The ordinary political economy of international trade holds that losses are concentrated while gains are dispersed. Those who lose from international trade—those who lose their jobs or take pay cuts because of import competition—are usually visible and vocal. In contrast, the gains from trade are more difficult to measure and beneficiaries tend not to be clearly identifiable. Society at large is supposed to do better: we all increase our purchasing power, and we all profit from the diversity of available products. In most cases, we are collectively, though not necessarily individually, better off with world markets.
Baker’s critique reclaims areas of the economy for politics. Upward redistribution was a choice, and it can be reversed. Politicization of the economy has another important consequence: since market distributions are not products of nature, we cannot use the market as a moral tool with which to determine individual desert. Corporate CEOs do not deserve their high pay, nor do import-competing workers deserve their low pay just because “the market says so.” Once we recognize that wages are influenced by rules subject to political control, we can begin to envision better rules. We can think creatively about how to re-embed markets in light of contemporary economic challenges.
Once we recognize that wages are influenced by rules subject to political control, we can begin to envision better rules.
How can we do so in an effort to overcome the asymmetric distributional effects of trade? One option is to dramatically expand existing programs such as Trade Adjustment Assistance. President Kennedy proposed TAA in 1962 as compensation for workers hurt by international trade. “Those injured by . . . competition should not be required to bear the full brunt of the impact,” Kennedy argued. “Rather, the burden of economic adjustment should be borne in part by the Federal Government.” Kennedy understood free trade as economists do, in terms still found in today’s textbooks: liberalized trade policy is Kaldor-Hicks efficient—that is, the winners from free trade can compensate the losers.