NAFTA

The Wall Street Journal has two instructive editorials on the subject of the North American Free Trade Agreement and the threat it it has been said to pose to American jobs.  NAFTA has gotten quite a bit of attention from the Democratic candidates for president. 

The first column compares the states of Ohio and Texas, where primary voters will go to the polls tomorrow.  The Journal notes that campaign messages from Hillary and Barack have had to be... customized, shall we say?  It's OK to bash NAFTA while campaigning in Ohio, but in Texas it's another story.

There's no doubt times are tough in Ohio. The state has lost 200,000 manufacturing jobs since 2000, home foreclosures are soaring, and real family income is lower now than in 2000. Meanwhile, the Texas economy has boomed since 2004, with nearly twice the rate of new job creation as the rest of the nation. The nearby table compares the states over a decade or so.

Let's start with the fact that Texas's growth puts the lie to the myth that free trade costs American jobs. Anti-Nafta rhetoric doesn't play well in El Paso, San Antonio and Houston, which have become gateway cities for commerce with Latin America and have flourished since the North American Free Trade Agreement passed Congress in 1993. Mr. Obama's claim of one million lost jobs due to trade deals is laughable in Texas, the state most affected by Nafta. Texas has gained 36,000 manufacturing jobs since 2004 and has ranked as the nation's top exporting state for six years in a row. Its $168 billion of exports in 2007 translate into tens of thousands of jobs.

The second column is by Mary Anastasia O'Grady, and in it one can discern this paradox:  If NAFTA is sending so many American jobs south of the border, why are so many Mexican workers trying to enter the U.S. illegally?   

...the whipping boy was Mexico, which stands accused of attracting firms by allowing worker exploitation. If an American lost a job in the past decade, the charge goes, it's because in Mexico business has no labor obligations. This claim is not only untrue, it is the opposite of reality. Mexico is home to militant, high-powered unions and the most burdensome labor regulation in North America...

...Employment in most cases requires union membership -- there is no such thing as a "right-to-work" state in Mexico -- and if a worker is expelled from the union, he loses his job. This gives union bosses extraordinary power, especially since there is no secret ballot in union elections. Promotions are based on seniority, not merit, so there is little incentive for workers to upgrade their skills or learn new technologies. This harms productivity and helps explain why Pemex, the oil monopoly with one of the country's most dominant unions, registered a net loss of $484 million last year, when oil prices were sky high. It's also one reason why the state-owned electricity monopoly known as CLFC is repeatedly unable to cover its costs with earnings and instead requires a federal subsidy every year.

Unions are powerful in another way too. They regularly launch pre-emptive strikes as a way to extract payments from business. Reforma newspaper commentator Sergio Sarmiento observed last week that in Los Cabos on the Baja Peninsula, the Revolutionary Confederation of Workers and Peasants is practicing what he calls "union blackmail" by blockading the Grand Mayan Hotel because the hotelier has contracted with a different labor union. The activists have "terrorized and attacked not only workers but also clients" and the action is "putting at risk $1.2 billion" of investment in the area.

With such harassment, it's easy to see why many workers end up in the underground economy where exploitation is more likely. According to Isaac Katz, professor of economics at the prestigious Mexican Autonomous Technology Institute, "workers in the tradeable sector or in businesses with foreign investment earn 40%-50% more than those who work for companies not related to trade or foreign investment."

Mexico's emigration problem, and our illegal immigration problem, arises because of Mexico's labor laws which give labor unions extraordinary power and drives Mexican workers into the underground economy.  Oddly enough, Mexican labor leaders blame NAFTA for driving workers north.