 395,000 American jobs have been displaced since the passage of NAFTA. In El Paso alone, about 10,000 jobs were lost. On the other hand, the national unemployment rate has fallen from 9.1 percent when NAFTA was passed in 1993 to 3.9 percent today, with unemployment falling for all demographic groups. Budget surpluses allowed the nation to reduce its debt by $140 billion between 1998 and 1999. Moreover, since 1993, approximately 22.2 million new jobs have been created, more than offsetting the 395,000 displaced jobs.

NAFTA has clearly been a significant factor in this prosperity, and just as clearly Perot's "giant sucking sound" never materialized. And the invisible hand has brought far more happiness than grief.

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