Trade Wins


If we believe most critics of the North American Free Trade Agreement, nearly every job in America should have moved to Arkansas a long time ago.

After all, the state's 1991 per-capita income was a mere $14,753, beating out only West Virginia and Mississippi. Wages are low, people will work hard at unpleasant jobs, and, of course, there are no tariffs or quotas to keep Arkansas products from moving freely into Michigan or California, Missouri or Florida.

In short, Arkansas is a lot like Mexico, but with English-speaking workers and American legal institutions. As critics on the left and right try to terrify us with the specter of an upwardly mobile Mexico, it's helpful to spend some time thinking about Arkansas—and about how poor places can get richer without making everyone else poorer.

The classic reason for trade is specialization. If each worker, or company, or nation concentrates on what he, she, or it does best—rather than trying to do everything—we can produce more wealth altogether and trade with each other for the things or services we need.

But specialization is anathema both to ultranationalists, who want the United States to be "No. 1" in every industry, and to ideologically committed greens, who praise self-sufficiency and denounce trade on principle. It is not surprising, then, to find that these two groups are the most vehement opponents of NAFTA.

For Arkansas, however, specialization has been a boon. Consider chickens. When my mother was a little girl in Arkansas, her grandmother would go out in the yard, grab a chicken by the neck, spin it around a few times to break its neck, then pluck, clean, and cook it. It was all very self-aufficient, very green.

It was not, however, very practical for bringing chicken to the masses. Nowadays, poultry companies hatch chicks by the thousands; vaccinate and debeak them; ship them out to subcontractors to raise, providing feed purchased by the carload and hedged with the best options the Chicago exchanges have to offer; then bring the grown chickens back for slaughter and processing. It is a big, sophisticated, highly specialized business that has made meat cheap, supplies reliable, chicken farmers well-to-do, and processing-company owners rich.

It has also provided the kinds of jobs that give people a first step out of rural poverty, the kind trade hawks are afraid will move to Mexico, the kind Michael Dukakis might call "bad jobs at bad wages." The first thing you notice about a chicken-processing plant is the smell. A couple of about-to-be cooked chicken breasts fresh from the refrigerator don't smell too great; thousands of newly dead birds, along with their discarded blood and guts, are much worse. Walking through the plant, you step carefully on wooden-slatted pathways over the cement floor, where diluted blood drains away.

You get used to the smell. But the noise is deafening. The plucked chickens rattle down a disassembly line, suspended from above for easy evisceration. The pace is quick. One worker slices, the next guts, and so on step by step until a neatly wrapped package of parts emerges at the end. It's unpleasant, low-paid, labor-intensive work. But you don't have to be educated to do it, and it's easier than picking vegetables and steadier than cleaning houses.

Some such demanding low-wage jobs may indeed move to Mexico thanks to lower trade barriers. But chicken processing probably won't—at least not for a long time. And, for many of the same reasons, neither will most auto plants.

American companies, especially in Arkansas, Georgia, and the Delmarva Peninsula, are very good at raising, processing, and marketing chickens. They've developed well-tuned networks of suppliers. They have efficient distribution systems. Even in a business where labor is a major factor, lower wages aren't enough to justify disrupting these hard-to-build relationships. The chicken business is likely to remain a U.S. specialty, giving Mexicans a chance to buy more poultry at lower cost.

The relative importance of business networks is even greater in a more complex and far more capital-intensive business like building cars. Indeed, the Los Angeles Times reports that a U.S. auto plant turns out twice as many cars per hour with half as many workers as a Mexican plant—and pays less for materials, electricity, transportation, equipment, and maintenance. There's a lot more to profitability than low wages; otherwise Bangladesh would rule the business world.

The real objection to the free trade pact isn't that it will make Americans poorer—or even that it will cost the country jobs. Rather, trade produces change. It disrupts things. Theo Lee, an economist at the union-backed Economic Policy Institute, calls NAFTA "managed trade" because "what they are talking about here is who is going to win and who is going to lose."

That there will be winners and losers isn't just an argument against NAFTA. It's an argument against Wal-Mart, another Arkansas export. In small towns across America, Sam Walton's discount stores "destroyed jobs" at existing, higher-priced retailers, disrupting the lives and hopes of countless merchants.

Fortunately, rural merchants have a lot less lobbying clout than, say, textile magnates. So Wal-Mart's free trade with small-town America continued unimpeded by the kinds of small-shop protectionism that makes Japan such an expensive place. Everywhere Wal-Mart came to town, it gave local residents an effective pay raise by lowering prices.

The wealth created by Sam Walton's leaner, meaner distribution systems became literal pay raises, too. When my uncle-in-law's plastic-cutlery factory in South Carolina lost most of its shift workers to Wal-Mart's $6.00-an-hour jobs, his company raised wages to compete. By "destroying jobs" in rural stores, Wal-Mart created vast wealth not only for its owner but for consumers throughout America. Along the way, it gave tens of thousands of people new, higher-paying jobs—without manufacturing a single product.

Indeed, sophisticated distribution—the key to Wal-Mart's success—will likely be one of the most successful "products" American businesses have to sell in Mexico. Thanks in part to national boundaries that have given us a continent-wide free market for more than a century, U.S. companies, like U.S. armies, have gotten very good at logistics. The computer revolution has made that advantage even greater.

"America has a lot to offer Mexico—simple things like efficient distribution," Blair Labatt, head of Labatt's Food Service, told the Los Angeles Times. His family-owned company, which supplies Texas hotels and restaurants, has opened a partnership with a Mexico City firm and is now supplying food, along with computerized inventory control, to Mexican hotels. One of their products: Tyson's chicken, imported from Arkansas.

The genius of entrepreneurial capitalism, of free trade, is that everyone can get richer at the same time. If Bill Clinton, candidate of change, understood the story of his own state, he would understand that fact. And he would steal the trade issue from the inarticulate George Bush. The poor, from Hope, Arkansas, to Esperanza, Mexico, would thank him.