Free trade and “right to work” laws

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This weekend, the Globe and Mail reported that Canadian representatives are demanding an end to US “right to work” laws as part of a renegotiated NAFTA. Much of the reaction on Twitter was highly critical; I probably wouldn’t have seen the article at all without these mocking tweets.

Despite the name, “right to work” laws have literally nothing to do with the right to work. They simply exempt employees at unionized firms from having to pay for representation. Because employees exempted under RTW are still represented by a union and covered by a collective agreement, they reap almost all the benefits of membership without sharing the burdens. Unions need money to function, and RTW deprives unions of their major source of funding. As a result, union density (the proportion of eligible labour market participants who are members of a union) in RTW states is extremely low.

The case for including the demand to repeal RTW as part of NAFTA negotiations is as follows:

1. RTW laws are designed to suppress unions — they illegitimately infringe union rights.
2. Union rights, as the saying goes, are human rights.
3. RTW laws illegitimately infringe human rights. (from 1 & 2)
4. If unions are suppressed in a given territory, firms in that territory have lower labour costs, all things being equal.
5. American firms have lower labour costs because of laws that illegitimately infringe human rights. (from 3 & 4)
6. Firms with lower labour costs have a competitive advantage over firms with higher labour costs, all things being equal.
7. RTW laws give American firms a competitive advantage by illegitimately infringing human rights. (from 3, 5 & 6)
8. Free trade agreements should prohibit governments from illegitimately securing competitive advantages for firms in their territory.
9. A free trade agreement with the US should prohibit RTW laws. (from 7 & 8)

To be clear, this is not the only basis on which one could justify the demand to repeal RTW. One might also argue that it ought to be included in the agreement as a social protection measure, for example. But I think it is the argument that’s hardest to refute for people who support free trade (if only because the category free trade supporters has more members than the category free trade supporters who also demand social protection clauses).

The argument is deductively valid, so the conclusion can only be false if one of the premises is false. The vulnerable points, I think, are premises 1 and 8. RTW laws have many supporters, including Coyne. These supporters will obviously deny premise 1, the claim that RTW illegitimately infringes union rights. Premise 8, on the other hand, may be challenged on purely pragmatic grounds, as Emmett Macfarlane does here:

The pragmatic objection is not very successful, as it turns out. Macfarlane’s claim seems to be that we don’t include human rights conditions in trade agreements because this would rule out trade with too many countries. But every part of this claim is false. The NAFTA regime already includes measures intended to secure labour rights. Obviously this has not prevented Canada from trading with countries with much worse human rights standards.

What about Macfarlane’s claim that the goal of trade negotiations shouldn’t be to increase costs? As the argument I provided above makes clear, Canadian negotiators are not aiming to increase costs. Still, it is true that increased costs are a foreseeable consequence of the negotiators’ demands. With this in mind, Macfarlane’s claim can be restated as follows: “Trade negotiations should not pursue goals that are expected to increase costs.” As a normative claim, that might be true. But as a descriptive claim about free trade negotiations, it is certainly false.

Free trade negotiations are aimed at lowering trade barriers. Consider state subsidies, one kind of barrier often targeted in free trade negotiations. If a foreign government subsidises its country’s steel industry, for example, this presents a barrier to Canadian steel producers trying to do business in that country. Canadian negotiators will probably demand an end to the steel subsidy, even though this means higher costs for Canadian firms currently benefiting from cheap, subsidised foreign steel. RTW is a similar kind of non-tariff barrier. The goal of free trade negotiations is fulfilled if repealing RTW eliminates a barrier to international trade, whether or not the costs to some firms or consumers are increased as a result.

What’s the point of lowering trade barriers, then? The answer is that trade barriers are bad for competition, and competition leads to lower costs and more innovation overall. If our hypothetical foreign steel producers lose their state subsidy, for example, they face greater competition from Canadian producers. To stay profitable, they will need to find a way to compensate for the lost subsidy. Perhaps they will invest in new production techniques or find new suppliers so they can continue to sell cheap steel and still turn a profit. Or they might choose investments aimed at improving the quality of their products so as to justify higher prices. Or they might get out of the steel business altogether and enter some other industry instead.

The same logic applies to the elimination of RTW. Some portion of the competitive advantage American firms currently enjoy is attributable to the suppression of union rights. If union rights were protected in the United States, American firms would face greater pressure to develop new products and production techniques because they could no longer count on artificially low labour costs to sustain profitability. According to conventional wisdom, this pressure should keep costs lower over the long run. And the applicability of the conventional wisdom to this particular case can only be denied if one denies that American firms are capable of developing new products and production techniques. Such a denial would entail that new depths of poverty are the only kind of innovations we have left to look forward to under capitalism. And this conclusion would call far more into question than just the “right to work”.

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